Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Strike Price Intervals and Position Limits for OSX, SOX, and HGX, 34110-34114 [2012-13895]
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Kevin M. O’Neill,
Deputy Secretary.
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:
[FR Doc. 2012–13896 Filed 6–7–12; 8:45 am]
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
No. SR–Phlx–2012–74 on the subject
line.
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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.
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Strike Price Intervals and Position
Limits for OSX, SOX, and HGX
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 No.
SR–Phlx–2012–74. This file number
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
available publicly. All submissions
should refer to File No. SR–Phlx–2012–
74 and should be submitted on or before
June 29, 2012.
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67105; File No. SR–
NASDAQ–2012–065]
Specified Indexes to lists of index
reporting authorities, European-style
indexes, and $2.50-eligible index
options.
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,
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
June 4, 2012.
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 May 24,
2012, 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.
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
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 amend Chapter XIV
(Index Rules), Sections 7 (Position
Limits for Industry and Micro NarrowBased Index Options) and 11 (Terms of
Index Options Contracts) to copy into
NOM rules the established rules of
another options exchange regarding
strike price intervals and position limits
for options on the PHLX Oil Service
SectorSM (OSXSM), the PHLX
Semiconductor SectorSM (SOXSM), and
the PHLX Housing SectorTM (HGXSM)
(together the ‘‘Specified Indexes’’).3 The
Exchange also proposes to amend
Chapter XIV, Sections 2 (Definitions)
and 11 to add the names of the
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Options on Specified Indexes that will be listed
and traded on NOM subsequent to this proposal
will be identical to the same Specified Index
options that are listed and traded on NASDAQ
OMX Phlx LLC (‘‘Phlx’’). Specified Index options
will have the same specifications whether listed on
NOM or Phlx.
1 15
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1. Purpose
The purpose of this proposed rule
change is to amend Chapter XIV (Index
Rules), Sections 7 and 11 to copy into
NOM rules the established rules of
another options exchange regarding
strike price intervals and position limits
for options on OSX, SOX, and HGX. The
proposed rule change would allow
NOM to list and trade options on these
three Specified Indexes.4 The Exchange
also proposes to amend Chapter XIV,
Sections 2 and 11 to add the names of
the Specified Indexes to lists of index
reporting authorities, European-style
indexes, and $2.50-eligible index
options.
The rule changes proposed herein in
respect of position limits and strike
price intervals are based almost
verbatim on the established rules of
another options market and self
regulatory organization (‘‘SRO’’), Phlx.
The proposed rule changes are based on
Phlx Rules 1001A (Position Limits) and
1101A (Terms of Option Contracts).5
4 The options will be listed pursuant to Rule 19b–
4(e) of the Act. 17 CFR 240.19b–4(e). Rule 19b–4(e)
enables an exchange to list an option pursuant to
generic listing standards set forth in the rules of
such exchange and, within five business days after
the commencement of trading of the option, to file
Form 19b–4(e) with the Commission to indicate the
listing.
5 See Securities Exchange Act Release Nos. 61590
(February 25, 2010), 75 FR 9988 (March 4, 2010)
(SR–Phlx–2009–113) (order approving 54,000,
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Background
Options on the narrow-based
indexes 6 known as PHLX Oil Service
Sector, PHLX Semiconductor Sector,
and PHLX Housing Sector, when listed
on NOM subsequent to this proposal,
will be identical to options on these
Specified Indexes that are currently
listed and trading on Phlx.7 Thus,
options on the Specified Indexes that
will be listed and traded on NOM will,
like on Phlx, remain European style 8
(PHLX Oil Service Sector and PHLX
Housing Sector options) and American
style (PHLX Semiconductor Sector
options), and will be A.M.-settled.9
The PHLX Oil Service Sector (OSX) is
a price-weighted index composed of
fifteen companies that provide oil
drilling and production services, oil
field equipment, support services and
geophysical/reservoir services.10 OSX
provides exposure to the dynamic oil
industry. When investors want
information and investment
opportunities specific to the oil industry
they very often turn to the PHLX Oil
Service Sector and the OSX options
traded thereon.11 The PHLX Oil Service
72,000, and 94,500 contract position limits for
options on OSX, SOX, and HGX); 53243 (February
7, 2006), 71 FR 7607 (February 13, 2006) (SR–Phlx–
2005–43) (order approving no less than $2.50 strike
price intervals for options on OSX, SOX, and HGX,
if the strike price is less than $200); and 60840
(October 20, 2009), 74 FR 55593 (October 28, 2009)
(SR–Phlx–2009–77) (order approving $1 strike price
intervals for options on OSX, SOX, and HGX).
6 The term ‘‘narrow-based index’’ and ‘‘industry
index’’ is defined in Chapter XIV, Section 2(i) as an
index designed to be representative of a particular
industry or a group of related industries.
7 The contract specifications for the PHLX Oil
Service Sector, the PHLX Semiconductor Sector,
and the PHLX Housing Sector can be found at
https://www.nasdaqtrader.com/micro.aspx?id=
phlxsectorscontractspecs. A listing of the
components of the respective Specified Indexes can
be found at https://indexes.nasdaqomx.com/
weighting.aspx?IndexSymbol=XSOX&menu
Index=0.
8 The term ‘‘European-style index option’’ is
defined in Chapter XIV, Section 2(g) as an option
on an industry or market index (a market index is
a broad-based index) that can be exercised only on
the last business day prior to the day it expires.
9 The term ‘‘A.M.-settled index option’’ is defined
in Chapter XIV, Section 2(c) as an index options
contract for which the current index value at
expiration shall be determined as provided in
Section 11(a)(5) of Chapter XIV.
10 The Exchange understands that OSX expansion
and weighting changes are being evaluated, and
intends to make equivalent changes. See Securities
Exchange Act Release No. 64478 (May 12, 2011), 76
FR 28840 (May 18, 2011) (SR–Phlx–2011–28)
(approval order allowing expanding number of OSX
components and changing to modified
capitalization-weighting).
11 Other currently available investment products
that evaluate the oil industry, albeit differently from
OSX, include Market Vectors Oil Service ETF
(OIH), iShares Dow Jones U.S. Oil Equipment &
Services Index Fund (IEZ), SPDR S&P Oil & Gas
Equip & Services ETF (XES), and PowerShares
Dynamic Oil Services Portfolio (PXJ).
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Sector has served as an important
market indicator and OSX options as a
viable trading and investing vehicle in
respect of the oil services sector.12
The PHLX Semiconductor Sector
(SOX) is a modified capitalizationweighted index composed of thirty
companies primarily involved in the
design, distribution, manufacture, and
sale of semiconductors.13 SOX provides
exposure to the fast-growing (yet
extremely volatile) semiconductor
industry. When investors want
information and investment
opportunities specific to
semiconductors, they look most often to
the SOX.14 Indeed, the popularity of
SOX is reflected in its trading
volumes.15 It has been observed that a
rise or decline in the SOX usually
precedes a similar move in the broader
technology market. As such, SOX has
served as a leading indicator for
technology stocks. Recognizing the
market-leading aspects of the PHLX
Semiconductor Sector, the Exchange is
proposing a rule change that would
allow SOX options to trade on NOM.
The PHLX Housing Sector (HGX) is a
modified capitalization-weighted index
composed of nineteen companies whose
primary lines of business are directly
associated with the U.S. housing
construction market.16 The index
composition encompasses residential
builders, suppliers of aggregate, lumber
and other construction materials,
manufactured housing and mortgage
insurers. HGX is currently composed of
many of the largest housing-related
stocks (e.g., Hovnanian ENT Inc., KB
Home, Ryland Group, Inc., Toll
Brothers, Inc., and Weyerhaeuser
Company). HGX has developed into a
respected index providing exposure to
12 During 2011, OSX has traded an average of
7,374 contracts per month and has traded as much
as 11,498 contracts in a day (October 4, 2011). As
of December 31, 2011, there were 13,771 contracts
of open interest in OSX.
13 See Securities Exchange Act Release No. 61796
(March 29, 2010), 75 FR 16887 (April 2, 2010) (SR–
Phlx–2010–20) (order approving expanding SOX
components to thirty).
14 Other currently available investment products
that evaluate the semiconductor market, albeit
differently from SOX, include Market Vectors
Semiconductor ETF (SMH) and iShares S&P North
American Technology Sector Index Fund (IGM).
15 During 2011, SOX has traded an average of
8,839 contracts per month and has traded as much
as 7,259 contracts in a day (January 13, 2011). As
of December 31, 2011, there were 4,077 contracts
of open interest in SOX.
16 See Securities Exchange Act Release No. 52512
(September 27, 2005), 70 FR 57919 (October 4,
2005) (SR–Phlx–2005–50) (notice of filing and
immediate effectiveness to reduce the value of HGX
options by half). HGX is listed on Phlx per Form
19b–4(e).
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the housing sector for hedging and
trading purposes.
The options on Specified Indexes will
be listed on NOM pursuant to the
generic Rule 19b–4(e) initial listing
standards (‘‘generic standards’’) for
narrow-based indexes and will be
identical to the options on Specified
Indexes that are already listed and
trading on Phlx. The generic standards
are found in Section 6(b) of Chapter XIV
and discuss, among other things,
weighting methodologies, market
capitalization, trading volume,
component weighting and
concentration, that each component
security must be an ‘‘NMS stock’’ as
defined in Rule 600 of Regulation NMS
of the Act, reporting, and rebalancing.17
The Exchange notes that this rule
change proposal does not propose or
make any changes to the NOM generic
listing standards. The proposal does no
more than almost verbatim copy the
language regarding position limits and
strike price intervals that are in use on
Phlx for the same options on Specified
Indexes.
Proposed Position Limits
Position limits on NOM are currently
discussed in Section 7 of Chapter XIV.
Section 7 states that NOM options
traders (known as Options Participants)
shall comply with the applicable rules
of CBOE with respect to position limits
for narrow based index options traded
on NOM and also on the CBOE, or with
the applicable rules of NOM for
industry index options traded on NOM
but not traded on the CBOE. Because
Specified Index options are not traded
on CBOE, the Exchange is, as noted,
copying the Phlx position limits for
options on the Specified Indexes into its
rules.18 The position limits proposed by
the Exchange are exactly the same
54,000, 72,000, and 94,500 contract
position limits that have been
established and in use for years on Phlx
for options on Specified Indexes per
Phlx Rule 1001A.
Thus, the Exchange proposes to copy
the Phlx position limits into proposed
Section 7(d) of Chapter XIV to state that
options on Specified Index position
limits will be:
17 Subsection (c) of Section 6 discusses
maintenance listing criteria once an option is listed
on the Exchange pursuant to 19b–4(e) generic
listing standards.
18 The Exchange notes that independently of the
proposed specific OSX, SOX, and HGX rule
position limits (or strike price intervals) copied
from Phlx rules through this proposal, by virtue of
Section 7 of Chapter XIV, CBOE position limit rules
and processes (e.g., hedge exemptions, firm
facilitation exemptions) will continue to apply to
Exchange members.
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(1) 54,000 contracts for options on the
PHLX Oil Service Sector, PHLX
Semiconductor Sector, and PHLX
Housing Sector, if the Exchange
determines, at the time of a review
conducted pursuant to this Section 7,
that any single underlying stock
accounted, on average, for 30% or more
of the index value during the 30-day
period immediately preceding the
review; or
(2) 72,000 contracts for options on the
PHLX Oil Service Sector, PHLX
Semiconductor Sector, and PHLX
Housing Sector, if the Exchange
determines, at the time of a review
conducted pursuant to this Section 7,
that any single underlying stock
accounted, on average, for 20% or more
of the index value or that any five
underlying stocks together accounted,
on average, for more than 50% of the
index value, but that no single stock in
the group accounted, on average, for
30% or more of the index value, during
the 30-day period immediately
preceding the review; or
(3) 94,500 contracts for options on the
PHLX Oil Service Sector, PHLX
Semiconductor Sector, and PHLX
Housing Sector if the Exchange
determines that the conditions specified
above which would require the
establishment of a lower limit have not
occurred.19
In addition, the Exchange proposes to
add Section 7(e) setting forth the
procedure to be followed at the time of
a review pursuant to Section 7(d).20 The
proposed review procedure is, like the
19 By operation of Section 9 of Chapter XIV, the
exercise limits for options on Specified Indexes are
the same as the position limits.
20 Proposed Section 7(e) states: (e) The Exchange
shall make the determinations required by
subparagraph (d) of this Section 7 with respect to
options on each industry index at the
commencement of trading of such options on the
Exchange and thereafter review the determination
semi-annually on January 1 and July 1. (1) If the
Exchange determines, at the time of a semi-annual
review, that the position limit in effect with respect
to options on a particular industry index is lower
than the maximum position limit permitted by the
criteria set forth in subparagraph (d) of this Section
7, the Exchange may affect an appropriate position
limit increase immediately. If the Exchange
determines, at the time of a semi-annual review,
that the position limit in effect with respect to
options on a particular industry index exceeds the
maximum position limit permitted by the criteria
set forth in subparagraph (d) of this Section 7, the
Exchange shall reduce the position limit applicable
to such options to a level consistent with such
criteria; provided, however, that such a reduction
shall not become effective until after the expiration
date of the most distantly expiring option series
relating to such particular industry index, which is
open for trading on the date of the review; and
provided further that such a reduction shall not
become effective if the Exchange determines, at the
next succeeding semi-annual review, that the
existing position limit applicable to such options is
consistent with the criteria set forth in
subparagraph (d) of this Section 7.
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proposed position limits for OSX, SOX,
and HGX in Section 7, copied from Phlx
Rule 1001A.
The proposed Specified Index option
position limits are, as noted, identical to
the position limits for the same
Specified Index options that have been
listed and traded on Phlx for years. The
Exchange is doing nothing more than
directly transferring the position limits
from Phlx Rule 1001A to proposed new
Section 7(d) and (e) of Chapter XIV in
the NOM rules, without change.21
Proposed Strike Price Increments
Section 11(c) of Chapter XIV currently
states that the interval between strike
prices will be no less than $5.00.
Section 11(c) also states that for the
classes of index options that are listed
in the rule the interval between strike
prices will be no less than $2.50 if the
strike price is less than $200.22
Currently, options on the Specified
Indexes are listed and traded on Phlx at
$1 strike price intervals and the
Exchange proposes to transfer the strike
price interval rule language from Phlx to
NOM.
Specifically, the Exchange proposes to
copy the Phlx $1 strike price interval
rule almost verbatim from Phlx Rule
1101A into proposed Section 11(i) of
Chapter XIV as follows: The interval
between strike prices of series of options
on the PHLX Oil Service Sector, PHLX
Semiconductor Sector, and PHLX
Housing Sector (which are known in the
proposed rule as the ‘‘$1 Indexes’’) will
be $1 or greater, subject to the
immediately following conditions:
(1) Regarding initial series, the
Exchange may list such series at $1 or
greater strike price intervals for each $1
Index, and will list at least two strike
prices above and two strike prices below
the current value of each $1 Index at
about the time a series is opened for
trading on the Exchange. The Exchange
shall list strike prices for each $1 Index
that are within 5 points from the closing
value of each $1 Index on the preceding
day.
(2) Regarding additional Series, such
series of the same class of each $1 Index
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 each underlying $1 Index moves
substantially from the initial exercise
21 As with all direct transfers of language from the
rule set of one exchange to another, non-substantive
formatting changes are made to conform the new
rule language to the structure of the existing rule
set.
22 The Exchange proposes to add the Specified
Indexes to the list of $2.50-eligible index options
that are already noted in Section 11(c).
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price or prices. To the extent that any
additional strike prices are listed by the
Exchange, such additional strike prices
shall be within thirty percent (30%)
above or below the closing value of each
$1 Index. The Exchange may also open
additional strike prices that are more
than 30% above or below each current
$1 Index value provided that
demonstrated customer interest exists
for such series, as expressed by
institutional, corporate or individual
customers or their brokers.23
(3) The Exchange shall not list LEAPS
on $1 Indexes at intervals less than
$2.50.
The Exchange also proposes to add a
delisting policy to Section 11(i) of
Chapter XIV.24 The proposed delisting
policy is almost verbatim from Phlx
Rule 1101A.
The proposed $1 strike price interval
rule is, as discussed, identical to the $1
strike price interval rule that is in effect
for the same Specified Index options
that have been listed and traded on Phlx
for years. The Exchange is doing
nothing more than directly transferring
the $1 strike price interval rule text
language from Phlx Rule 1101A to
proposed Section 11 of Chapter XIV of
the NOM rules, without change.
Contract Specifications
The contract specifications for the
Specified Index options that will be
listed and traded on NOM are identical
to the same three narrow-based
Specified Index options that are
currently listed and traded on Phlx.25
Specified Index options that will be
traded on NOM will be Europen [sic]style (PHLX Oil Service Sector and
PHLX Housing Sector options) and
American style (PHLX Semiconductor
Sector options), and will be A.M. cashsettled. The Exchange’s general trading
hours for options (9:30 a.m. to 4 p.m.
ET), will apply to options on the
23 Market-Makers trading for their own account
shall not be considered when determining customer
interest under this provision. In addition to the
initial listed series, the Exchange may list up to
sixty (60) additional series per expiration month for
each series in $1 Indexes.
24 The proposed delisting policy states: with
respect to each $1 Index added pursuant to the
above paragraphs, the Exchange will regularly
review series that are outside a range of five (5)
strikes above and five (5) strikes below the current
value of each $1 Index, and in each $1 Index may
delist series with no open interest in both the put
and the call series having a: (A) strike higher than
the highest strike price with open interest in the put
and/or call series for a given expiration month; and
(B) strike lower than the lowest strike price with
open interest in the put and/or call series for a
given expiration month. Notwithstanding the
delisting policy, customer requests to add strikes
and/or maintain strikes in $1 Index options eligible
for delisting may be granted.
25 See supra note 8.
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Specified Indexes.26 Exchange rules that
are applicable to the trading of options
on indexes on the Exchange will
continue to apply to the trading of
options on the three Specified
Indexes.27
The strike price intervals for Specified
Index options contracts will be no less
than $5.00 generally, no less than $2.50
if the strike price is below $200, and $1
if certain conditions are met.28 The
minimum increment size for series
trading below $3 will be $0.05, and for
series trading at or above $3 will be
$0.10.29 The Exchange’s margin rules
will be applicable.30 The Exchange
intends to list options on Specified
Indexes in up to three months from the
March, June, September, December
cycle plus two additional near-term
months (that is, as many as five months
at all times).31 The trading of Specified
Index options will continue to be
subject to the same rules that govern the
trading of all of the Exchange’s index
options, including sales practice rules,
margin requirements, and trading rules.
Surveillance and Capacity
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The Exchange represents that it has an
adequate surveillance program in place
for options traded on the Specified
Indexes and intends to apply those same
program procedures that it applies to
the Exchange’s current equity and index
options. Trading of Specified Index
options on the Exchange will be subject
to FINRA’s surveillance procedures for
derivative products.32 The Exchange
may obtain information via the
Intermarket Surveillance Group (‘‘ISG’’)
from other exchanges that are members
or affiliates of the ISG 33; and from
public and non-public data sources such
as, for example, Bloomberg. In addition,
the major futures exchanges are
affiliated members of the ISG, which
allows for the sharing of surveillance
information for potential intermarket
trading abuses.
The Exchange represents that it has
the necessary systems capacity to
26 See Section 2 of Chapter VI. However, option
contracts on fund shares or broad-based indexes
may trade until 4:15 p.m. ET.
27 For rules applicable to index options
specifically, see Chapter XIV of the NOM rules. For
trading rules applicable to options trading in
general, see Chapter I et seq.
28 See proposed Section 11(c) and (i) of Chapter
XIV.
29 See Section 5 of Chapter VI.
30 See Chapter XIII.
31 See Section 11 to Chapter XIV.
32 FINRA surveils trading on the Exchange
pursuant to a regulatory services agreement. The
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
33 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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support listing and trading Specified
Index options.
Housekeeping Changes
In terms of technical housekeeping
changes, the Exchange proposes to
simply add the names of the Specified
Indexes to the current lists of indexes in
two sections of Chapter XIV. The first
such proposed change is to add the
names of the Specified Indexes to
Supplementary Material to Section 2,
which currently has a list of indexes for
which NASDAQ is the index reporting
authority. And the second proposed
change is to add the names of the
Specified Indexes to Section 11: OSX
and HGX to subsection (a)(4), which
currently has a list of European-style
indexes; and OSX, SOX, and HGX to
subsection (a)(5), which currently has a
list of A.M.-settled index options.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 34 in general, and furthers the
objectives of Section 6(b)(5) of the Act 35
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 by copying into
its rules the same exact position limits
and strike price intervals that are used
on another options exchange for trading
options on the PHLX Oil Service Sector,
the PHLX Semiconductor Sector, and
the PHLX Housing Sector, it will enable
the listing and trading of Specified
Index options on the Exchange. This
will give traders, investors, and public
customers expanded flexibility and
opportunity to closely tailor their
investment and hedging decisions.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition 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.
34 15
35 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00111
Fmt 4703
Sfmt 4703
34113
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change: (1) Does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 36 and
Rule 19b–4(f)(6) thereunder.37
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2012–065 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–2012–065. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
36 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its
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.
NASDAQ has fulfilled this requirement.
37 17
E:\FR\FM\08JNN1.SGM
08JNN1
34114
Federal Register / Vol. 77, No. 111 / Friday, June 8, 2012 / Notices
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2012–065 and should be
submitted on or before June 29, 2012.
solicit comments on the proposed rule
change from interested persons.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Kevin M. O’Neill,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2012–13895 Filed 6–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67103; File No. SR–BX–
2012–038]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Delay the
Implementation Date for Its Excess
Order Fee
mstockstill on DSK4VPTVN1PROD with NOTICES
June 4, 2012.
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 May 24,
2012, NASDAQ OMX BX, Inc. (‘‘BX’’ 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
38 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
16:23 Jun 07, 2012
Jkt 226001
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes a rule change
to delay the implementation date for its
Excess Order Fee. The text of the
proposed rule change is available at
https://nasdaqomxbx.cchwallstreet.com/,
at the Exchange’s principal office, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
BX recently submitted a proposed
rule change to introduce an Excess
Order Fee,3 aimed at reducing
inefficient order entry practices of
certain market participants that place
excessive burdens on the systems of BX
and its members and that may
negatively impact the usefulness and
life cycle cost of market data. In order
to provide market participants with
additional time to enhance their
efficiency so as to avoid the fee, BX is
delaying the implementation date of the
fee until July 2, 2012.
2. Statutory Basis
BX believes that the proposed rule
change is consistent with the provisions
of Section 6 of the Act,4 in general, and
with Section 6(b)(5) of the Act,5 in
particular, in that the proposal is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
3 Securities Exchange Act Release No. 67007 (May
17, 2012), 77 FR 30579 (May 23, 2012) (SR–BX–
2012–033).
4 15 U.S.C. 78f.
5 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. Specifically, BX believes
that delaying the implementation date
of the Excess Order Fee will provide
market participants with additional time
to enhance the efficiency of their
systems, and that implementation of the
fee on July 2, 2012 will benefit investors
and the public interest by encouraging
more efficient order entry practices by
all market participants.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
BX does not believe that the proposed
rule change will result in any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act, as amended.
Specifically, BX believes that the fee
will constrain market participants from
pursuing certain inefficient and
potentially abusive trading strategies. To
the extent that this change may be
construed as a burden on competition,
BX believes that it is appropriate in
order to further the purposes of Section
6(b)(5) of the Act.6 BX further believes
that the proposed delay of one month in
the implementation of the fee will not
have any effect on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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)(i) of the Act.7 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.
6 15
7 15
E:\FR\FM\08JNN1.SGM
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(3)(a)(i) [sic].
08JNN1
]]>Agencies
[Federal Register Volume 77, Number 111 (Friday, June 8, 2012)]
[Notices]
[Pages 34110-34114]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13895]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67105; File No. SR-NASDAQ-2012-065]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Strike Price Intervals and Position Limits for OSX, SOX,
and HGX
June 4, 2012.
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 May 24, 2012, 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 Substance
of the Proposed Rule Change
NASDAQ is filing with the Commission a proposal for the NASDAQ
Options Market (``NOM'' or ``Exchange'') to amend Chapter XIV (Index
Rules), Sections 7 (Position Limits for Industry and Micro Narrow-Based
Index Options) and 11 (Terms of Index Options Contracts) to copy into
NOM rules the established rules of another options exchange regarding
strike price intervals and position limits for options on the PHLX Oil
Service Sector\SM\ (OSX\SM\), the PHLX Semiconductor Sector\SM\
(SOX\SM\), and the PHLX Housing Sector\TM\ (HGX\SM\) (together the
``Specified Indexes'').\3\ The Exchange also proposes to amend Chapter
XIV, Sections 2 (Definitions) and 11 to add the names of the Specified
Indexes to lists of index reporting authorities, European-style
indexes, and $2.50-eligible index options.
---------------------------------------------------------------------------
\3\ Options on Specified Indexes that will be listed and traded
on NOM subsequent to this proposal will be identical to the same
Specified Index options that are listed and traded on NASDAQ OMX
Phlx LLC (``Phlx''). Specified Index options will have the same
specifications whether listed on NOM or Phlx.
---------------------------------------------------------------------------
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, 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 XIV
(Index Rules), Sections 7 and 11 to copy into NOM rules the established
rules of another options exchange regarding strike price intervals and
position limits for options on OSX, SOX, and HGX. The proposed rule
change would allow NOM to list and trade options on these three
Specified Indexes.\4\ The Exchange also proposes to amend Chapter XIV,
Sections 2 and 11 to add the names of the Specified Indexes to lists of
index reporting authorities, European-style indexes, and $2.50-eligible
index options.
---------------------------------------------------------------------------
\4\ The options will be listed pursuant to Rule 19b-4(e) of the
Act. 17 CFR 240.19b-4(e). Rule 19b-4(e) enables an exchange to list
an option pursuant to generic listing standards set forth in the
rules of such exchange and, within five business days after the
commencement of trading of the option, to file Form 19b-4(e) with
the Commission to indicate the listing.
---------------------------------------------------------------------------
The rule changes proposed herein in respect of position limits and
strike price intervals are based almost verbatim on the established
rules of another options market and self regulatory organization
(``SRO''), Phlx. The proposed rule changes are based on Phlx Rules
1001A (Position Limits) and 1101A (Terms of Option Contracts).\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release Nos. 61590 (February 25,
2010), 75 FR 9988 (March 4, 2010) (SR-Phlx-2009-113) (order
approving 54,000, 72,000, and 94,500 contract position limits for
options on OSX, SOX, and HGX); 53243 (February 7, 2006), 71 FR 7607
(February 13, 2006) (SR-Phlx-2005-43) (order approving no less than
$2.50 strike price intervals for options on OSX, SOX, and HGX, if
the strike price is less than $200); and 60840 (October 20, 2009),
74 FR 55593 (October 28, 2009) (SR-Phlx-2009-77) (order approving $1
strike price intervals for options on OSX, SOX, and HGX).
---------------------------------------------------------------------------
[[Page 34111]]
Background
Options on the narrow-based indexes \6\ known as PHLX Oil Service
Sector, PHLX Semiconductor Sector, and PHLX Housing Sector, when listed
on NOM subsequent to this proposal, will be identical to options on
these Specified Indexes that are currently listed and trading on
Phlx.\7\ Thus, options on the Specified Indexes that will be listed and
traded on NOM will, like on Phlx, remain European style \8\ (PHLX Oil
Service Sector and PHLX Housing Sector options) and American style
(PHLX Semiconductor Sector options), and will be A.M.-settled.\9\
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\6\ The term ``narrow-based index'' and ``industry index'' is
defined in Chapter XIV, Section 2(i) as an index designed to be
representative of a particular industry or a group of related
industries.
\7\ The contract specifications for the PHLX Oil Service Sector,
the PHLX Semiconductor Sector, and the PHLX Housing Sector can be
found at https://www.nasdaqtrader.com/micro.aspx?id=phlxsectorscontractspecs. A listing of the components
of the respective Specified Indexes can be found at https://indexes.nasdaqomx.com/weighting.aspx?IndexSymbol=XSOX&menuIndex=0.
\8\ The term ``European-style index option'' is defined in
Chapter XIV, Section 2(g) as an option on an industry or market
index (a market index is a broad-based index) that can be exercised
only on the last business day prior to the day it expires.
\9\ The term ``A.M.-settled index option'' is defined in Chapter
XIV, Section 2(c) as an index options contract for which the current
index value at expiration shall be determined as provided in Section
11(a)(5) of Chapter XIV.
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The PHLX Oil Service Sector (OSX) is a price-weighted index
composed of fifteen companies that provide oil drilling and production
services, oil field equipment, support services and geophysical/
reservoir services.\10\ OSX provides exposure to the dynamic oil
industry. When investors want information and investment opportunities
specific to the oil industry they very often turn to the PHLX Oil
Service Sector and the OSX options traded thereon.\11\ The PHLX Oil
Service Sector has served as an important market indicator and OSX
options as a viable trading and investing vehicle in respect of the oil
services sector.\12\
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\10\ The Exchange understands that OSX expansion and weighting
changes are being evaluated, and intends to make equivalent changes.
See Securities Exchange Act Release No. 64478 (May 12, 2011), 76 FR
28840 (May 18, 2011) (SR-Phlx-2011-28) (approval order allowing
expanding number of OSX components and changing to modified
capitalization-weighting).
\11\ Other currently available investment products that evaluate
the oil industry, albeit differently from OSX, include Market
Vectors Oil Service ETF (OIH), iShares Dow Jones U.S. Oil Equipment
& Services Index Fund (IEZ), SPDR S&P Oil & Gas Equip & Services ETF
(XES), and PowerShares Dynamic Oil Services Portfolio (PXJ).
\12\ During 2011, OSX has traded an average of 7,374 contracts
per month and has traded as much as 11,498 contracts in a day
(October 4, 2011). As of December 31, 2011, there were 13,771
contracts of open interest in OSX.
---------------------------------------------------------------------------
The PHLX Semiconductor Sector (SOX) is a modified capitalization-
weighted index composed of thirty companies primarily involved in the
design, distribution, manufacture, and sale of semiconductors.\13\ SOX
provides exposure to the fast-growing (yet extremely volatile)
semiconductor industry. When investors want information and investment
opportunities specific to semiconductors, they look most often to the
SOX.\14\ Indeed, the popularity of SOX is reflected in its trading
volumes.\15\ It has been observed that a rise or decline in the SOX
usually precedes a similar move in the broader technology market. As
such, SOX has served as a leading indicator for technology stocks.
Recognizing the market-leading aspects of the PHLX Semiconductor
Sector, the Exchange is proposing a rule change that would allow SOX
options to trade on NOM.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 61796 (March 29,
2010), 75 FR 16887 (April 2, 2010) (SR-Phlx-2010-20) (order
approving expanding SOX components to thirty).
\14\ Other currently available investment products that evaluate
the semiconductor market, albeit differently from SOX, include
Market Vectors Semiconductor ETF (SMH) and iShares S&P North
American Technology Sector Index Fund (IGM).
\15\ During 2011, SOX has traded an average of 8,839 contracts
per month and has traded as much as 7,259 contracts in a day
(January 13, 2011). As of December 31, 2011, there were 4,077
contracts of open interest in SOX.
---------------------------------------------------------------------------
The PHLX Housing Sector (HGX) is a modified capitalization-weighted
index composed of nineteen companies whose primary lines of business
are directly associated with the U.S. housing construction market.\16\
The index composition encompasses residential builders, suppliers of
aggregate, lumber and other construction materials, manufactured
housing and mortgage insurers. HGX is currently composed of many of the
largest housing-related stocks (e.g., Hovnanian ENT Inc., KB Home,
Ryland Group, Inc., Toll Brothers, Inc., and Weyerhaeuser Company). HGX
has developed into a respected index providing exposure to the housing
sector for hedging and trading purposes.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 52512 (September
27, 2005), 70 FR 57919 (October 4, 2005) (SR-Phlx-2005-50) (notice
of filing and immediate effectiveness to reduce the value of HGX
options by half). HGX is listed on Phlx per Form 19b-4(e).
---------------------------------------------------------------------------
The options on Specified Indexes will be listed on NOM pursuant to
the generic Rule 19b-4(e) initial listing standards (``generic
standards'') for narrow-based indexes and will be identical to the
options on Specified Indexes that are already listed and trading on
Phlx. The generic standards are found in Section 6(b) of Chapter XIV
and discuss, among other things, weighting methodologies, market
capitalization, trading volume, component weighting and concentration,
that each component security must be an ``NMS stock'' as defined in
Rule 600 of Regulation NMS of the Act, reporting, and rebalancing.\17\
---------------------------------------------------------------------------
\17\ Subsection (c) of Section 6 discusses maintenance listing
criteria once an option is listed on the Exchange pursuant to 19b-
4(e) generic listing standards.
---------------------------------------------------------------------------
The Exchange notes that this rule change proposal does not propose
or make any changes to the NOM generic listing standards. The proposal
does no more than almost verbatim copy the language regarding position
limits and strike price intervals that are in use on Phlx for the same
options on Specified Indexes.
Proposed Position Limits
Position limits on NOM are currently discussed in Section 7 of
Chapter XIV. Section 7 states that NOM options traders (known as
Options Participants) shall comply with the applicable rules of CBOE
with respect to position limits for narrow based index options traded
on NOM and also on the CBOE, or with the applicable rules of NOM for
industry index options traded on NOM but not traded on the CBOE.
Because Specified Index options are not traded on CBOE, the Exchange
is, as noted, copying the Phlx position limits for options on the
Specified Indexes into its rules.\18\ The position limits proposed by
the Exchange are exactly the same 54,000, 72,000, and 94,500 contract
position limits that have been established and in use for years on Phlx
for options on Specified Indexes per Phlx Rule 1001A.
---------------------------------------------------------------------------
\18\ The Exchange notes that independently of the proposed
specific OSX, SOX, and HGX rule position limits (or strike price
intervals) copied from Phlx rules through this proposal, by virtue
of Section 7 of Chapter XIV, CBOE position limit rules and processes
(e.g., hedge exemptions, firm facilitation exemptions) will continue
to apply to Exchange members.
---------------------------------------------------------------------------
Thus, the Exchange proposes to copy the Phlx position limits into
proposed Section 7(d) of Chapter XIV to state that options on Specified
Index position limits will be:
[[Page 34112]]
(1) 54,000 contracts for options on the PHLX Oil Service Sector,
PHLX Semiconductor Sector, and PHLX Housing Sector, if the Exchange
determines, at the time of a review conducted pursuant to this Section
7, that any single underlying stock accounted, on average, for 30% or
more of the index value during the 30-day period immediately preceding
the review; or
(2) 72,000 contracts for options on the PHLX Oil Service Sector,
PHLX Semiconductor Sector, and PHLX Housing Sector, if the Exchange
determines, at the time of a review conducted pursuant to this Section
7, that any single underlying stock accounted, on average, for 20% or
more of the index value or that any five underlying stocks together
accounted, on average, for more than 50% of the index value, but that
no single stock in the group accounted, on average, for 30% or more of
the index value, during the 30-day period immediately preceding the
review; or
(3) 94,500 contracts for options on the PHLX Oil Service Sector,
PHLX Semiconductor Sector, and PHLX Housing Sector if the Exchange
determines that the conditions specified above which would require the
establishment of a lower limit have not occurred.\19\
---------------------------------------------------------------------------
\19\ By operation of Section 9 of Chapter XIV, the exercise
limits for options on Specified Indexes are the same as the position
limits.
---------------------------------------------------------------------------
In addition, the Exchange proposes to add Section 7(e) setting
forth the procedure to be followed at the time of a review pursuant to
Section 7(d).\20\ The proposed review procedure is, like the proposed
position limits for OSX, SOX, and HGX in Section 7, copied from Phlx
Rule 1001A.
---------------------------------------------------------------------------
\20\ Proposed Section 7(e) states: (e) The Exchange shall make
the determinations required by subparagraph (d) of this Section 7
with respect to options on each industry index at the commencement
of trading of such options on the Exchange and thereafter review the
determination semi-annually on January 1 and July 1. (1) If the
Exchange determines, at the time of a semi-annual review, that the
position limit in effect with respect to options on a particular
industry index is lower than the maximum position limit permitted by
the criteria set forth in subparagraph (d) of this Section 7, the
Exchange may affect an appropriate position limit increase
immediately. If the Exchange determines, at the time of a semi-
annual review, that the position limit in effect with respect to
options on a particular industry index exceeds the maximum position
limit permitted by the criteria set forth in subparagraph (d) of
this Section 7, the Exchange shall reduce the position limit
applicable to such options to a level consistent with such criteria;
provided, however, that such a reduction shall not become effective
until after the expiration date of the most distantly expiring
option series relating to such particular industry index, which is
open for trading on the date of the review; and provided further
that such a reduction shall not become effective if the Exchange
determines, at the next succeeding semi-annual review, that the
existing position limit applicable to such options is consistent
with the criteria set forth in subparagraph (d) of this Section 7.
---------------------------------------------------------------------------
The proposed Specified Index option position limits are, as noted,
identical to the position limits for the same Specified Index options
that have been listed and traded on Phlx for years. The Exchange is
doing nothing more than directly transferring the position limits from
Phlx Rule 1001A to proposed new Section 7(d) and (e) of Chapter XIV in
the NOM rules, without change.\21\
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\21\ As with all direct transfers of language from the rule set
of one exchange to another, non-substantive formatting changes are
made to conform the new rule language to the structure of the
existing rule set.
---------------------------------------------------------------------------
Proposed Strike Price Increments
Section 11(c) of Chapter XIV currently states that the interval
between strike prices will be no less than $5.00. Section 11(c) also
states that for the classes of index options that are listed in the
rule the interval between strike prices will be no less than $2.50 if
the strike price is less than $200.\22\ Currently, options on the
Specified Indexes are listed and traded on Phlx at $1 strike price
intervals and the Exchange proposes to transfer the strike price
interval rule language from Phlx to NOM.
---------------------------------------------------------------------------
\22\ The Exchange proposes to add the Specified Indexes to the
list of $2.50-eligible index options that are already noted in
Section 11(c).
---------------------------------------------------------------------------
Specifically, the Exchange proposes to copy the Phlx $1 strike
price interval rule almost verbatim from Phlx Rule 1101A into proposed
Section 11(i) of Chapter XIV as follows: The interval between strike
prices of series of options on the PHLX Oil Service Sector, PHLX
Semiconductor Sector, and PHLX Housing Sector (which are known in the
proposed rule as the ``$1 Indexes'') will be $1 or greater, subject to
the immediately following conditions:
(1) Regarding initial series, the Exchange may list such series at
$1 or greater strike price intervals for each $1 Index, and will list
at least two strike prices above and two strike prices below the
current value of each $1 Index at about the time a series is opened for
trading on the Exchange. The Exchange shall list strike prices for each
$1 Index that are within 5 points from the closing value of each $1
Index on the preceding day.
(2) Regarding additional Series, such series of the same class of
each $1 Index 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 each underlying $1 Index moves substantially
from the initial exercise price or prices. To the extent that any
additional strike prices are listed by the Exchange, such additional
strike prices shall be within thirty percent (30%) above or below the
closing value of each $1 Index. The Exchange may also open additional
strike prices that are more than 30% above or below each current $1
Index value provided that demonstrated customer interest exists for
such series, as expressed by institutional, corporate or individual
customers or their brokers.\23\
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\23\ Market-Makers trading for their own account shall not be
considered when determining customer interest under this provision.
In addition to the initial listed series, the Exchange may list up
to sixty (60) additional series per expiration month for each series
in $1 Indexes.
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(3) The Exchange shall not list LEAPS on $1 Indexes at intervals
less than $2.50.
The Exchange also proposes to add a delisting policy to Section
11(i) of Chapter XIV.\24\ The proposed delisting policy is almost
verbatim from Phlx Rule 1101A.
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\24\ The proposed delisting policy states: with respect to each
$1 Index added pursuant to the above paragraphs, the Exchange will
regularly review series that are outside a range of five (5) strikes
above and five (5) strikes below the current value of each $1 Index,
and in each $1 Index may delist series with no open interest in both
the put and the call series having a: (A) strike higher than the
highest strike price with open interest in the put and/or call
series for a given expiration month; and (B) strike lower than the
lowest strike price with open interest in the put and/or call series
for a given expiration month. Notwithstanding the delisting policy,
customer requests to add strikes and/or maintain strikes in $1 Index
options eligible for delisting may be granted.
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The proposed $1 strike price interval rule is, as discussed,
identical to the $1 strike price interval rule that is in effect for
the same Specified Index options that have been listed and traded on
Phlx for years. The Exchange is doing nothing more than directly
transferring the $1 strike price interval rule text language from Phlx
Rule 1101A to proposed Section 11 of Chapter XIV of the NOM rules,
without change.
Contract Specifications
The contract specifications for the Specified Index options that
will be listed and traded on NOM are identical to the same three
narrow-based Specified Index options that are currently listed and
traded on Phlx.\25\ Specified Index options that will be traded on NOM
will be Europen [sic]-style (PHLX Oil Service Sector and PHLX Housing
Sector options) and American style (PHLX Semiconductor Sector options),
and will be A.M. cash-settled. The Exchange's general trading hours for
options (9:30 a.m. to 4 p.m. ET), will apply to options on the
[[Page 34113]]
Specified Indexes.\26\ Exchange rules that are applicable to the
trading of options on indexes on the Exchange will continue to apply to
the trading of options on the three Specified Indexes.\27\
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\25\ See supra note 8.
\26\ See Section 2 of Chapter VI. However, option contracts on
fund shares or broad-based indexes may trade until 4:15 p.m. ET.
\27\ For rules applicable to index options specifically, see
Chapter XIV of the NOM rules. For trading rules applicable to
options trading in general, see Chapter I et seq.
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The strike price intervals for Specified Index options contracts
will be no less than $5.00 generally, no less than $2.50 if the strike
price is below $200, and $1 if certain conditions are met.\28\ The
minimum increment size for series trading below $3 will be $0.05, and
for series trading at or above $3 will be $0.10.\29\ The Exchange's
margin rules will be applicable.\30\ The Exchange intends to list
options on Specified Indexes in up to three months from the March,
June, September, December cycle plus two additional near-term months
(that is, as many as five months at all times).\31\ The trading of
Specified Index options will continue to be subject to the same rules
that govern the trading of all of the Exchange's index options,
including sales practice rules, margin requirements, and trading rules.
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\28\ See proposed Section 11(c) and (i) of Chapter XIV.
\29\ See Section 5 of Chapter VI.
\30\ See Chapter XIII.
\31\ See Section 11 to Chapter XIV.
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Surveillance and Capacity
The Exchange represents that it has an adequate surveillance
program in place for options traded on the Specified Indexes and
intends to apply those same program procedures that it applies to the
Exchange's current equity and index options. Trading of Specified Index
options on the Exchange will be subject to FINRA's surveillance
procedures for derivative products.\32\ The Exchange may obtain
information via the Intermarket Surveillance Group (``ISG'') from other
exchanges that are members or affiliates of the ISG \33\; and from
public and non-public data sources such as, for example, Bloomberg. In
addition, the major futures exchanges are affiliated members of the
ISG, which allows for the sharing of surveillance information for
potential intermarket trading abuses.
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\32\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
\33\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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The Exchange represents that it has the necessary systems capacity
to support listing and trading Specified Index options.
Housekeeping Changes
In terms of technical housekeeping changes, the Exchange proposes
to simply add the names of the Specified Indexes to the current lists
of indexes in two sections of Chapter XIV. The first such proposed
change is to add the names of the Specified Indexes to Supplementary
Material to Section 2, which currently has a list of indexes for which
NASDAQ is the index reporting authority. And the second proposed change
is to add the names of the Specified Indexes to Section 11: OSX and HGX
to subsection (a)(4), which currently has a list of European-style
indexes; and OSX, SOX, and HGX to subsection (a)(5), which currently
has a list of A.M.-settled index options.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \34\ in general, and furthers the objectives of Section
6(b)(5) of the Act \35\ 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 by copying into its rules the same
exact position limits and strike price intervals that are used on
another options exchange for trading options on the PHLX Oil Service
Sector, the PHLX Semiconductor Sector, and the PHLX Housing Sector, it
will enable the listing and trading of Specified Index options on the
Exchange. This will give traders, investors, and public customers
expanded flexibility and opportunity to closely tailor their investment
and hedging decisions.
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\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition 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: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \36\ and Rule 19b-4(f)(6)
thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its 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. NASDAQ has fulfilled this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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 email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2012-065 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-2012-065. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's
[[Page 34114]]
Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2012-065 and should be submitted
on or before June 29, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13895 Filed 6-7-12; 8:45 am]
BILLING CODE 8011-01-P
