Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 5710, 6379-6382 [2013-01932]
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Federal Register / Vol. 78, No. 20 / Wednesday, January 30, 2013 / Notices
continue to hold margin until either the
trade is deemed settled or damages have
been assessed and paid to the nondefaulting clearing member.
Rule 1405 clarifies that OCC may
pursue disciplinary action against
clearing members who fail to discharge
the delivery, payment, and notification
obligations as set forth in Rules 1403
and 1404.
In addition to the above changes
relating to the terms of and settlement
process for Treasury Options, OCC is
revising Section 5 of Article XIII of the
By-Laws regarding the handling of
shortages of Treasury Securities. These
revisions provide OCC with broader
discretion in determining whether a
shortage exists and simplify the
procedures to be used in this situation.
III. Discussion
Section 17A(b)(3) (F) of the Act 7
requires that, among other things, that
the rules of a clearing agency are
designed to promote the prompt and
accurate clearance and settlement of
securities transactions, and to the extent
applicable derivative agreements,
contracts, and transactions, to safeguard
securities and funds in its custody or
control or for which it is responsible,
and to protect investors and the public
interest. The proposed rule change
accomplishes these purposes, by among
other things, updating OCC’s existing
rule provisions to accommodate
Treasury Options, as proposed for
trading by PHLX, and implementing a
settlement process designed to
minimize the risks of settlement failures
for investors. Furthermore,
Section17A(a)(2)(A)(ii) of the Act 8
directs the Commission to facilitate the
establishment of linked and coordinated
facilities for clearance and settlement of
transactions in securities and securities
options. The proposed rule change
accomplishes this end by utilizing the
existing infrastructure of two clearing
agencies (OCC and FICC) to create a
more operationally efficient exercise
settlement process for Treasury Options,
traded by PHLX.
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IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposal is
consistent with the requirements of the
Act and in particular with the
requirements of Section 17A of the Act 9
and the rules and regulations
thereunder.
7 15
U.S.C. 78q–1(b)(3)(F)
U.S.C. 78q–1(a)(2)(ii)).
9 15 U.S.C. 78q–1.
8 15
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,10 that the
proposed rule change (File No. SR–
OCC–2012–23) be and hereby is
approved.11
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.12
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–01929 Filed 1–29–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68721; File No. SR–
NASDAQ–2013–008]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
5710
January 24, 2013.
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 January
10, 2013, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II, below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Rule 5710 so that the Exchange may list
Linked Securities 3 that provide for
three times accelerated payment at
maturity. The Exchange requests that
the Commission waive the 30-day
operative delay period contained in
Exchange Act Rule 19b–4(f)(6)(iii).4 The
text of the proposed rule change is
available at https://
nasdaq.cchwallstreet.com/, at the
Exchange’s principal office, and at the
Commission’s Public Reference Room.
10 15
U.S.C. 78s(b)(2).
approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
12 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 For a discussion of Linked Securities, see Rule
5710.
4 17 CFR 240.19b–4(f)(6)(iii).
11 In
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6379
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.
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 Rule 5710(d) so that
the Exchange may list Linked Securities
that provide for three times accelerated
payment at maturity.5 In changing one
word in Rule 5710, the Exchange is
conforming its rule to the established
listing rules of other exchanges.
This proposed amendment to Rule
5710(d) is based, word-for-word, on
NYSE Arca (‘‘Arca’’) Equities Rule
5.2(j)(6)(A)(d) and NYSE Section
703.22(B)(6) of the Listed Company
Manual. NASDAQ, Arca, and NYSE all
have rule provisions stating that
pursuant to Rule 19b–4(e) under the
Act 6 a loss or negative payment at
maturity of a Linked Security 7 may be
accelerated by a multiple of the
performance of an underlying asset
(known as the ‘‘acceleration provision’’).
However, in Rule 5710 NASDAQ sets
the multiple for the acceleration
provision at ‘‘twice’’; 8 whereas Arca
and NYSE both set the acceleration
5 The proposal is applicable only to non-option
products.
6 17 CFR 240.19b–4(e).
7 Where NASDAQ refers to ‘‘Linked Securities’’ in
its Rule 5710, NYSE and Arca refer to these
products as ‘‘Index-Linked Securities.’’ On all
exchanges, Linked Securities are based on the
performance of various Reference Assets. For a
more detailed discussion of Reference Assets, see
Rule 5710.
8 See Rule 5710(d). See also Securities Exchange
Act Release Nos. 59663 (March 31, 2009), 74 FR
15552 (April 6, 2009) (SR–NASDAQ–2009–018)
(notice of filing and immediate effectiveness
relating to revisions and restructuring of the
NASDAQ listing rules, and transference of Rule
5710(d) from Rule 4420(m)); and 57269 (February
5, 2008), 73 FR 8092 (February 12, 2008) (SR–
NASDAQ–2008–08) (order approving listing
standards in Rule 4420(m) to allow twice (2x) the
performance of the underlying index, indexes, or
Reference Asset).
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provision multiple at ‘‘three times’’.9
Other than changing one word—from
‘‘twice’’ to ‘‘three times’’—in the
Exchange’s acceleration provision in
Rule 5710(d), no other change is
proposed or made by this filing.10
The current requirements for listing
Linked Securities, which include
Multifactor Index-Linked Securities,
Equity Index-Linked Securities,
Commodity-Linked Securities, Fixed
Income Index-Linked Securities and
Futures-Linked Securities, are set forth
in Rule 5710. This rule states that
NASDAQ will consider Linked
Securities for listing and trading
pursuant to Rule 19b–4(e) under the
Act, provided the following
requirements are met: 11
(a) Both the issue and the issuer of
such security meet the criteria for other
securities set forth in Rule 5730(a),
except that if the security is traded in
$1,000 denominations or is redeemable
at the option of holders thereof on at
least a weekly basis, then no minimum
number of holders and no minimum
public distribution of trading units shall
be required;
(b) The issue has a term of not less
than one (1) year and not greater than
thirty (30) years;
(c) The issue must be the nonconvertible debt of the Company;
(d) The payment at maturity may or
may not provide for a multiple of the
direct or inverse performance of an
underlying index, indexes or Reference
Asset; however, in no event will a loss
(negative payment) at maturity be
accelerated by a multiple that exceeds
twice the performance of an underlying
index, indexes or Reference Asset;
(e) The Company will be expected to
have a minimum tangible net worth in
excess of $250,000,000 and to exceed by
9 See Arca Equities Rule 5.2(j)(6) and NYSE
Section 703.22(B)(6) of the Listed Company
Manual. See also Securities Exchange Act Release
Nos. 59332 (January 30, 2009), 74 FR 6338
(February 6, 2009) (SR–NYSEArca–2008–136)
(order approving listing standards in NYSE Arca
Equities Rule 5.2(j)(6) to allow three times (3x) the
performance of the underlying Reference Asset);
and 61230 (December 23, 2009), 74 FR 69163
(December 30, 2009) (SR–NYSE–2009–124) (order
approving three times (3x) the performance in
NYSE Section 703.22 of the Listed Company
Manual, similarly to Arca Equities Rule 5.2(j)(6)).
10 In recently approving rule changes to allow
listings on NASDAQ that are allowed on Arca by
rule, the Commission noted that it ‘‘has previously
approved substantively identical listing standards
for the listing and trading of the Subject Securities
on NYSE Arca.’’ See Securities Exchange Act
Release No. 66648 (March 23, 2012), 77 FR 19428
(March 30, 2012) (SR–NASDAQ–2012–013).
11 However, Rule 5710 provides that if Linked
Securities do not otherwise meet the Rule 19b-4(e)
standards set forth in the rule, NASDAQ may
submit a rule filing pursuant to Section 19 of the
Act to permit the listing and trading of Linked
Securities.
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at least 20% the earnings requirements
set forth in Rule 5405(b)(1)(A); 12
(f) The Company is in compliance
with Rule 10A–3 under the Act;
(g) Certain Maintenance and
Dissemination standards must be
satisfied.13
Of the seven specific and extensive
requirements in Rule 5710 for listing
Linked Securities pursuant to Rule 19b–
4(e), the Exchange proposes to change
only the multiple by which a Linked
Security payment can be accelerated
from twice to three times. Each of the
other listing requirements remains
unchanged.
The principal reason for the proposed
amendment is demand for accelerated
Linked Securities. There is continuing
customer demand for having the ability
to list and trade these Linked Securities
products on the Exchange, particularly
as the strategies and components of
these products continue to evolve and
offer access to a broader range of asset
classes.
Prior to the commencement of trading
of three times accelerated Linked
Securities, NASDAQ will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading such leveraged
securities. In particular, the Information
12 Subsection (e) states also, in relevant part,
regarding minimum tangible net worth: ‘‘In the
alternative, the Company will be expected: (i) To
have a minimum tangible net worth of $150,000,000
and to exceed by at least 20% the earnings
requirement set forth in Rule 5405(b)(1)(A), and (ii)
not to have issued securities where the original
issue price of all the Company’s other index-linked
note offerings (combined with index-linked note
offerings of the Company’s affiliates) listed on a
national securities exchange exceeds 25% of the
Company’s net worth. Rule 5710(e).’’ [sic]
13 Subsection (g) states, regarding Maintenance
and Dissemination: ‘‘(i) If the index is maintained
by a broker-dealer, the broker-dealer shall erect a
‘‘firewall’’ around the personnel who have access to
information concerning changes and adjustments to
the index and the index shall be calculated by a
third party who is not a broker-dealer. (ii) Unless
the Commission order applicable under paragraph
(k) hereof provides otherwise, the current value of
the index or the Reference Asset (as applicable) will
be widely disseminated at least every 15 seconds
during Nasdaq’s regular market session, except as
provided in the next clause (iii). (iii) The values of
the following indexes need not be calculated and
widely disseminated at least every 15 seconds if,
after the close of trading, the indicative value of the
Equity Index-Linked Security based on one or more
of such indexes is calculated and disseminated to
provide an updated value: CBOE S&P 500 BuyWrite
Index(sm), CBOE DJIA Buy Write Index(sm), CBOE
Nasdaq-100 BuyWrite Index(sm). (iv) If the value of
a Linked Security is based on more than one index,
then the dissemination requirement of this
paragraph (g) applies to the composite value of such
indexes. (v) In the case of a Commodity-Linked
Security that is periodically redeemable, the
indicative value of the subject Commodity-Linked
Security must be calculated and widely
disseminated by one or more major market data
vendors on at least a 15-second basis during
Nasdaq’s regular market session.’’
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Circular will discuss that leveraged
Linked Securities seek returns on a
periodic basis (e.g. daily or monthly),
and do not seek to achieve their stated
investment objective over a period of
time greater than one period because
compounding prevents these securities
from perfectly achieving such results.
Accordingly, results for leveraged
Linked Securities over periods of time
greater than one period (e.g. daily or
monthly) typically will not reflect
exactly the leveraged multiple of the
period return of the applicable
Reference Asset benchmark, and may
differ from the multiple.14 NASDAQ
will also inform its members of
NASDAQ Rule 2310, Recommendations
to Customers (Suitability), and the
requirement that, if members
recommend transactions in these
leveraged securities, they must have a
reasonable basis to believe that (1) the
recommendation is suitable for a
customer given reasonable inquiry
concerning the customer’s investment
objectives, financial situation, needs,
and any other information known by
such Member, and (2) the customer can
evaluate the special characteristics, and
is able to bear the financial risks, of an
investment in the securities. In addition,
FINRA has implemented increased sales
practice and customer margin
requirements for FINRA members
applicable to inverse, leveraged, and
inverse leveraged securities and options
on such securities, as described in
FINRA Regulatory Notices 09–31 (June
2009), 09–53 (August 2009) and 09–65
(November 2009) (‘‘FINRA Regulatory
Notices’’). Members that carry customer
accounts will be required to follow the
FINRA guidance set forth in the FINRA
Regulatory Notices. The Information
Circular will reference the FINRA
Regulatory Notices.
The Exchange believes that its
surveillance procedures are adequate to
address any concerns about the trading
of the securities on NASDAQ. Trading
of the securities on NASDAQ will be
subject to FINRA’s surveillance
procedures for derivative products.15
NASDAQ may obtain information via
the Intermarket Surveillance Group
14 The Exchange notes that leveraged exchange
trade products are not new to the market; these
products trade on NASDAQ, NASDAQ Options
Market, and various other equity, options, and
futures exchanges. Moreover, as noted 3x leveraged
exchange products have been trading on Arca for
years. As such, while the concept of leverage is not
novel to the markets, the Information Circular will
be distributed to provide additional information to
market participants.
15 FINRA surveils trading on NASDAQ pursuant
to a regulatory services agreement. NASDAQ is
responsible for FINRA’s performance under this
regulatory services agreement.
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(‘‘ISG’’) from other exchanges who are
members or affiliates of the ISG.16
The Exchange believes that by
conforming Rule 5710 to the rules of
other exchanges (e.g. Arca and NYSE)
and allowing listing opportunities on
the Exchange that are already allowed
by rule on other exchanges, the proposal
would offer another venue for listing
and trading the Linked Securities
products and thereby promote
competition. For the noted reasons, the
Exchange proposes to change the
acceleration provision in its Rule 5710
to exactly match, as described above,
what is available on other exchanges.17
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 18 in general, and furthers the
objectives of Section 6(b)(5) of the Act 19
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. For the
reasons noted in the filing, the Exchange
proposes to change the acceleration
provision in its Rule 5710 from a two
times to a three times multiple of the
performance of the underlying asset.
This exactly matches what is available
on other exchanges. The Exchange
believes that by conforming Rule 5710
to the rules of other exchanges (e.g. Arca
and NYSE) and allowing listing
opportunities on the Exchange that are
already allowed by rule on other
exchanges, the proposal would offer
another venue for listing and trading the
Linked Securities products and thereby
promote broader competition among
exchanges.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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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. To the
contrary, where the current variance in
the rules of the exchanges limits
competition, the proposal will allow
listing additional Linked Securities on
the Exchange, thereby promoting
increased competition across markets
and liquidity on the Exchange.
16 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
17 No other changes are made or intended by this
filing and existing listing and trading rules continue
to be applicable to leveraged Linked Securities.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
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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 proposed rule change
may take effect upon filing with the
Commission pursuant to Section
19(b)(3)(A) 20 of the Act and Rule 19b–
4(f)(6)(iii) thereunder 21 because the
foregoing proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate.
The Exchange has requested the
Commission to waive the 30-day
operative delay period to allow the
proposed rule change to become
operative upon filing.22 The
Commission believes it is consistent
with the public interest to waive the 30day operative delay. The proposed rule
change is substantially similar in all
material respects to Section 703.22(B)(6)
of the NYSE Listed Company Manual
and Arca Equities Rule 5.2(j)(6)(A)(d),
and each policy issue raised by the
proposed rule change (i) has been
considered by the Commission in
approving the other exchanges’ rules
and (ii) is resolved in a manner
generally consistent with the approved
rules. As such, the Commission believes
that the proposal presents no novel
regulatory issues. Waiver of the
operative delay will allow the Exchange
to list certain securities that can already
be listed and traded on other exchanges
without undue delay. Therefore, the
Commission grants such waiver and
designates the proposal operative upon
filing.23
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
20 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
22 As required under Rule 19b–4(f)(6)(iii), the
Exchange provided the Commission with written
notice of its intent to file the proposed rule change
along with a brief description and the 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.
23 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
21 17
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6381
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
No. SR–NASDAQ–2013–008 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 No.
SR–NASDAQ–2013–008. 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
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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of NASDAQ. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NASDAQ–
2013–008 and should be submitted on
or before February 20, 2013.
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Federal Register / Vol. 78, No. 20 / Wednesday, January 30, 2013 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–01932 Filed 1–29–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68720; File No. SR–
NASDAQ–2013–011]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Mini Options
January 24, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on January 16, 2013, The NASDAQ
Stock Market LLC (‘‘NASDAQ’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to list and trade
option contracts overlying 10 shares of
a security (‘‘Mini Options’’) applicable
to NASDAQ members using The
NASDAQ Options Market (‘‘NOM’’),
NASDAQ’s facility for executing and
routing standardized equity and index
options.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change. The text of
these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Chapter IV, Section
6 (Series of Options Contracts Open for
Trading) and Chapter VI, Section 4
(Meaning of Premium Quotes and
Orders) to list and trade Mini Options
overlying five (5) high-priced securities
for which the standard contract
overlying the same security exhibits
significant liquidity. Specifically, the
Exchange proposes to list Mini Options
on SPDR S&P 500 (‘‘SPY’’), Apple, Inc.
(‘‘AAPL’’), SPDR Gold Trust (‘‘GLD’’),
Google Inc. (‘‘GOOG’’) and Amazon.com
Inc. (‘‘AMZN’’).3 The Exchange believes
that this proposal would allow investors
to select among options on various highpriced and actively traded securities,
each with a unit of trading ten times
lower than that of the regular-sized
options contracts, or 10 shares, similar
to other options exchanges. In addition,
the Exchange proposes a technical
amendment to Chapter III, Section 7
(Position Limits) to make the rule text
consistent.
For example, with Apple Inc.
(‘‘AAPL’’) trading at $605.85 on March
21, 2012, ($60,585 for 100 shares
underlying a standard contract), the 605
level call expiring on March 23 was
trading at $7.65. The cost of the
standard contract overlying 100 shares
would be $765, which is substantially
higher in notional terms than the
average equity option price of $250.89.4
Proportionately equivalent mini-options
contracts on AAPL would provide
investors with the ability to manage and
hedge their portfolio risk on their
underlying investment, at a price of
$76.50 per contract. In addition,
investors who hold a position in AAPL
at less than the round lot size would
still be able to avail themselves of
options to manage their portfolio risk.
For example, the holder of 50 shares of
AAPL could write covered calls for five
mini-options contracts. The table below
demonstrates the proposed differences
between a mini-options contract and a
standard contract with a strike price of
$125 per share and a bid or offer of
$3.20 per share:
Standard
Share Deliverable Upon Exercise .......................................................................................................................................
Strike Price ..........................................................................................................................................................................
Bid/Offer ...............................................................................................................................................................................
Premium Multiplier ...............................................................................................................................................................
Total Value of Deliverable ...................................................................................................................................................
Total Value of Contract ........................................................................................................................................................
The Exchange currently lists and
trades standardized option contracts on
a number of equities and ExchangeTraded Funds (‘‘ETFs’’) each with a unit
of trading of 100 shares. Except for the
24 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 These issues were selected because they are
priced greater than $100 and are among the most
actively traded issues, in that the standard contract
exhibits average daily volume (‘‘ADV’’) over the
previous three calendar months of at least 45,000
contracts, excluding LEAPS and FLEX series. The
mstockstill on DSK4VPTVN1PROD with
1 15
VerDate Mar<15>2010
20:43 Jan 29, 2013
Jkt 229001
Mini
100 shares
125
3.20
$100
$12,500
$320
10 shares
125
3.20
$10
$1,250
$32
difference in the deliverable of shares,
the proposed Mini Options would have
the same terms and contract
characteristics as regular-sized equity
and ETF options, including exercise
style. All existing Exchange rules
applicable to options on equities and
ETFs would apply to Mini Options.
With respect to position 5 and exercise
limits, the applicable position and
Exchange notes that any expansion of the program
would require that a subsequent proposed rule
change be submitted to the Commission.
4 A high priced underlying security may have
relatively expensive options, because a low
percentage move in the share price may mean a
large movement in the options in terms of absolute
dollars. Average non-FLEX equity option premium
per contract January 1–December 31, 2011. See
https://www.theocc.com/webapps/monthly-volumereports?reportClass=equity.
5 Position limits applicable to a regular-sized
option contract would also apply to the Mini
Options on the same underlying security, with 10
Mini Option contracts counting as one regular-sized
contract. Positions in both the regular-sized option
contract and Mini Options on the same security will
be combined for purposes of calculating positions.
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
E:\FR\FM\30JAN1.SGM
30JAN1
]]>Agencies
[Federal Register Volume 78, Number 20 (Wednesday, January 30, 2013)]
[Notices]
[Pages 6379-6382]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01932]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68721; File No. SR-NASDAQ-2013-008]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 5710
January 24, 2013.
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 January 10, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 5710 so that the Exchange may
list Linked Securities \3\ that provide for three times accelerated
payment at maturity. The Exchange requests that the Commission waive
the 30-day operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\4\ The text of the proposed rule change is available at
https://nasdaq.cchwallstreet.com/, at the Exchange's principal office,
and at the Commission's Public Reference Room.
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\3\ For a discussion of Linked Securities, see Rule 5710.
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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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.
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 Rule 5710(d)
so that the Exchange may list Linked Securities that provide for three
times accelerated payment at maturity.\5\ In changing one word in Rule
5710, the Exchange is conforming its rule to the established listing
rules of other exchanges.
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\5\ The proposal is applicable only to non-option products.
---------------------------------------------------------------------------
This proposed amendment to Rule 5710(d) is based, word-for-word, on
NYSE Arca (``Arca'') Equities Rule 5.2(j)(6)(A)(d) and NYSE Section
703.22(B)(6) of the Listed Company Manual. NASDAQ, Arca, and NYSE all
have rule provisions stating that pursuant to Rule 19b-4(e) under the
Act \6\ a loss or negative payment at maturity of a Linked Security \7\
may be accelerated by a multiple of the performance of an underlying
asset (known as the ``acceleration provision''). However, in Rule 5710
NASDAQ sets the multiple for the acceleration provision at ``twice'';
\8\ whereas Arca and NYSE both set the acceleration
[[Page 6380]]
provision multiple at ``three times''.\9\ Other than changing one
word--from ``twice'' to ``three times''--in the Exchange's acceleration
provision in Rule 5710(d), no other change is proposed or made by this
filing.\10\
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\6\ 17 CFR 240.19b-4(e).
\7\ Where NASDAQ refers to ``Linked Securities'' in its Rule
5710, NYSE and Arca refer to these products as ``Index-Linked
Securities.'' On all exchanges, Linked Securities are based on the
performance of various Reference Assets. For a more detailed
discussion of Reference Assets, see Rule 5710.
\8\ See Rule 5710(d). See also Securities Exchange Act Release
Nos. 59663 (March 31, 2009), 74 FR 15552 (April 6, 2009) (SR-NASDAQ-
2009-018) (notice of filing and immediate effectiveness relating to
revisions and restructuring of the NASDAQ listing rules, and
transference of Rule 5710(d) from Rule 4420(m)); and 57269 (February
5, 2008), 73 FR 8092 (February 12, 2008) (SR-NASDAQ-2008-08) (order
approving listing standards in Rule 4420(m) to allow twice (2x) the
performance of the underlying index, indexes, or Reference Asset).
\9\ See Arca Equities Rule 5.2(j)(6) and NYSE Section
703.22(B)(6) of the Listed Company Manual. See also Securities
Exchange Act Release Nos. 59332 (January 30, 2009), 74 FR 6338
(February 6, 2009) (SR-NYSEArca-2008-136) (order approving listing
standards in NYSE Arca Equities Rule 5.2(j)(6) to allow three times
(3x) the performance of the underlying Reference Asset); and 61230
(December 23, 2009), 74 FR 69163 (December 30, 2009) (SR-NYSE-2009-
124) (order approving three times (3x) the performance in NYSE
Section 703.22 of the Listed Company Manual, similarly to Arca
Equities Rule 5.2(j)(6)).
\10\ In recently approving rule changes to allow listings on
NASDAQ that are allowed on Arca by rule, the Commission noted that
it ``has previously approved substantively identical listing
standards for the listing and trading of the Subject Securities on
NYSE Arca.'' See Securities Exchange Act Release No. 66648 (March
23, 2012), 77 FR 19428 (March 30, 2012) (SR-NASDAQ-2012-013).
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The current requirements for listing Linked Securities, which
include Multifactor Index-Linked Securities, Equity Index-Linked
Securities, Commodity-Linked Securities, Fixed Income Index-Linked
Securities and Futures-Linked Securities, are set forth in Rule 5710.
This rule states that NASDAQ will consider Linked Securities for
listing and trading pursuant to Rule 19b-4(e) under the Act, provided
the following requirements are met: \11\
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\11\ However, Rule 5710 provides that if Linked Securities do
not otherwise meet the Rule 19b-4(e) standards set forth in the
rule, NASDAQ may submit a rule filing pursuant to Section 19 of the
Act to permit the listing and trading of Linked Securities.
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(a) Both the issue and the issuer of such security meet the
criteria for other securities set forth in Rule 5730(a), except that if
the security is traded in $1,000 denominations or is redeemable at the
option of holders thereof on at least a weekly basis, then no minimum
number of holders and no minimum public distribution of trading units
shall be required;
(b) The issue has a term of not less than one (1) year and not
greater than thirty (30) years;
(c) The issue must be the non-convertible debt of the Company;
(d) The payment at maturity may or may not provide for a multiple
of the direct or inverse performance of an underlying index, indexes or
Reference Asset; however, in no event will a loss (negative payment) at
maturity be accelerated by a multiple that exceeds twice the
performance of an underlying index, indexes or Reference Asset;
(e) The Company will be expected to have a minimum tangible net
worth in excess of $250,000,000 and to exceed by at least 20% the
earnings requirements set forth in Rule 5405(b)(1)(A); \12\
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\12\ Subsection (e) states also, in relevant part, regarding
minimum tangible net worth: ``In the alternative, the Company will
be expected: (i) To have a minimum tangible net worth of
$150,000,000 and to exceed by at least 20% the earnings requirement
set forth in Rule 5405(b)(1)(A), and (ii) not to have issued
securities where the original issue price of all the Company's other
index-linked note offerings (combined with index-linked note
offerings of the Company's affiliates) listed on a national
securities exchange exceeds 25% of the Company's net worth. Rule
5710(e).'' [sic]
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(f) The Company is in compliance with Rule 10A-3 under the Act;
(g) Certain Maintenance and Dissemination standards must be
satisfied.\13\
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\13\ Subsection (g) states, regarding Maintenance and
Dissemination: ``(i) If the index is maintained by a broker-dealer,
the broker-dealer shall erect a ``firewall'' around the personnel
who have access to information concerning changes and adjustments to
the index and the index shall be calculated by a third party who is
not a broker-dealer. (ii) Unless the Commission order applicable
under paragraph (k) hereof provides otherwise, the current value of
the index or the Reference Asset (as applicable) will be widely
disseminated at least every 15 seconds during Nasdaq's regular
market session, except as provided in the next clause (iii). (iii)
The values of the following indexes need not be calculated and
widely disseminated at least every 15 seconds if, after the close of
trading, the indicative value of the Equity Index-Linked Security
based on one or more of such indexes is calculated and disseminated
to provide an updated value: CBOE S&P 500 BuyWrite Index(sm), CBOE
DJIA Buy Write Index(sm), CBOE Nasdaq-100 BuyWrite Index(sm). (iv)
If the value of a Linked Security is based on more than one index,
then the dissemination requirement of this paragraph (g) applies to
the composite value of such indexes. (v) In the case of a Commodity-
Linked Security that is periodically redeemable, the indicative
value of the subject Commodity-Linked Security must be calculated
and widely disseminated by one or more major market data vendors on
at least a 15-second basis during Nasdaq's regular market session.''
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Of the seven specific and extensive requirements in Rule 5710 for
listing Linked Securities pursuant to Rule 19b-4(e), the Exchange
proposes to change only the multiple by which a Linked Security payment
can be accelerated from twice to three times. Each of the other listing
requirements remains unchanged.
The principal reason for the proposed amendment is demand for
accelerated Linked Securities. There is continuing customer demand for
having the ability to list and trade these Linked Securities products
on the Exchange, particularly as the strategies and components of these
products continue to evolve and offer access to a broader range of
asset classes.
Prior to the commencement of trading of three times accelerated
Linked Securities, NASDAQ will inform its members in an Information
Circular of the special characteristics and risks associated with
trading such leveraged securities. In particular, the Information
Circular will discuss that leveraged Linked Securities seek returns on
a periodic basis (e.g. daily or monthly), and do not seek to achieve
their stated investment objective over a period of time greater than
one period because compounding prevents these securities from perfectly
achieving such results. Accordingly, results for leveraged Linked
Securities over periods of time greater than one period (e.g. daily or
monthly) typically will not reflect exactly the leveraged multiple of
the period return of the applicable Reference Asset benchmark, and may
differ from the multiple.\14\ NASDAQ will also inform its members of
NASDAQ Rule 2310, Recommendations to Customers (Suitability), and the
requirement that, if members recommend transactions in these leveraged
securities, they must have a reasonable basis to believe that (1) the
recommendation is suitable for a customer given reasonable inquiry
concerning the customer's investment objectives, financial situation,
needs, and any other information known by such Member, and (2) the
customer can evaluate the special characteristics, and is able to bear
the financial risks, of an investment in the securities. In addition,
FINRA has implemented increased sales practice and customer margin
requirements for FINRA members applicable to inverse, leveraged, and
inverse leveraged securities and options on such securities, as
described in FINRA Regulatory Notices 09-31 (June 2009), 09-53 (August
2009) and 09-65 (November 2009) (``FINRA Regulatory Notices''). Members
that carry customer accounts will be required to follow the FINRA
guidance set forth in the FINRA Regulatory Notices. The Information
Circular will reference the FINRA Regulatory Notices.
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\14\ The Exchange notes that leveraged exchange trade products
are not new to the market; these products trade on NASDAQ, NASDAQ
Options Market, and various other equity, options, and futures
exchanges. Moreover, as noted 3x leveraged exchange products have
been trading on Arca for years. As such, while the concept of
leverage is not novel to the markets, the Information Circular will
be distributed to provide additional information to market
participants.
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The Exchange believes that its surveillance procedures are adequate
to address any concerns about the trading of the securities on NASDAQ.
Trading of the securities on NASDAQ will be subject to FINRA's
surveillance procedures for derivative products.\15\ NASDAQ may obtain
information via the Intermarket Surveillance Group
[[Page 6381]]
(``ISG'') from other exchanges who are members or affiliates of the
ISG.\16\
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\15\ FINRA surveils trading on NASDAQ pursuant to a regulatory
services agreement. NASDAQ is responsible for FINRA's performance
under this regulatory services agreement.
\16\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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The Exchange believes that by conforming Rule 5710 to the rules of
other exchanges (e.g. Arca and NYSE) and allowing listing opportunities
on the Exchange that are already allowed by rule on other exchanges,
the proposal would offer another venue for listing and trading the
Linked Securities products and thereby promote competition. For the
noted reasons, the Exchange proposes to change the acceleration
provision in its Rule 5710 to exactly match, as described above, what
is available on other exchanges.\17\
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\17\ No other changes are made or intended by this filing and
existing listing and trading rules continue to be applicable to
leveraged Linked Securities.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \18\ in general, and furthers the objectives of Section
6(b)(5) of the Act \19\ 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. For the reasons noted in the filing, the Exchange proposes to
change the acceleration provision in its Rule 5710 from a two times to
a three times multiple of the performance of the underlying asset. This
exactly matches what is available on other exchanges. The Exchange
believes that by conforming Rule 5710 to the rules of other exchanges
(e.g. Arca and NYSE) and allowing listing opportunities on the Exchange
that are already allowed by rule on other exchanges, the proposal would
offer another venue for listing and trading the Linked Securities
products and thereby promote broader competition among exchanges.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. To the contrary, where the
current variance in the rules of the exchanges limits competition, the
proposal will allow listing additional Linked Securities on the
Exchange, thereby promoting increased competition across markets and
liquidity on the Exchange.
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 proposed rule change may take effect upon filing with
the Commission pursuant to Section 19(b)(3)(A) \20\ of the Act and Rule
19b-4(f)(6)(iii) thereunder \21\ because the foregoing proposed rule
change does not: (i) Significantly affect the protection of investors
or the public interest; (ii) impose any significant burden on
competition; and (iii) become operative for 30 days from the date on
which it was filed, or such shorter time as the Commission may
designate.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The Exchange has requested the Commission to waive the 30-day
operative delay period to allow the proposed rule change to become
operative upon filing.\22\ The Commission believes it is consistent
with the public interest to waive the 30-day operative delay. The
proposed rule change is substantially similar in all material respects
to Section 703.22(B)(6) of the NYSE Listed Company Manual and Arca
Equities Rule 5.2(j)(6)(A)(d), and each policy issue raised by the
proposed rule change (i) has been considered by the Commission in
approving the other exchanges' rules and (ii) is resolved in a manner
generally consistent with the approved rules. As such, the Commission
believes that the proposal presents no novel regulatory issues. Waiver
of the operative delay will allow the Exchange to list certain
securities that can already be listed and traded on other exchanges
without undue delay. Therefore, the Commission grants such waiver and
designates the proposal operative upon filing.\23\
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\22\ As required under Rule 19b-4(f)(6)(iii), the Exchange
provided the Commission with written notice of its intent to file
the proposed rule change along with a brief description and the 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.
\23\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such 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 No. SR-NASDAQ-2013-008 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 No. SR-NASDAQ-2013-008. 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 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 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of NASDAQ. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File No. SR-NASDAQ-2013-008 and should be submitted on
or before February 20, 2013.
[[Page 6382]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01932 Filed 1-29-13; 8:45 am]
BILLING CODE 8011-01-P
