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]

Download as PDF 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. mstockstill on DSK4VPTVN1PROD with 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 VerDate Mar<15>2010 20:43 Jan 29, 2013 Jkt 229001 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 http:// 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 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 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). E:\FR\FM\30JAN1.SGM 30JAN1 6380 Federal Register / Vol. 78, No. 20 / Wednesday, January 30, 2013 / Notices mstockstill on DSK4VPTVN1PROD with 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. VerDate Mar<15>2010 20:43 Jan 29, 2013 Jkt 229001 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.’’ PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 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. E:\FR\FM\30JAN1.SGM 30JAN1 Federal Register / Vol. 78, No. 20 / Wednesday, January 30, 2013 / Notices (‘‘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 mstockstill on DSK4VPTVN1PROD with 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). VerDate Mar<15>2010 20:43 Jan 29, 2013 Jkt 229001 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 PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 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 (http://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 (http://www.sec.gov/rules/ sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 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. E:\FR\FM\30JAN1.SGM 30JAN1 6382 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 http:// 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 http://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 
http://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.
---------------------------------------------------------------------------

    \5\ The proposal is applicable only to non-option products.
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    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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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. 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.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
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    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).
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    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 (http://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 (http://www.sec.gov/rules/sro.shtml ). Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 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