Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Implement Transition to Friday Expiration for Most Options Contracts, 64563-64566 [2013-25445]

Download as PDF Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–Phlx–2013–104 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. mstockstill on DSK4VPTVN1PROD with NOTICES All submissions should refer to File Number SR–Phlx–2013–104. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–Phlx– 2013–104 and should be submitted on or before November 19, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [Release No. 34–70746; File No. SR–BX– 2013–055] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Implement Transition to Friday Expiration for Most Options Contracts October 23, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 11, 2013, NASDAQ OMX BX LLC (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend certain procedural rules to implement the change in the expiration date for most option contracts to the third Friday of the expiration month instead of the Saturday following the third Friday. The text of the proposed rule change is available at https:// nasdaqomxbx.cchwallstreet.com/, at the Exchange’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. [FR Doc. 2013–25444 Filed 10–28–13; 8:45 am] BILLING CODE 8011–01–P 1 15 17 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 18:15 Oct 28, 2013 2 17 Jkt 232001 PO 00000 U.S.C.78s(b)(1). CFR 240.196–4. Frm 00097 Fmt 4703 Sfmt 4703 64563 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On August 21, 2013, the Exchange filed to change the expiration date for most option contracts to the third Friday of the expiration month instead of the Saturday following the third Friday.3 This proposed rule change is intended to clarify certain rule changes that were made in the Expiration Date Filing and to amend additional procedural and other rules intended to implement the change in expiration date for most option contracts to the third Friday of the expiration month instead of the Saturday following the third Friday. The Exchange has adopted rules to change the expiration date for most option contracts to the third Friday of the expiration month instead of the Saturday following the third Friday.4 The changes to the expiration date apply to all standard expiration contracts including those in which the rules are silent on the expiration date. Option contracts having non-standard expiration dates (‘‘non-standard expiration contracts’’) were unaffected by the proposed rule changes, except that FLEX options having expiration dates later than February 1, 2015 cannot expire on a Saturday unless they are specified by The Options Clearing Corporation (‘‘OCC’’) as grandfathered.5 The Exchange is making the proposed rule changes to further harmonize its rules in connection with a recently approved rule filing made by OCC which made substantially similar changes.6 The Exchange believes that the industry must remain consistent in expiration dates, and, thus, is proposing to update its rules to remain consistent with those of OCC. In addition, the Exchange understands that other exchanges have and will be filing 3 See Securities Exchange Act Release No. 70258 (August 26, 2013), 78 FR 53797 (August 30, 2013) (SR–BX–2013–50) (‘‘Expiration Date Filing’’). The changes proposed in the Expiration Date Filing were effective on filing and became operative on September 20, 2013. 4 See Chapter XIV, Index Rules, Section 2(p) (definition of ‘‘expiration date’’). 5 Examples of options with non-standard expiration contracts include: Quarterly Equity and Exchange-Traded Fund Shares (‘‘ETFs’’) Option Series (Chapter IV, Section 6, Commentary .04), Quarterly Options Series for indexes (Chapter XIV, Section 11(g)), Short Term Option Series (Chapter IV, Section 6, Commentary .07) and Short Term Option Series for indexes (Chapter XIV, Section 11(h)). 6 See Securities Exchange Act Release No. 34– 69772 (June 17, 2013), 78 FR 37645 (June 21, 2013) (order approving SR–OCC–2013–004). E:\FR\FM\29OCN1.SGM 29OCN1 64564 Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES similar rules to effect this industry-wide initiative.7 In order to provide a smooth transition to the Friday expiration, OCC has begun to move the expiration exercise procedures to Friday for all standard expiration contracts even though the contracts would continue to expire on Saturday.8 After February 1, 2015, virtually all standard expiration contracts will actually expire on Friday. The only standard expiration contracts that will expire on a Saturday after February 1, 2015 are certain options that were listed prior to the effectiveness of the OCC rule change, and a limited number of options that may be listed prior to necessary systems changes of the options exchanges. BX, along with the other option exchanges, has agreed not to list any additional options with Saturday expiration dates falling after February 1, 2015. BX understands that the other exchanges are committed to the same listing schedule.9 Certain option contracts have already been listed with Saturday expiration dates as distant as January 2016 (which is the furthest out expiration as of the date of this filing). For these contracts, transitioning to a Friday expiration for newly listed option contracts expiring after February 1, 2015 would create a situation under which certain options with open interest would expire on a Saturday while other options with open interest would expire on a Friday in the same expiration month. Clearing members have expressed a clear preference to not have a mix of options with open interest that expire on different days in a single month.10 Accordingly, OCC represented in its recently approved filing that it will not issue and clear any new option contracts with a Friday expiration if existing option contracts of the same options class expire on the Saturday following the third Friday of the same month. However, Friday expiration processing will be in effect for these Saturday expiration contracts. As with standard expiration options during the transition period, exercise requests received after Friday expiration processing is complete but before the Saturday contract expiration time will 7 See Securities Exchange Act Release Nos. 70091 (August 1, 2013), 78 FR 48212 (August 7, 2013) (SR–CBOE–2013–073); 69996 (July 17, 2013), 78 FR 44183 (July 23, 2013) (SR–MIAX–2013–32); 70373 (September 11, 2013), 78 FR 57198 (September 17, 2013) (SR–NYSEMKT–2013–73); 70372 (September 11, 2013), 78 FR 57186 (September 17, 2013) (SR– NYSEARCA–2013–88); and 70488 (September 24, 2013), 78 FR 59998 (September 30, 2013) (SR–BOX– 2013–45). 8 See note 6 supra. 9 See note 7 supra. 10 Id. VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 continue to be processed without fines or penalties. Since the rule changes implementing the change in expiration date apply only to new series of standard expiration contracts opened for trading consistent with the OCC rules and having expiration dates later than February 1, 2015, the Exchange is proposing to amend certain rules relating to the procedures of the Exchange. The proposed changes take into account that, during a transition period, there will be options with open interest having both Friday and Saturday expiration dates. More specifically, the Exchange is proposing to amend Chapter 1, General Provisions, Section 1(a)(25) to provide that European-style options can be exercised only on the expiration date if such day is a business day or, in the case of option contracts expiring on a day that is not a business day, the last business day prior to expiration. In addition, the Exchange seeks to amend Chapter III, Business Conduct, Section 12(a)(ii) with respect to certain timing for restrictions on the exercise of option contracts. Specifically, the Exchange proposes to specify that the 10 business day period referenced in Section 12(a)(ii) includes the expiration date for an option contract that expires on a business day. With respect to index options, restrictions on exercise may be in effect until the opening of business on the business day of their expiration or, in the case of an option contract expiring on a day that is not a business day, on the last business day before the expiration date. In addition, Section 12(a)(iii)(2) would be amended to specify that exercises of expiring American-style, cash-settled index options would not be prohibited on an expiration date that is a business day (i.e., for Friday expirations), or, in the case of an option contract expiring on a non-business day (as is currently the case for Saturday expirations), on the last business day prior to expiration. The Exchange also proposes to amend Chapter IV, Securities Traded on BX Options, Section 6(c) to differentiate between Friday and Saturday expirations. Specifically, the Exchange would specify that additional series of individual stock options may be added in unusual market conditions until the close of trading on the business day prior to expiration in the case of an option contract expiring on a business day (i.e., Thursday for a Friday expiration), or, in the case of an option contract expiring on a day that is not a business day, and as is currently the case for Saturday expirations, until the close of trading on the second business PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 day prior to expiration (i.e., until the close of trading on Thursday for Saturday expirations). Additionally, the Exchange’s proposal would change Chapter V, Regulation of Trading on BX Options, Section 6(f)(ii) to add greater specificity regarding the timing surrounding notifications to the Exchange of a Catastrophic Error. Specifically, the Exchange proposes to specify that, for such transactions in an expiring options series that take place on an expiration day that is a business day (i.e., for Friday expirations), a party must notify MarketWatch by 5:00 p.m. ET that same day. For such transactions in an options series that take place on the business day immediately prior to an expiration day that is not a business day (i.e., for Saturday expirations), a party must notify MarketWatch by 5:00 p.m. ET on such business day (i.e., on Friday). The Exchange’s proposal includes several proposed changes to Chapter VIII, Exercises and Deliveries, Section 1 in order to differentiate between Friday and Saturday expirations. First, the Exchange proposes to specify in Section 1(b) that special procedures apply to the exercise of equity options on the business day of their expiration (i.e., for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, and as is currently the case for Saturday expirations, on the last business day before their expiration. Second, the Exchange proposes to specify in Section 1(c) that, regarding exercise cut-off times, option holders have until 5:30 p.m. ET on the business day of their expiration (i.e., for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, and as is currently the case for Saturday expirations, on the business day immediately prior to the expiration date. Third, the Exchange proposes to specify in Section 1(h) that the advance notice described therein is applicable if provided by the Exchange on or before 5:30 p.m. ET on the business day (i.e., on Thursday) immediately prior to the business day of expiration (i.e., for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, and as is currently the case for Saturday expirations, the business day immediately prior to the last business day before the expiration date (i.e., Thursday for Saturday expirations). Fourth, the Exchange proposes to amend Section 1(i) at ii. to specify that the reference therein to ‘‘unusual circumstances’’ includes, but is not limited to, a significant news announcement concerning the underlying security of an option E:\FR\FM\29OCN1.SGM 29OCN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices contract that is scheduled to be released just after the close on the business day the option contract expires (i.e., for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, and as is currently the case for Saturday expirations, the business day immediately prior to expiration. Fifth, the Exchange proposes to amend Section 1(l)iii., v., and vii. to correct a cross-reference. Sixth, the proposal also seeks to amend Section 1(l)viii.2) to specify that exercises of expiring American-style, cash-settled index option would not be prohibited on an expiration date that is a business day (i.e., for Friday expirations), or, in the case of an option contract expiring on a non-business day (as is currently the case for Saturday expirations), on the last business day prior to expiration. Additionally, the Exchange seeks to amend Chapter XIV, Index Rules, Section 2(g)–(p) to reorder the defined terms into alphabetical order. In newly renumbered Section 2(h), the definition of ‘‘European-style index option’’ is modified to provide that the term European-style index option means an option on an industry or market index that can be exercised only on the expiration date if such day is a business day or, in the case of option contracts expiring on a day that is not a business day, the last business day prior to expiration. The Exchange also seeks to amend Section 11 of Chapter XIV, Index Rules to differentiate between Friday and Saturday expirations. The proposed rule change to Section 11(a)(5) would provide that the last day of trading for A.M.-settled index options would be the business day (i.e., on Thursday) immediately prior to the business day of expiration (i.e., for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, the business day immediately prior to the last business day before the expiration date (i.e., Thursday for Saturday expirations). In addition, the current index value at the expiration of an A.M.-settled index option would be determined on the business day of expiration (i.e., for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, on the last business day before its expiration (i.e., Friday). The Exchange also proposes to amend Section 11(a)(5)(i) to refer to Section 10(g) in order to correct a cross-reference. Additionally, it is proposed that Section 11(c)(2) would be amended to specify that new series of index option contracts may be added up to, but not on or after, the fourth business day prior to expiration for an option contract VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 expiring on a business day (i.e., up to, but not on or after, the opening of trading on Monday morning for Friday expirations), or, in the case of an option contract expiring on a day that is not a business day, and as is currently the case for Saturday expirations, the fifth business day prior to expiration. The Exchange also proposes to amend Section 11(d) to more generally specify that the reported level of the underlying index that is calculated by the reporting authority for the purposes of determining the current index value at expiration of an A.M.-settled index option may differ from the level of the index that is separately calculated and reported reflecting trading activity subsequent to the opening of trading in any of the underlying securities. As stated above, the Exchange believes the proposed changes will keep the Exchange consistent with the processing at OCC and will enable the Exchange to give effect to the industrywide initiative. In addition, the Exchange understands that other exchanges have filed similar rules to differentiate between Friday and Saturday expiration dates for standard options on listed classes.11 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.12 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 13 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 14 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Exchange believes that implementing the change to Friday 11 See note 7 supra. U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). 14 Id. 12 15 PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 64565 expiration processing and eventually transitioning to Friday expiration for all monthly expiration contracts would foster cooperation and coordination with persons engaged in facilitating transactions in securities. In particular, the Exchange believes that keeping its rules consistent with those of the industry will protect all participants in the market by eliminating confusion and would facilitate the long-term goal of OCC and its clearing members to move the expiration process for all monthly expiration contracts from Saturday to Friday night. The proposed changes thus allow for a more orderly market by allowing all options markets, including the clearing agencies, to have the same expiration date for standard options and to have clarity around the procedures that apply during the transition period when both Friday and Saturday expirations will exist for standard options. In addition, the proposed changes will foster cooperation and coordination with persons engaged in regulating clearing, settling, processing information with respect to, and facilitating transactions in securities by aligning a pivotal part of the options processing to be consistent industry wide. If the industry were to differ, investors would suffer from confusion and be more vulnerable to inadvertent violations of different exchange rules. The proposed changes do not permit unfair discrimination between any members because they are applied to all members equally. In the alternative, the Exchange believes that the proposed changes help all members by keeping the Exchange consistent with OCC practices and those of other exchanges. B. Self-Regulatory Organization’s Statement on Burden on Competition BX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Specifically, the Exchange does not believe the proposed rule change will impose a burden on intramarket competition because it will be applied to all members equally. In addition, the Exchange does not believe the proposed rule change will impose any burden to intermarket competition because it will be applied industry-wide, apply to all market participants and is designed to allow OCC to streamline the expiration process for all monthly expiration contracts and increase operational efficiencies for OCC and its clearing members. The proposed rule change is structured to enhance competition E:\FR\FM\29OCN1.SGM 29OCN1 64566 Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices because the shift from an expiration date of the Saturday following the third Friday to the third Friday is anticipated to be adopted industry-wide and will apply to multiple listed classes. The proposed changes in turn will allow BX to continue to compete with other exchanges making similar rule changes. For the reasons above, the Exchange does not believe that the proposed rule change would impose a burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. The Exchange notes, however, that a favorable comment was submitted to the OCC filing. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to 19(b)(3)(A) of the Act 15 and Rule 19b–4(f)(6) 16 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments mstockstill on DSK4VPTVN1PROD with NOTICES 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: 15 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 16 17 VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BX–2013–055 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BX–2013–055. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–BX– 2013–055 and should be submitted on or before November 19, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–25445 Filed 10–28–13; 8:45 am] BILLING CODE 8011–01–P 17 17 PO 00000 CFR 200.30–3(a)(12). Frm 00100 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70744; File No. SR–FINRA– 2013–045] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Revise the Series 6 Examination Program October 23, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘SEA’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 16, 2013, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as ‘‘constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule’’ under Section 19(b)(3)(A)(i) of the Act 3 and Rule 19b–4(f)(1) thereunder,4 which renders the proposal effective upon receipt of this filing by the Commission. 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 FINRA is filing revisions to the content outline and selection specifications for the Investment Company and Variable Contracts Products Representative (Series 6) examination program.5 The proposed revisions update the material to reflect changes to the laws, rules and regulations covered by the examination and to incorporate the functions and associated tasks currently performed by an Investment Company and Variable Contracts Products Representative. In addition, FINRA is proposing to make 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(i). 4 17 CFR 240.19b–4(f)(1). 5 FINRA also is proposing corresponding revisions to the Series 6 question bank. Based on instruction from SEC staff, FINRA is submitting this filing for immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(1) thereunder, and is not filing the question bank for review. See Letter to Alden S. Adkins, Senior Vice President and General Counsel, NASD Regulation, from Belinda Blaine, Associate Director, Division of Market Regulation, SEC, dated July 24, 2000. The question bank is available for SEC review. 2 17 E:\FR\FM\29OCN1.SGM 29OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 209 (Tuesday, October 29, 2013)]
[Notices]
[Pages 64563-64566]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-25445]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70746; File No. SR-BX-2013-055]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Implement 
Transition to Friday Expiration for Most Options Contracts

October 23, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 11, 2013, NASDAQ OMX BX LLC (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.196-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain procedural rules to 
implement the change in the expiration date for most option contracts 
to the third Friday of the expiration month instead of the Saturday 
following the third Friday. The text of the proposed rule change is 
available at https://nasdaqomxbx.cchwallstreet.com/, at the Exchange's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On August 21, 2013, the Exchange filed to change the expiration 
date for most option contracts to the third Friday of the expiration 
month instead of the Saturday following the third Friday.\3\ This 
proposed rule change is intended to clarify certain rule changes that 
were made in the Expiration Date Filing and to amend additional 
procedural and other rules intended to implement the change in 
expiration date for most option contracts to the third Friday of the 
expiration month instead of the Saturday following the third Friday.
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    \3\ See Securities Exchange Act Release No. 70258 (August 26, 
2013), 78 FR 53797 (August 30, 2013) (SR-BX-2013-50) (``Expiration 
Date Filing''). The changes proposed in the Expiration Date Filing 
were effective on filing and became operative on September 20, 2013.
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    The Exchange has adopted rules to change the expiration date for 
most option contracts to the third Friday of the expiration month 
instead of the Saturday following the third Friday.\4\ The changes to 
the expiration date apply to all standard expiration contracts 
including those in which the rules are silent on the expiration date. 
Option contracts having non-standard expiration dates (``non-standard 
expiration contracts'') were unaffected by the proposed rule changes, 
except that FLEX options having expiration dates later than February 1, 
2015 cannot expire on a Saturday unless they are specified by The 
Options Clearing Corporation (``OCC'') as grandfathered.\5\
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    \4\ See Chapter XIV, Index Rules, Section 2(p) (definition of 
``expiration date'').
    \5\ Examples of options with non-standard expiration contracts 
include: Quarterly Equity and Exchange-Traded Fund Shares (``ETFs'') 
Option Series (Chapter IV, Section 6, Commentary .04), Quarterly 
Options Series for indexes (Chapter XIV, Section 11(g)), Short Term 
Option Series (Chapter IV, Section 6, Commentary .07) and Short Term 
Option Series for indexes (Chapter XIV, Section 11(h)).
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    The Exchange is making the proposed rule changes to further 
harmonize its rules in connection with a recently approved rule filing 
made by OCC which made substantially similar changes.\6\ The Exchange 
believes that the industry must remain consistent in expiration dates, 
and, thus, is proposing to update its rules to remain consistent with 
those of OCC. In addition, the Exchange understands that other 
exchanges have and will be filing

[[Page 64564]]

similar rules to effect this industry-wide initiative.\7\
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    \6\ See Securities Exchange Act Release No. 34-69772 (June 17, 
2013), 78 FR 37645 (June 21, 2013) (order approving SR-OCC-2013-
004).
    \7\ See Securities Exchange Act Release Nos. 70091 (August 1, 
2013), 78 FR 48212 (August 7, 2013) (SR-CBOE-2013-073); 69996 (July 
17, 2013), 78 FR 44183 (July 23, 2013) (SR-MIAX-2013-32); 70373 
(September 11, 2013), 78 FR 57198 (September 17, 2013) (SR-NYSEMKT-
2013-73); 70372 (September 11, 2013), 78 FR 57186 (September 17, 
2013) (SR-NYSEARCA-2013-88); and 70488 (September 24, 2013), 78 FR 
59998 (September 30, 2013) (SR-BOX-2013-45).
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    In order to provide a smooth transition to the Friday expiration, 
OCC has begun to move the expiration exercise procedures to Friday for 
all standard expiration contracts even though the contracts would 
continue to expire on Saturday.\8\ After February 1, 2015, virtually 
all standard expiration contracts will actually expire on Friday. The 
only standard expiration contracts that will expire on a Saturday after 
February 1, 2015 are certain options that were listed prior to the 
effectiveness of the OCC rule change, and a limited number of options 
that may be listed prior to necessary systems changes of the options 
exchanges. BX, along with the other option exchanges, has agreed not to 
list any additional options with Saturday expiration dates falling 
after February 1, 2015. BX understands that the other exchanges are 
committed to the same listing schedule.\9\
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    \8\ See note 6 supra.
    \9\ See note 7 supra.
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    Certain option contracts have already been listed with Saturday 
expiration dates as distant as January 2016 (which is the furthest out 
expiration as of the date of this filing). For these contracts, 
transitioning to a Friday expiration for newly listed option contracts 
expiring after February 1, 2015 would create a situation under which 
certain options with open interest would expire on a Saturday while 
other options with open interest would expire on a Friday in the same 
expiration month.
    Clearing members have expressed a clear preference to not have a 
mix of options with open interest that expire on different days in a 
single month.\10\ Accordingly, OCC represented in its recently approved 
filing that it will not issue and clear any new option contracts with a 
Friday expiration if existing option contracts of the same options 
class expire on the Saturday following the third Friday of the same 
month. However, Friday expiration processing will be in effect for 
these Saturday expiration contracts. As with standard expiration 
options during the transition period, exercise requests received after 
Friday expiration processing is complete but before the Saturday 
contract expiration time will continue to be processed without fines or 
penalties.
---------------------------------------------------------------------------

    \10\ Id.
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    Since the rule changes implementing the change in expiration date 
apply only to new series of standard expiration contracts opened for 
trading consistent with the OCC rules and having expiration dates later 
than February 1, 2015, the Exchange is proposing to amend certain rules 
relating to the procedures of the Exchange. The proposed changes take 
into account that, during a transition period, there will be options 
with open interest having both Friday and Saturday expiration dates.
    More specifically, the Exchange is proposing to amend Chapter 1, 
General Provisions, Section 1(a)(25) to provide that European-style 
options can be exercised only on the expiration date if such day is a 
business day or, in the case of option contracts expiring on a day that 
is not a business day, the last business day prior to expiration.
    In addition, the Exchange seeks to amend Chapter III, Business 
Conduct, Section 12(a)(ii) with respect to certain timing for 
restrictions on the exercise of option contracts. Specifically, the 
Exchange proposes to specify that the 10 business day period referenced 
in Section 12(a)(ii) includes the expiration date for an option 
contract that expires on a business day. With respect to index options, 
restrictions on exercise may be in effect until the opening of business 
on the business day of their expiration or, in the case of an option 
contract expiring on a day that is not a business day, on the last 
business day before the expiration date. In addition, Section 
12(a)(iii)(2) would be amended to specify that exercises of expiring 
American-style, cash-settled index options would not be prohibited on 
an expiration date that is a business day (i.e., for Friday 
expirations), or, in the case of an option contract expiring on a non-
business day (as is currently the case for Saturday expirations), on 
the last business day prior to expiration.
    The Exchange also proposes to amend Chapter IV, Securities Traded 
on BX Options, Section 6(c) to differentiate between Friday and 
Saturday expirations. Specifically, the Exchange would specify that 
additional series of individual stock options may be added in unusual 
market conditions until the close of trading on the business day prior 
to expiration in the case of an option contract expiring on a business 
day (i.e., Thursday for a Friday expiration), or, in the case of an 
option contract expiring on a day that is not a business day, and as is 
currently the case for Saturday expirations, until the close of trading 
on the second business day prior to expiration (i.e., until the close 
of trading on Thursday for Saturday expirations).
    Additionally, the Exchange's proposal would change Chapter V, 
Regulation of Trading on BX Options, Section 6(f)(ii) to add greater 
specificity regarding the timing surrounding notifications to the 
Exchange of a Catastrophic Error. Specifically, the Exchange proposes 
to specify that, for such transactions in an expiring options series 
that take place on an expiration day that is a business day (i.e., for 
Friday expirations), a party must notify MarketWatch by 5:00 p.m. ET 
that same day. For such transactions in an options series that take 
place on the business day immediately prior to an expiration day that 
is not a business day (i.e., for Saturday expirations), a party must 
notify MarketWatch by 5:00 p.m. ET on such business day (i.e., on 
Friday).
    The Exchange's proposal includes several proposed changes to 
Chapter VIII, Exercises and Deliveries, Section 1 in order to 
differentiate between Friday and Saturday expirations. First, the 
Exchange proposes to specify in Section 1(b) that special procedures 
apply to the exercise of equity options on the business day of their 
expiration (i.e., for Friday expirations), or, in the case of an option 
contract expiring on a day that is not a business day, and as is 
currently the case for Saturday expirations, on the last business day 
before their expiration. Second, the Exchange proposes to specify in 
Section 1(c) that, regarding exercise cut-off times, option holders 
have until 5:30 p.m. ET on the business day of their expiration (i.e., 
for Friday expirations), or, in the case of an option contract expiring 
on a day that is not a business day, and as is currently the case for 
Saturday expirations, on the business day immediately prior to the 
expiration date. Third, the Exchange proposes to specify in Section 
1(h) that the advance notice described therein is applicable if 
provided by the Exchange on or before 5:30 p.m. ET on the business day 
(i.e., on Thursday) immediately prior to the business day of expiration 
(i.e., for Friday expirations), or, in the case of an option contract 
expiring on a day that is not a business day, and as is currently the 
case for Saturday expirations, the business day immediately prior to 
the last business day before the expiration date (i.e., Thursday for 
Saturday expirations). Fourth, the Exchange proposes to amend Section 
1(i) at ii. to specify that the reference therein to ``unusual 
circumstances'' includes, but is not limited to, a significant news 
announcement concerning the underlying security of an option

[[Page 64565]]

contract that is scheduled to be released just after the close on the 
business day the option contract expires (i.e., for Friday 
expirations), or, in the case of an option contract expiring on a day 
that is not a business day, and as is currently the case for Saturday 
expirations, the business day immediately prior to expiration. Fifth, 
the Exchange proposes to amend Section 1(l)iii., v., and vii. to 
correct a cross-reference. Sixth, the proposal also seeks to amend 
Section 1(l)viii.2) to specify that exercises of expiring American-
style, cash-settled index option would not be prohibited on an 
expiration date that is a business day (i.e., for Friday expirations), 
or, in the case of an option contract expiring on a non-business day 
(as is currently the case for Saturday expirations), on the last 
business day prior to expiration.
    Additionally, the Exchange seeks to amend Chapter XIV, Index Rules, 
Section 2(g)-(p) to reorder the defined terms into alphabetical order. 
In newly renumbered Section 2(h), the definition of ``European-style 
index option'' is modified to provide that the term European-style 
index option means an option on an industry or market index that can be 
exercised only on the expiration date if such day is a business day or, 
in the case of option contracts expiring on a day that is not a 
business day, the last business day prior to expiration.
    The Exchange also seeks to amend Section 11 of Chapter XIV, Index 
Rules to differentiate between Friday and Saturday expirations. The 
proposed rule change to Section 11(a)(5) would provide that the last 
day of trading for A.M.-settled index options would be the business day 
(i.e., on Thursday) immediately prior to the business day of expiration 
(i.e., for Friday expirations), or, in the case of an option contract 
expiring on a day that is not a business day, the business day 
immediately prior to the last business day before the expiration date 
(i.e., Thursday for Saturday expirations). In addition, the current 
index value at the expiration of an A.M.-settled index option would be 
determined on the business day of expiration (i.e., for Friday 
expirations), or, in the case of an option contract expiring on a day 
that is not a business day, on the last business day before its 
expiration (i.e., Friday). The Exchange also proposes to amend Section 
11(a)(5)(i) to refer to Section 10(g) in order to correct a cross-
reference. Additionally, it is proposed that Section 11(c)(2) would be 
amended to specify that new series of index option contracts may be 
added up to, but not on or after, the fourth business day prior to 
expiration for an option contract expiring on a business day (i.e., up 
to, but not on or after, the opening of trading on Monday morning for 
Friday expirations), or, in the case of an option contract expiring on 
a day that is not a business day, and as is currently the case for 
Saturday expirations, the fifth business day prior to expiration. The 
Exchange also proposes to amend Section 11(d) to more generally specify 
that the reported level of the underlying index that is calculated by 
the reporting authority for the purposes of determining the current 
index value at expiration of an A.M.-settled index option may differ 
from the level of the index that is separately calculated and reported 
reflecting trading activity subsequent to the opening of trading in any 
of the underlying securities.
    As stated above, the Exchange believes the proposed changes will 
keep the Exchange consistent with the processing at OCC and will enable 
the Exchange to give effect to the industry-wide initiative. In 
addition, the Exchange understands that other exchanges have filed 
similar rules to differentiate between Friday and Saturday expiration 
dates for standard options on listed classes.\11\
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    \11\ See note 7 supra.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
---------------------------------------------------------------------------

    The Exchange believes that implementing the change to Friday 
expiration processing and eventually transitioning to Friday expiration 
for all monthly expiration contracts would foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities. In particular, the Exchange believes that keeping its rules 
consistent with those of the industry will protect all participants in 
the market by eliminating confusion and would facilitate the long-term 
goal of OCC and its clearing members to move the expiration process for 
all monthly expiration contracts from Saturday to Friday night. The 
proposed changes thus allow for a more orderly market by allowing all 
options markets, including the clearing agencies, to have the same 
expiration date for standard options and to have clarity around the 
procedures that apply during the transition period when both Friday and 
Saturday expirations will exist for standard options.
    In addition, the proposed changes will foster cooperation and 
coordination with persons engaged in regulating clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities by aligning a pivotal part of the options processing to 
be consistent industry wide. If the industry were to differ, investors 
would suffer from confusion and be more vulnerable to inadvertent 
violations of different exchange rules. The proposed changes do not 
permit unfair discrimination between any members because they are 
applied to all members equally. In the alternative, the Exchange 
believes that the proposed changes help all members by keeping the 
Exchange consistent with OCC practices and those of other exchanges.

B. Self-Regulatory Organization's Statement on Burden on Competition

    BX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Specifically, the 
Exchange does not believe the proposed rule change will impose a burden 
on intramarket competition because it will be applied to all members 
equally. In addition, the Exchange does not believe the proposed rule 
change will impose any burden to intermarket competition because it 
will be applied industry-wide, apply to all market participants and is 
designed to allow OCC to streamline the expiration process for all 
monthly expiration contracts and increase operational efficiencies for 
OCC and its clearing members.
    The proposed rule change is structured to enhance competition

[[Page 64566]]

because the shift from an expiration date of the Saturday following the 
third Friday to the third Friday is anticipated to be adopted industry-
wide and will apply to multiple listed classes. The proposed changes in 
turn will allow BX to continue to compete with other exchanges making 
similar rule changes. For the reasons above, the Exchange does not 
believe that the proposed rule change would impose a burden on 
competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received. The Exchange 
notes, however, that a favorable comment was submitted to the OCC 
filing.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) \16\ 
thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2013-055 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2013-055. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-BX-2013-055 and should be 
submitted on or before November 19, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-25445 Filed 10-28-13; 8:45 am]
BILLING CODE 8011-01-P

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