
[Federal Register Volume 76, Number 245 (Wednesday, December 21, 2011)]
[Notices]
[Pages 79268-79270]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32663]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65969; File No. SR-NASDAQ-2011-169]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Extension of the Exchange's Penny Pilot Program and 
Replacement of Penny Pilot Issues That Have Been Delisted

 December 15, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 2, 2011, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by 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 Substance 
of the Proposed Rule Change

    Nasdaq is filing with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposal for the NASDAQ Options Market 
(``NOM'' or ``Exchange'') to amend Chapter VI, Section 5 (Minimum 
Increments) to: Extend through June 30, 2012, the Penny Pilot Program 
in options classes in certain issues (``Penny Pilot'' or ``Pilot''); 
and replace any Penny Pilot issues that have been delisted.\3\
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    \3\ The Penny Pilot was established in March 2008 and in October 
2009 was expanded and extended through December 31, 2010. See 
Securities Exchange Act Release Nos. 57579 (March 28, 2008), 73 FR 
18587 (April 4, 2008) (SR-NASDAQ-2008-026) (notice of filing and 
immediate effectiveness establishing Penny Pilot); 60874 (October 
23, 2009), 74 FR 56682 (November 2, 2009) (SR-NASDAQ-2009-091) 
(notice of filing and immediate effectiveness expanding and 
extending Penny Pilot); 60965 (November 9, 2009), 74 FR 59292 
(November 17, 2009) (SR-NASDAQ-2009-097) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
61455 (February 1, 2010), 75 FR 6239 (February 8, 2010) (SR-NASDAQ-
2010-013) (notice of filing and immediate effectiveness adding 
seventy-five classes to Penny Pilot); 62029 (May 4, 2010), 75 FR 
25895 (May 10, 2010) (SR-NASDAQ-2010-053) (notice of filing and 
immediate effectiveness adding seventy-five classes to Penny Pilot); 
62617 (July 30, 2010), 75 FR 47670 (August 6, 2010) (SR-NASDAQ-2010-
092) (notice of filing and immediate effectiveness adding seventy-
five classes to Penny Pilot); and 63396 (November 30, 2010), 75 FR 
76064 (December 7, 2010) (SR-NASDAQ-2010-150) (notice of filing and 
immediate effectiveness extending the Penny Pilot).

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[[Page 79269]]

    The text of the amended Exchange rule is set forth immediately 
below. Proposed new language is in italics and proposed deleted 
language is [bracketed].\4\
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    \4\ Changes are marked to the rules of The NASDAQ Stock Market 
LLC found at http://nasdaqomx.cchwallstreet.com.
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* * * * *
Chapter VI
Sec. 5 Minimum Increments
    (a) The Board may establish minimum quoting increments for options 
contracts traded on NOM. Such minimum increments established by the 
Board will be designated as a stated policy, practice, or 
interpretation with respect to the administration of this Section 
within the meaning of Section 19 of the Exchange Act and will be filed 
with the SEC as a rule change for effectiveness upon filing. Until such 
time as the Board makes a change in the increments, the following 
principles shall apply:
    (1)-(2) No Change.
    (3) For a pilot period scheduled to expire on [December 31, 
2011]June 30, 2012, if the options series is trading pursuant to the 
Penny Pilot program one (1) cent if the options series is trading at 
less than $3.00, five (5) cents if the options series is trading at 
$3.00 or higher, unless for QQQQs, SPY and IWM where the minimum 
quoting increment will be one cent for all series regardless of price. 
A list of such options shall be communicated to membership via an 
Options Trader Alert (``OTA'') posted on the Exchange's Web site.
    The Exchange may replace any pilot issues that have been delisted 
with the next most actively traded multiply listed options classes that 
are not yet included in the pilot, based on trading activity [in the 
previous six months]for the six month period beginning June 1, 2011, 
and ending November 30, 2011. The replacement issues may be added to 
the pilot on the second trading day following January 1, [2011 and July 
1, 2011]2012.
    (b) No Change.
* * * * *
    The text of the proposed rule change is available from Nasdaq's Web 
site at http://nasdaq.cchwallstreet.com, at Nasdaq's principal office, 
and at the Commission's Public Reference Room.

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

    In its filing with the Commission, 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. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant parts of such statements.

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

1. Purpose
    The purpose of this filing is to amend Chapter VI, Section 5 to 
extend the Penny Pilot through June 30, 2012 and replace any Penny 
Pilot issues that have been delisted.
    For a pilot period scheduled to expire on December 31, 2011, the 
Penny Pilot allows certain options to be quoted and traded on the 
Exchange in minimum increments of $0.01 for all series in such options 
with a price of less than $3.00; and in minimum increments of $0.05 for 
all series in such options with a price of $3.00 or higher. Options 
overlying the PowerShares QQQ Trust (``QQQQ'')[supreg], SPDR S&P 500 
Exchange Traded Funds (``SPY''), and iShares Russell 2000 Index Funds 
(``IWM''), however, are quoted and traded in minimum increments of 
$0.01 for all series regardless of the price. Currently the Exchange 
trades 361 options classes pursuant to the Penny Pilot.
    The Penny Pilot is a very successful and efficacious pricing 
program that is beneficial to traders, investors, and public customers, 
and the Exchange has received numerous requests to expand and continue 
it. This proposal allows the Penny Pilot to continue in its current 
format for six months through June 30, 2012.
    Commensurate with the extension of the Penny Pilot through June 30, 
2012, the Exchange proposes to replace any Penny Pilot issues that have 
been delisted with the next most actively traded multiply listed 
options classes that are not yet included in the Pilot, The replacement 
issues will be selected based on trading activity for the six month 
period beginning June 1, 2011, and ending November 30, 2011. The 
replacement issues would be added to the Pilot on the second trading 
day following January 1, 2012.\5\
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    \5\ The replacement issues will be announced to the Exchange's 
membership via an OTA posted on the Exchange's web site.
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    In conjunction with this extension proposal, the Exchange agrees to 
submit a report to the Commission regarding the Penny Pilot that will 
include: (1) Best Bid or Offer (``BBO'') spread, in terms of data and 
analysis on the number of quotations generated for options included in 
the report; (2) size of BBO, in terms of an assessment of the quotation 
spreads for the options included in the report; (3) industry Average 
Daily Volume (``ADV''), in terms of data reflecting the size and depth 
of markets; (4) an assessment of the impact of the Pilot Program on the 
capacity of Phlx's automated systems; and (5) any capacity problems or 
other problems that arose related to the operation of the Pilot Program 
and how the Exchange addressed them.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, by extending the Penny Pilot and 
replacing delisted Penny Pilot issues.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange notes that the Penny Pilot is a very successful and 
efficacious pricing program that is beneficial to traders, investors, 
and public customers, and the Exchange has received numerous requests 
to expand and continue it. This proposal allows the Penny Pilot to 
continue in its current format through June 30, 2012.

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

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 79270]]

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6)(iii) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6)(iii). 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.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NASDAQ-2011-169 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-2011-169. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NASDAQ-2011-169 and should be 
submitted on or before January 11, 2012.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32663 Filed 12-20-11; 8:45 am]
BILLING CODE 8011-01-P


