
[Federal Register Volume 78, Number 20 (Wednesday, January 30, 2013)]
[Notices]
[Pages 6382-6384]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01931]


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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.
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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 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 high-priced 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.
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    \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 Exchange notes that any 
expansion of the program would require that a subsequent proposed 
rule change be submitted to the Commission.
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    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:
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    \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-volume-reports?reportClass=equity.

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                                        Standard              Mini
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Share Deliverable Upon Exercise..  100 shares          10 shares
Strike Price.....................  125                 125
Bid/Offer........................  3.20                3.20
Premium Multiplier...............  $100                $10
Total Value of Deliverable.......  $12,500             $1,250
Total Value of Contract..........  $320                $32
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    The Exchange currently lists and trades standardized option 
contracts on a number of equities and Exchange-Traded Funds (``ETFs'') 
each with a unit of trading of 100 shares. Except for the 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

[[Page 6383]]

exercise limits applicable to NOM Options Participants are those limits 
permitted by another options exchange.\6\ Further, hedge exemptions 
will apply to NOM Option Participants if such exemption is permitted by 
another exchange and that exchange's rules apply to the NOM Option 
Participant pursuant to Chapter III, Section 8.\7\
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    \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.
    \6\ See Chapter III, Sections 7 (Position Limits) and 9 
(Exercise Limits).
    \7\ See Chapter III, Section 8 (Exemptions from Position 
Limits).
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    Also, of note, NYSE Arca, Inc. (``NYSE Arca'') lists and trades 
option contracts overlying a number of shares other than 100.\8\ 
Moreover, the concept of listing and trading parallel options products 
of reduced values and sizes on the same underlying security is not 
novel. For example, parallel product pairs on a full-value and reduced-
value basis are currently listed on the S&P 500 Index (``SPX'' and 
``XSP,'' respectively), the Nasdaq 100 Index (``NDX'' and ``MNX,'' 
respectively) and the Russell 2000 Index (``RUT'' and ``RMN,'' 
respectively).
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    \8\ See Securities Exchange Act Release No. 44025 (February 28, 
2001) 66 FR 13986 (March 8, 2001) (approving SR-PCX-01-12).
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    The Exchange believes that the proposal to list Mini Options will 
not lead to investor confusion. There are two important distinctions 
between Mini Options and regular-sized options that are designed to 
ease the likelihood of any investor confusion. First, the premium 
multiplier for the proposed Mini Options will be 10, rather than 100, 
to reflect the smaller unit of trading. To reflect this change, the 
Exchange proposes to add language to Chapter VI, Section 4(a)(i) which 
notes that bids and offers for an option contract overlying 10 shares 
would be expressed in terms of dollars per 1/10th part of the total 
value of the contract. Thus, an offer of ``.50'' shall represent an 
offer of $5.00 on an option contract having a unit of trading 
consisting of 10 shares. Second, the Exchange intends to designate Mini 
Options with different trading symbols than those designated for the 
regular-sized contract. For example, while the trading symbol for 
regular option contracts for Apple, Inc. is AAPL, the Exchange proposes 
to adopt AAPL7 as the trading symbol for Mini Options on that same 
security.
    The Exchange proposes to add rule text to Supplementary Material to 
Chapter IV, Section 6 to reflect that after an option class on a stock, 
Exchange-Traded Fund Share, Trust Issued Receipt, Exchange Traded Note, 
and other Index Linked Security with a 100 share deliverable has been 
approved for listing and trading on the Exchange, series of option 
contracts with a 10 share deliverable on that stock, Exchange-Traded 
Fund Share, Trust Issued Receipt, Exchange Traded Note, and other Index 
Linked Security may be listed for all expirations opened for trading on 
the Exchange. Also, the Exchange is amending Supplementary Material to 
Chapter IV, Section 6 to reflect that strike prices for Mini Options 
shall be set at the same level as for regular options. For example, a 
call series strike price to deliver 10 shares of stock at $125 per 
share has a total deliverable value of $1,250, and the strike price 
will be set at 125. Further, the Exchange proposes to add rule text to 
Supplementary Material to Chapter IV, Section 6 to not permit the 
listing of additional series of Mini Options if the underlying is 
trading at $90 or less to limit the number of strikes once the 
underlying is no longer a high priced security. The Exchange proposes a 
$90.01 minimum for continued qualification so that additional series of 
Mini Options that correspond to standard strikes may be added even 
though the underlying has fallen slightly below the initial 
qualification standard. In addition, the underlying security must be 
trading above $90 for five consecutive days before the listing of Mini 
Option contracts in a new expiration month. This restriction will allow 
the Exchange to list strikes in Mini Options without disruption when a 
new expiration month is added even if the underlying has had a minor 
decline in price. The same trading rules applicable to existing equity 
and ETF options would apply, including Market Maker obligations, to 
Mini Options.\9\
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    \9\ See Chapter VII, Section 6(d).
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    The Exchange notes that by listing the same strike price for Mini 
Options as for regular options, the Exchange seeks to keep intact the 
long-standing relationship between the underlying security and an 
option strike price thus allowing investors to intuitively grasp the 
option's value, i.e., option is in the money, at the money or out of 
the money. The Exchange believes that by not changing anything but the 
multiplier and the option symbol, as discussed above, retail investors 
will be able to grasp the distinction between regular option contracts 
and Mini Options. The Exchange notes that The Options Clearing 
Corporation (``the OCC'') Symbology is structured for contracts that 
have a deliverable of other than 100 shares to be designated with a 
numeric added to the standard trading symbol. Further, the Exchange 
believes that the contract characteristics of Mini Options are 
consistent with the terms of the Options Disclosure Document.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the potential additional traffic associated with the 
listing and trading of Mini Options. The Exchange has further discussed 
the proposed listing and trading of Mini Options with the OCC, which 
has represented that it is able to accommodate the proposal. In 
addition, the Exchange would file a proposed rule change to adopt 
transaction fees specific to Mini Options for listing and trading Mini 
Options. The current options pricing in Chapter XV would not apply to 
Mini Options.
    The Exchange is also proposing to amend Chapter III, Section 7 
(Position Limits) to add parentheses to certain subsections for 
consistency with other NASDAQ Rules. These filings are [sic] similar to 
filings by NYSE Arca, Inc. (``NYSE Arca'') and the International 
Securities Exchange LLC (``ISE'') to list and trade options contracts 
overlying 10 shares of certain securities.\10\
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    \10\ See Securities Exchange Act Release No. 67948 (September 
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64) (SR-
ISE-2012-58). NYSE Arca and ISE received approval to list and trade 
options contracts overlying 10 shares of certain securities.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of [sic] Act,\11\ in general, and with 
Section 6(b)(5) of the Exchange Act,\12\ in particular, in that the 
proposal is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 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.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that investors would benefit from the 
introduction and availability of Mini Options by making options on high 
priced securities more readily available as an investing tool at more 
affordable prices, particularly for average retail investors, who 
otherwise may not be able to participate in trading options on high 
priced securities. The Exchange intends to adopt a different trading 
symbol to distinguish Mini Options from its currently listed option 
contracts and therefore, eliminate investor confusion with respect to

[[Page 6384]]

product distinction. Moreover, the proposed rule change is designed to 
protect investors and the public interest by providing investors with 
an enhanced tool to reduce risk in high priced securities. In 
particular, Mini Options would provide retail customers who invest in 
SPY, AAPL, GLD, GOOG and AMZN in lots of less than 100 shares with a 
means of protecting their investments that is currently only available 
to those who have positions of 100 shares or more. Further, the 
proposed rule change is limited to just five high priced securities to 
ensure that only securities that have significant options liquidity and 
therefore, customer demand, are selected to have Mini Options listed on 
them.

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

    The Exchange does not believe that the rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. In this regard and as indicated above, the 
Exchange notes that the rule change is being proposed as a competitive 
response to recently approved NYSE Arca and ISE filings. The Exchange 
believes this proposed rule change is necessary to permit fair 
competition among the options exchanges.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay so that it can list and trade the proposed 
mini options as soon as it is able.\15\ The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest.\16\ The Commission notes the 
proposal is substantively identical to proposals that were recently 
approved by the Commission, and does not raise any new regulatory 
issues.\17\ For these reasons, the Commission designates the proposed 
rule change as operative upon filing.
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    \15\ The Commission notes that the Exchange's current options 
pricing will not apply to the trading of Mini Options, and the 
Exchange will not commence trading of Mini Options until transaction 
fees specific to Mini Options have been filed with the Commission.
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ See Securities Exchange Act Release No. 67948 (September 
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64 and 
SR-ISE-2012-58).
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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 Number SR-NASDAQ-2013-011 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2013-011. 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2013-011 and should 
be submitted on or before February 20, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01931 Filed 1-29-13; 8:45 am]
BILLING CODE 8011-01-P


