
[Federal Register Volume 78, Number 154 (Friday, August 9, 2013)]
[Notices]
[Pages 48744-48746]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19255]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70108; File No. SR-NASDAQ-2013-101]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Amending Chapter IV, Section 6 To Permit the Exchange To List 
Additional Strike Prices Until the Close of Trading on the Second 
Business Day Prior to Monthly Expiration

August 5, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on July 26, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is filing with the Commission a proposal to amend Chapter 
IV, Section 6 (Series of Options Contracts Open for Trading) of the 
rules of the NASDAQ Options Market (``NOM'') to permit the Exchange to 
list additional strike prices until the close of trading on the second 
business day prior to the expiration of a monthly, or standard, option 
in the event of unusual market conditions.
    The text of the proposed rule change is attached as Exhibit 5.\3\
---------------------------------------------------------------------------

    \3\ The Commission notes that Exhibit 5 is attached to the 
filing, not to this Notice.
---------------------------------------------------------------------------

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

    In its filing with the Commission, NASDAQ 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 aspects of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to amend Chapter IV, 
Section 6 to permit the Exchange to add additional strikes until the 
close of trading on the second business day prior to a monthly 
expiration in the event of unusual market conditions.
    This is a competitive filing that is based on two recently approved 
and two immediately effective filings.\4\ The approved NYSE MKT and 
NYSE Arca filings made changes to their respective rules governing the 
last day on which strikes may be added for individual stock and 
exchange traded fund (``ETF'') options. Similar to current Chapter IV, 
Section 6(c), the exchanges had rules that permitted the opening of 
additional series of individual stock and ETF options until the 
beginning of the month in which the option contract will expire or 
until the fifth business day prior to expiration if unusual market 
conditions exist. The exchanges amended their rules to permit the 
opening of additional series of individual stocks and ETF options until 
the close of trading on the second business day prior to the expiration 
of a monthly, or standard, option in the event of unusual market 
conditions. The Exchange is now proposing to amend its rules in respect 
of equity and ETF options to permit the opening of additional strike 
prices until the close of trading on the second business day prior to 
the expiration of a standard (monthly) option.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 68460 (December 18, 
2012), 77 FR 76145 (December 26, 2012) (SR-NYSEMKT-2012-41) 
(approval order) (``NYSE MKT filing''); 68461 (December 18, 2012), 
77 FR 76155 (December 26, 2012) (SR-NYSEArca-2012-94) (approval 
order) (``NYSE Arca filing''); 68606 (January 9, 2013), 78 FR 3065 
(January 15, 2013) (SR-CBOE-2012-131) (notice of filing and 
immediate effectiveness) (``CBOE filing''); and 69920 (July 2, 
2013), 78 FR 41176 (July 9, 2013) (SR-Phlx-2013-73) (notice of 
filing and immediate effectiveness) (``Phlx filing'') (together 
``the exchanges'' and ``the filings'').
---------------------------------------------------------------------------

    Options market participants generally prefer to focus their trading 
in strike prices that immediately surround the price of the underlying 
security. However, if the price of the underlying stock or ETF moves 
significantly, there may be a market need for additional strike prices 
to adequately account for market participants' risk management needs in 
a stock or ETF. In these situations, the Exchange has the ability to 
add additional series at strike prices that are better tailored to the 
risk management needs of market

[[Page 48745]]

participants. The Exchange may make the determination to open 
additional series for trading when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand, or when the market 
price of the underlying stock or ETF moves more than five strike prices 
from the initial exercise price or prices.\5\
---------------------------------------------------------------------------

    \5\ See Chapter IV, Section 6(c).
---------------------------------------------------------------------------

    If the market need occurs prior to five business days prior to 
expiration, then the market participants may have access to an option 
contract that is more tailored to the movement in the underlying stock 
or ETF. Under current Section 6 of Chapter IV, however, the Exchange is 
unable to open additional series in response to unusual market 
conditions that occur between five and two days prior to expiration and 
market participants may be left without a contract that is tailored to 
manage their risk. Because of the current five days before expiration 
restriction, investors may be unable to tailor their hedging activities 
in options and effectively manage their risk going into expiration.
    The Exchange proposes to permit the listing of additional strikes 
until the close of trading on the second business day prior to 
expiration in unusual market conditions. Since expiration of standard 
options on individual stocks and ETFs is on a Saturday, the close of 
trading on the second business day prior to expiration will typically 
fall on a Thursday. However, in cases where Friday is a holiday during 
which the Exchange is closed, the close of trading on the second 
business day will occur on a Wednesday. The Exchange will continue to 
make the determination to open additional series for trading when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand, or when certain price movements take place in the 
underlying market. The proposed change will provide an additional four 
days to the Exchange to gauge market impact of the underlying stock or 
ETF and to react to any market conditions that would render additional 
series prior to expiration beneficial to market participants. The 
Exchange believes that the impact on the market from the proposed 
change will be very minimal to market participants; however, it will be 
extremely beneficial when unusual market conditions occur during the 
five to two days leading up to expiration. As a result, the proposal 
would allow participants to adjust their risk exposure when an unusual 
market event occurred on trading days 2, 3, 4, or 5 prior to 
expiration.
    This proposal does not raise any capacity concerns on the Exchange, 
because the changes have no material difference in impact from the 
current rules. The Exchange notes the proposed change allows for new 
strikes that would otherwise be permitted to add under existing rules 
either on the fifth day prior or immediately after expiration.\6\ A 
strike which opens two days prior to expiration will have minimal 
impact on quoting, as it adds two series out of hundreds of thousands, 
and only for a small number of days.\7\ Thus, any additional strikes 
that may be added under the proposed change would have no measurable 
effect on systems capacity. The Exchange understands that The Options 
Clearing Corporation (``OCC'') is able to accommodate the proposal and 
would have no operational concerns with adding new series on any day 
except the last day of trading an expiring series.

---------------------------------------------------------------------------

    \6\ Any new strikes added under this proposal for options on 
equities or ETFs would be added in a manner consistent with the 
range limitations described in Supplementary Material .06 to Section 
6 of Chapter IV.
    \7\ In the case of a multi-stock event where multiple stocks may 
be subject to unusual market conditions, a strike which opens two 
days prior to expiration will also have minimal impact on quoting, 
as it adds two series per stock out of hundreds of thousands, and 
only for a small number of days.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\8\ In particular, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \9\ requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that providing an additional four days to the 
Exchange to gauge market impact and to react to any market conditions 
prior to expiration is beneficial and will result in a continuing 
benefit to investors by giving them more flexibility to closely tailor 
their investment and hedging decisions prior to expiration. The 
Exchange also believes that the additional four days will provide the 
investing public and other market participants with additional 
opportunities to hedge their investments thus allowing these investors 
to better manage their risk exposure with additional in the money 
series. While the four additional days may generate additional quote 
traffic, the Exchange does not believe that this increased traffic will 
become unmanageable since the proposal remains limited to the narrow 
situations when an unusual market event occurred on trading days 2, 3, 
4, or 5 prior to expiration. The Exchange also believes that the 
proposed rule change will ensure competition because the Exchange will 
be able to list additional equity and ETF series up to the second day 
before expiration in the same manner that NYSE MKT, NYSE Arca, Phlx, 
and CBOE are currently able to do.

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

    This proposed rule change does not impose any burden on competition 
that is 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 MKT and NYSE Arca filings, and immediately effective Phlx 
and CBOE 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 does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 satisfied this requirement.

---------------------------------------------------------------------------

[[Page 48746]]

    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest in that it will allow the Exchange to open additional 
series of individual stocks and ETF options until the close of trading 
on the second business day prior to a monthly expiration in unusual 
market conditions in the same manner as NYSE MKT, NYSE Arca, CBOE, and 
Phlx. In sum, the proposed rule change presents no novel issues, and 
waiver will allow the Exchange to remain competitive with other 
exchanges. Therefore, the Commission designates the proposal operative 
upon filing.\12\
---------------------------------------------------------------------------

    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of 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 under 
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2013-101 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-2013-101. 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-2013-101 and should 
be submitted on or before August 30, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19255 Filed 8-8-13; 8:45 am]
BILLING CODE 8011-01-P


