
[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Notices]
[Pages 53811-53813]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-21527]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72993; File No. SR-NASDAQ-2014-091]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to SPY and DIA Options

September 4, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on September 2, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by NASDAQ. 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 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 allow $1 or greater 
strike price intervals for options on the SPDR[supreg] S&P 500[supreg] 
Exchange Traded Fund (``SPY'') and the SPDR[supreg] Dow Jones[supreg] 
Industrial Average Exchange Traded Fund (``DIA'').\3\
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    \3\ S&P[supreg], S&P 500[supreg], Standard & Poor's[supreg], and 
SPDR[supreg] are registered trademarks of Standard & Poor's[supreg] 
Financial Services LLC. Dow Jones[supreg], DJIA\SM\, and Dow Jones 
Industrial Average\SM\ are registered trade and service marks of Dow 
Jones[supreg] Trademark Holdings LLC.
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    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, 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 by modifying the interval setting regime for SPY and DIA 
options listed on the SPDR S&P 500 Exchange Traded Fund (``ETF'') and 
the SPDR Dow Jones Industrial Average ETF, respectively, to allow $1 or 
greater strike price intervals.\4\ Through this filing, the Exchange 
intends to make SPY and DIA options more tailored and easier for 
investors and traders to use.
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    \4\ The SPDR S&P 500 ETF is based on the broad-based S&P 500 
Index, and the SPDR Dow Jones Industrial Average ETF is based on the 
Dow Jones Industrial Average.
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    The proposed rule change is based on the recent Commission approval 
of a proposal to amend Commentary.05 to NASDAQ OMX PHLX LLC (``Phlx'') 
Rule 1012 to allow SPY and DIA options to trade in $1 or greater 
increments.\5\
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    \5\ See Securities Exchange Act Release No. 72949 (August 29, 
2014) (SR-Phlx-2014-46) (approval order).
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    Under current Chapter IV, Supplementary Material .01 to Section 6, 
the interval of strike prices of series of options on ETFs is $1 or 
greater where the strike price is 200 or less and $5 or greater where 
the strike price is more than 200.\6\ The Proposal seeks to narrow 
those strike intervals to $1 apart for SPY and DIA options, in effect 
matching the interval for these products to ETF option strike prices at 
or below 200.
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    \6\ See Chapter IV, Supplementary Material .01(b) to Section 6.
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    The prices for SPY and DIA options [sic] are approaching the 200 
price point. By the end of June 2014, for example, SPY was trading at 
more than $195 per share and DIA was trading at more than $168 per 
share.\7\ As the option strike prices continue to appreciate, investor 
and member demands to list additional SPY and DIA option series 
continue to increase. SPY is the most heavily traded and liquid 
exchange-traded product in the U.S., and SPY options represent 13% of 
the total option volume in the U.S. and 8% of the options volume on the 
Exchange. DIA options represent 12% of the options volume on the 
Exchange and less than 1% of the options volume in

[[Page 53812]]

the U.S. Moreover, the popularity of DIA and SPY options is reflected 
in the fact that they have options contracts reflecting monthly, 
quarterly, and weekly expiration cycles.\8\ Not having the proposed $1 
intervals above a 200 strike price will significantly limit investors' 
hedging and trading possibilities, particularly when it comes to 
executing strategies that are effective in $1 intervals; and may, as a 
result, constrict trading and hedging activity. The Exchange therefore 
proposes to amend Chapter IV, Supplementary Material .01 to Section 6 
to allow SPY and DIA options to trade in $1 increments.
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    \7\ On August 25, 2014, SPY traded and closed above $200 for the 
first time. The SPY closing price on August 25th was $200.20.
    \8\ For rules regarding quarterly options and weekly options 
(also known as Short Term Options), see Chapter IV, Supplementary 
Material .04 and Supplementary Material .07 to Section 6, 
respectively.
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    Specifically, the Exchange proposes to add Chapter IV, 
Supplementary Material .01(c) to Section 6 \9\ to state that 
notwithstanding any other provision regarding the interval of strike 
prices of series of options on ETFs in the rule, the interval of strike 
prices on SPY and DIA options will be $1 or greater. By having smaller 
strike intervals in SPY and DIA, investors will have more efficient 
hedging and trading opportunities due to the higher $1 interval 
ascension. The proposed $1 intervals, particularly above a 200 strike 
price, will result in having at-the-money series based upon the 
underlying SPY or DIA moving less than 1%, which falls in line with 
slower price movements of a broad-based index. Furthermore, the 
proposed $1 intervals will allow currently employed option trading 
strategies (such as, for example, risk reduction/hedging strategies 
using SPY weekly options) to remain in play. Considering that $1 
intervals already exist below the 200 price point and that SPY and DIA 
are approaching the 200 level, continuing to maintain the artificial 
200 level (above which intervals increase 500%, to $5), will have a 
negative effect on investing, trading and hedging opportunities and 
volume. The continued demand for highly liquid options such as SPY and 
DIA, and the investing, trading, and hedging opportunities they 
represent, far outweighs any potential negative impact of allowing SPY 
and DIA options to trade in more finely tailored intervals above a 200 
price point.
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    \9\ Current Supplementary Material .01(c), (d), (e) to Section 6 
would be re-numbered as Supplementary Material .01(d), (e), (f) to 
Section 6, respectively.
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    With the proposal, for example, investors and traders would be able 
to roll open positions from a lower strike to a higher strike in 
conjunction with the price movement of the underlying. Under the 
current rule, where the next higher available series would be $5 away 
above a 200 strike price, the ability to roll such positions is 
effectively negated. Thus, to move a position from a 200 strike to a 
205 strike under the current rule, an investor would need for the 
underlying product to move 2.5%, and would not be able to execute a 
roll up until such a large movement occurred. With the proposed rule 
change, however, the investor would be in a significantly safer 
position of being able to roll his open options position from a 200 to 
a 201 strike price, which is only a 0.5% move for the underlying.
    By allowing SPY and DIA options in $1 intervals over a 200 strike 
price, the proposal will moderately augment the total number of options 
series available on the Exchange. However, the Exchange has analyzed 
its capacity and represents that it and the Options Price Reporting 
Authority (``OPRA'') have the necessary systems capacity to handle any 
potential additional traffic associated with this proposed rule change. 
The Exchange believes that its members will not have a capacity issue 
as a result of this proposal. The Exchange also represents that it does 
not believe this expansion will cause fragmentation of liquidity. The 
Exchange's beliefs are supported by the limited nature of the proposal, 
which applies to two symbols rather than to all ETF products. Moreover, 
while under the current rule-set there is ample liquidity, it is 
constricted above 200. This proposal only enhances liquidity at more 
rational strike intervals necessary to benefit investors as the stock 
market improves in value.
    The Exchange believes that the proposed rule change, like the other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them more flexibility to more closely tailor their 
investment and hedging decisions by allowing SPY and DIA options to 
trade in finer $1 intervals.
 2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\10\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\11\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
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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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change would add consistency to 
the SPY and DIA options markets and allow investors to use SPY and DIA 
options more easily and effectively. Moreover, the proposed rule change 
would allow investors and traders, whether big or small, to better 
trade and hedge positions in SPY and DIA options where the strike price 
is greater than 200, and ensure that SPY and DIA options investors and 
traders are not at a disadvantage simply because of the strike price.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act,\12\ which provides that the Exchange 
be organized and have the capacity to be able to carry out the purposes 
of the Act and the rules and regulations thereunder, and the rules of 
the Exchange. The rule change proposal allows the Exchange to respond 
to customer demand to allow SPY and DIA options to trade in $1 
intervals above a 200 strike price. The Exchange does not believe that 
the proposed rule would create additional capacity issues or affect 
market functionality.
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    \12\ 15 U.S.C. 78f(b)(1).
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    As noted above, ETF options trade in wider $5 intervals above a 200 
strike price, whereby options at or below a 200 strike price trade in 
$1 intervals. This creates a situation where contracts on the same 
option class, namely SPY and DIA options, effectively may not be able 
to execute certain strategies such as, for example, rolling to a higher 
strike price, simply because of the arbitrary 200 strike price above 
which options intervals increase by 500%. This proposal remedies the 
situation by establishing an exception to the current ETF interval 
regime, for SPY and DIA options only, to allow such options to trade in 
$1 or greater intervals at all strike prices.
    The Exchange believes that the proposed rule change, like other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them increased flexibility to more closely tailor 
their investment and hedging decisions. Moreover, the proposed rule 
change is consistent with changes proposed by at least one other 
exchange.\13\
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    \13\ See Securities Exchange Act Release No. 72949 (August 29, 
2014) (SR-Phlx-2014-46) (approval order). Moreover, the Exchange has 
noted that other options markets have filed similar proposals to 
modify the strike price (intervals) regime for specific options. 
See, e.g., Securities Exchange Act Release No. 72482 (June 26, 
2014), 79 FR 37825 (July 2, 2014) (SR-CBOE-2014-051) (notice of 
filing and immediate effectiveness modifying the strike price regime 
for Mini-S&P 500 Index (XSP) options).

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[[Page 53813]]

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and OPRA have 
the necessary systems capacity to handle any potential additional 
traffic associated with this proposed rule change. The Exchange 
believes that its members will not have a capacity issue as a result of 
this proposal.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes that the proposed rule change will result in 
additional investment options and opportunities to achieve the 
investment and trading objectives of market participants seeking 
efficient trading and hedging vehicles, to the benefit of investors, 
market participants, and the marketplace in general. Specifically, the 
Exchange believes that SPY and DIA option investors and traders will 
significantly benefit from the availability of finer strike price 
intervals above a 200 price point.

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 proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) 
thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement would allow 
the Exchange to implement the proposed rule change as soon as possible 
and thereby harmonize its rules regarding SPY and DIA options intervals 
with the rules of other markets. The Exchange also stated that waiver 
would allow market participants to more effectively tailor their 
investing, trading, and hedging decisions in respect of SPY and DIA 
options by using finer $1 increments. For these reasons, the Commission 
believes that the proposed rule change presents no novel issues and 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest; and will allow the 
Exchange to remain competitive with other exchanges. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\16\
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    \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).
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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. 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-091 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2014-091. 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-2014-091 and should 
be submitted on or before October 2, 2014.

    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).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21527 Filed 9-9-14; 8:45 am]
BILLING CODE 8011-01-P


