Daily Rules, Proposed Rules, and Notices of the Federal Government
NASDAQ is filing a proposal for the NASDAQ Options Market ("NOM" or "Exchange") to delete from the NASDAQ rulebook Section 5, Minimum Participation Requirement for Opening Trading of Option Series,
The text of the proposed rule change is available from NASDAQ's website at
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.
NASDAQ is proposing the elimination of a requirement that at least one Options Market Maker be registered for trading a particular series before it may be opened for trading on NOM.
An Options Market Maker is a Participant
Currently Section 5 of Chapter IV of the NOM rulebook provides in relevant part that after a particular class of options has been approved for listing on
Eliminating the Market Maker listing requirement would provide the Exchange the opportunity to trade options that may have occasional interest but that do not necessarily require a two-sided market at all times. The lack of a two-sided or tight market would not cause customer orders to receive prices inferior to the best prices available across all exchanges. In fact, NOM is designed to systematically avoid trading through protected quotations on other options exchanges, and as such, orders accepted into NOM in options that do not have Market Makers will not trade at inferior prices even if there is not a two-sided market on NOM. As a result of NOM's design, incoming orders are protected from receiving dislocated execution prices simply by the fact that there is robust quote competition in the exchange listed options business with seven competing options exchanges and a multitude of competing Market Makers and liquidity providers. Additionally, the Options Order Protection and Locked/Crossed Market Plan requires plan participants to "establish, maintain and enforce written policies and procedures that are reasonably designed to prevent Trade-Throughs in that participant's market in Eligible Options Classes."
Moreover, in its approval order for the proposed rule change establishing NOM, the Commission agreed that the Act does not mandate a particular market model for national securities exchanges, and stated that it believed that many different types of market models could satisfy the requirements of the Act. The Commission stated that it does not believe that the Act requires an exchange to have Market Makers.
With regard to the impact on system capacity, the Exchange has analyzed its capacity and represents that it and the Options Price Reporting Authority have the necessary systems capacity to handle the additional traffic associated with the listing and trading of an expanded number of series as proposed by this filing.
The Exchange also proposes to delete paragraph (b) of Section 5, Chapter IV, which states that a class of options will be put into a non-regulatory halt if at least one series for that class is not open for trading. Originally, this provision was put in place so that the exchange could approve underlying securities for the listing of options but delay the listing if the Market Makers on the Exchange were not yet ready to register in any series of options for that class. With the elimination of the other paragraphs in Section 5 requiring a Market Maker, the Exchange will no longer need to delay the listings of particular series and thus will no longer need this provision.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were either solicited or received.
Within 35 days of the date of publication of this notice in the
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:
* Use the Commission's Internet comment form (
* Send an e-mail to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.