Notice2021-16677
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Options 4 Listing Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 5, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 148 (Thursday, August 5, 2021)</title>
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[Federal Register Volume 86, Number 148 (Thursday, August 5, 2021)]
[Notices]
[Pages 42945-42956]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16677]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92535; File No. SR-BX-2021-032]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Options 4 Listing Rules
July 30, 2021.
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 20, 2021, Nasdaq BX, Inc. (``BX'' 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 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
The Exchange proposes to amend BX's Rules at Options 2, Section 5,
Market Maker Quotations; Options 4, Options Listing Rules; and Options
4A, Section 12, Terms of Index Options Contracts. This proposal also
reserves Options 4C. Finally, the Exchange proposes to reserve some
sections with the Equity Rules.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/bx/rules">https://listingcenter.nasdaq.com/rulebook/bx/rules</a>, 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 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Options 4, Options Listing
Rules, to conform BX's Options 4 Listing Rules to Nasdaq ISE, LLC's
(``ISE'') Options 4 Listing Rules. The Exchange also proposes to amend
BX Options 4A, Section 12, Terms of Index Options Contracts and reserve
BX Options 4C. Finally, the Exchange also proposes to amend Options 2,
Section 5, Market Maker Quotations to relocate rule text concerning
bid/ask differentials for long-term options contracts from BX Options 4
and Options 4A, similar to ISE.
The Exchange also proposes a technical amendment to General 9,
Section 51, Research Analysts and remove stray periods through Options
4. Each rule change is described below.
Options 4, Options Listing Rules
Conforming BX's Options 4 Listing Rules to that of ISE Options 4 is
part of the Exchange's continued effort to promote efficiency in the
manner in which it administers its rules. The Exchange proposes to
amend these rules to conform to ISE Options 4 Rules.
Section 1. Designation of Securities
The Exchange proposes to replace the current rule text of Options
4, Section 1 which states,
Securities traded on the Exchange are options contracts, each of
which is designated by reference to the issuer of the underlying
security or name of underlying foreign currency, expiration month or
expiration date, exercise price and type (put or call).
with the following rule text,
The Exchange trades options contracts, each of which is designated
by reference to the issuer of the underlying security, expiration month
or expiration date, exercise price and type (put or call).
The Exchange proposes to amend this sentence within Options 4,
Section 1 to conform to ISE Options 4, Section 1. The revised wording
does not substantively amend the paragraph.
Section 2. Rights and Obligations of Holders and Writers
The Exchange proposes to replace the current rule text of Options
4, Section 1 which states,
Subject to the provisions of this Chapter, the rights and
obligations of holders and writers of option contracts of any class of
options dealt in on the Exchange shall be as set forth in the Rules of
the Clearing Corporation.
with the following rule text,
The rights and obligations of holders and writers shall be as set
forth in the Rules of the Clearing Corporation.
The Exchange proposes to amend this sentence within Options 4,
Section 2 to conform to ISE Options 4, Section 1. The revised wording
does not substantively amend the paragraph.
Section 3. Criteria for Underlying Securities
Options 4, Section 3 of the Options Listing Rules is being updated
to conform to ISE Options 4, Section 3.
The Exchange proposes to amend Options 4, Section 3(a)(i) and (ii)
to conform to ISE Options 4, Section 3(a)(1) and (2) by changing the
``i. and ii.'' to ``(1) and (2),'' respectively. Also, the Exchange
proposes to remove the phrase ``with the SEC'' within current BX
Options 4, Section 3(a)(i). These amendments are non-substantive.
The Exchange proposes to amend Options 4, Section 3(b) to reword
the rule text to ISE Options 4, Section 3(b). The Exchange proposes to
replace the current rule text of Options 4, Section 3(b) which states,
In addition, the Exchange shall from time to time establish
standards to be considered in evaluating potential underlying
securities for the Exchange options transactions. There are many
relevant factors which must be considered in arriving at such a
determination, and the fact that a particular security may meet the
standards established by the Exchange does not necessarily mean that it
will be selected as an underlying security. The Exchange may give
consideration to maintaining diversity among various industries and
issuers in selecting underlying securities. Notwithstanding the
foregoing, an underlying security will not be selected unless:
[[Page 42946]]
with the following rule text,
In addition, the Exchange shall from time to time establish
guidelines to be considered in evaluating potential underlying
securities for Exchange options transactions. There are many relevant
factors which must be considered in arriving at such a determination,
and the fact that a particular security may meet the guidelines
established by the Exchange does not necessarily mean that it will be
selected as an underlying security. Further, in exceptional
circumstances an underlying security may be selected by the Exchange
even though it does not meet all of the guidelines. The Exchange may
also give consideration to maintaining diversity among various
industries and issuers in selecting underlying securities.
Notwithstanding the foregoing, however absent exceptional
circumstances, an underlying security will not be selected unless:
The new rule text permits the Exchange, in exceptional
circumstances, to select an underlying security even though it does not
meet all of the guidelines. Today, the Exchange may establish
guidelines to be considered in evaluating potential underlying
securities for Exchange options transactions. Providing BX with the
same ability to select an underlying security even though it does not
meet all of the guidelines as ISE will permit BX to list similar
options as ISE for competitive purposes. The proposal to replace the
term ``standards'' with ``guidelines'' within paragraph 3(b) is non-
substantive.
The Exchange is amending numbering within Options 4, Section 3(b)
as well as removing extraneous rule text within current Options 4,
Section 3(b)(iii), namely ``or Rules thereunder.'' The Exchange
proposes to relocate Options 4, Section 3(k) into new Options 4,
Section 3(b)(6) without change. This would align BX Options 4, Section
3(b)(6) with ISE Options 4, Section 3(b)(6). This provision states,
Notwithstanding the requirements set forth in Paragraphs 1, 2, 4
and 5 above, the Exchange may list and trade an options contract if (i)
the underlying security meets the guidelines for continued approval in
Options 4, Section 4; and (ii) options on such underlying security are
traded on at least one other registered national securities exchange.
The Exchange proposes to renumber BX Options 4, Section 3(c) and
make minor amendments to rule text within current Options 4, Section
3(c)(ii), (iii), (iv) and (v), Sections 3(d), 3(f) and 3(g) to conform
the rule text to ISE Options 4, Section 3(c)(ii), (iii), (iv) and (v),
Sections 3(d), 3(f) and 3(g). The proposed changes are non-
substantive.\3\
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\3\ The proposed changes replace the word ``standards'' with
``guidelines,'' insert ``Options 4'' before ``Section 3,'' and
remove 2 extraneous uses of ``this.'' Similar replacements are made
throughout current Options 4, Section 3(c), including amending a
capitalized ``Paragraph.''
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The Exchange proposes to amend an ``up'' to ``on'' within BX
Options 4, Section 3(d). This proposed change is non-substantive.
The Exchange proposes non-substantive amendments to amend BX
Options 4, Section 3(f) and (g) \4\ in addition to conforming the
numbering to ISE Options 4, Section 3(f) and (g).
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\4\ The proposed changes replace the word ``standards'' with
``guidelines,'' insert ``Rule'' instead of ``Section 3,'' and remove
an unnecessary ``or.''
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The Exchange proposes to relocate current BX Options 4, Section
3(h) describing a market information sharing agreement to proposed BX
Options 4, Section 3(i). This text is currently located within ISE
rules at Options 4, Section 3(i).
Current BX Options 4, Section 3(i) is being re-lettered as proposed
Options 4, Section 3(h). The Exchange proposes to add the defined term
``Financial Instruments'' within Options 4, Section 3(h) and also
account for money market instruments, U.S. government securities and
repurchase agreements, defined by the term ``Money Market Instruments''
similar to ISE Options 4, Section 3(h). The addition of money market
instruments, U.S. government securities and repurchase agreements as
securities deemed appropriate for options trading will make clear that
these agreements are included in the acceptable securities. The
Exchange notes that this rule text is clarifying in nature and will
more explicitly provide for money market instruments, U.S. government
securities and repurchase agreements as a separate category from what
is being defined as ``Financial Instruments'' with this proposal.
Today, these instruments are eligible as securities deemed appropriate
for options trading. The remainder of the changes are non-substantive
in nature and simply conform the location of words similar to ISE.\5\
The Exchange also proposes to remove the following products from
Options 4, Section 3(h): The ETFS Silver Trust, the ETFS Palladium
Trust, the ETFS Platinum Trust or the Sprott Physical Gold Trust. The
Exchange no longer lists these products and proposes to remove them the
products from its listing rules. The Exchange will file a proposal with
the Commission if it determines to list these products in the future.
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\5\ The amendment to current Options 4, Section 3(i)(B)(4) to
add, ``. . . which the Exchange-Traded Fund shares are based . . .''
makes clear that this text applies to Exchange-Traded Fund shares.
Also the word ``indexes'' is being changes to ``indices'' within
this paragraph and ``similar entity'' is being relocated within the
paragraph.
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The Exchange will file a proposal with the Commission if it
determines to list these products in the future. Finally, the Exchange
proposes to amend Options 4, Section 3(h) by removing the rule text at
the end of the paragraph which provides, ``all of the following
conditions are met.'' Paragraph (h) would simply end with ``provided
that:'' and direct market participants to subparagraphs (1) and (2).
The Exchange proposes to capitalize ``the'' at the beginning of
Options 4, Section 3(h)(1) and remove ``; and'' at the end of the
paragraph and instead at a period so that subparagraphs (1) and (2) are
not linked, but rather read independently. Today, Options 4, Section
3(h)(1) applies to all Exchange-Traded Fund Shares. Similar to ISE
Options 4, Section 3(h)(2), the Exchange proposes to clarify that
Options 4, Section 3(h)(2) applies to only international or global
Exchange-Traded Fund Shares. Specifically, the Exchange proposes to
amend Options 4, Section 3(h)(2) to provide, ``Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, shall meet the following criteria.'' ISE
Options 4, Section 3(h) has the identical text. Proposed Options 4,
Sections 3(h) generally concerns securities deemed appropriate for
options trading. The proposed new rule text adds language stating that
subparagraph (h)(2) of Options 4, Section 3 applies to the extent the
Exchange-Traded Fund Share is based on international or global indexes,
or portfolios that include non-U.S. securities. This language is
intended to serve as a guidepost and clarify that (1) subparagraph
(h)(2) does not apply to an Exchange-Traded Fund Shares based on a U.S.
domestic index or portfolio, and (2) subparagraph (h)(2) includes
Exchange-Traded Fund Shares that track a portfolio and do not track an
index.
The Exchange proposes to amend Options 4, Section 3(h)(2)(A) to
remove the phrase ``for series of portfolio depositary receipts and
index fund shares based on international or global indexes,''. Today,
Options 4, Section
[[Page 42947]]
3(h), subparagraphs (h)(1) \6\ and (h)(v) \7\ permit the Exchange to
list options on Exchange-Traded Fund Shares based on generic listing
standards for portfolio depositary receipts and index fund shares
without applying component based requirements in subparagraphs
(h)(2)(B)-(D). By removing the proposed rule text, the Exchange would
make clear that subparagraph (h)(2)(A) applies to Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, that are listed pursuant to generic
listing standards and comply with Options 4, Section 3(h) and
subparagraph (h)(1). The identical rule text exists within ISE Options
4, Section 3(h)(2)(A).
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\6\ Subsection (h)(i) concerns passive Exchange-Traded Fund
Shares. Subsection (h)(1) provides, ``represent interests in
registered investment companies (or series thereof) organized as
open-end management investment companies, unit investment trusts or
similar entities that hold portfolios of securities and/or financial
instruments, including, but not limited to, stock index futures
contracts, options on futures, options on securities and indices,
equity caps, collars and floors, swap agreements, forward contracts,
repurchase agreements and reverse repurchase agreements (the
``Financial Instruments''), and money market instruments, including,
but not limited to, U.S. government securities and repurchase
agreements (the ``Money Market Instruments'') comprising or
otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities and/or Financial Instruments and Money
Market Instruments).''
\7\ Subsection (h)(v) concerns active Exchange-Traded Fund
Shares. Subsection (h)(v) Provides, ``represents an interest in a
registered investment company (``Investment Company'') organized as
an open-end management company or similar entity, that invests in a
portfolio of securities selected by the Investment Company's
investment adviser consistent with the Investment Company's
investment objectives and policies, which is issued in a specified
aggregate minimum number in return for a deposit of a specified
portfolio of securities and/or a cash amount with a value equal to
the next determined net asset value (``NAV''), and when aggregated
in the same specified minimum number, may be redeemed at a holder's
request, which holder will be paid a specified portfolio of
securities and/or cash with a value equal to the next determined NAV
(``Managed Fund Share'').
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The Exchange also proposes to amend the term ``comprehensive
surveillance agreement'' within Options 4, Section 3(h)(2) (A)-(D) to
instead provide ``comprehensive surveillance sharing agreement.'' This
amendment will bring greater clarity to the term. Further, the Exchange
proposes to add the phrase ``if not available or applicable, the
Exchange-Traded Fund's'' within Options 4, Section 3(h)(2)(B), (C), and
(D) to clarify that when component securities are not available, the
portfolio of securities upon which the Exchange-Traded Fund Share is
based can be used instead. The Exchange notes that ``not available'' is
intended for cases where the Exchange does not have access to the index
components, in those cases the Exchange would look to the portfolio
components. The term ``not applicable'' is intended if the fund is
active and does not track an index and only the portfolio is available.
These amendments will conform the rule text to ISE Options 4, Section
3(h)(2)(A)-(D).
The Exchange also proposes to wordsmith Options 4, Section
3(h)(2)(B) to amend the phrase to provide, ``any non-U.S. component
securities of an index on which the Exchange-Traded Fund Shares are
based or if not available or applicable, the Exchange-Traded Fund's
portfolio of securities that are not subject to comprehensive
surveillance sharing agreements do not in the aggregate represent more
than 50% of the weight of the index or portfolio;''. Finally, the
Exchange proposes to wordsmith Options 4, Section 3(h)(2)(C) and (D) to
relocate the phrase ``on which the Exchange-Traded Fund Shares are
based'' and add ``or portfolio'' to bring greater clarity to the rule
text by conforming the rule text of (C) and (D) to the language within
(B). The Exchange believes that the revised wording will bring greater
clarity to the rule text and conform the rule text to ISE Options 4,
Section 3(h)(2)(B)-(D). The Exchange proposes a non-substantive
technical amendment to Options 4, Section 3(C)(2)(A)(ii) to correct a
typographical error by changing a ``than'' to a ``that.'' The Exchange
proposes a non-substantive technical amendment to Options 4, Section
3(h)(1) to change ``In'' to ``in.''
As noted above BX Options 4, Section 3(h), which describes a market
information sharing agreement, was relocated to proposed Options 4,
Section 3(i), similar to ISE Options 4, Section 3(i).
The Exchange proposes to amend Options 4, Section 3(j) to conform
the rule text to ISE Options 4, Section 3(j). The proposed changes are
non-substantive.\8\
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\8\ The amendment to current Options 4, Section 3(j) replace the
word ``standards'' with ``guidelines.''
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As noted, above, Options 4, Section 3(k) was relocated to new
Options 4, Section 3(b)(6).
The Exchange proposes to remove the header ``Index-Linked
Securities'' within Options 4, Section 3(l), and re-letter Options 4,
Section 3(l)(i) as Section 3(k). Proposed Options 4, Section 3(k) has
non-substantive numbering and citation amendments.
Options 4, Section 3(m) is being removed as BX does not list U.S.
Dollar-Settled Foreign Currency Options.
Section 4. Withdrawal of Approval of Underlying Securities
The Exchange proposes to remove the first sentence of Options 4,
Section 4(a), which provides, ``If put or call options contracts with
respect to an underlying security are approved for listing and trading
on the Exchange, such approval shall continue in effect until such
approval is affirmatively withdrawn by the Exchange.'' This sentence is
unnecessary as the second sentence within Options 4, Section 4(a) makes
clear that approval continues until it does not meet the requirements.
Also, the Exchange proposes to add the following text to the end of
this paragraph: ``When all options contracts with respect to any
underlying security that is no longer approved have expired, the
Exchange may make application to the SEC to strike from trading and
listing all such options contracts.'' This text makes clear that
options contracts that are no longer approved will not be listed. The
remainder of the changes to Options 4, Section 4(a) are non-
substantive. This proposal is intended to conform BX's Options 4,
Section 4(a) with ISE Options 4, Section 4(a).
The Exchange proposes to amend Options 4, Section 4(b) to add
``Absent exceptional circumstances . . .'' at the beginning of the
section. This phrase adds clarity to the rule text. The remainder of
the numbering changes as well as capitalization are non-substantive and
intended to conform BX's Options 4, Section 4(b) with ISE Options 4,
Section 4(b). The Exchange also proposes to remove reserved sections.
Options 4, Section 4(c), which is currently reserved, is proposed
to be deleted and current Options 4, Section 4(d) is proposed to be re-
lettered as ``c''. Minor non-substantive conforming changes are
proposed to current Options 4, Section 4(d)-(f).\9\
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\9\ The Exchange proposes to remove ``Section 4'', lowercase the
term ``Customer,'' add ``options 4'' and remove ``thereof'' within
Options 4, Section 4(d)-(f).
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The Exchange proposes to amend current Options 4, Section 4(h) to
re-letter it ``g'' and replace ``security'' with ``Exchange-Traded Fund
Shares'' similar to ISE Options 4, Section 4(g). The Exchange proposes
to add halt or suspension as other circumstances in which the Exchange
shall not open for trading any additional series of option contracts of
the class to clarify that this scenario may also exist. The other
[[Page 42948]]
proposed changes to current Options 4, Section 4(h) are non-
substantive.\10\
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\10\ The Exchange proposes to amend Options 4, Section 4(h) to
add ``Options 4'' and replace ``Section 4'' with ``Rule;'' and
replace an ``or'' with an ``and.''
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The Exchange proposes to amend current Options 4, Section 4(i) to
re-letter it ``h'' and add ``Absent exceptional circumstances,
securities . . .'' at the beginning of the section. This phrase adds
clarity to the rule text. The remainder of the numbering changes are
non-substantive \11\ and conform current BX's Options 4, Section 4(i)
with ISE Options 4, Section 4(h).
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\11\ The term Options 4 is being relocated within the proposed
new paragraph (h). Also, the term ``Rule'' is being used within
proposed new paragraph (h)(1) instead of ``Section 4,'' and
``Section 3.'' ``Upon annual review'' is being removed from proposed
new paragraph (h)(2).
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The Exchange proposes to adopt new Options 4, Section 4(i) similar
to ISE, Options 4, Section 4(i). The proposed new section would
provide,
For Holding Company Depositary Receipts (HOLDRs), the Exchange will
not open additional series of options overlying HOLDRs (without prior
Commission approval) if:
(1) The proportion of securities underlying standardized equity
options to all securities held in a HOLDRs trust is less than 80% (as
measured by their relative weightings in the HOLDRs trust); or
(2) less than 80% of the total number of securities held in a
HOLDRs trust underlie standardized equity options.
Current Options 4, Section 4 does not describe the withdrawal of
HOLDRs. This new text, similar to ISE, would provide for provisions
wherein the Exchange will not open additional series of options
overlying HOLDRs.
The Exchange proposes to delete current Options 4, Section 4(j),
which is reserved, as well as the lettering for Options 4, Section 4(k)
which states, ``Index Linked Securities.'' The next existing paragraph
is proposed to be Options 4, Section 4(j). The remainder of the
numbering changes to this section are non-substantive and conform
proposed Options 4, Section 4(j) with ISE Options 4, Section 4(j).
The Exchange proposes to remove Options 4, Section 4(l) related to
inadequate volume delisting. To remain competitive with other options
markets, the Exchange proposes to adopt the same obligations for
continuance of trading.\12\ Also, pursuant to proposed new Options 4,
Section 5(e) the Exchange will announce securities that have been
withdrawn. With this proposal, the Exchange would eliminate the
requirement that an option must be trading for more than 6 months. The
Exchange notes that this condition is not present on other options
markets such as ISE and Cboe Exchange, Inc. (``Cboe'').\13\ This also
applies to the requirement that the average daily volume of the entire
class of options over the last six (6) month period was less than
twenty (20) contracts. The Exchange notes that BX's requirements are
different than other options markets. To remain competitive the
Exchange proposes to adopt the same standards as ISE and Cboe to remain
competitive in order that it may list options similar to other markets.
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\12\ Options 4, Section 4(b), as amended, establishes
requirements for continued listing, similar to ISE. See proposed
Phlx Options 3, Section 4(b) which provides, ``Absent exceptional
circumstances, an underlying security will not be deemed to meet the
Exchange's requirements for continued approval whenever any of the
following occur: (1) There are fewer than 6,300,000 shares of the
underlying security held by persons other than those who are
required to report their security holdings under Section 16(a) of
the Exchange Act. (2) There are fewer than 1,600 holders of the
underlying security. (3) The trading volume (in all markets in which
the underlying security is traded) has been less than 1,800,000
shares in the preceding twelve (12) months. (4) The underlying
security ceases to be an ``NMS stock'' as defined in Rule 600 of
Regulation NMS under the Exchange Act. (5) If an underlying security
is approved for options listing and trading under the provisions of
Options 4, Section 3(c), the trading volume of the Original Security
(as therein defined) prior to but not after the commencement of
trading in the Restructure Security (as therein defined), including
``when-issued'' trading, may be taken into account in determining
whether the trading volume requirement of (3) of this paragraph (b)
is satisfied.''
\13\ See ISE Options 4, Section 4 and Cboe Rule 4.4.
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While the Exchange may in the future determine to delist an option
that is singly listed, the Exchange proposes to remove the rule text
which provides that ``If the option is singly listed only on the
Exchange, the Exchange will cease to add new series and may delist the
class of options when there is no remaining open interest.'' This rule
text does not exist on ISE and Cboe. The Exchange today provides
notification of a delisting to all Participants so therefore it is not
necessary to retain the provisions within (b)(2). Also, proposed new
Options 4, Section 4(e) establishes the rules by which the Exchange
will announce securities that have been withdrawn. The rule text within
Options 4, Section 4(b), as amended to conform to ISE rule text, will
continue to govern the continued approval of options on the Exchange.
The reference to Options 4, Section 4(m) is proposed to be deleted.
The provision that is currently Options 4, Section 4(m) is proposed to
become proposed Supplementary Material .01 to Options 4, Section 6 with
a minor non-substantive change to the current rule text to capitalize
``rules.''
Section 5. Series of Options Contracts Open for Trading
The Exchange proposes to update citations within Options 4, Section
5 to reflect the replacement of current rule text. These changes are
non-substantive.
Section 7. Adjustments
The Exchange proposes non-substantive amendments to Options 4,
Section 7. The current text states,
Options contracts shall be subject to adjustments in accordance
with the Rules of the Clearing Corporation. The Exchange will announce
adjustments, and such changes will be effective for all subsequent
transactions in that series at the time specified in the announcement.
The Exchange proposes to instead provide,
Options contracts shall be subject to adjustments in accordance
with the Rules of the Clearing Corporation. When adjustments have been
made, the Exchange will announce that fact, and such changes will be
effective for all subsequent transactions in that series at the time
specified in the announcement.
The proposal conforms BX Options 4, Section 7 with ISE Options 4,
Section 7.
Section 8. Long-Term Options Contracts
The Exchange proposes to conform the BX Options 4, Section 8 to ISE
Options 4, Section 8. The proposed changes are non-substantive. BX's
current rule text provides that with respect to long-term options
series, bid/ask differential rules do not apply. The Exchange proposes
to add this rule text to Options 4, Section 5(d)(2) within new ``A'' as
the bid/ask differential requirements can be found within this rule.
The Exchange also proposes to add a new sentence to Options 4, Section
8(a) to refer to Options 4, Section 5(d)(2)(A), which states, ``Bid/ask
differentials for long-term options contracts are specified within
Options 3, Section 5(d)(2)(A)'' for ease of reference.
Section 9. Limitation on the Liability of Index Licensors for Options
on Fund Shares
The Exchange proposes to remove current Options 4, Section 9, U.S.
Dollar-Settled Foreign Currency Option Closing Settlement Value as BX
does not list U.S. Dollar-Settled Foreign Currency Options.
The Exchange proposes to adopt a new Section 9, titled ``Limitation
on the Liability of Index Licensors for Options on Fund Shares''
identical to ISE
[[Page 42949]]
Options 4, Section 9. ISE and Cboe have similar provisions.\14\ The new
rule would provide,
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\14\ See Securities Exchange Act Release No. 45817 (April 24,
2002), 67 FR 21785 (May 1, 2002) (SR-CBOE-2002-19) (Notice of Filing
and Immediate Effectiveness of Proposed Rule Change by the Chicago
Board Options Exchange, Incorporated To Amend Its Rules Relating to
the Limitation of Liability for Index Licensors) and 14729 (March
19, 2003), 68 FR 14729 (March 26, 2003) (SR-ISE-2003-09) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change by
International Securities Exchange, Inc., Relating to Limiting the
Liability of Index Licensors for Options on Fund Shares).
(a) The term ``index licensor'' as used in this Rule refers to any
entity that grants the Exchange a license to use one or more indexes or
portfolios in connection with the trading of options on Exchange-Traded
Fund Shares (as defined in Options 4, Section 3(h)).
(b) No index licensor with respect to any index or portfolio
underlying an option on Exchange-Traded Fund Shares traded on the
Exchange makes any warranty, express or implied, as to the results to
be obtained by any person or entity from the use of such index or
portfolio, any opening, intra-day or closing value therefor, or any
data included therein or relating thereto, in connection with the
trading of any option contract on Exchange-Traded Fund Shares based
thereon or for any other purpose. The index licensor shall obtain
information for inclusion in, or for use in the calculation of, such
index or portfolio from sources it believes to be reliable, but the
index licensor does not guarantee the accuracy or completeness of such
index or portfolio, any opening, intra-day or closing value therefor,
or any data included therein or related thereto. The index licensor
hereby disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to any such index or portfolio,
any opening, intra-day or closing value therefor, any data included
therein or relating thereto, or any option contract on Exchange-Traded
Fund Shares based thereon. The index licensor shall have no liability
for any damages, claims, losses (including any indirect or
consequential losses), expenses or delays, whether direct or indirect,
foreseen or unforeseen, suffered by any person arising out of any
circumstance or occurrence relating to the person's use of such index
or portfolio, any opening, intra-day or closing value therefor, any
data included therein or relating thereto, or any option contract on
Exchange-Traded Fund Shares based thereon, or arising out of any errors
or delays in calculating or disseminating such index or portfolio.
Proposed Section 9(a) defines the term ``index licensor'' as any
entity that grants the Exchange a license to use one or more indexes or
portfolios in connection with the trading of options on Exchange-Traded
Fund Shares (as defined in Options 4, Section 3(h)).
Proposed Options 4, Section 9(b) provides that no index licensor
with respect to any index or portfolio underlying an option on
Exchange-Traded Fund Shares traded on the Exchange makes any warranty,
express or implied, as to the results to be obtained by any person or
entity from the use of such index or portfolio, any opening, intra-day
or closing value therefor, or any data included therein or relating
thereto, in connection with the trading of any option contract on
Exchange-Traded Fund Shares based thereon or for any other purpose. The
index licensor will obtain information for inclusion in, or for use in
the calculation of, such index or portfolio from sources it believes to
be reliable, but the index licensor does not guarantee the accuracy or
completeness of such index or portfolio, any opening, intra-day or
closing value therefor, or any data included therein or related
thereto. The index licensor disclaims all warranties of merchantability
or fitness for a particular purpose or use with respect to any such
index or portfolio, any opening, intra-day or closing value therefor,
any data included therein or relating thereto, or any option contract
on Exchange-Traded Fund Shares based thereon. The index licensor will
have no liability for any damages, claims, losses (including any
indirect or consequential losses), expenses or delays, whether direct
or indirect, foreseen or unforeseen, suffered by any person arising out
of any circumstance or occurrence relating to the person's use of such
index or portfolio, any opening, intra-day or closing value therefor,
any data included therein or relating thereto, or any option contract
on Exchange-Traded Fund Shares based thereon, or arising out of any
errors or delays in calculating or disseminating such index or
portfolio.
Section 10. Back-Up Trading Arrangements
The Exchange proposes to add a new rule to Options 4, Section 10,
titled ``Back-Up Trading Arrangements.'' Section 10 is currently
reserved. This proposed rule is identical to ISE Options 4, Section
10.\15\ This rule would permit BX to enter into arrangements with one
or more other exchanges (each a ``Back-up Exchange'') to permit BX and
its Participants to use a portion of a Back-up Exchange's facilities to
conduct the trading of BX exclusively listed options in the event of a
Disabling Event, and permits BX to provide trading facilities at BX for
another exchange's exclusively listed options if that exchange (a
``Disabled Exchange'') is prevented from trading due to a Disabling
Event. Also, the proposed rule would permit BX to enter into
arrangements with a Back-up Exchange to provide for the listing and
trading of BX singly listed options by the Back-up Exchange if BX's
facility becomes disabled, and conversely provide for the listing and
trading by BX of the singly listed options of a Disabled Exchange.
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\15\ See Securities Exchange Act Release No. 71092 (December 17,
2013), 78 FR 77510 (December 23, 2013) (SR-ISE-2013-61) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating
to Back-Up Trading Arrangements).
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The back-up trading arrangements contemplated by Options 4, Section
10 represent BX's immediate plan to ensure that its exclusively listed
and singly listed options will have a trading venue if a catastrophe
renders its primary facility inaccessible or inoperable.
Section 10(a) describes the back-up trading arrangements that would
apply if BX were the Disabled Exchange. An ``exclusively listed
option'' is defined within Section 10(a)(1)(i) to mean an option that
is listed exclusively by an exchange (because the exchange has an
exclusive license to use, or has proprietary rights in, the interest
underlying the option). Proposed paragraph(a)(1)(ii) provides that the
facility of the Back-up Exchange used by BX to trade some or all of
BX's exclusively listed options will be deemed to be a facility of BX,
and such option classes shall trade as listings of BX. Since the
trading of BX exclusively listed options will be conducted using the
systems of the Back-up Exchange, proposed paragraph (a)(1)(iii)
provides that the trading of BX listed options on BX's facility at the
Back-up Exchange shall be conducted in accordance with the rules of the
Back-up Exchange, and proposed paragraph (a)(1)(iv) provides that the
Back-up Exchange has agreed to perform the related regulatory functions
with respect to such trading, in each case except as BX and the Back-up
Exchange may specifically agree otherwise. The Back-up Exchange rules
that govern trading on BX's facility at the Back-up Exchange shall be
deemed to be BX rules for purposes of such trading. Proposed paragraph
(a)(1)(v) provides that BX shall have the right to designate its
members that will be authorized to trade BX exclusively listed options
on BX's facility at the Back-up Exchange and, if applicable, its
member(s) that will be a BX Market
[[Page 42950]]
Maker in those options.\16\ If the Back-up Exchange is unable to
accommodate all BX Participants that desire to trade on BX's facility
at the Back-up Exchange, BX may determine which Participants shall be
eligible to trade at that facility by considering factors such as
whether the Participant is a BX Market Maker in the applicable
product(s), the number of contracts traded by the member in the
applicable product(s), market performance, and other factors relating
to a member's contribution to the market in the applicable product(s).
Under proposed paragraph (a)(1)(vi), Participants of the Back-up
Exchange shall not be authorized to trade in any BX exclusively listed
options, except that (i) BX may deputize willing brokers of the Back-up
Exchange as temporary BX Participants to permit them to execute orders
as brokers in BX exclusively listed options traded on BX's facility at
the Back-up Exchange, and (ii) the Back-up Exchange has agreed that it
will, at the instruction of BX, select members of the Back-up Exchange
that are willing to be deputized by BX as temporary BX Participants
authorized to trade BX exclusively listed options on BX's facility at
the Back-up Exchange for such period of time following a Disabling
Event as BX determines to be appropriate, and BX may deputize such
members of the Back-up Exchange as temporary BX Participants for that
purpose.
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\16\ Of note, unlike Phlx, BX does not have rules to appoint
Lead Market Makers.
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The foregoing exceptions would permit members of the Back-up
Exchange to trade BX exclusively listed options on the BX facility on
the Back-up Exchange, if, for example, circumstances surrounding a
Disabling Event result in BX Participants being delayed in connecting
to the Back-up Exchange in time for prompt resumption of trading.
Options 4, Section 10(a)(2) of the proposed rule provides for the
continued trading of BX singly listed options at the Back-up Exchange
in the event of a Disabling Event at BX. Proposed paragraph (a)(2)(ii)
provides that BX may enter into arrangements with a Back-up Exchange
under which the Back-up Exchange will agree, in the event of a
Disabling Event, to list for trading option classes that are then
singly listed only by BX. Such option classes would trade on the Back-
up Exchange as listings of the Back-up Exchange and in accordance with
the rules of the Back-up Exchange. Under proposed paragraph
(a)(2)(iii), any such options class listed by the Back-up Exchange that
does not satisfy the standard listing and maintenance criteria of the
Back-up Exchange will be subject, upon listing by the Back-up Exchange,
to delisting (and, thus, restrictions on opening new series, and
engaging in opening transactions in those series with open interest, as
may be provided in the rules of the Back-up Exchange). BX singly listed
option classes would be traded by members of the Back-up Exchange and
by BX Participants selected by BX to the extent the Back-up Exchange
can accommodate BX Participants in the capacity of temporary members of
the Back-up Exchange. If the Back-up Exchange is unable to accommodate
all BX Participants that desire to trade BX singly listed options at
the Back-up Exchange, BX may determine which Participants shall be
eligible to trade such options at the Back-up Exchange by considering
the same factors used to determine which BX Participants are eligible
to trade BX exclusively listed options at the BX facility at the Back-
up Exchange.
Proposed Section (a)(3) provides that BX may enter into
arrangements with a Back-up Exchange to permit BX Participants to
conduct trading on a Back-up Exchange of some or all of BX's multiply
listed options in the event of a Disabling Event. While continued
trading of multiply listed options upon the occurrence of a Disabling
Event is not likely to be as great a concern as the continued trading
of exclusively and singly listed options, BX nonetheless believes a
provision for multiply listed options should be included in the rule so
that the exchanges involved will have the option to permit members of
the Disabled Exchange to trade multiply listed options on the Back-up
Exchange. Such options shall trade as a listing of the Back-up Exchange
in accordance with the rules of the Back-up Exchange.
Options 4, Section 10(b) describes the back-up trading arrangements
that would apply if BX were the Back-up Exchange. In general, the
provisions in Section (b) are the converse of the provisions in Section
(a). With respect to the exclusively listed options of the Disabled
Exchange, the facility of BX used by the Disabled Exchange to trade
some or all of the Disabled Exchange's exclusively listed options will
be deemed to be a facility of the Disabled Exchange, and such option
classes shall trade as listings of the Disabled Exchange. Trading of
the Disabled Exchange's exclusively listed options on the Disabled
Exchange's facility at BX shall be conducted in accordance with BX
rules, and BX will perform the related regulatory functions with
respect to such trading, in each case except as the Disabled Exchange
and BX may specifically agree otherwise. BX rules that govern trading
on the Disabled Exchange's facility at BX shall be deemed to be rules
of the Disabled Exchange for purposes of such trading. Sections (b)(2)
and (b)(3) describe the arrangements applicable to trading of the
Disabled Exchange's singly and multiply listed options at BX, and are
the converse of Sections (a)(2) and (a)(3). Paragraph (b)(2)(i)
includes a provision that would permit BX to allocate singly listed
option classes of the Disabled Exchange to a BX Market Maker in advance
of a Disabling Event, without utilizing the allocation process under BX
Rule Options 2, Section 1, to enable BX to quickly list such option
classes upon the occurrence of a Disabling Event.
Options 4, Section 10(c) describes the obligations of Participants
with respect to the trading by ``temporary members'' on the facilities
of another exchange. Section (c)(1) sets forth the obligations
applicable to Participants of a Back-up Exchange who act in the
capacity of temporary Participants of the Disabled Exchange on the
facility of the Disabled Exchange at the Back-up Exchange. Section
(c)(1) provides that a temporary Participant of the Disabled Exchange
shall be subject to, and obligated to comply with, the rules that
govern the operation of the facility of the Disabled Exchange at the
Back-up Exchange. This would include the rules of the Disabled Exchange
to the extent applicable during the period of such trading, including
the rules of the Disabled Exchange limiting its liability for the use
of its facilities that apply to members of the Disabled Exchange.
Additionally, (i) such temporary Participant shall be deemed to have
satisfied, and the Disabled Exchange has agreed to waive specific
compliance with, rules governing or applying to the maintenance of a
person's or a firm's status as a Participant of the Disabled Exchange,
including all dues, fees and charges imposed generally upon members of
the Disabled Exchange based on their status as such, (ii) such
temporary Participant shall have none of the rights of a member of the
Disabled Exchange except the right to conduct business on the facility
of the Disabled Exchange at the Back-up Exchange to the extent
described in the Rule, (iii) the Participant associated with such
temporary Participant, if any, shall be responsible for all obligations
arising out of that temporary Participant's activities on or relating
to the Disabled Exchange, and (iv) the clearing member of such
temporary Participant shall
[[Page 42951]]
guarantee and clear the transactions of such temporary Participant on
the Disabled Exchange.
Section (c)(2) sets forth the obligations applicable to members of
a Disabled Exchange who act in the capacity of temporary Participants
of the Back-up Exchange for the purpose of trading singly listed and
multiply listed options of the Disabled Exchange. Such temporary
Participants shall be subject to, and obligated to comply with, the
rules of the Back-up Exchange that are applicable to the Back-up
Exchange's own members, including the rules of the Back-up Exchange
limiting its liability for the use of its facilities that apply to
members of the Back-up Exchange. Temporary Participants of the Back-up
Exchange have the same obligations as those set forth in Section (c)(1)
that apply to temporary Participants of the Disabled Exchange, except
that, in addition, temporary Participants of the Back-up Exchange shall
only be permitted (i) to act in those capacities on the Back-up
Exchange that are authorized by the Back-up Exchange and that are
comparable to capacities in which the temporary Participant has been
authorized to act on the Disabled Exchange, and (ii) to trade in those
option classes in which the temporary Participant is authorized to
trade on the Disabled Exchange.
Options 4, Section 10 provides that the rules of the Back-up
Exchange shall apply to the trading of the singly and multiply listed
options of the Disabled Exchange traded on the Back-up Exchange's
facilities, and (with certain limited exceptions) the trading of
exclusively listed options of the Disabled Exchange traded on the
facility of the Disabled Exchange at the Back-up Exchange. The Back-up
Exchange has agreed to perform the related regulatory functions with
respect to such trading (except as the Back-up Exchange and the
Disabled Exchange may specifically agree otherwise). Section (d)
provides that if a Back-up Exchange initiates an enforcement proceeding
with respect to the trading during a back-up period of singly or
multiply listed options of the Disabled Exchange by a temporary
Participant of the Back-up Exchange, or exclusively listed options of
the Disabled Exchange by a member of the Disabled Exchange (other than
a member of the Back-up Exchange who is a temporary member of the
Disabled Exchange), and such proceeding is in process upon the
conclusion of the back-up period, the Back-up Exchange may transfer
responsibility for such proceeding to the Disabled Exchange following
the conclusion of the back-up period. This approach to the exercise of
enforcement jurisdiction is also consistent with past precedent.
With respect to arbitration jurisdiction, proposed Section (d)
provides that arbitration of any disputes with respect to any trading
during a back-up period of singly or multiply listed options of the
Disabled Exchange or of exclusively listed options of the Disabled
Exchange on the Disabled Exchange's facility at the Back-up Exchange
will be conducted in accordance with the rules of the Back-up Exchange,
unless the parties to an arbitration agree that it shall be conducted
in accordance with the rules of the Disabled Exchange.
Proposed Supplementary Material .01 to Options 4, Section 10
clarifies that to the extent Options 4, Section 10 provides that
another exchange will take certain action, the Rule is reflecting what
that exchange has agreed to do by contractual agreement with BX, but
Options 4, Section 10 is not binding on the other exchange.
Options 4C
The Exchange proposes to reserve 4C as BX does not list U.S.
Dollar-Settled Foreign Currency Options.
Bid/Ask Differentials
The Exchange proposes to amend Options 4, Section 8(a), and Options
4A, Section 12(b)(1)(i) to relocate text concerning bid/ask
differentials for long-term option series. Currently, Options 4,
Section 8(a) describes the bid/ask differentials for long-term options
series for equity options and exchange-traded products and Options 4A,
Section 12(b)(1)(i) describes the bid/ask differentials for long-term
options series for indexes. Currently, the bid/ask differentials shall
not apply to such options series until the time to expiration is less
than nine (9) months for equity options and exchange-traded funds as
provided for within Options 4, Section 8(a). Currently, bid/ask
differentials shall not apply to such options series until the time to
expiration is less than nine (9) months for index options as provided
for within Options 4A, Section 12(b)(1)(i).
The Exchange proposes to centralize the bid/ask differentials
within Options 2, Section 5(d)(2)(A) and add a sentence to both Options
4, Section 8(a) and Options 4A, Section 12(b)(1)(i) that cites to
Options 2, Section 5(d)(2)(A) for information on bid/ask differentials
for the various products. The Exchange also proposes to capitalize
``ask'' in the title of Options 2, Section 5(d)(2). The Exchange
believes that this relocation will provide Market Makers with
centralized information regarding their bid/ask differential
requirements. The Exchange is not amending the bid/ask differentials;
the rule text is simply being relocated.
Technical Amendment
The Exchange proposes to amend General 9, Section 51, Research
Analysts, to update an improper citation to ``General 9, Section 50''
to ``this Rule.'' The citation is to General 9, Section 51. The
Exchange also proposes to remove stray periods throughout Options 4 in
the section headings.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\18\ in particular, in that it is designed 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. Conforming BX's Options 4 Listing Rules to that of ISE
Options 4 is part of the Exchange's continued effort to promote
efficiency in the manner in which it administers its rules.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange's proposal to amend Options 4, Sections 1, 2, 5, and 7
reflect non-substantive amendments to conform those rules to similar
ISE rules. These proposed changes removes 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 since the
changes are intended to ease the Participants', market participants',
and the general public's navigation and reading of the rules and lessen
potential confusion and add clarity for market participants.
The proposed amendments to ISE Options 3, Section 3(b) to permit
the Exchange, in exceptional circumstances, to select an underlying
security even though it does not meet all of the guidelines, is
consistent with the Act. Today, the Exchange may establish guidelines
to be considered in evaluating potential underlying securities for
Exchange options transactions. Providing BX with the same ability to
select an underlying security even though it does not meet all of the
guidelines as ISE will permit BX to list similar options as ISE for
competitive purposes.
The Exchange's proposal to add the defined term ``Financial
Instruments'' within Options 4, Section 3(h) and also
[[Page 42952]]
account for money market instruments, U.S. government securities and
repurchase agreements, defined by the term ``Money Market Instruments''
similar to ISE Options 4, Section 3(h) is consistent with the Act. The
addition of money market instruments, U.S. government securities and
repurchase agreements as securities deemed appropriate for options
trading will make clear that these agreements are included in the
acceptable securities. The Exchange notes that this rule text is
clarifying in nature and will more explicitly provide for money market
instruments, U.S. government securities and repurchase agreements as a
separate category from what is being defined as ``Financial
Instruments'' with this proposal. Today, these instruments are eligible
as securities deemed appropriate for options trading.
The Exchange's proposal to remove the following products from
Options 4, Section 3(h): The ETFS Silver Trust, the ETFS Palladium
Trust, the ETFS Platinum Trust or the Sprott Physical Gold Trust is
consistent with the Act because the Exchange no longer lists these
products and proposes to remove them the products from its listing
rules. The Exchange will file a proposal with the Commission if it
determines to list these products in the future.
The Exchange's proposal to amend Options 4, Section 3(h) by
removing the rule text at the end of the paragraph which provides,
``all of the following conditions are met,'' and creating separate
paragraphs for Options 4, Section 3(h)(1) and (2) is consistent with
the Act. These amendments will de-link these subparagraphs so they are
read independently. Today, Options 4, Section 3(h)(1) applies to all
Exchange-Traded Fund Shares. The Exchange's proposal to clarify that
Options 4, Section 3(h)(2) applies to only international or global
indexes or portfolios that include non-U.S. securities will bring
greater clarity to the qualification standards for listing options on
Exchange-Traded Fund Shares. ISE Options 4, Section 3(h) currently has
similar rule text. Proposed Options 4, Sections 3(h) generally concerns
securities deemed appropriate for options trading. The proposed new
rule text adds language stating that subparagraph (h)(2) of Options 4,
Section 3 applies to the extent the Exchange-Traded Fund Share is based
on international or global indexes or portfolios that include non-U.S.
securities. This language is intended to serve as a guidepost and
clarify that (1) subparagraph (h)(2) does not apply to an Exchange-
Traded Fund Shares based on a U.S. domestic index or portfolio, and (2)
subparagraph (h)(2) includes Exchange-Traded Fund Shares that track a
portfolio and do not track an index.
The Exchange's proposal to amend Options 4, Section 3(h)(2)(A) to
remove the phrase ``for series of portfolio depositary receipts and
index fund shares based on international or global indexes,'' is
consistent with the Act. Today, Options 4, Section 3(h), subparagraphs
(h)(1) and (h)(v) permit the Exchange to list options on Exchange-
Traded Fund Shares based on generic listing standards for portfolio
depositary receipts and index fund shares without applying component
based requirements in subparagraphs (h)(2)(B)-(D). By removing the
proposed rule text, the Exchange would make clear that subparagraph
(h)(2)(A) applies to Exchange-Traded Fund Shares based on international
or global indexes, or portfolios that include non-U.S. securities, that
are listed pursuant to generic listing standards and comply with
Options 4, Section 3(h) and subparagraph (h)(1).
The Exchange's proposal to amend the term ``comprehensive
surveillance agreement'' within Options 4, Section 3(h)(2) (A)-(D) to
instead provide ``comprehensive surveillance sharing agreement'' is
consistent with the Act as the amendment will bring greater clarity to
the term.
The Exchange's proposal to add the phrase ``if not available or
applicable, the Exchange-Traded Fund's'' to Options 4, Section
3(h)(2)(B), (C), and (D) is consistent with the Act as it will clarify
that when component securities are not available, the portfolio of
securities upon which the Exchange-Traded Fund Share is based can be
used instead. This rule text currently exists within ISE Options 4,
Section 3(h).
The Exchange's proposal to amend and relocate the rule text within
Options 4, Section 3(h)(2)(B), (C), and (D) will bring greater clarity
to the current rule text by explicitly providing that the index being
referenced is the one on which the Exchange-Traded Fund Shares is
based. Also, adding ``or portfolio'' to Options 4, Section 3(h)(2)(C),
and (D) will bring greater clarity to the rule text by conforming the
rule text of (C) and (D) to the language within (B).
The proposed amendments to Options 4, Section 3(h) will conform
BX's rule text to ISE Options 4, Section 3(h).
The remainder of the change to Options 3, Section 3 are non-
substantive and intended to conform to ISE Options 3, Section 3. These
proposed changes 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 since the changes are
intended to ease the Participants', market participants', and the
general public's navigation and reading of the rules and lessen
potential confusion and add clarity for market participants.
The proposed amendments to Options 4, Section 4 remove unnecessary
rule text and make clear that options contracts that are no longer
approved will not be listed. The proposed amendments to adopt new
Options 4, Section 4(i) similar to ISE, Options 4, Section 4(i), are
consistent with the Act. Today, the Exchange would not open additional
series of HOLDRs without filing a rule change with the Commission and
adopting a corresponding rule. This rule text, similar to ISE,
explicitly provides that the Exchange would not open additional series
of options overlying HOLDRs (without prior Commission approval) if: (1)
The proportion of securities underlying standardized equity options to
all securities held in a HOLDRs trust is less than 80% (as measured by
their relative weightings in the HOLDRs trust); or (2) less than 80% of
the total number of securities held in a HOLDRs trust underlie
standardized equity options. This rule text bring greater clarity to
BX's rules in that HOLDRs would not be in certain circumstances.
The Exchange's proposal to remove the rule text within Options 4,
Section 4(l), related to inadequate volume delisting, is consistent
with the Act. To remain competitive with other options markets, the
Exchange proposes to adopt the same obligations for continuance of
trading.\19\ Also, pursuant to proposed new Options 4, Section 5(e) the
Exchange will announce securities that have been withdrawn. With this
proposal, the Exchange would eliminate the requirement that an option
must be trading for more than 6 months. The Exchange notes that this
condition is not present on other options markets such as ISE and
Cboe.\20\ This also applies to the requirement that the average daily
volume of the entire class of options over the last six (6) month
period was less than twenty (20) contracts. The Exchange notes that
BX's requirements are different than other options markets and to
remain competitive the Exchange proposes to adopt the same standards as
ISE and Cboe to remain competitive and list similar options as the
other markets. While the Exchange may in the future
[[Page 42953]]
determine to delist an option that is singly listed, the Exchange's
proposal to remove the rule text which provides that ``If the option is
singly listed only on the Exchange, the Exchange will cease to add new
series and may delist the class of options when there is no remaining
open interest'' is consistent with the Act. This rule text does not
exist on ISE and Cboe. The Exchange today provides notification of a
delisting to all members so therefore it is not necessary to retain the
provisions within (b)(2). Also, proposed new Options 4, Section 4(e)
establishes the rules by which the Exchange will announce securities
that have been withdrawn. The rule text within Options 4, Section 4(b),
as amended to conform to ISE rule text, will continue to govern the
continued approval of options on the Exchange.
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\19\ Options 4, Section 4(b), as amended, establishes
requirements for continued listing, similar to ISE.
\20\ See ISE Options 4, Section 4 and Cboe Rule 4.4.
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The remainder of the changes to Options 3, Section 3 remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general protects investors and the
public interest. Overall, these changes are of a non-substantive nature
and either modify, clarify or relocate the existing Rulebook language
to reflect the language of the ISE version of the rule and are intended
to ease the Participants', market participants', and the general
public's navigation and reading of the rules and lessen potential
confusion and add clarity for market participants.
The Exchange believes that the changes to proposed Options 4,
Section 8 removes impediments to and perfects the mechanism of a free
and open market and a national market system, and, in general protects
investors and the public interest because the changes are mainly of a
non-substantive nature with much of the rule text largely simply being
relocated from current Options 4, Section 5(a)(i)(D) to new Options 4,
Section 8(a) with some minor amendments and is intended to ease the
Participants', market participants', and the general public's
navigation and reading of the rules and lessen potential confusion and
add clarity for market participants.
The Exchange's proposal to amend Options 3, Section 8 and Options
4A, Section 12(b)(1)(i) to relocate text concerning bid/ask
differentials for long-term option series is consistent with the Act.
The Exchange's proposal will centralize the bid/ask differentials
within Options 2, Section 5(d)(2)(A) and add a sentence to both Options
3, Section 8 and Options 4A, Section 12(b)(1)(i) that cites to Options
2, Section 5(d)(2)(A) for information on bid/ask differentials for the
various products. The Exchange is not amending the bid/ask
differentials; the rule text is simply being relocated. The Exchange
believes that this relocation will provide Market Makers with
centralized information regarding their bid/ask differential
requirements.
The remainder of the changes to Options 3, Section 8 are non-
substantive.
The Exchange believes that adopting a new Section 9, Limitation on
the Liability of Index Licensors for Option on Fund Share, similar to
ISE, is consistent with the Act. Specifically, this proposal seeks to
limit the liability of index licensors who grant the BX a license to
use their underlying indexes or portfolios in connection with the
trading of options on Fund Shares. This rule text is identical to ISE
rule text.\21\ Proposed Section 9(b) provides that no index licensor
with respect to any index or portfolio underlying an option on
Exchange-Traded Fund Shares traded on the Exchange makes any warranty,
express or implied, as to the results to be obtained by any person or
entity from the use of such index or portfolio, any opening, intra-day
or closing value therefor, or any data included therein or relating
thereto, in connection with the trading of any option contract on
Exchange-Traded Fund Shares based thereon or for any other purpose. The
disclaimers within proposed Section 9 are consistent with the Act in
that these disclaimers provide market participants with relevant
information as to the liabilities on option contracts on Exchange-
Traded Fund Shares.
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\21\ See ISE Options Listing Rule Section 9.
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The Exchange believes that the adoption of Options 4, Section 10,
Back-up Trading Arrangements, will provide BX with similar abilities as
ISE to permit BX to enter into arrangements with one or more other
exchanges (each a ``Back-up Exchange'') to permit BX and its
Participants to use a portion of a Back-up Exchange's facilities to
conduct the trading of BX exclusively listed \22\ options in the event
of a Disabling Event, and similarly to permit BX to provide trading
facilities for another exchange's exclusively listed options if that
exchange (a ``Disabled Exchange'') is prevented from trading due to a
Disabling Event. With this proposal, BX is proposing to adopt listing
rules similar to Phlx to list and trade U.S. Dollar-Settled Foreign
Currency Options. BX believes that it is important that it develop
back-up trading arrangements to minimize the potential disruption and
market impact that a Disabling Event could cause. The proposed rule
changes are designed to address the key elements necessary to mitigate
the effects of a Disabling Event affecting the Exchange, minimize the
impact of such an event on market participants, and provide for a
liquid and orderly marketplace for securities listed and traded on the
Exchange if a Disabling Event occurs. In particular, the proposed rule
change is intended to ensure that BX's exclusively listed and singly
listed products will have a trading venue in the event that trading at
BX is prevented due to a Disabling Event. The Exchange believes that
having these back-up trading arrangements in place will minimize
potential disruptions to the markets and investors if a catastrophe
occurs that requires the Exchange's primary facility to be closed for
an extended period. Phlx and ISE has a similar rule,\23\ and the
Exchange believes that it is important to the protection of investors
and the public interest that it also adopt rules that allow BX
exclusively and singly listed options to continue to trade in the event
of a Disabling Event. The proposed rule change also provides authority
for the BX to provide a back-up trading venue should another exchange
be affected by a Disabling Event, which will benefit the markets and
investors if a Disabling Event were to happen on another exchange that
has entered into a back-up trading arrangement with the BX. Finally,
the proposed rule change grants authority to Exchange officials to take
action under emergency conditions, which should enable key actions to
be taken by BX representatives in the event of a Disabling Event, and
clarifies the fees that will apply if these back-up trading
arrangements are invoked, which will reduce investor confusion and
minimize the disruption to investors associated with a Disabling Event.
Under proposed paragraph (a)(1)(vi), members of the Back-up Exchange
shall not be authorized to trade in any BX exclusively listed options,
except that (i) BX may deputize willing brokers of the Back-up Exchange
as temporary BX Participants to permit them to execute orders as
Participants in BX exclusively listed options traded on BX's facility
at the Back-up Exchange, and (ii) the Back-up Exchange has agreed that
it will, at the instruction of BX, select members of the Back-up
Exchange that are willing to be deputized by BX as temporary BX
[[Page 42954]]
members authorized to trade BX exclusively listed options on BX's
facility at the Back-up Exchange for such period of time following a
Disabling Event as BX determines to be appropriate, and BX may deputize
such members of the Back-up Exchange as temporary BX members for that
purpose. The foregoing exceptions would permit members of the Back-up
Exchange to trade BX exclusively listed options on the BX facility on
the Back-up Exchange, if, for example, circumstances surrounding a
Disabling Event result in BX members being delayed in connecting to the
Back-up Exchange in time for prompt resumption of trading.
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\22\ As defined within the proposed rule, the term ``exclusively
listed option'' means an option that is listed exclusively by an
exchange (because the exchange has an exclusive license to use, or
has proprietary rights in, the interest underlying the option).
\23\ See Phlx and ISE Rules Options 3, Section 10.
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The Exchange's proposal to reserve Options 4C will make clear that
BX does not list U.S. Dollar-Settled Foreign Currency Options. Other
Nasdaq Affiliated exchanges, such as Nasdaq Phlx LLC, list U.S. Dollar-
Settled Foreign Currency Options and would therefore have rules in that
section. By marking Options 4C reserved, market participants will be
given additional insight into the types of products available on BX.
Technical Amendment
The Exchange's proposal to amend General 9, Section 51, Research
Analysts, to update an improper citation to ``General 9, Section 50''
to ``this Rule'' and remove stray periods throughout Options 4 in the
section headings are consistent with the Act. This non-substantive
amendment will bring greater clarity to the rule.
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 not necessary or appropriate in
furtherance of the purposes of the Act. The relocation of the Options
Listing Rules will facilitate the use of the Rulebook by Participants
of the Exchange, who are members of other Affiliated Exchanges; other
market participants; and the public in general. The changes are
consistent with the ISE Rulebook.
The Exchange's proposal to amend Options 4, Sections 1, 2, 5, and 7
reflects non-substantive amendments to conform those rules to similar
ISE rules at Options 4, Sections 1, 2, 5, and 7. These proposed changes
do not impose an undue burden on competition since the changes are
intended to ease the Participants', market participants', and the
general public's navigation and reading of the rules and lessen
potential confusion and add clarity for market participants.
The proposed amendments to ISE Options 3, Section 3(b) to permits
the Exchange, in exceptional circumstances, to select an underlying
security even though it does not meet all of the guidelines do not
impose an undue burden on competition. Today, the Exchange may
establish guidelines to be considered in evaluating potential
underlying securities for Exchange options transactions. Providing BX
with the same ability to select an underlying security even though it
does not meet all of the guidelines as ISE will permit BX to list
similar options as ISE for competitive purposes.
The Exchange's proposal to add the defined term ``Financial
Instruments'' within Options 4, Section 3(h) and also account for money
market instruments, U.S. government securities and repurchase
agreements, defined by the term ``Money Market Instruments'' similar to
ISE Options 4, Section 3(h) do not impose an undue burden on
competition. The addition of money market instruments, U.S. government
securities and repurchase agreements as securities deemed appropriate
for options trading will make clear that these agreements are included
in the acceptable securities.
The Exchange's proposal to remove the following products from
Options 4, Section 3(h): The ETFS Silver Trust, the ETFS Palladium
Trust, the ETFS Platinum Trust or the Sprott Physical Gold Trust do not
impose an undue burden on competition. The Exchange no longer lists
these products and proposes to remove them the products from its
listing rules.
The Exchange's proposal to amend Options 4, Section 3(h) by
removing the rule text at the end of the paragraph which provides,
``all of the following conditions are met,'' and creating separate
paragraphs for Options 4, Section 3(h)(1) and (2) does not impose an
undue burden on competition. These amendments will de-link these
subparagraphs so they are read independently. Today, Options 4, Section
3(h)(1) applies to all Exchange-Traded Fund Shares. The Exchange's
proposal to clarify that Options 4, Section 3(h)(2) applies to only
international or global Exchange-Traded Fund Shares that include non-
U.S. securities will bring greater clarity to the qualification
standards for listing options on Exchange-Traded Fund Shares.
Specifically, this language is intended to serve as a guidepost and
clarify that (1) subparagraph (h)(2) does not apply to an Exchange-
Traded Fund Shares based on a U.S. domestic index or portfolio, and (2)
subparagraph (h)(2) includes Exchange-Traded Fund Shares that track a
portfolio and do not track an index. This amendment will uniformly
apply the criteria within Options 4, Section 3 when it lists options
products on BX.
The Exchange's proposal to amend Options 4, Section 3(h)(2)(A) to
remove the phrase ``for series of portfolio depositary receipts and
index fund shares based on international or global indexes,'' does not
impose an undue burden on competition. Today, Options 4, Section 3(h),
subparagraphs (h)(1) and (h)(v) permit the Exchange to list options on
Exchange-Traded Fund Shares based on generic listing standards for
portfolio depositary receipts and index fund shares without applying
component based requirements in subparagraphs (h)(2)(B)-(D). By
removing the proposed rule text, the Exchange would make clear that
subparagraph (h)(2)(A) applies to Exchange-Traded Fund Shares based on
international or global indexes, or portfolios that include non-U.S.
securities, that are listed pursuant to generic listing standards and
comply with Options 4, Section 3(h) and subparagraph (h)(1). This
amendment will uniformly apply the criteria within Options 4, Section 3
when it lists options products on BX.
The Exchange's proposal to amend the term ``comprehensive
surveillance agreement'' within Options 4, Section 3(h)(2) (A)-(D) to
instead provide ``comprehensive surveillance sharing agreement'' does
not impose an undue burden on competition as the amendment will bring
greater clarity to the term.
The Exchange's proposal to add the phrase ``if not available or
applicable, the Exchange-Traded Fund's'' to Options 4, Section
3(h)(2)(B), (C), and (D) does not impose an undue burden on competition
as it will clarify that when component securities are not available,
the portfolio of securities upon which the Exchange-Traded Fund Share
is based can be used instead.
The Exchange's proposal to amend and relocate the rule text within
Options 4, Section 3(h)(2)(B), (C), and (D) will bring greater clarity
to the current rule text by explicitly providing that the index being
referenced is the one on which the Exchange-Traded Fund Shares is
based. Also, adding ``or portfolio'' to Options 4, Section 3(h)(2)(C),
and (D) will bring greater clarity to the rule text by conforming the
rule text of (C) and (D) to the language within (B).
The proposed amendments to Options 4, Section 4 remove unnecessary
rule text and make clear that options contracts that are no longer
approved
[[Page 42955]]
will not be listed. The proposed amendments to adopt new Options 4,
Section 4(i) similar to ISE, Options 4, Section 4(i), does not impose
an undue burden on competition. The amendments would provide for
provisions wherein the Exchange will not open additional series of
options overlying HOLDRs similar to ISE, which provisions do not
currently exist.
The Exchange's proposal to remove the rule text within Options 4,
Section 4(l), related to inadequate volume delisting, does not impose
an undue burden on competition. To remain competitive with other
options markets, the Exchange proposes to adopt the same obligations
for continuance of trading.\24\ Also, pursuant to proposed new Options
4, Section 5(e) the Exchange will announce securities that have been
withdrawn. With this proposal, the Exchange would eliminate the
requirement that an option must be trading for more than 6 months. The
Exchange notes that this condition is not present on other options
markets such as ISE and Cboe.\25\ This also applies to the requirement
that the average daily volume of the entire class of options over the
last six (6) month period was less than twenty (20) contracts. The
Exchange notes that BX's requirements are different than other options
markets and to remain competitive the Exchange proposes to adopt the
same standards as ISE and Cboe to remain competitive and list similar
options as the other markets. The Exchange's proposal removes the rule
text which provides that ``If the option is singly listed only on the
Exchange, the Exchange will cease to add new series and may delist the
class of options when there is no remaining open interest'' does not
impose an undue burden on competition. This rule text does not exist on
ISE and Cboe. The Exchange today provides notification of a delisting
to all members so therefore it is not necessary to retain the
provisions within (b)(2). Also, proposed new Options 4, Section 4(e)
establishes the rules by which the Exchange will announce securities
that have been withdrawn.
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\24\ Options 4, Section 4(b), as amended, establishes
requirements for continued listing, similar to ISE.
\25\ See ISE Options 4, Section 4 and Cboe Rule 4.4.
---------------------------------------------------------------------------
The Exchange believes that the changes to proposed Options 4,
Section 8 do not impose an undue burden on competition as the changes
are mainly of a non-substantive nature with much of the rule text
largely simply being relocated from current Options 4, Section
5(a)(i)(D) to new Options 4, Section 8(a) with some minor amendments.
The Exchange's proposal to amend Options 3, Section 8 and Options
4A, Section 12(b)(1)(i) to relocate text concerning bid/ask
differentials for long-term option series does not impose an undue
burden on competition. The Exchange believes that this relocation will
provide Market Makers with centralized information regarding their bid/
ask differential requirements.
Adopting a new Section 9, Limitation on the Liability of Index
Licensors for Option on Fund Share, similar to ISE does not impose an
undue burden on competition. The proposal seeks to limit the liability
of index licensors who grant the BX a license to use their underlying
indexes or portfolios in connection with the trading of options on Fund
Shares. This rule text is identical to ISE rule text.\26\ Proposed
Section 9(b) provides that no index licensor with respect to any index
or portfolio underlying an option on Exchange-Traded Fund Shares traded
on the Exchange makes any warranty, express or implied, as to the
results to be obtained by any person or entity from the use of such
index or portfolio, any opening, intra-day or closing value therefor,
or any data included therein or relating thereto, in connection with
the trading of any option contract on Exchange-Traded Fund Shares based
thereon or for any other purpose.
---------------------------------------------------------------------------
\26\ See ISE Options Listing Rule Section 9.
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The Exchange believes that the adoption of Options 4, Section 10,
Back-up Trading Arrangements, will provide BX with similar abilities as
ISE to permit BX to enter into arrangements with one or more other
exchanges (each a ``Back-up Exchange'') to permit BX and its
Participants to use a portion of a Back-up Exchange's facilities to
conduct the trading of BX exclusively listed \27\ options in the event
of a Disabling Event, and similarly to permit BX to provide trading
facilities for another exchange's exclusively listed options if that
exchange (a ``Disabled Exchange'') is prevented from trading due to a
Disabling Event. Permitting BX to list U.S. Dollar-Settled Foreign
Currency Options similar to Phlx would allow market participants
another venue in which to transact U.S. Dollar-Settled Foreign Currency
Options.
---------------------------------------------------------------------------
\27\ As defined within the proposed rule, the term ``exclusively
listed option'' means an option that is listed exclusively by an
exchange (because the exchange has an exclusive license to use, or
has proprietary rights in, the interest underlying the option).
---------------------------------------------------------------------------
Technical Amendment
The Exchange's proposal to amend General 9, Section 51, Research
Analysts, to update an improper citation to ``General 9, Section 50''
to ``this Rule'' and remove stray periods throughout Options 4 in the
section headings do not impose an undue burden on competition. This
non-substantive amendment will bring greater clarity to the rule.
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: (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)(iii) of the Act \28\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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\28\ 15 U.S.C. 78s(b)(3)(A)(iii).
\29\ 17 CFR 240.19b-4(f)(6). 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission
may designate a shorter time if such action is consistent with
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
[[Page 42956]]
rule change may become operative upon filing. The Exchange's proposal
does not raise any new or novel issues. Therefore, the Commission
believes that waving the 30-day operative delay is consistent with the
protection of investors and the public interest. Accordingly, the
Commission designates the proposed rule change to be operative on upon
filing.\32\
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\30\ 17 CFR 240.19b-4(f)(6).
\31\ 17 CFR 240.19b-4(f)(6).
\32\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#681a1d040d450b0705050d061c1b281b0d0b460f071e"><span class="__cf_email__" data-cfemail="7d0f081118501e1210101813090e3d0e181e531a120b">[email protected]</span></a>. Please include
File Number SR-BX-2021-032 on the subject line.
Paper Comments
<bullet> 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-BX-2021-032. 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BX-2021-032 and should be submitted on
or before August 26, 2021.
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\33\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16677 Filed 8-4-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on August 5, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.