Notice2022-16660
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Granting Approval of a Proposed Rule Change To Permit the Listing and Trading of P.M.-Settled Nasdaq-100 Index Options That Expire on Tuesday or Thursday Under Its Nonstandard Expirations Pilot Program
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 4, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 149 (Thursday, August 4, 2022)</title>
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[Federal Register Volume 87, Number 149 (Thursday, August 4, 2022)]
[Notices]
[Pages 47807-47809]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16660]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95393; File No. SR-ISE-2022-13]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Granting
Approval of a Proposed Rule Change To Permit the Listing and Trading of
P.M.-Settled Nasdaq-100 Index Options That Expire on Tuesday or
Thursday Under Its Nonstandard Expirations Pilot Program
July 29, 2022.
I. Introduction
On June 1, 2022, Nasdaq ISE, LLC (``ISE'' or the Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to add P.M.-
settled Nasdaq-100 Index (``NDX'') options that expire on Tuesday or
Thursday to the Exchange's Nonstandard Expirations Pilot Program
(``Pilot Program''). The proposed rule change was published for comment
in the Federal Register on June 21, 2022.\3\ No comments were received.
The Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 95101 (June 14,
2022), 87 FR 36894 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to amend Supplementary Material .07 to
Options 4A, Section 12, which governs its Pilot Program, to permit
P.M.-settled Nasdaq-100 Index (``NDXP'') options that expire on Tuesday
or Thursday. Under the existing Pilot Program, the Exchange is
permitted to list P.M.-settled options on broad-based indexes that
expire on: (1) any Monday, Wednesday, or Friday (``Weekly
Expirations'') and (2) the last trading day of the month (``End of
Month Expirations'' or ``EOMs'').\4\
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\4\ See Supplementary Material .07 to Options 4A, Section 12.
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Specifically, the proposed rule change amends Supplementary
Material .07(a) Options 4A, Section 12 to add NDXP options (P.M.-
settled) that expire on Tuesday or Thursday (``Tuesday and Thursday
NDXP Expirations'') as permissible Weekly Expirations under the Pilot
Program (currently set to expire on November 4, 2022).\5\ The Exchange
notes that permitting Tuesday and Thursday NDXP Expirations, as
proposed, is in addition to the NDXP options with Monday, Wednesday and
Friday expirations that the Exchange may (and does) already list
pursuant to Supplementary Material .07(a) to Options 4A, Section 12.\6\
The Pilot Program for Weekly Expirations will apply to Tuesday and
Thursday NDXP Expirations in the same manner as it currently applies to
P.M.-settled broad-based index options with Monday, Wednesday and
Friday expirations.\7\ As proposed, Supplementary Material .07(a) to
Options 4A, Section 12 provides that the Exchange may open for trading
Weekly Expirations on NDX options to expire on any Tuesday or Thursday
(other than days that coincide with the third Friday-of-the-month or an
EOM expiration).\8\
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\5\ See Notice, supra note 3, at 36894.
\6\ See id.
\7\ See id.
\8\ See id.
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The proposed weekly Tuesday and Thursday NDXP Expirations will be
subject to all provisions of Supplementary Material .07(a) to Options
4A, Section 12 in the same manner as existing Monday, Wednesday, and
Friday expirations.\9\ The maximum number of expirations that may be
listed for each Weekly Expiration (i.e., a Monday expiration, Tuesday
expiration, Wednesday expiration, Thursday expiration, or Friday
expiration, as applicable) in a given class is the same as the maximum
number of expirations permitted in Options 4A, Section 12(a)(3) for
standard options on the same broad-based index (which is 12 for NDXP
options).\10\ Further, other expirations in the same class are not
counted as part of the maximum number of Weekly Expirations for an
applicable broad-based index class.\11\ Weekly Expirations need not be
for consecutive Monday, Tuesday, Wednesday, Thursday, or Friday
expirations as applicable; however, the expiration date of a non-
consecutive expiration may not be beyond what would be considered the
last expiration date if the maximum number of expirations were listed
consecutively.\12\ Weekly Expirations that are initially listed in a
given class may expire up to four weeks from the actual listing
date.\13\ Additionally, the Tuesday and Thursday NDXP Expirations will
be treated the same as options on the same underlying index that expire
on the third Friday of the expiration month, except that they will be
P.M.-settled and new series in Weekly Expirations may be added up to
and including on the expiration date for an expiring Weekly
Expiration.\14\
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\9\ See id.
\10\ See proposed Supplementary Material .07(a) to Options 4A,
Section 12. See also Notice, supra note 3, at 36895.
\11\ See proposed Supplementary Material .07(a) to Options 4A,
Section 12.
\12\ See id.
\13\ See id.
\14\ See also Notice, supra note 3, at 36894.
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If the Exchange is not open for business on a Tuesday or Thursday,
the normally Tuesday- or Thursday-expiring NDXP options will expire on
the previous business day.\15\ The proposed rule change also adds that,
if two different Weekly Expirations on NDX would expire on the same day
because the Exchange is not open for business on a certain weekday, the
Exchange will list only one of such
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Weekly Expirations.\16\ Transactions in Weekly Expirations may be
effected on the Exchange between the hours of 9:30 a.m. (Eastern Time)
and 4:15 p.m. (Eastern Time), except that on the last trading day,
transactions in expiring Weekly Expirations may be effected on the
Exchange between the hours of 9:30 a.m. (Eastern time) and 4:00 p.m.
(Eastern time).\17\
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\15\ See id. at 36895.
\16\ See id. The Exchange believes it is appropriate to clarify
in the rule text that the Exchange will list just one Weekly
Expiration in such a case, as the two Weekly Expirations would
essentially be the same options contract. Id.
\17\ See id.
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Pilot Report
The Exchange proposes to abide by the same reporting requirements
for the trading of Tuesday and Thursday NDXP Expirations that it does
for the trading of P.M.-settled options on broad-based indexes that
expire on any Monday, Wednesday, or Friday pursuant to the Pilot
Program.\18\ The Exchange represented that it will continue to provide
the Commission with ongoing data regarding Tuesday and Thursday NDXP
Expirations unless and until the Nonstandard Pilot is made permanent or
discontinued.\19\ As provided in the Pilot Program Approval Order,\20\
the annual report will contain an analysis of volume, open interest and
trading patterns. In addition, for series that exceed certain minimum
open interest parameters, the annual report will provide analysis of
index price volatility and, if needed, share trading activity.\21\
Additionally, the Exchange will provide the Commission with any
additional data or analyses the Commission requests because it deems
such data or analyses necessary to determine whether the Pilot Program,
including Tuesday and Thursday NDXP Expirations as proposed, is
consistent with the Exchange Act.\22\ As it does for current Pilot
Program products, the Exchange will make public on its website all data
and analyses in connection with Tuesday and Thursday NDXP Expirations
it submits to the Commission under the Pilot Program.\23\ Going
forward, the Exchange states that it will include the same areas of
analysis for Tuesday and Thursday NDXP Expirations.\24\ The Exchange
also proposes to include the following market quality data, over sample
periods determined by the Exchange and the Commission, for NDXP options
(NDXP and standard NDX options) as part of the annual reports going
forward: (1) time-weighted relative quoted spreads; (2) relative
effective spreads; and (3) time-weighted bid and offer sizes.\25\
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\18\ See id.
\19\ See id.
\20\ See Securities Exchange Act Release No. 82612 (February 1,
2018), 83 FR 5470 (February 7, 2018) (approving SR-ISE-2017-111)
(Order Approving a Proposed Rule Change To Establish a Nonstandard
Expirations Pilot Program).
\21\ See Notice, supra note 3, at 36895.
\22\ See id.
\23\ See id.
\24\ See id.
\25\ See id. at 36895-96.
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Implementation
The Exchange proposes to implement this rule change on or before
August 1, 2022. The Exchange will issue an Options Trader Alert to
notify members and member organizations of the implementation date.\26\
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\26\ See id. at 36896.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, with Section 6(b) of the Act.\27\ In particular,
the Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act, \28\ which requires, among other things,
that a national securities exchange have rules designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\27\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\28\ 15 U.S.C. 78f(b)(5).
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As the Commission noted in its recent order approving the listing
and trading of P.M.-settled options on the S&P 500 Index that expire on
Tuesday or Thursday, the Commission has had concerns about the
potential adverse effects and impact of P.M. settlement upon market
volatility and the operation of fair and orderly markets on the
underlying cash markets at or near the close of trading, including for
cash-settled derivatives contracts based on a broad-based index.\29\
The potential impact today remains unclear, given the significant
changes in the closing procedures of the primary markets in recent
decades. The Commission is mindful of the historical experience with
the impact of P.M. settlement of cash-settled index derivatives on the
underlying cash markets, but recognizes that these risks may be
mitigated today by the enhanced closing procedures that are now in use
at the primary equity markets.
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\29\ See Securities Exchange Act Release No. 94682 (April 12,
2022), 87 FR 22993 (April 18, 2022) (CBOE-2022-005).
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The Exchange's proposal to add Tuesday and Thursday NDXP
Expirations to the existing Pilot Program would offer additional
investment options to investors and may be useful for their investment
or hedging objectives while providing the Commission with data to
monitor the effects of Tuesday and Thursday NDXP Expirations and the
impact of P.M. settlement on the markets. To assist the Commission in
assessing any potential impact of Tuesday and Thursday NDXP Expirations
on the options markets as well as the underlying cash equities markets,
the Exchange will be required to submit data to the Commission in
connection with the Pilot Program.\30\ Further, including the proposed
Tuesday and Thursday NDXP Expirations in the Pilot Program, together
with the data and analysis that the Exchange will provide to the
Commission, will allow the Exchange and the Commission to monitor for
and assess any potential for adverse market effects of allowing Tuesday
and Thursday NDXP Expirations, including on the underlying component
stocks. In particular, the data collected from the Pilot Program will
help inform the Commission's consideration of whether the Pilot
Program, as amended to include Tuesday and Thursday NDXP Expirations,
should be modified, discontinued, extended, or permanently approved.
Furthermore, the Exchange's ongoing analysis of the Pilot Program
should help it monitor any potential risks from large P.M.-settled
positions and take appropriate action if warranted.
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\30\ See Notice, supra note 3, at 36895-96.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Ac t.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-ISE-2022-13), be, and hereby
is, approved.
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\31\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16660 Filed 8-3-22; 8:45 am]
BILLING CODE 8011-01-P
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