Notice2022-22176
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend Two Pilot Programs
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Published
October 13, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 197 (Thursday, October 13, 2022)</title>
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[Federal Register Volume 87, Number 197 (Thursday, October 13, 2022)]
[Notices]
[Pages 62161-62163]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22176]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95993; File No. SR-Phlx-2022-39]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Extend Two Pilot
Programs
October 6, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 26, 2022, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 extend the pilot to permit the listing and
trading of options based on 1/100 the value of the Nasdaq-100 Index
(``Nasdaq-100'') and the Exchange's nonstandard expirations pilot
program, both currently set to expire on November 4, 2022.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/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
Phlx proposes to extend 2 pilots, which are both set to expire on
November 4, 2022. The Exchange proposes to extend (1) pilot to permit
the listing and trading of options based on 1/100 the value of the
Nasdaq-100 Index (``XND Pilot''), and (2) the Exchange's nonstandard
expirations pilot program (``Nonstandard Pilot'').
XND Pilot
Phlx filed a rule change to permit the listing and trading of index
options on the Nasdaq 100 Micro Index Options (``XND'') on a pilot
basis.\3\ XND options trade independently of and in addition to NDX
options, and the XND options are subject to the same rules that
presently govern the trading of index options based on the Nasdaq-100
Index, including sales practice rules, margin requirements, trading
rules, and position and exercise limits. Similar to NDX, XND options
are European-style and cash-settled, and have a contract multiplier of
100. The contract specifications for XND options mirror in all respects
those of the NDX options contract already listed on the Exchange,
except that XND options are based on 1/100th of the value of the
Nasdaq-100 Index, and are p.m.-settled pursuant to Options 4A, Section
12(a)(5).
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\3\ See Securities Exchange Act Release No. 91524 (April 9,
2021), 86 FR 19909 (April 15, 2021) (SR-Phlx-2021-07) (Approval
Order).
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The Exchange proposes to amend Phlx Options 4A, Section 12(a)(6) to
extend the current XND Pilot period to May 4, 2023. This pilot was
previously extended and is currently extended through November 4,
2022.\4\ The Exchange continues to have sufficient capacity to handle
additional quotations and message traffic associated with the listing
and trading of XND options. In addition, index options are integrated
into the Exchange's existing surveillance system architecture and are
thus subject to the relevant surveillance processes. The Exchange also
continues to have adequate surveillance procedures to monitor trading
in XND options thereby aiding in the maintenance of a fair and orderly
market. Additionally, there is continued investor interest in these
products and this extension will provide additional time to collect
data related to the XND
[[Page 62162]]
Pilot. The Exchange believes that the proposed extension of the XND
Pilot will not have an adverse impact on capacity.
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\4\ See Securities Exchange Act Release No. 93447 (October 28,
2021), 86 FR 60719 (November 3, 2021) (SR-Phlx-2021-66); and 94631
(April 7, 2022), 87 FR 21990 (April 13, 2022) (SR-Phlx-2022-16).
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XND Pilot Report
The Exchange currently makes public on its website the data and
analysis previously submitted to the Commission on the XND Pilot and
will continue to make public any data or analysis it submits under the
XND Pilot in the future. The Exchange intends to submit a rule change
proposing permanency of the XND Pilot and would either provide
additional data in such proposal or in an annual report. The Exchange
would continue to provide the Commission with ongoing data unless and
until the XND Pilot is made permanent or discontinued.
Nonstandard Pilot
On December 15, 2017, the Commission approved a rule change for the
listing and trading on the Exchange, on a twelve month pilot basis, of
p.m.-settled options on broad-based indexes with nonstandard
expirations dates (``Nonstandard Pilot'').\5\ The Nonstandard Pilot
permits both Weekly Expirations and End of Month (``EOM'') expirations
similar to those of the a.m.-settled broad-based index options, except
that the exercise settlement value of the options subject to the pilot
are based on the index value derived from the closing prices of
component stocks. On July 29, 2022, the Commission approved 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.\6\ The Nonstandard Pilot was
extended various times and is currently extended through November 4,
2022.\7\
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\5\ See Securities Exchange Act Release No. 82341 (December 15,
2017), 82 FR 60651 (December 21, 2017) (Notice of Filing of
Amendment No. 2, Order Approving a Proposed Rule Change, as Modified
by Amendment No. 1 and Granting Accelerated Approval of Amendment
No. 2, of a Proposed Rule Change To Establish a Nonstandard
Expirations Pilot Program).
\6\ See Securities Exchange Act Release No. 95391 (July 29,
2022), 87 FR 47797 (August 4, 2022) (SR-Phlx-2022-22) (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).
\7\ See Securities Exchange Act Release Nos. 84835 (December 17,
2018), 83 FR 65773 (December 21, 2018) (SR-Phlx-2018-80); 85669
(April 17, 2019), 84 FR 16913 (April 23, 2019) (SR-Phlx-2019-13);
87381 (October 22, 2019), 84 FR 57788 (October 28,2 019) (SR-Phlx-
2019-43); 88684 (April 17, 2020), 85 FR 22781 (April 23, 2020) (SR-
Phlx-2020-24); 90256 (October 22, 2020), 85 FR 68393 (October 28,
2020) (SR-Phlx-2020-48); 91484 (April 6, 2021), 86 FR 19050 (April
12, 2021) (SR-Phlx-2021-21); 93464 (October 29, 2021), 86 FR 60952
(November 4, 2021) (SR-Phlx-2021-65); and 94631 (April 7, 2022), 87
FR 21990 (April 13, 2022) (SR-Phlx-2022-16).
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Pursuant to Phlx Options 4A, Section 12(b)(5)(A) the Exchange may
open for trading Weekly Expirations on any broad-based index eligible
for standard options trading to expire on any Monday, Wednesday, or
Friday (other than the third Friday-of-the-month or days that coincide
with an EOM expiration). In addition, the Exchange may also open for
trading Weekly Expirations on Nasdaq-100 Index options to expire on any
Tuesday or Thursday (other than days that coincide with the third
Friday-of-the-month or an EOM expiration). Weekly Expirations are
subject to all provisions of Options 4A, Section 12 and are treated the
same as options on the same underlying index that expire on the third
Friday of the expiration month. Unlike the standard monthly options,
however, Weekly Expirations are p.m.-settled.
Similarly, pursuant to Options 4A, Section 12(b)(5)(B) the Exchange
may open for trading EOM expirations on any broad-based index eligible
for standard options trading to expire on the last trading day of the
month. EOM expirations are subject to all provisions of Options 4A,
Section 12 and treated the same as options on the same underlying index
that expire on the third Friday of the expiration month. However, the
EOM expirations are p.m.-settled.
The Exchange now proposes to amend Options 4A, Section 12(b)(5)(C)
so that the duration of the Nonstandard Pilot for these nonstandard
expirations will be through May 4, 2023. The Exchange continues to have
sufficient systems capacity to handle p.m.-settled options on broad-
based indexes with nonstandard expirations dates and has not
encountered any issues or adverse market effects as a result of listing
them. Additionally, there is continued investor interest in these
products. The Exchange will continue to make public on its website any
data and analysis it submits to the Commission under the Nonstandard
Pilot. The Exchange believes that the proposed extension of the
Nonstandard Pilot will not have an adverse impact on capacity.
Nonstandard Pilot Report
The Exchange intends to submit a rule change proposing permanency
of the Nonstandard Pilot and would either provide additional data in
such proposal or in an annual report. The Exchange would continue to
provide the Commission with ongoing data unless and until the
Nonstandard Pilot is made permanent or discontinued. The annual report
will contain an analysis of volume, open interest and trading patterns;
a monthly analysis of weekly expiration and End of Month Trading
Patterns; and a Provisional Analysis of Index Price Volatility and
Share Trading Activity. 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.\8\
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\8\ See note 5 above.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\9\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\10\ 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.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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XND Pilot
In particular, the Exchange believes that the XND Pilot has been
successful to date. The Exchange has not encountered any problems with
the XND Pilot. By extending the XND Pilot, the Exchange believes it
will attract order flow to the Exchange, increase the variety of listed
options, and provide a valuable hedge tool to retail and other
investors. Specifically, the Exchange believes that the XND Pilot will
provide additional trading and hedging opportunities for investors
while providing the Commission with data to monitor for and assess any
potential for adverse market effects of allowing P.M.-settlement for
XND options, including on the underlying component stocks.
Nonstandard Pilot
The Exchange believes the proposed rule change will protect
investors and the public interest by providing the Exchange, the
Commission and investors the benefit of additional time to analyze
nonstandard expiration options. In particular, the Exchange believes
that the Nonstandard Pilot has been successful to date. The Exchange
has not encountered any problems with the Nonstandard Pilot. By
extending the Nonstandard Pilot, investors may continue to benefit from
a wider array of investment opportunities. Additionally, both the
Exchange and the Commission may continue to monitor the potential for
adverse market effects
[[Page 62163]]
of p.m.-settlement on the market, including the underlying cash
equities market, at the expiration of these options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change will not impose an undue burden on inter-
market competition as this rule change will continue to facilitate the
listing and trading of new option products that will enhance
competition among market participants, to the benefit of investors and
the marketplace. Furthermore, these products could offer a competitive
alternative to other existing investment products. Finally, it is
possible for other exchanges to develop or license the use of a new or
different index to compete with these products and seek Commission
approval to list and trade options on such an index.
XND Pilot
XND options would be available for trading to all market
participants and therefore would not impose an undue burden on intra-
market competition. The continued listing of XND will enhance
competition by providing investors with an additional investment
vehicle, in a fully-electronic trading environment, through which
investors can gain and hedge exposure to the Nasdaq-100.
Nonstandard Pilot
Options with nonstandard expirations would be available for trading
to all market participants. The continued listing of the Nonstandard
Pilot will enhance competition by providing investors with an
additional investment vehicle, in a fully-electronic trading
environment, through which investors can gain and hedge exposure to the
Nasdaq-100.
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 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) of the Act \11\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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 change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#96e4e3faf3bbf5f9fbfbf3f8e2e5d6e5f3f5b8f1f9e0"><span class="__cf_email__" data-cfemail="0e7c7b626b236d6163636b607a7d4e7d6b6d20696178">[email protected]</span></a>. Please include
File Number SR-Phlx-2022-39 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-Phlx-2022-39. 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-Phlx-2022-39, and should be submitted on
or before November 3, 2022.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-22176 Filed 10-12-22; 8:45 am]
BILLING CODE 8011-01-P
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