Notice2022-26441
Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting Approval of a Proposed Rule Change To Permit the Listing and Trading of P.M.-Settled Nasdaq 100 Micro 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
December 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 233 (Tuesday, December 6, 2022)</title>
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[Federal Register Volume 87, Number 233 (Tuesday, December 6, 2022)]
[Notices]
[Pages 74688-74689]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-26441]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96411; File No. SR-Phlx-2022-38]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting
Approval of a Proposed Rule Change To Permit the Listing and Trading of
P.M.-Settled Nasdaq 100 Micro Index Options That Expire on Tuesday or
Thursday Under Its Nonstandard Expirations Pilot Program
November 30, 2022.
I. Introduction
On October 4, 2022, Nasdaq PHLX LLC (``Phlx'' 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
expand the Exchange's Nonstandard Expirations Pilot Program (``Pilot
Program'') to permit the listing and trading of P.M.-settled Nasdaq 100
Micro Index Options (``XND'') that expire on Tuesday or Thursday. The
proposed rule change was published for comment in the Federal Register
on October 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. 96090 (October 17,
2022), 87 FR 64119 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to expand the Pilot Program by amending
Options 4A, Section 12(b)(5) to permit the listing and trading of XND
options that expire on any Tuesday or Thursday. The Pilot Program
permits the listing and trading of P.M.-settled options on broad-based
indexes with nonstandard expirations dates.\4\ Under the Pilot Program,
the Exchange may open for trading P.M.-settled options on broad-based
indexes that expire on: (1) any Monday, Wednesday, or Friday and, with
respect to options on the Nasdaq-100 Index (``NDX''),\5\ any Tuesday or
Thursday (``Weekly Expirations'') \6\ and (2) the last trading day of
the month (``EOMs'').\7\ The Exchange notes that permitting XND options
with Tuesday and Thursday expirations, as proposed, would be in
addition to the XND options with Monday, Wednesday and Friday
expirations that the Exchange currently lists, as they are permissible
Weekly Expirations for options on a broad-based index pursuant to
Options 4A, Section 12(b)(5)(A).\8\
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\4\ See Securities Exchange Act Release No. 82341 (December 15,
2017), 82 FR 60651 (December 21, 2017) (approving SR-Phlx-2017-79)
(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) (``Pilot Program Approval Order'').
\5\ 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. See Notice, supra
note 3, at 64119.
\6\ See Options 4A, Section 12(b)(5)(A).
\7\ See Options 4A, Section 12(b)(5)(B).
\8\ See Notice, supra note 3, at 64119.
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The Exchange states that the Pilot Program will apply to XND
options with Tuesday and Thursday expirations in the same manner as it
currently applies to all other P.M.-settled broad-based index options
with Monday, Wednesday, and Friday expirations and to Nasdaq-100 Index
options with Tuesday and Thursday expirations.\9\ Options with Tuesday
and Thursday expirations, including the proposed XND Tuesday and
Thursday expirations, would be subject to all provisions within Options
4A, Section 12(b)(5) and treated the same as options on the same
underlying index that expire on the third Friday of the expiration
month; provided, however, that Weekly Expirations are 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.\10\
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\9\ See id.
\10\ See Notice, supra note 3, at 64119-64120.
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The Exchange states that the maximum number of XND options
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 would
be the same as the maximum number of expirations permitted in Options
4A, Section 12(a)(4) \11\ for standard options on the same broad-based
index.\12\
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\11\ Options 4A, Section 12(a)(4) provides, ``Index options
contracts may expire at three (3)-month intervals or in consecutive
weeks or months. The Exchange may list: (i) up to six (6) standard
monthly expirations at any one time in a class, but will not list
index options that expire more than twelve (12) months out; (ii) up
to 12 standard monthly expirations at any one time for any class
that the Exchange (as the Reporting Authority) uses to calculate a
volatility index; and (iii) up to 12 standard (monthly) expirations
in NDX options and XND options.''
\12\ See Notice, supra note 3, at 64120.
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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. Weekly Expirations that are
initially listed in a given class may expire up to four weeks from the
actual listing date. If the Exchange lists EOMs and Weekly Expirations
as applicable in a given class, the Exchange will list an EOM instead
of a Weekly Expiration that expires on the same day in the given class.
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.\13\
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\13\ See id.
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If the Exchange is not open for business on a respective Monday,
the normally Monday expiring Weekly Expirations will expire on the
following business day.\14\ If the Exchange is not open for business on
a respective Tuesday, Wednesday, Thursday, or Friday, the normally
Tuesday, Wednesday, Thursday, or Friday expiring Weekly Expirations
will expire on the previous business day.\15\ The proposed rule change
also adds that if two different Weekly Expirations on XND options 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 Weekly
Expirations. 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 that on the last trading day, transactions
in expiring P.M.-settled broad-based index options may be effected on
the Exchange
[[Page 74689]]
between the hours of 9:30 a.m. (Eastern time) and 4:00 p.m. (Eastern
time).\16\
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\14\ See id.
\15\ See id.
\16\ See id.; see also, Options 4A, Section 12(b)(5)(D).
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Pilot Report
The Exchange states that it intends to submit a rule change
proposing permanency of the Pilot Program to the Commission and would
include data regarding XND options that expire on Tuesdays or Thursdays
as it does for current Weekly Expirations on any broad-based index
option either by providing additional data in such proposal or in an
annual report regarding XND options that expire on each trading day of
the week, as proposed.\17\ The Exchange would also continue to provide
the Commission with ongoing data regarding XND options that expire on
Tuesdays or Thursdays unless and until the Pilot Program is made
permanent or discontinued.\18\
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\17\ See Notice, supra note 3, at 64120.
\18\ See id.
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As provided in the Pilot Program Approval Order,\19\ 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.\20\
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 XND options with Tuesday and Thursday expirations as
proposed, is consistent with the Act.\21\ As it does for current Pilot
Program products, the Exchange will make public on its website all data
and analyses in connection with XND options with Tuesday and Thursday
expirations it submits to the Commission under the Pilot Program.\22\
Going forward, the Exchange will include the same areas of analysis for
XND options with Tuesday and Thursday expirations. The Exchange also
proposes to include the following market quality data, over sample
periods determined by the Exchange and the Commission, for XND options
(XND 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.\23\
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\19\ See supra note 5.
\20\ See Notice, supra note 3, at 64120.
\21\ See id.
\22\ See Notice, supra note 3, at 64120-64121.
\23\ See Notice, supra note 3, at 64121.
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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.\24\ In particular,
the Commission finds that the proposed rule change is consistent with
section 6(b)(5) of the Act,\25\ 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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\24\ 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).
\25\ 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.\26\
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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\26\ 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 XND 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 XND expirations and the impact of P.M.
settlement on the markets. To assist the Commission in assessing any
potential impact of Tuesday and Thursday XND 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.\27\ Further, including the proposed Tuesday and
Thursday XND 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
XND 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 XND 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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\27\ See Notice, supra note 3, at 64120-64121.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-Phlx-2022-38), be, and
hereby is, approved.
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\28\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26441 Filed 12-5-22; 8:45 am]
BILLING CODE 8011-01-P
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