Notice2023-04224
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To Make Permanent Certain P.M.-Settled Pilots
Primary source
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Published
March 2, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 41 (Thursday, March 2, 2023)</title>
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<body><pre>[Federal Register Volume 88, Number 41 (Thursday, March 2, 2023)]
[Notices]
[Pages 13182-13197]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-04224]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96979; File No. SR-ISE-2023-08]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change To Make Permanent Certain P.M.-Settled Pilots
February 24, 2023.
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 February 23, 2023, Nasdaq ISE, LLC (``ISE'' 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 make permanent the pilot to permit the
listing and trading of options based on \1/5\ the value of the Nasdaq-
100 Index
[[Page 13183]]
(``Nasdaq-100'' or ``NDX'') and the Exchange's nonstandard expirations
pilot program which are both currently set to expire on May 4, 2023.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/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
ISE proposes to make permanent 2 pilots, which are both set to
expire on May 4, 2023: (1) the Exchange' s pilot to permit the listing
and trading of options based on \1/5\ the value of the Nasdaq-100 Index
(``NQX Pilot''), and (2) the Exchange's nonstandard expirations pilot
program (``Nonstandard Pilot'').
NQX Pilot
ISE filed a rule change to permit the listing and trading of index
options on the Nasdaq 100 Reduced Value Index (``NQX'') on a twelve
month pilot basis.\3\ NQX options trade independently of and in
addition to NDX options, and the NQX options are subject to the same
rules that presently govern the trading of index options based on the
Nasdaq-100, including sales practice rules, margin requirements,
trading rules, and position and exercise limits. Similar to NDX, NQX
options are European-style and cash-settled, and have a contract
multiplier of 100. The contract specifications for NQX options mirror
in all respects those of the NDX options contract listed on the
Exchange, except that NQX options are based on \1/5\ of the value of
the Nasdaq-100, and are p.m.-settled pursuant to Options 4A, Section
12(a)(6).
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\3\ See Securities Exchange Act Release No. 82911 (March 20,
2018), 83 FR 12966 (March 26, 2018) (SR-ISE-2017-106) (Approval
Order).
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The Exchange proposes to amend ISE Options 4A, Section 12(a)(6)(i)
to make permanent the current NQX Pilot. The NQX Pilot was extended
various times with the last extension through May 4, 2023.\4\ The
Exchange continues to have sufficient capacity to handle additional
quotations and message traffic associated with the listing and trading
of NQX 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 NQX options thereby aiding in the maintenance of a fair and orderly
market. Additionally, there is continued investor interest in NQX.
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\4\ See Securities Exchange Act Release Nos.86071 (June 10,
2019), 84 FR 27822 (June 14, 2019) (SR-ISE-2019-18); 87379 (October
22, 2019), 84 FR 57793 (October 28, 2019) (SR-ISE-2019-27); 88683
(April 17, 2020), 85 FR 22768 (April 23, 2020) (SR-ISE-2020-18);
90257 (October 22, 2020), 85 FR 68387 (October 28, 2020) (SR-ISE-
2020-33); 91485 (April 6, 2021), 86 FR 19052 (April 12, 2021) (SR-
ISE-2021-05); 93448 (October 28, 2021), 86 FR 60717 (November 3,
2021) (SR-ISE-2021-22); 94632 (April 7, 2022), 87 FR 21940 (April
13, 2022) (SR-ISE-2022-09); and 96177 (October 28, 2022), 87 FR
66335 (November 3, 2022) (SR-ISE-2022-23).
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Nonstandard Pilot
ISE filed a proposed 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.\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. The Nonstandard Pilot was extended
various times with the last extension through May 4, 2023.\6\
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\5\ 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).
\6\ See Securities Exchange Act Release Nos. 85030 (February 1,
2019), 84 FR 2633 (February 7, 2019) (SR-ISE-2019-01); 85672 (April
17, 2019), 84 FR 16899 (April 23, 2019) (SR-ISE-2019-11); 87380
(October 22, 2019), 84 FR 57786 (October 28, 2019) (SR-ISE-2019-28);
88681 (April 17, 2020), 85 FR 22775 (April 23, 2020) (SR-ISE-2020-
17); 90265 (October 23, 2020), 85 FR 68605 (October 29, 2020) (SR-
ISE-2020-34); 91486 (April 6, 2021), 86 FR 19048 (April 12, 2021)
(SR-ISE-2021-06); and 93449 (October 28, 2021), 86 FR 60679
(November 3, 2021) (SR-ISE-2021-23); 94632 (April 7, 2022), 87 FR
21940 (April 13, 2022) (SR-ISE-2022-09); and 95992 (October 6,
2022), 87 FR 62163 (October 13, 2022) (SR-ISE-2022-20).
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Supplementary Material .07(a) to Options 4A, Section 12 provides
that 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). 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.
Pursuant to Supplementary Material .07(b) to Options 4A, Section 12
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.
At this time, the Exchange proposes to make permanent the
Nonstandard Pilot. The Exchange has 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.
In support of the permanency of the NQX Pilot and the Nonstandard
Pilot, the Exchange empirically assessed the impact of p.m.-settled NDX
options on options market quality and examined market capacity around
the market close.\7\ Specifically, the Exchange analyzed trading
volume, open interest, spreads, and closing auction volumes. In recent
years, ISE has implemented changes and introduced new types of index
options tied to the Nasdaq-100 Index[supreg] (ticker symbol ``NDX'').
This report presents a set of empirical findings relating the impact of
these changes, submitted in support of a request for permanency of the
NQX Pilot and the Nonstandard Pilot.
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\7\ This includes p.m.-settled products trading on ISE (NQX
Pilot and the Nonstandard Pilot) as well as p.m.-settled products
trading on Phlx (XND Pilot and the Nonstandard Pilot). Phlx filed a
similar request for permanency of its p.m.-settled pilots. See SR-
Phlx-2023-04 (not yet noticed).
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[[Page 13184]]
A general timeline of events since 2017 is as follows:
<bullet> In January 2017, the Exchange discontinued licensing
agreements with competing options exchanges for the listing and trading
of NDX options. This discontinuation led to a gradual reduction in the
number of NDX expiries listed on these exchanges. By 2019 trading in
NDX-related options therefore became exclusively done on three Nasdaq-
affiliated exchanges: Nasdaq Phlx, LLC (``Phlx''), ISE, and Nasdaq
GEMX, LLC (``GEMX'').
<bullet> In January 2018, the expiration of NDX options on Fridays,
other than the third Friday-of-the-month, was changed from a.m.-settled
to p.m.-settled. Third-Friday expirations continued to be a.m.-settled
as before. The p.m.-settled index options were given the new trading
symbol ``NDXP''. These contracts were exclusively listed on Phlx and
ISE.
<bullet> In June 2018, a new contract was introduced based on the
Nasdaq-100 Index but with reduced notional value. The underlying index
of the new contract, symbol ``NQX,'' was set at one-fifth the value of
the NDX (with contract multiplier remaining at $100). This contract
trades exclusively on ISE, and is p.m. settled on Fridays.
<bullet> In September 2018, a p.m.-settled index option, ``NDXP,''
was introduced that expired on Wednesdays of each week. It was listed
exclusively on Phlx and ISE.
<bullet> In February 2020, a p.m.-settled NDXP index option was
introduced that expired on Mondays of each week. It was listed
exclusively on Phlx and ISE.
<bullet> In April 2021, a second reduced value contract was
introduced. The underlying index, ``XND'', is set at one-hundredth (1%)
of the NDX (with contract multiplier remaining at $100). The notional
value is therefore equal to the level of the Nasdaq-100 Index. This
contract trades on Phlx and is p.m.-settled.
<bullet> On July 29, 2022, ISE received approval to list and trade
p.m.-settled NDX index options that expire on Tuesday or Thursday under
its Nonstandard Expirations Pilot Program.\8\
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\8\ The Exchange notes that Tuesday and Thursday weeklies on the
Nasdaq-100 Index have been trading for less than one month. See
<a href="http://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2022-26">http://www.nasdaqtrader.com/MicroNews.aspx?id=OTA2022-26</a>.
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<bullet> On October 3, 2022, ISE commenced listing p.m.-settled
quarterly option on the Nasdaq-100 Index.
Following terminological convention, the Exchange refers to the
traditional third Friday expiration series as ``monthly'' contracts,
while the other series are referred to as ``weekly'' contracts. In this
report, the new p.m.-settled index options will be written as NDXP-Fri,
NDXP-Wed, and NDXP-Mon based on their expiration day. The NDX contracts
that formerly expired on Fridays, other than the third Friday-of-the-
month, will be referred to as NDX-Weekly, indicating their status as
weekly contracts. The monthly third Friday NDX contract will be denoted
NDX-Monthly. NQX and XND are considered weekly contracts. It may be
noted that when Friday is a market holiday, the expiration moves to the
prior Thursday.\9\ When Wednesday is a holiday, expiration of Wednesday
contracts moves forward to Tuesday. When Monday is a holiday, Monday
expirations move back to Tuesday.\10\
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\9\ See Supplementary Material .07(a) of ISE Options 4A, Section
12.
\10\ Id.
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The purpose of this report is to empirically assess the impact of
these changes on NDX options markets, with a special focus on the
market quality of the incumbent a.m.-settled NDX index options and
market capacity around the market close. The Exchange provides a
comprehensive analysis in this report on the impact of p.m.-settled
index options on a.m.-settled NDX index options, including option
trading volume, option open interests and option liquidity.\11\ In
assessing the impact of the innovations on market quality, the Exchange
uses options on the Invesco QQQ Trust Series 1 (``QQQ'') \12\ as a
control group. While activity in QQQ options would capture trading
interest in the Nasdaq-100 Index generally and may reflect market
conditions, it would be largely unaffected by the innovations
considered in this report. QQQ options include monthly third Friday
expirations, weekly non-third Friday expirations, and contracts
expiring the end of the quarter.\13\
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\11\ Today, NDX options are a.m.-settled and p.m.-settled.
\12\ Invesco QQQ\TM\ is an exchange-traded fund based on the
Nasdaq-100 Index.
\13\ For the purpose of spread analysis we match on option
price, moneyness category, time to maturity and option's expiration
month.
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Historically there have been concerns that p.m.-settled index
options could result in increased market and price volatility in the
underlying component stocks, due to the unwinding of hedge-related
positions at the close on expiration. A study conducted on behalf of
the Securities and Exchange Commission's Division of Economic and Risk
Analysis \14\ shows that the market share for p.m.-settled options on
S&P 500[supreg] Index has grown substantially since 2007. As the
expiration date for p.m.-settled index options is more scattered
compared to that for a.m.-settled options, only a smaller percentage of
open interest expires on each date. As a result, p.m.-settled index
option expirations are unlikely to cause any disruptive effect on the
market. The DERA Staff PM Pilot Memo also shows that expiring open
interest of a.m.-settled options may have had an economically small
impact on the volatility of the Nasdaq-100 index around the open.\15\
The DERA Staff PM Pilot Memo further shows that, although p.m.-settled
index option trading volume may have a statistically significant
relationship with the volatility of the underlying index around the
market close, the economic significance was generally small. In its
report, the Exchange provides additional analysis on market capacity
around the market close. As the closing auction price is the most
widely used reference price for mutual funds and for many exchange-
traded products, closing auction volume has grown substantially in
recent years. In this report, the Exchange shows that the closing
auction volume on the equity market have become much larger than the
opening auction, which may indicate that there is sufficient liquidity
in closing auctions to absorb liquidity demand associated with p.m.-
settlement of NDX and NQX index options.
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\14\ See Securities and Exchange Commission, Division of
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM
Cash-Settled Index Option Pilots (February 2, 2021) (``DERA Staff PM
Pilot Memo''), available at: <a href="https://www.sec.gov/dera/staff-papers/studies-and-reports/analysis-of-pm-cash-settled-index-option-pilots">https://www.sec.gov/dera/staff-papers/studies-and-reports/analysis-of-pm-cash-settled-index-option-pilots</a>.
\15\ Table 20 of the DERA Staff PM Pilot Memo suggests that a
$10 billion increase in option settlement quantity is associated
with an increase in absolute return of 0.025% near the open. The
report also shows that expiring open interest of a.m.-settled
options had no significant impact on the volatility of the
underlying index near the open for the S&P 500 Index.
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In addition to analysis on closing auctions, the report presents
findings on three market characteristics: trading volume, open
interest, and spreads. The Exchange finds that the trading volume and
the notional open interests for options that had NDX and NQX as the
underlying increased during our sample period. In conclusion, there is
no evidence that NDX and NQX options contracts, which are p.m.-settled,
would result in reduced trading activity or degradation in market
quality of the a.m.-settled index options.
[[Page 13185]]
Analysis of Volume
The introduction of p.m.-settled index options and its impact on
the trading activity of a.m.-settled options is likely the single most
important factor under consideration. Volume is the primary indicator
of trading interest and it drives market quality to a large extent.
Consolidated volume information is available from The Options Price
Reporting Authority (``OPRA''), the source of information used in this
section. The sample period used for this report is 2017 through April
2022.
Consolidation of Trading on Nasdaq Affiliated Exchanges
As noted above, trading in NDX options began to consolidate
exclusively onto Nasdaq-owned affiliated exchanges starting in 2017;
the impact on volume was not immediate. Since January 2017, non-Nasdaq
exchanges ceased listing new NDX options series, but continued with
previously listed NDX options. The following table shows the percentage
of NDX options contract volume traded on non-Nasdaq exchanges, which at
the time included Cboe Exchange, Inc. (``Cboe''), NYSE American LLC,
and NYSE Arca, Inc. Of these three markets, Cboe was the largest in
volume. The Nasdaq affiliated exchanges trading NDX options were Phlx,
ISE and GEMX.
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\16\ As noted herein, this refers to the monthly third Friday
a.m.-settled NDX contract.
\17\ As noted above, this refers to the p.m.-settled NDX
contracts that formerly expired on Fridays, other than the third
Friday-of-the-month.
\18\ NDXP-Wed and NDXP-Mon are the p.m.-settled NDX contracts
expiring on Wednesday and Monday, respectively.
\19\ The full data supporting the graph is shown in the
appendix.
Table 1-NDX Volume on Non-Nasdaq Exchanges
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Non-Nasdaq
Year Quarter share %
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2017.................................... 1 22.2
2 16.4
3 2.2
4 5.5
2018.................................... 1 0.3
2 0.7
3 0.1
4 4.2
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By 2018 volume on the non-Nasdaq exchanges had largely disappeared.
The surge in volume during the final quarter of 2018 was likely due to
the end-of-year final closing of positions--note the similar bump in
2017. There was no NDX options volume from non-Nasdaq exchanges after
2018.
Contract Volume and Notional Volume
Contract volume in the regular-sized Nasdaq-100 Index contracts may
be broken down into five time series: (1) the incumbent NDX-Monthly;
\16\ (2) the NDX-Weekly contract transitioning to NDXP-Fri; \17\ and
(3) the introduction of NDXP-Wed and NDXP-Mon.\18\ The following graph
shows monthly totals for each of these five groups.\19\
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN02MR23.022
A number of observations can be drawn from the graph.
<bullet> The overall total contract volume remained almost flat
until the pandemic market recovery started in the Spring of 2020. From
Fall 2020 forward there has been substantial growth in volume. It
appears that most of the recent growth has come from the NDX-Weekly
contracts.
<bullet> The volumes of NDX-Monthly and NDX-Weekly were roughly
equivalent during 2017. This is noteworthy for the fact that for any
given month there would usually be at least three, and
[[Page 13186]]
sometimes four times, the number of front-month expiries for the weekly
contract. The Exchange can infer, then, that the monthly contracts tend
to have substantially higher volume per series than the weekly
contracts.
<bullet> When NDX-Weekly transitioned to NDXP-Fri, the volume
relationship with NDX-Monthly remained roughly the same.
<bullet> Soon after launch, the NDXP-Wed contracts achieved volume
levels not much lower than the NDXP-Fri contracts, and, in turn, not
much lower than the monthly contracts.
<bullet> Soon after launch, the NDXP-Monday contracts achieved
volume levels not much lower than the NDXP-Fri contracts, and, in turn,
not much lower than the monthly contracts.
<bullet> By the end of the sample period, each of the four
remaining contract types had roughly the same value (again recognizing
the differing number of expiries).
Each of the current contract types garner substantial trading
volume.
Regarding the NDX-Weekly/NDXP-Fri transition, Figure 2, which ends
in August 2018, takes a closer look at the timeframe immediately prior
to the launch of NDXP-Wed. The transition month of January 2018 is not
shown (both contract types had volume during January).
[GRAPHIC] [TIFF OMITTED] TN02MR23.023
Though NDXP-Fri volume was relatively low in May 2018, there is no
sign of a substantial sustained drop in volume accompanying the
transition.
During the timeframe under consideration in this report there has
been a remarkable increase in the level of the Nasdaq-100 Index, a
rough tripling of the index from early 2017 to April 2022. The notional
value of a regular-sized contract is $100 times the level of the index,
and so it has tripled during the sample period, and is currently
roughly $1.3 million. In light of these changes, it is useful to
consider volume from the perspective of notional value traded rather
than contracts.
Figure 3 shows the sum of monthly notional value traded for NDX-
Monthly and for the total of all five of the contract types. The
notional value traded was computed as the sum of contracts traded times
the monthly average value of the Nasdaq-100 Index times $100. The graph
also shows linear trend lines for each time series.
[[Page 13187]]
[GRAPHIC] [TIFF OMITTED] TN02MR23.024
It appears that while the notional volume of the incumbent monthly
contract has been flat, the total volume of all contract types exhibit
a positive trend, with remarkable growth since the Fall of 2020. It
appears, therefore, that the introduction of p.m.-settlement is
associated with an increase in NDX options trading.
Comparison With QQQ Volume
The positive volume trend may be due to the remarkable performance
of the Nasdaq-100 Index during this timeframe. To rule out this
alternative explanation, the exchange compare the volume in NDX/NDXP
index options to QQQ ETF options. It is worth noting that the notional
volume of a QQQ option contract has been much lower than that of an
index option. During the sample period, the average notional value of
an index option contract was about $936,000, while a single QQQ
contract had notional value of about $23,000.
Figure 4 presents a time series of the ratio of the sum of monthly
contract volume in the indicated index option contracts to the sum of
contract volume in QQQ options. For NDX-Monthly index options, only QQQ
volume from third Friday expiring contracts was used. Since both the
index and ETF options have the same underlying index, the observed
trend is similar if notional volumes were used instead.
[GRAPHIC] [TIFF OMITTED] TN02MR23.025
[[Page 13188]]
The graph shows a substantial decline in the relative level of the
index option volume during 2017. This decline is too large to be
explained by the reduction in the share of options trading on non-
Nasdaq exchanges. The decline stabilized at the start of 2018.
NQX Volume
In spite of the very high notional volume of NDX/NDXP options,
volume in the reduced-value NQX options has never been higher than NDXP
trading volume (perhaps due to the availability of QQQ options). Figure
5 shows monthly volume for all NQX contracts. Shown are both the volume
in terms of contracts traded, as well as NQX volume relative to the
total volume of NDX/NDXP contracts. For the latter calculation, the NQX
contract volume was divided by 5 to reflect its reduced notional value.
[GRAPHIC] [TIFF OMITTED] TN02MR23.026
Since launch, NQX volume has grown, both in absolute terms and
relative to NDX/NDXP volume. The period of extreme market volatility
surrounding the pandemic crisis in the Spring of 2020 led to a volume
spike, as did the market recovery of the Fall of 2020. Even so, the
relative level of NQX volume was very low relative to that of the
regular-valued indexes. Due to the low level of NQX volume, it seems
unlikely that its introduction had a significant impact on the market
quality of the full-sized NDX contracts. Therefore, no further analysis
was attempted on NQX options.
XND Volume
Trading in XND options contracts is relatively new.\20\ The
following table shows XND monthly contract volume for the first year of
trading.
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\20\ As noted herein, XND began trading in April 2021.
[GRAPHIC] [TIFF OMITTED] TN02MR23.027
The low level of XND options volume suggests that the introduction
of XND did not have a noticeable impact on the trading of the incumbent
NDX/NDXP contracts.
Analysis of Open Interest
The Exchange next considered trends in open interest for the
Nasdaq-100 Index options. The Options Clearing Corporation (``OCC'')
data was utilized as source data for this analysis. Open interest
measures positions held overnight; positions that are established and
closed during the day are not captured.
Figure 6 shows the open interest, in contracts, as of the last
trading day of the indicated month.
[[Page 13189]]
[GRAPHIC] [TIFF OMITTED] TN02MR23.028
The open interest in NDX-Monthly is remarkably stable during this
timeframe, and is substantially higher than that of the weekly
contracts. After transitioning to p.m.-settlement, the open interest in
NDXP-Fri contract started to decline while it increased in the second
half of 2022. The open interest in the Wednesday and Monday contracts
has always been relatively low.
Further insight is shown in the following graph, which shows the
ratio of open interest in weekly contracts to that of the monthly
contract (that is, the open interest sum of NDX-Weekly, NDXP-Fri, -Wed,
and Mon divided by the open interest in NDX-Monthly).
[GRAPHIC] [TIFF OMITTED] TN02MR23.029
The graph shows a clear decline in the ratio of weekly to monthly
open interest, starting at the beginning of 2018, but the declining
trend stabilized at the end of Q1 2018. When considered with the volume
information shown above, this may be because options traders with
longer holding horizons may be more likely to trade the monthly
contract, while those with shorter intra-day positions are more likely
to use the weekly contracts. This tendency is reflected in the listing
of expiries. At any given time, expirations out to a year or more are
available for the monthlies, while expirations only out a month or so
are available for the weeklies.
As noted above, the notional value of Nasdaq-100 Index options has
roughly tripled during this timeframe. It is therefore useful to
consider the trends in open interest from a notional perspective, as
shown in the following graph.
[[Page 13190]]
[GRAPHIC] [TIFF OMITTED] TN02MR23.030
A clear positive trend is evident for the monthly contract in terms
of notional value. The weeklies showed a flat trend that has increased
since the Fall of 2020.
As discussed above, we designate QQQ options as a control group for
our analysis. Figure 9 shows the ratio (in contracts) of Nasdaq-100
Index options to QQQ options. As noted herein, the trend is unaffected
when measuring open interest in contracts or notional value. The graph
shows the ratio for monthly contracts for NDX and QQQ, as well as for
NDX/NDXP and QQQ.
[GRAPHIC] [TIFF OMITTED] TN02MR23.031
This graph closely mirrors the volume graph shown above in Figure
9. There was a distinct decline during 2017 in month-end open interest,
but the trend stabilized at the start of 2018 and has remained flat
since then.
Analysis of Spreads
An important dimension of market quality is the cost of trading.
Following Holden and Jacobsen (2014),\21\ the Exchange used duration
weighted relative quoted spread as a measure of the cost of trading. In
this section, the Exchange examines whether there is any deterioration
of spreads to a.m.-settled
[[Page 13191]]
Nasdaq-100 Index options by introducing p.m.-settled index options. A
particular challenge for measuring quoted spreads is created by the
large number of options series tied to a particular underlying. In
addition to the range of expiries, a given expiration will have many
available strike prices. This set of combinations then is doubled by
considering calls and puts. Many listed options series will be very
infrequently traded. For example, at the start of the sample period on
January 3, 2017, there were 3,720 individual options series that had
NDX as the underlying, made up from 14 expiration dates and 382 strike
prices. Of these listed options series, only 458 had traded volume on
that date, with 233 options series with volume of at least 10
contracts. Nearer to the end of the sample period, on April 29, 2022,
there were 16,624 listed options series with NDX or NDXP as the
underlying, consisting of 33 expiration dates and 675 strikes. Of the
listed options series, 2,192 had some volume and 538 had volume of at
least 10 contracts.
---------------------------------------------------------------------------
\21\ See Holden, C. and Jacobsen, S., 2014, Liquidity
Measurement Problems in Fast, Competitive Markets: Expensive and
Cheap Solutions. Journal of Finance. 69, 1747-17852 (<a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12127">https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12127</a>).
---------------------------------------------------------------------------
To assess the trend in the relative NBBO quoted spread, the
Exchange limited the number of options series under consideration by
reviewing spreads in the front-month contracts (contract nearest
expiration) on the first trading day of each month.\22\ The Exchange
considered an NBBO quotation to be ``live'' and used in the computation
when the National Best Offer (NBO) was non-zero.
---------------------------------------------------------------------------
\22\ Although the Exchange believes that sampling the first
trading day of each month between date January 2017 and April 2022
would reflect the trend of market quality, the Exchange acknowledges
that in some cases there may some information loss given a
particular trading day. For example, a volatile trading day may not
be representative of the market for that trading month.
---------------------------------------------------------------------------
In the following section, the Exchanges shows the impact of the
introduction of p.m.-settled index options on the liquidity of NDX
contracts by showing the average monthly NDX spread over time (in
Figure 10) as well as comparing the trend of relative quoted spread of
NDX contracts with that of QQQ contracts (Figures 11 and 12). Figure 10
shows the average monthly relative quoted spread for all options with
NDX as the underlying. To better reflect the trend of the relative
quoted spread, the Exchange plotted the average relative quoted spread
benchmarked against (subtracted by) the average spread of 2017 as the
dotted line in Figure 10. The dotted vertical line highlights the time
when p.m.-settled index options were introduced. Specifically, the time
series in the dotted line was computed using the following steps.
First, the Exchange calculated the duration weighted average relative
quoted spread for each contract on each day. Second, the Exchange took
the average of the above daily spread across all contracts with NDX as
the underlying for each day. Third, the Exchange calculated the average
relative quoted spread for all months in 2017. Finally, the 2017
average was subtracted from the monthly average to create a time series
dataset. As can be seen from the plot, a consistent decrease in the
relative quoted spread is prevalent from 2017 to 2022 and most
importantly, there is no obvious change in the trend following the
introduction of p.m.-settled index options.
Although the above method is intuitive, it is well known that the
option premia are correlated with option characteristics such as
expiry, strike price, and whether the contract is a put or a call
option. Also, option premia tend to increase when the expected
volatility of the underlying asset increases, and premia increase may
in turn cause the spread to increase. Inspired by Kaul, Nimalendran and
Zhang (2004) \23\ and Albuquerque, Song and Chen (2020),\24\ the
Exchange also employed the following regression model to control for
factors related to option characteristics unrelated to the NQX Pilot
and the Nonstandard Pilot: \25\
---------------------------------------------------------------------------
\23\ See Kaul, G., Nimalendran, m., and Zhang D., 2004, Informed
Trading and Option Spreads. Working Paper (<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=547462">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=547462</a>).
\24\ See Albuquerque, R., Song, S., and Yao, C., 2020, The Price
Effects of Liquidity Shocks: A Study of SEC's Tick-Size Experiment.
Journal of Financial Economics. 138, 700-724 (<a href="https://www.sciencedirect.com/science/article/pii/S0304405X20301884">https://www.sciencedirect.com/science/article/pii/S0304405X20301884</a>).
\25\ The calculation was inspired by Kaul, G., Nimalendran, m.,
and Zhang D., and Albuquerque, R., Song, S., and Yao, C. See notes
21 and 22 above. The Exchange includes control variables used in
Albuquerque, R., Song, S., and Yao, C. (2020) liquidity analysis and
constructs Moneyness Categories following Kaul, Nimalendran and
Zhang (2004).
[GRAPHIC] [TIFF OMITTED] TN02MR23.032
In the above model, Spread is the relative quoted spread.
InverseofPrice is the inverse of the option price. Call/Put Dummy is a
dummy variable that equals 1 for call options and 0 otherwise. Expiry
is the number of the days to the expiration date. Moneyness is a dummy
variable for moneyness category of each option. Specifically, all
option contracts were classified into 5 moneyness categories. The
moneyness for call options was calculated as:
[GRAPHIC] [TIFF OMITTED] TN02MR23.033
for put options, where ``S'' is the stock price and ``X'' is the
exercise price. The cut-offs for the five moneyness groups were: -30%;
-10%; 10%; and 30%. Month Fixed Effect is a dummy variable for each
month.
In constructing the plot, the coefficients for those month fixed
effects were adjusted. The raw coefficients for each month were
collected from the regression output. The first month in the sample,
January 2017, implicitly had a coefficient of zero. The average
coefficient for the 12 months in 2017 was then calculated. Finally, the
average coefficients across all 12 months in 2017 were subtracted from
the raw coefficients to create a time series dataset, which is depicted
as the unbroken line in Figure 10.
As can be seen from the plot, there is a steady decrease in the
relative quoted spread for NDX option contracts. The average relative
quoted spread for NDX contracts decreased by about 30%-40% from the
beginning of 2017 until the end of the sample period. Since the
regression model controls for factors that affect the spread, the
unbroken line
[[Page 13192]]
based on the regression model tends to be less volatile. However, there
is no large difference in the results between the average spread and
results based on the regression models, but there is some divergence at
certain points in time. The Exchange conjectures that the divergence is
due to higher option premia caused by the elevated levels of
volatility. In summary, based on both methods, a consistent decrease in
relative quoted spread is observed from 2017 to 2022.
[GRAPHIC] [TIFF OMITTED] TN02MR23.034
The Exchange then compared the spread trend of NDX monthly
contracts to that of QQQ monthly contracts. The average monthly spread
for QQQ contracts was constructed the same way as that for the NDX
monthly contracts (as described in detail above). Figure 11, below,
displays the patterns of relative quoted spread for NDX and QQQ, which
are remarkably similar and decreased during the sample period. Figure
12, below, highlights the difference in Figure 11 as between NDX and
QQQ. Relative to a QQQ control, there is therefore no evidence of a
deterioration of NDX monthly spreads during the sample period. In
summary, the results suggest that there is gradual decrease in both the
NDX monthly contracts spread and the QQQ contracts spread during the
sample period.
---------------------------------------------------------------------------
\26\ NBBO data was unavailable between August 1, 2021 and August
11, 2021, and, therefore, August 2021 was excluded from the plot.
Also, with respect to Figure 10, Regression plots the coefficients
of dummies for each month (i.e., fixed effects). Average Spread
plots the average monthly relative quoted spread subtracted by the
2017 average relative quoted spread.
---------------------------------------------------------------------------
As the introduction of p.m.-settled index options may affect the
transaction cost for NDX monthly contracts, it is unlikely to affect
the spread of QQQ options. Therefore, the Exchange uses the following
regression to formally test whether the spread of NDX contract changed
after the introduction of p.m.-settled index options. NDX and QQQ
options are included in the sample for the period between January 2017
and December 2018. This regression looks at a sample period starting
from one year before and ending one year after the introduction of
p.m.-settled index options.
[GRAPHIC] [TIFF OMITTED] TN02MR23.035
Similar to regression model (1), Spread is the relative quoted
spread. InverseofPrice is the inverse of the option price. Call/Put
Dummy is a dummy variable that equals 1 for call options and 0
otherwise. Expiry is the number of the days to the expiration date.\27\
Moneyness is a dummy variable for moneyness category of each option.
NDX is a dummy variable that equals one if the underlying asset of the
option is NDX index and zero otherwise. Post is a dummy variable that
equals to one for days after January 2018 and zero otherwise. The
Exchange also includes the interaction terms of the post dummy and the
NDX dummy (NDX * Post).
---------------------------------------------------------------------------
\27\ The Exchange notes that there was no transformation.
---------------------------------------------------------------------------
Table 3 shows that the coefficient of the interaction term is
negative but it is statistically insignificant. Therefore, the Exchange
concludes that the introduction of p.m.-settled index options did not
negatively affect the liquidity of a.m.-settled NDX options.\28\
---------------------------------------------------------------------------
\28\ Id.
---------------------------------------------------------------------------
[[Page 13193]]
[GRAPHIC] [TIFF OMITTED] TN02MR23.036
[GRAPHIC] [TIFF OMITTED] TN02MR23.037
[[Page 13194]]
Table 3--Regression Results
----------------------------------------------------------------------------------------------------------------
coef std t
----------------------------------------------------------------------------------------------------------------
Constant....................................... *** 0.26....................... 0.01 37.50
NDX............................................ *** 0.28....................... 0.01 28.62
Post........................................... -0.01.......................... 0.02 -0.80
NDX * Post..................................... * -0.02........................ 0.01 -1.73
InverseofPrice................................. *** 0.00....................... 0.00 48.65
Call/Put Dummy................................. *** 0.26....................... 0.01 37.77
Expiry......................................... *** 0.00....................... 0.00 46.29
Moneyness Categories Fixed Effect.............. Yes............................
Month Fixed Effect............................. Yes............................
----------------------------------------------------------------------------------------------------------------
The report considered one additional question regarding quoted
spreads--whether the move from a.m.-settlement to p.m.-settlement for
Friday weeklies (NDX-Weekly to NDXP-Fri) led to changes in spreads for
those contracts. This sample timeframe was from July 2017 through
August 2018, prior to the launch of NDXP-Wed contracts. As before, the
Exchange presented both the simple average monthly relative quoted
spread as well as the average spread calculated using the regression
model.
---------------------------------------------------------------------------
\29\ Id.
[GRAPHIC] [TIFF OMITTED] TN02MR23.038
The relative quoted spread went down at the first part of 2018 and
up in May and June 2018; it remained comparable to the 2017 average.
---------------------------------------------------------------------------
\30\ With respect to Figure 13, Reg-NDX plots the coefficients
of dummies for each month for NDX contracts. Reg-NDXP plots the
coefficients of dummies for each month for NDXP contracts. Simple-
NDX plots the average monthly relative quoted spread subtracted by
the 2017 average relative quoted spread for NDX contracts. Simple-
NDXP plots the average monthly relative quoted spread subtracted by
the 2017 average relative quoted spread for NDXP contracts.
---------------------------------------------------------------------------
Overall, the Exchange sees no evidence of deterioration of spreads
associated with the introduction of p.m.-settled NDX options.
Market Capacity Around the Market Close
The Exchange next analyzed the impact that p.m.-settled index
options may have on the closing process of the equity markets.\31\ The
DERA Staff PM Pilot Memo concluded that while p.m.-settled index
options activity may have had a statistically detectable impact on
volatility, the economic significance was generally small. The DERA
Staff PM Pilot Memo provided,
---------------------------------------------------------------------------
\31\ This analysis considers the DERA Staff PM Pilot Memo.
However, the report suggests that the magnitude of the effect of
expiring p.m. cash-settled index options open interest on the
measure of volatility and price reversals for index futures, the
underlying cash index, and index component securities is
economically very small.\32\
---------------------------------------------------------------------------
\32\ See DERA Staff PM Pilot Memo at page 1.
[[Page 13195]]
---------------------------------------------------------------------------
The following provides an illustration using some of the regression
results from the DERA Staff PM Pilot Memo. Among the volatility
variables analyzed by the DERA Staff PM Pilot Memo was the ``Magnitude
of Maximum Reversal Overlapping Close'' of index futures prices. The
DERA Staff PM Pilot Memo found that this metric was higher when the
options settlement volume was higher, for both the S&P 500 and the
Nasdaq-100 Index options. Using data provided in the DERA Staff PM
Pilot Memo, the Exchange can estimate the impact of a very large
increase in settlement volume: an increase from its 25th percentile to
its 75th percentile. The following table shows the steps of the
calculation.
Table 4 \33\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Settlement volume
------------------------------------------------ Regression Impact Median of Rel. impact
25th 75th Diff. coefficient variable (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
S&P500.................................. 0.40 1.66 1.26 0.317 0.40 1.96 20.4
Nq-100.................................. 0.07 0.17 0.10 2.39 0.24 1.58 15.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
The percentiles of settlement volume (in units of $10 billion
notional) are shown in Table 25 of the DERA Staff PM Pilot Memo, which
indicated that the volume of S&P 500 contracts was much higher than
that of Nasdaq-100 contracts. The regression coefficients are from
Table 5 (S&P 500) and Table 19 (Nasdaq-100) of the DERA Staff PM Pilot
Memo. The estimated impact is the product of the volume difference
times the coefficient. Table 5 of the DERA Staff PM Pilot Memo provided
the median of the volatility metric during the sample period. The
relative impact is the estimated impact divided by the sample median,
i.e., the estimated change in the volatility metric, relative to its
median value, due to an increase in settlement volume. As shown, the
relative impact was small for both indexes, about 20% for the S&P 500
and 15% for the Nasdaq-100.
---------------------------------------------------------------------------
\33\ See DERA Staff PM Pilot Memo.
---------------------------------------------------------------------------
The Exchange provides some additional analysis on market capacity
around the market close. Specifically, the Exchange believes it is
important to recognize that in recent years the closing auctions on the
equity markets have steadily grown to a point where they are much
larger than the opening auctions. To illustrate this point, the
following chart shows the percentage of dollar volume of Nasdaq-100
Index components executed in the opening and closing auctions on
Fridays.
[GRAPHIC] [TIFF OMITTED] TN02MR23.039
BILLING CODE 8011-01-C
The percentage of volume executed in the close is uniformly higher
than that of the open. The spikes in the closing percentages represent
third Fridays, and in a few cases Fridays that corresponded to the end
of a month. The opening percentage is slightly declining, the closing
percentage slightly increasing during this timeframe. As another
illustration, consider the opening and closing dollar volume
percentages for Fridays, other than the third Friday-of-the-month, from
the second half of 2017 compared with the first half of 2018. This
timeframe corresponds to the introduction of NDXP options,\34\ in which
non-third Friday series moved to p.m.-settled. The following table
present the average percentages.
---------------------------------------------------------------------------
\34\ NDXP options are p.m.-settled index options on broad-based
indexes with nonstandard expirations dates which are also the
subject of a pilot program. NDXP are listed on ISE and Phlx.
[[Page 13196]]
Table 5--Dollar Volume for Nasdaq-100 Components on Non-3rd Fridays
------------------------------------------------------------------------
Auction vol. as percentage of total
vol.
---------------------------------------
Opening Closing
------------------------------------------------------------------------
Jul-Dec 2017.................... 1.48 6.40
Jan-Jun 2018.................... 1.13 6.76
Difference...................... -0.35 0.36
------------------------------------------------------------------------
As would be expected, the relative size of the opening auction
declined, and the closing auction increased by roughly the same amount.
The percentage of about 0.35% would be an estimate of the volume impact
of NDX/NDXP options settlement on the equity market auctions. This
percentage is small to begin with, but it is a much smaller proportion
of the closing auction than the opening auction. Therefore, the
Exchange believes that the liquidity available at or around the close
would be able to mitigate any excess volatility created by the options
settlement at the market close.
As a third example, the Exchange considered the level of options
settlement volume relative to the size of the closing and opening
auctions.\35\ To provide the most up-to-date view of the current
situation, the Exchange examined activity from the start of 2021
through April 2022. The below table shows the notional settlement
volume (in billions of dollars) along with the notional volume in the
auctions for Nasdaq-100 Index components. Settlement volume is the
average dollar volume settled at OCC, Closing Auction is the average
dollar volume executed in the closing auction, Pct of Close is
calculated as Settlement Volume divided by Closing Auction, Open
Auction is the average notional volume executed in the open auction,
and Pct of Open is calculated as Settlement Volume divided by Opening
Auction.
---------------------------------------------------------------------------
\35\ Options settlement volume is the primary size metric used
in the DERA Staff PM Pilot Memo. Options settlement volume is the
notional volume settled in the closing auction.
Table 6--Settlement Volume for NDX/NDXP vs Auctions: Jan 2021- Apr 2022
----------------------------------------------------------------------------------------------------------------
Settlement Closing Percentage of Opening Percentage of
Exp. day volume auction close auction open
----------------------------------------------------------------------------------------------------------------
NDXP
----------------------------------------------------------------------------------------------------------------
Monday.......................... $2.4 $9.9 25.9 .............. ..............
Wed............................. 2.7 9.0 30.2 .............. ..............
Non 3rd Fri..................... 4.1 9.6 44.7 .............. ..............
----------------------------------------------------------------------------------------------------------------
NDX
----------------------------------------------------------------------------------------------------------------
3rd Friday...................... 13.1 23.0 78.0 $6.6 230.4
----------------------------------------------------------------------------------------------------------------
Table 6 shows that the settlement volume for NDXP settlements
averages between 26% and 45% of the closing auction volume, the Friday
NDXP settlements being the largest. NDX settlement volumes are larger,
and relative to the opening auction--the relevant auction--they average
more than twice the size of the auctions. By contrast, the relative
size of the settlement volume would be about a third less if it were
compared to the closing auctions on the third Fridays. As documented in
the DERA Staff PM Pilot Memo, p.m.-settled option activities only have
a very small impact on the volatility of the underlying index.
Additionally, the size of the option settlement value is relatively
small compared with the size of the closing auction value. Therefore,
the Exchange believes that it is difficult to manipulate the underlying
Nasdaq-100 Index during the closing auction. The equity closing
auctions have grown to be substantial liquidity events (for the period
examined the closing auction volume is larger than the opening auction
volume) and would therefore be suited for handling the excess liquidity
demand created by index options settlement.
Technical Amendment to Rule Text
The Exchange proposes to amend Supplementary Material .07 to
Options 4A, Section 12 to remove ``c'' and re-letter ``d'' as ``c.''
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\36\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\37\ 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 by proposing to make permanent the NQX Pilot and the
Nonstandard Pilot.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Previously, the Commission has raised concerns about expanding p.m.
settlement.\38\ Specifically, the Commission noted in the Cboe Pilot
Order that it had concerns about the adverse effects and impact of p.m.
settlement upon market volatility and the operation of fair and orderly
markets on the underlying cash market at or near the close of
trading.\39\ The Commission noted in the Cboe Pilot Order that the
information requested of Cboe would enable the Commission to evaluate
whether allowing p.m. settlement for EOW and EOMs will result in
increased market and price volatility in the underlying component
stocks.\40\
[[Page 13197]]
Further, the p.m. settlement Pilot information should help the
Commission assess the impact on the markets and determine whether other
changes are necessary.\41\ Furthermore, the Exchange's ongoing analysis
of the Pilot should help it monitor any potential risks from large
p.m.-settled positions and take appropriate action if warranted.\42\
---------------------------------------------------------------------------
\38\ See Securities Exchange Act Release No. 62911 (September
14, 2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-2009-075)
(Order Approving Notice of Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, to Establish a Pilot Program to List P.M.-
Settled End of Week and End of Month Expirations for Options on
Broad-Based Indexes) (``Cboe Pilot Order'').
\39\ Id at 57540.
\40\ Id at 57540.
\41\ Id at 57540.
\42\ Id at 57540.
---------------------------------------------------------------------------
Similar to Cboe, ISE has provided pilot data to the Commission with
respect to its NQX Pilot and Nonstandard Pilot. The Exchange's analysis
presents data that the introduction of p.m.-settlement has led to an
increase in options trading tied to the Nasdaq-100 Index. The Exchange
notes within its analysis that it seems unlikely that the introduction
of NQX option contracts or XND contracts \43\ had a significant impact
on the market quality of the full-sized Nasdaq-100 Index option
contracts. The Exchange observed a consistent decrease in relative
quoted spread is observed from 2017 to 2022 for NDX options. When the
Exchange compared the spread trend of NDX monthly contracts to that of
QQQ monthly contracts, the results suggest that there is gradual
decrease in both the NDX monthly contracts spread and the QQQ contracts
spread during the sample period.
---------------------------------------------------------------------------
\43\ See note 7 above.
---------------------------------------------------------------------------
The Exchange also considered whether the move from a.m.-settlement
to p.m.-settlement for Friday weeklies (NDX-Weekly to NDXP-Fri) led to
changes in spreads for those contracts. Overall, the Exchange sees no
evidence of deterioration of spreads associated with the changes the
Exchange has made to its Nasdaq-100 Index product offering by
introducing p.m.-settled products.
Finally, in considering impact on the closing process in equity
markets, the Exchange concluded that it is difficult to manipulate the
underlying Nasdaq-100 Index. Specifically, the equity closing auctions
have grown to be substantial liquidity events that are much larger than
the opening auctions, and would therefore be better suited for handling
the excess liquidity demand created by index options settlement. The
Exchange believes the expiration of p.m.-settlement options would not
adversely affect the options market or the underlying cash equities
market.
Further, the Exchange has 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.
Accordingly, the Exchange believes that weekly expirations and
EOMs, including the NQX expirations, in the p.m.-settled products
should create greater trading and hedging opportunities and flexibility
and provide customers with the ability to more closely tailor their
investment objectives.
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. Making permanent the NQX Pilot
and the Nonstandard Pilot will not impose an undue burden on
competition, rather, it will continue to provide investors with greater
trading and hedging opportunities and flexibility, as well as the
ability to more closely tailor their investment objectives.
Additionally, the Exchange does not believe the proposal will
impose any burden on intermarket competition as market participants are
welcome to become Members and trade at ISE if they determine that this
proposed rule change has made ISE more attractive or favorable.
Finally, all options exchanges are free to compete by listing and
trading their own broad-based index options with weekly or end of month
expirations.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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#89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff"><span class="__cf_email__" data-cfemail="097b7c656c246a6664646c677d7a497a6c6a276e667f">[email protected]</span></a>. Please include
File Number SR-ISE-2023-08 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-ISE-2023-08. 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-ISE-2023-08, and should be submitted on
or before March 23, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
---------------------------------------------------------------------------
\44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-04224 Filed 3-1-23; 8:45 am]
BILLING CODE 8011-01-P
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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.