Notice2023-09210
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend Certain Pilot Programs
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Published
May 2, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 84 (Tuesday, May 2, 2023)</title>
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[Federal Register Volume 88, Number 84 (Tuesday, May 2, 2023)]
[Notices]
[Pages 27545-27548]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-09210]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97386; File No. SR-ISE-2023-09]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Extend Certain
Pilot Programs
April 26, 2023.
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 April 14, 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 extend the pilot to permit the listing and
trading of options based on \1/5\ the value of the Nasdaq-100 Index
(``Nasdaq-100'') and the Exchange's nonstandard expirations pilot
program, 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.
[[Page 27546]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
ISE proposes to extend 2 pilots, which are both set to expire on
May 4, 2023. The Exchange proposes to extend (1) its 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 extend the current NQX Pilot period to November 6, 2023. The NQX
Pilot was previously extended 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 these
products and this extension will provide additional time to collect
data related to the NQX Pilot. The Exchange believes that the proposed
extension of the NQX Pilot will not have an adverse impact on capacity.
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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 (SR-ISE-
2022-09); and 95992 (October 6, 2022), 87 FR 62163 (October 13,
2022) (SR-ISE-2022-20).
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NQX Pilot Report
The Exchange currently makes public on its website the data and
analysis previously submitted to the Commission on the NQX Pilot and
will continue to make public any data or analysis it submits under the
NQX Pilot in the future. The Exchange has filed a rule change proposing
permanency of the NQX Pilot.\5\ The Exchange continues to provide
monthly data and has provided additional data in the permanency filing.
The Exchange would continue to provide the Commission with ongoing data
unless and until the NQX Pilot is made permanent or discontinued.
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\5\ See Securities Exchange Act Release No. 96979 (February 24,
2023), 88 FR 13182 (March 2, 2023) (SR-ISE-2023-08).
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Nonstandard Pilot
ISE filed 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.\6\ 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.\7\ The
Nonstandard Pilot was extended various times with the last extension
through May 4, 2023.\8\
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\6\ 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).
\7\ See Securities Exchange Act Release No. 95393 (July 29,
2022), 87 FR 47807 (August 4, 2022) (SR-ISE-2022-13) (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).
\8\ 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); 93449 (October 28, 2021), 86 FR 60679 (November 3,
2021) (SR-ISE-2021-23); 94632 (April 7, 2022), 87 FR 21940 (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). 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.
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.
The Exchange now proposes to amend Supplementary Material .07(c) to
Options 4A, Section 12 so that the duration of the Nonstandard Pilot
for these nonstandard expirations will be through November 6, 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.
[[Page 27547]]
Nonstandard Pilot Report
The Exchange submitted a rule change proposing permanency of the
Nonstandard Pilot.\9\ The Exchange continues to provide monthly data
and has provided additional data in the permanency filing. The Exchange
would continue to provide the Commission with ongoing data unless and
until the Nonstandard Pilot is made permanent or discontinued.
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\9\ See Securities Exchange Act Release No. 96979 (February 24,
2023), 88 FR 13182 (March 2, 2023) (SR-ISE-2023-08).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\10\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\11\ 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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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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NQX Pilot
In particular, the Exchange believes that the NQX Pilot has been
successful to date. The Exchange has not encountered any problems with
the NQX Pilot. By extending the NQX 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 NQX 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
NQX 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 pilot for
potential adverse market effects 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.
NQX Pilot
NQX 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 the NQX 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.
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 \12\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 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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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
waiver of the 30-day operative delay will allow it to extend the pilot
programs prior to their expiration on May 4, 2023, permitting the pilot
programs to continue uninterrupted. The Commission believes that
waiving the 30-day operative delay is consistent with the protection of
investors and the public interest because the proposed rule change does
not raise any new or novel issues. Accordingly, the Commission hereby
waives the 30-day operative delay and designates the proposed rule
change as operative upon filing.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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.
[[Page 27548]]
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#cfbdbaa3aae2aca0a2a2aaa1bbbc8fbcaaace1a8a0b9"><span class="__cf_email__" data-cfemail="dba9aeb7bef6b8b4b6b6beb5afa89ba8beb8f5bcb4ad">[email protected]</span></a>. Please include
File Number SR-ISE-2023-09 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-2023-09. 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="https://www.sec.gov/rules/sro.shtml">https://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. Do
not include personal identifiable information in submissions; you
should submit only information that you wish to make available
publicly. We may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
All submissions should refer to File Number SR-ISE-2023-09, and should
be submitted on or before May 23, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09210 Filed 5-1-23; 8:45 am]
BILLING CODE 8011-01-P
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