Notice2023-10686
Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting Approval of Proposed Rule Change To Permit the Listing and Trading of Options on the Nasdaq-100 ESG Index
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
May 19, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 97 (Friday, May 19, 2023)</title>
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[Federal Register Volume 88, Number 97 (Friday, May 19, 2023)]
[Notices]
[Pages 32262-32263]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10686]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97506; File No. SR-Phlx-2023-09]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting
Approval of Proposed Rule Change To Permit the Listing and Trading of
Options on the Nasdaq-100 ESG Index
May 15, 2023.
I. Introduction
On March 28, 2023, Nasdaq PHLX LLC (``Phlx'' or ``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 permit the
listing and trading of options on the Nasdaq-100 ESG Index. The
proposed rule change was published for comment in the Federal Register
on April 6, 2023.\3\ The Commission has received no comments on the
proposed rule change. This order approves 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. 97232 (March 31,
2023), 88 FR 20582 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to permit the listing and trading of options
on the Nasdaq-100 ESG Index (``NDXESG''; and such options, ``NDXESG
options''). The NDXESG is a broad-based, modified ESG Risk Rating
Score-adjusted market capitalization-weighted index that is designed to
measure the performance of the companies in the Nasdaq-100 Index
(``NDX'') that meet specific environmental, social, and governance
(``ESG'') criteria outlined in the NDXESG's methodology.\4\ The NDXESG
at all times consists of a selection of securities in the NDX.\5\ The
Exchange believes there is unmet market demand for exchange-listed
security options on the NDXESG,\6\ and that the introduction of NDXESG
options will attract order flow to the Exchange, increase the variety
of listed options to investors, and provide a valuable hedging tool to
investors.\7\
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\4\ See Notice, 88 FR at 20583 and n.5.
\5\ See id. at 20583.
\6\ See id. at 20585.
\7\ See id. at 20584.
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The Exchange states that the NDXESG meets the ``broad-based index''
definition set forth in the Exchange's rules at Phlx Options 4A,
section 2(a)(13).\8\ The Exchange also states that the NDXESG meets,
and NDXESG options would meet, the Exchange's initial and maintenance
listing criteria for a broad-based index and options thereon, as set
forth in Phlx Options 4A, sections 3(d) and 3(e).\9\ NDXESG options
could have up to twelve near-term expiration months, as well as long-
term options series.\10\ In addition, the NDXESG options would be a.m.-
settled and cash-settled contracts with European-style exercise.\11\
Strike price intervals would be at no less than $2.50 intervals.\12\
The minimum trading increment for NDXESG options would be $0.05 for
options trading below $3.00 and $0.10 for all other options, and NDXESG
options would be available for trading during the Exchange's standard
trading hours for index options.\13\ NDXESG options would also be
subject to the same margin and suitability rules that apply to the
Exchange's other index options.\14\
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\8\ See id. at 20583.
\9\ See id.
\10\ See id.
\11\ See id.
\12\ See id.
\13\ See id. at 20584.
\14\ See id.
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The position and exercise limits for NDXESG options would be 25,000
contracts on the same side of the market.\15\ Each member or member
organization that maintains a position in NDXESG options on the same
side of the market in excess of 100,000 contracts for its own account
or for the account of a customer would be required to file a report
with the Exchange pursuant to proposed Phlx Options 4A, section
6(c).\16\ The position and exercise limits for FLEX options on the
NDXESG would also be 25,000 contracts on the same side of the
market.\17\
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\15\ See id. The proposed position and exercise limits are in
accordance with Phlx Options 4A, section 6(a), and Options 4A,
section 10.
\16\ See id.
\17\ See proposed Phlx Options 8, section 34(e).
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The Exchange states that it has, and that it believes the Options
Price Reporting Authority (``OPRA'') has, the necessary systems
capacity to handle additional quotations and message traffic associated
with the proposed listing and trading of NDXESG options.\18\ The
Exchange also states that index options are integrated into the
Exchange's existing surveillance system architecture and are thus
subject to the relevant surveillance processes.\19\ The Exchange states
that it has adequate surveillance procedures to monitor trading in
NDXESG options, thereby aiding in the maintenance of a fair and orderly
market.\20\
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\18\ See Notice, 88 FR at 20584.
\19\ See id.
\20\ See id.
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The Exchange also proposes to amend its rule text at Phlx Options
8, section 34(e), to directly align the position limits for FLEX index
options with the position limits for the corresponding standard index
options within Phlx Options 4A, section 6. According to the Exchange,
this proposed amendment would not change the current position limits
for FLEX index options, but rather would simply cross-reference the
index option position limits in Phlx Options 4A, section 6, as opposed
to restating each position limit within the rule text. Today, the
position limits for standard index options are identical to the FLEX
index options on the same index, and with this proposed amendment,
those position limits would continue to be identical.\21\ Finally, the
Exchange proposes a technical correction to Phlx Options 4A, section
6(c), to add an ``or'' within that paragraph.\22\
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\21\ See id.
\22\ See id.
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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.\23\ In particular, the Commission finds that
the proposed rule change is consistent with section 6(b)(5) of the
Act,\24\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, 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; and
section 6(b)(8) of the Act,\25\ which requires that the rules of a
national securities exchange not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
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\23\ 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).
\24\ 15 U.S.C. 78f(b)(5).
\25\ 15 U.S.C. 78f(b)(8).
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Permitting the trading of options on an index of securities enables
investors to participate in the price movements of the index's
underlying securities and allows investors holding positions in some or
all of such securities to hedge the risks associated with their
portfolios. The Commission believes that the Exchange's proposal to
permit
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the listing and trading of NDXESG options could benefit investors by
providing them with additional investment and hedging alternatives. As
the Exchange notes, the proposed NDXESG options could become part of
market participants' investment and hedging strategies related to
positions in both the NDXESG and NDX in light of the relationship
between these two indices.\26\ Moreover, options on broad-based, ESG-
related indexes are not novel. For example, options on the S&P 500 ESG
Index are listed and traded on Cboe Exchange, Inc.\27\ The proposed
NDXESG options could, therefore, promote competition; further,
consistent with section 6(b)(8) of the Act, they are not designed to
impose an unnecessary burden on competition.
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\26\ See Notice, 88 FR at 20585.
\27\ See Securities Exchange Act Release No. 89749 (September 2,
2020), 85 FR 55723 (September 9, 2020).
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The Commission also believes that the proposal is consistent with
the protection of investors and the public interest. The NDXESG is a
broad-based index under the Exchange's rules, and the NDXESG and
proposed NDXESG options meet the Exchange's criteria for the initial
listing of options on a broad-based index, which previously have been
approved by the Commission.\28\ After initial listing, the Exchange's
maintenance listing criteria, which also have been previously approved
by the Commission, will apply to NDXESG options.\29\ The Commission
believes that the application and satisfaction of these listing
requirements significantly minimize the potential for manipulation of
the NDXESG or for adverse market impact to result from the listing or
trading of NDXESG options.
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\28\ See Notice, 88 FR at 20585; Phlx Options 4A, section 3(d);
see also Securities Exchange Act Release No. 54158 (July 17, 2006),
71 FR 41853 (July 24, 2006) (Notice of Filing and Order Granting
Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1
and 2 Thereto Relating to Listing Standards for Broad-Based Index
Options) (``Phlx Listing Standards Approval Order'').
\29\ See Notice, 88 FR at 20585; Phlx Options 4A, section 3(e);
see also Phlx Listing Standards Approval Order.
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In addition, the proposed terms for NDXESG options--such as listing
up to twelve near-term expiration months and LEAPS, the strike
interval, a.m.-settlement, cash-settlement, European-style exercise,
and the minimum trading increment--are consistent with the terms for
other broad-based index options trading on Phlx, including NDX
options.\30\ In the same vein, the Exchange rules applicable to broad-
based index options regarding sales practices, customer accounts,
position and exercise limits, margin requirements, and trading halts
will apply to the NDXESG options.\31\ Likewise, the Exchange's existing
surveillance and reporting safeguards for index options will apply to
NDXESG options.\32\ Further, the Exchange states that it and OPRA have
the necessary systems capacity to handle the additional message traffic
associated with the listing of new option series that may result from
this proposal.\33\ The Commission believes that the Exchange's rules
governing the trading of index options help to ensure the maintenance
of fair and orderly markets, including with respect to the proposed
NDXESG options, which is consistent with the protection of investors
and the public interest.
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\30\ See Notice, 88 FR at 20585.
\31\ See id.
\32\ See id.
\33\ See id. at 20584.
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Importantly, NDXESG options would be subject to the 25,000 contract
position limit that is generally applicable to broad-based index
options under Phlx Options 4A, section 6(a), and an equivalent exercise
limit under Phlx Options 4A, section 10. Further, under amended Phlx
Options 8, section 34(e), and Phlx Options 8, section 34(f), the
position and exercise limits for FLEX options on the NDXESG would also
be 25,000 contracts on the same side of the market. The Commission
believes that the proposed position and exercise limits also should
help minimize the potential for manipulation and adverse market impact
surrounding the use of the NDXESG options.
Finally, the Commission believes that the proposed amendments to
correct a technical grammar error in Phlx Options 4A, section 6(c), and
to align the position limits for FLEX index options in Phlx Options 8,
section 34(e), with the position limits for the corresponding standard
index options in Phlx Options 4A, section 6, would clarify the rule
text, reduce the potential for confusion regarding FLEX index option
position and exercise limits, and promote internal consistency within
the Exchange's rules.
Based on the foregoing, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations
thereunder.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\34\ that the proposed rule change (SR-Phlx-2023-09) be, and hereby
is, approved.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10686 Filed 5-18-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 19, 2023.
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