Notice2023-22006
Self-Regulatory Organizations; Nasdaq ISE LLC; Notice of Filing of Proposed Rule Change To Permit the Listing and Trading of P.M.-Settled Nasdaq-100 Index Options With a Third-Friday-of-the-Month Expiration
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Published
October 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 191 (Wednesday, October 4, 2023)</title>
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[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68841-68844]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22006]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98643; File No. SR-ISE-2023-20]
Self-Regulatory Organizations; Nasdaq ISE LLC; Notice of Filing
of Proposed Rule Change To Permit the Listing and Trading of P.M.-
Settled Nasdaq-100 Index Options With a Third-Friday-of-the-Month
Expiration
September 29, 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 September 28, 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
[[Page 68842]]
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 permit the listing and trading of p.m.-
settled Nasdaq-100 Index[supreg] options \3\ with a third-Friday-of-
the-month expiration.
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\3\ Nasdaq-100 Index options trade under the symbol (``NDX'').
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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 amend its rules to permit the listing and trading
of p.m.-settled Nasdaq-100 Index options with a third-Friday-of-the-
month expiration date. The Exchange notes that p.m.-settled options
were recently approved and included a p.m.-settled third-Friday-of-the-
month expiration for trading of options based on \1/5\ the value of the
Nasdaq-100 Index (``NQX'').\4\
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\4\ See Securities Exchange Act Release No. 98450 (September 20,
2023), 88 FR 66 111 (September 26, 2023) (SR-ISE-2023-08) (Order
Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, to Make Permanent Certain P.M.-Settled Pilots).
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By way of background, the Nasdaq-100 Index, a modified market
capitalization-weighted index, includes 100 of the largest non-
financial companies listed on The Nasdaq Stock Market LLC, based on
market capitalization. It does not contain securities of financial
companies including investment companies. Security types generally
eligible for the Nasdaq-100 Index include common stocks, ordinary
shares, American Depository Receipts, and tracking stocks. Security or
company types not included in the Nasdaq-100 Index are closed-end
funds, convertible debentures, exchange traded funds, limited liability
companies, limited partnership interests, preferred stocks, rights,
shares or units of beneficial interest, warrants, units and other
derivative securities.\5\ Today, the Exchange may list a.m.-settled
third-Friday-of-the-month expirations on Nasdaq-100 Index options.
Additionally, today, Cboe Exchange, Inc. (``Cboe'') lists third-Friday
p.m.-settled options on the Standard & Poor's 500 Index (``S&P 500
Index'') under the symbol ``SPXW.'' \6\ Of note, in 2017, Nasdaq Phlx
LLC (``Phlx'') received approval to permit the listing and trading, on
a pilot basis, of NASDAQ-100 options with p.m.-settled third-Friday-of-
the-month expiration dates.\7\ Phlx extended their pilot two times and
ultimately did not renew the Pilot a third time and therefore the Pilot
expired on November 4, 2019.\8\
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\5\ A description of the Nasdaq-100 is available on Nasdaq's
website at <a href="https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf">https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf</a>.
\6\ Cboe also lists a.m.-settled S&P 500 Index options that have
standard third-Friday expirations. See Cboe Rule 4.10(e). Cboe's
third-Friday-of-the-month pilot was recently approved. See
Securities Exchange Act Release No. 98454 (September 20, 2023) (SR-
CBOE-2023-005) (Order Granting Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, to Make Permanent the Operation of
the Program that Allows the Exchange to List P.M.-Settled Third
Friday-of-the-Month S&P 500 Stock Index Options (``SPX'') Series).
\7\ See Securities Exchange Act Release No. 81293 (August 2,
2017), 82 FR 37138 (August 8, 2017) (approving SR-Phlx-2017-04)
(Order Granting Approval of a Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, To Permit the Listing and Trading of P.M.-
Settled Nasdaq-100 Index Options on a Pilot Basis).
\8\ See Securities Exchange Act Release Nos. 84685 (November 29,
2019), 83 FR 62942 (December 6, 2018) (SR-Phlx-2018-76) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
the Pilot Period for the Listing of P.M.-Settled Nasdaq-100 Index
Options Expiring on the Third Friday of the Month) and 85692 (April
18, 2019), 84 FR 17213 (April 24, 2019) (SR-Phlx-2019-16) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Extend
the Pilot Period for the Listing of P.M.-Settled Nasdaq-100 Index
Options Expiring on the Third Friday of the Month). See also
Securities Exchange Act Release No. 87517 (November 13, 2019), 84 FR
63910 (November 19, 2023) (SR-Phlx-2019-49) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Remove Rule Text
From Phlx Rule 1101A).
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At this time, the Exchange proposes to amend Options 4A, Section 12
to permit the listing of p.m.-settled third-Friday-of-the-month
Expiration Dates under the trading symbol ``NDXP.'' Today, the Exchange
may list a.m.-settled third-Friday-of-the-month expirations on Nasdaq-
100 Index options. With this proposal, the Exchange would have third-
Friday-of-the-month expirations on Nasdaq-100 Index options that are
both a.m.-settled and p.m.-settled on the same day. The conditions for
listing p.m.-settled third-Friday-of-the-month expirations on Nasdaq-
100 Index options will be similar to those for a.m.-settled third-
Friday-of-the-month expirations on Nasdaq-100 Index options.
The proposed contract would use a $100 multiplier, and the minimum
trading increment would be $0.05 for options trading below $3.00 and
$0.10 for all other series.\9\ Strike price intervals would be set at
no less than $2.50.\10\ Consistent with existing rules for index
options, the Exchange would allow up to nine near-term expiration
months \11\ as well as LEAPS.\12\ The product would have European-style
exercise. Because the product is based on the Nasdaq-100 Index there
would be no position limits. Also, today, the Exchange notes that it
has the flexibility to open for trading additional series in response
to customer demand.\13\
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\9\ See Options 3, Section 3, Minimum Increments.
\10\ See Options 4A, Section 12(c)(1).
\11\ The Exchange proposes the same expiration month options for
NDXP as are permitted for the Nasdaq-100 Index, since both options
classes are derived from the Nasdaq-100 Index.
\12\ See Options 4A, Section 12(b)(1).
\13\ Options 4A, Section 12(c)(4) provides that notwithstanding
any other provision of this paragraph (c), the Exchange may open for
trading additional series of the same class of index options as the
current index value of the underlying index moves substantially from
the exercise price of those index options that already have been
opened for trading on the Exchange. The exercise price of each
series of index options opened for trading on the Exchange shall be
reasonably related to the current index value of the underlying
index to which such series relates at or about the time such series
of options is first opened for trading on the Exchange. The term
``reasonably related to the current index value of the underlying
index'' means that the exercise price is within thirty percent (30%)
of the current index value. The Exchange may also open for trading
additional series of index options that are more than thirty percent
(30%) away from the current index value, provided that demonstrated
customer interest exists for such series, as expressed by
institutional, corporate, or individual customers or their brokers.
Market-makers trading for their own account shall not be considered
when determining customer interest under this provision.
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NDXP options are series of the NDX options class. Currently, these
NDXP options may expire any day of the week, Mondays, Tuesdays,
Wednesdays, Thursdays, Fridays, as applicable (other than third-Friday-
of-the-month), and the last trading day of the month.\14\ Third-Friday
p.m.-settled options trading under the NDXP symbol will be a new type
of series under the Nasdaq-100 Index options class and not a new
options class, therefore all third-Friday p.m.-settled NDXP options
will be
[[Page 68843]]
aggregated together with all other standard expirations for applicable
reporting and other requirements.\15\
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\14\ See Supplementary Material .07(a) to Options 4, Section 5.
\15\ See Options 3, Section 6(c) and (d).
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As with the Nasdaq-100 Index, whenever the Exchange determines that
additional margin is warranted in light of the risks associated with an
under-hedged NDXP option position, including third-Friday-of-the-month
p.m.-settled NDXP, the Exchange may consider imposing additional margin
upon the account maintaining such under-hedged position pursuant to its
authority pursuant to under Exchange Rules Options 6E, Section 2. The
trading hours for NDXP, including third-Friday-of-the-month p.m.-
settled NDXP, will be from 9:30 a.m. to 4:15 p.m. Eastern Time.\16\
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\16\ The Exchange notes that NDXP will ordinarily cease at 4:00
p.m. on the day on which the exercise-settlement value is
calculated.
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The Exchange proposes to amend Options 4A, Section 12(a)(6) to
provide that in addition to a.m.-settled Nasdaq-100 Index options
approved for trading on the Exchange, the Exchange may also list
options on the Nasdaq-100 Index whose exercise settlement value is the
closing value of the Nasdaq-100 Index on the expiration day.\17\
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\17\ The closing value of the Nasdaq-100 Index may change up
until 17:15 Eastern Time due to corrections to prices of the
underlying component securities.
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The Exchange does not believe that any market disruptions will be
encountered with the introduction of Nasdaq-100 Index options with
third-Friday-of-the-month p.m.-settled expiration dates. The Exchange
will monitor for any such disruptions or the development of any factors
that could cause such disruptions.
The adoption of trading third-Friday-of-the-month p.m.-settled
options on the Nasdaq-100 Index on the same exchange that lists third-
Friday-of-the-month a.m.-settled options on the Nasdaq-100 Index would
provide greater spread opportunities. This manner of trading in
different products allows a market participant to utilize different
expiration times, providing expanded trading opportunities. In the
options market currently, market participants regularly trade similar
or related products in conjunction with each other, which contributes
to overall market liquidity.
The Exchange represents that it has sufficient capacity to handle
additional traffic associated with listing third-Friday-of-the-month
p.m.-settled options, and that it has in place adequate surveillance
procedures to monitor trading in these options thereby helping to
ensure the maintenance of a fair and orderly market.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\18\ in general, and with
Section 6(b)(5) of the Act,\19\ in that it is designed to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest; and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers, or to regulate by virtue of any authority conferred by the Act
matters not related to the purposes of the Act or the administration of
the Exchange. The Exchange believes that the proposed rule change is
also consistent with Section 6(b)(8) of the Act \20\ in that it does
not impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
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\18\ 15 U.S.C. 78f.
\19\ 15 U.S.C. 78f(b)(5).
\20\ 15 U.S.C. 78f(b)(8).
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P.M.-settled options were recently approved and included a p.m.-
settled third-Friday-of-the-month expiration for trading of options on
NQX.\21\ Today, Cboe lists third-Friday p.m.-settled options on the S&P
500 Index under the symbol ``SPXW.'' \22\ Of note, in 2017, Phlx
received approval to permit the listing and trading, on a pilot basis,
of NASDAQ-100 options with p.m.-settled third-Friday-of-the-month
expiration dates.\23\ Phlx extended their pilot two times and
ultimately did not renew the Pilot a third time and therefore the Pilot
expired on November 4, 2019.\24\ For these reasons, the Exchange
desires to list a p.m.-settled third-Friday-of-the-month expiration for
trading of options on the Nasdaq-100 Index. The Exchange believes that
listing this expiry would not have any adverse effects or impact on
market volatility and the operation of fair and orderly markets on the
underlying cash market at or near the close of trading in its Nasdaq-
100 Index options.
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\21\ See supra note 4.
\22\ See supra note 6.
\23\ See supra note 7.
\24\ See supra note 8.
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Specifically, the Exchange believes that the introduction of
Nasdaq-100 Index options with third-Friday-of-the-month p.m.-settled
expiration dates will attract order flow to the Exchange, increase the
variety of listed options to investors, and provide a valuable hedge
tool to investors. Further, the Exchange believes this proposal will
ensure market participants, particularly retail customers, have
seamless access to p.m.-settled Nasdaq-100 Index options expiring every
Friday of the month, which helps to remove impediments to and perfect
the mechanism of a free and open market. The Exchange believes the
proposed rule change will help to protect investors and the public
interest by allowing market participants to enter options positions
with the same underlying in one symbol that spans every Friday
expiration in a month, thus providing a more efficient way to gain
exposure and hedge risk.
The adoption of trading third-Friday-of-the-month p.m.-settled
options on the Nasdaq-100 Index on the same exchange that lists third-
Friday-of-the-month a.m.-settled options on the Nasdaq-100 Index would
provide greater spread opportunities. This manner of trading in
different products allows a market participant to utilize different
expiration times, providing expanded trading opportunities. In the
options market currently, market participants regularly trade similar
or related products in conjunction with each other, which contributes
to overall market liquidity.
Third-Friday p.m. settled options trading under the NDXP symbol
will be a new type of series under the Nasdaq-100 Index options class
and not a new options class, therefore all third-Friday p.m.-settled
NDXP options will be aggregated together with all other standard
expirations for applicable reporting and other requirements.\25\
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\25\ See supra note 15.
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The Exchange does not believe that any market disruptions will be
encountered with the introduction of Nasdaq-100 Index options with
third-Friday-of-the-month expiration dates. The Exchange will monitor
for any such disruptions or the development of any factors that could
cause such disruptions.
Finally, the Exchange represents that it has sufficient capacity to
handle additional traffic associated with this new listing, and that it
has in place adequate surveillance procedures to monitor trading in
these options thereby helping to ensure the maintenance of a fair and
orderly market.
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
[[Page 68844]]
necessary or appropriate in furtherance of the purposes of the Act.
The Exchange does not believe the rule change will impose a burden
on intramarket competition because all market participants would have
access to p.m.-settled Nasdaq-100 Index options expiring every Friday
of the month and would be able to trade them under the NDXP symbol. The
proposal will not impose a burden on intermarket competition because
the options affected by this proposal are exclusive to the Exchange.
Other options exchange may elect to adopt a similar expiry for a
product listed on their markets.
Additionally, the Exchange does not believe the proposal will
impose any burden on intermarket competition as market participants on
other exchanges are welcome to become members and trade at ISE if they
determine that this proposed rule change has made ISE more attractive
or favorable.
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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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="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#8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb"><span class="__cf_email__" data-cfemail="e89a9d848dc58b8785858d869c9ba89b8d8bc68f879e">[email protected]</span></a>. Please include
file number SR-ISE-2023-20 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-2023-20. 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
a.m. and 3 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-2023-20 and should be
submitted on or before October 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22006 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
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