Notice2023-22007
Self-Regulatory Organizations; Nasdaq PHLX 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
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
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 68885-68887]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22007]
[[Page 68885]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98644; File No. SR-Phlx-2023-45]
Self-Regulatory Organizations; Nasdaq PHLX 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 PHLX LLC (``Phlx'' 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 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/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/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
Phlx 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 1/100 the value of the
Nasdaq-100 Index.\4\
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\4\ See Securities Exchange Act Release No. 98451 (September 20,
2023), 88 FR 66088 (September 26, 2023) (SR-Phlx-2023-07) (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.
Previously, 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.\6\ The Exchange extended the pilot
through May 6, 2019, and, subsequently through November 4, 2019,
because p.m.-settled options on the Nasdaq-100 Index had not yet been
listed by Phlx.\7\ The Exchange did not renew this Pilot a third time
and therefore the Pilot expired on November 4, 2019.\8\ 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.'' \9\
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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\ 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).
\7\ 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).
\8\ See 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).
\9\ 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).
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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.\10\ Strike price intervals would be set at
no less than $2.50.\11\ Consistent with existing rules for index
options, the Exchange would allow up to nine near-term expiration
months \12\ as well as LEAPS.\13\ The
[[Page 68886]]
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.\14\
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\10\ See Options 3, Section 3, Minimum Increments.
\11\ See Options 4A, Section 12(a)(3).
\12\ 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.
\13\ Options 4A, Section 12(b) provides that after a particular
class of stock index options has been approved for listing and
trading on the Exchange, the Exchange shall from time to time open
for trading series of options therein. Within each approved class of
stock index options, the Exchange shall open for trading a minimum
of one expiration month and series for each class of approved stock
index options and may also open for trading series of options having
not less than twelve and up to 60 months to expiration (long-term
options series) as provided in subparagraph (b)(2). Prior to the
opening of trading in any series of stock index options, the
Exchange shall fix the expiration month and exercise price of option
contracts included in each such series. Further, Options 4A, Section
12(b)(2) provides that the Exchange may list, with respect to any
class of stock index options or Nasdaq-100[supreg] Volatility Index
options, series of options having not less than twelve and up to 60
months to expiration, adding up to ten expiration months. Such
series of options may be opened for trading simultaneously with
series of options trading pursuant to this rule. Strike price
intervals and continuity rules shall not apply to such options
series until the time to expiration is less than twelve months. Bid/
ask differentials for long-term options contracts are specified
within Options 2, Section 4(c)(1)(A).
\14\ Options 4A, Section 12(b)(1) provides that additional
series of stock index options of the same class may be opened for
trading on the Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the
market price of the underlying index moves more than five strike
prices from the initial exercise price or prices. The opening of a
new series of options shall not affect the series of options of the
same class previously opened. New series of options on an index may
be added until the beginning of the month in which the options
contract will expire. Due to unusual market conditions, the
Exchange, in its discretion, may add a new series of options on
indexes until the fourth business day prior to the business day of
expiration, or, in the case of an index option contract expiring on
a day that is not a business day, up to the fifth business day prior
to expiration.
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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.\15\ 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.\16\
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\15\ See Options 3, Section 12(b)(5)(A).
\16\ Options 3, Section 6(e) provides, ``Aggregation--Full
value, reduced value, micro index value, long term and quarterly
expiring options based on the same index shall be aggregated.
Reduced value or mini-size and micro index contracts shall be
aggregated with full value or full-size contracts and counted by the
amount by which they equal a full value contract (e.g., a hundredth
(1/100th)) value contracts equal one (1) full value contract).
Positions in Short Term Options Series and Quarterly Options Series
shall be aggregated with positions in options contracts of the same
index. Nonstandard Expirations (as provided for in Options 4A,
Section 5(b)(vii)) on a broad-based index shall be aggregated with
option contracts on the same broad-based index and shall be subject
to the overall position limit.''
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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.\17\
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\17\ 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.\18\
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\18\ The closing value of the Nasdaq-100 Index may change up
until 17:15 Easter 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,\19\ in general, and with
Section 6(b)(5) of the Act,\20\ 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 \21\ 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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\19\ 15 U.S.C. 78f.
\20\ 15 U.S.C. 78f(b)(5).
\21\ 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
XND.\22\ Previously, 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\ The Exchange extended
the pilot through May 6, 2019, and, subsequently through November 4,
2019, because p.m.-settled options on the NASDAQ-100 Index had not yet
been listed by Phlx.\24\ The Exchange did not renew this Pilot a third
time and therefore the Pilot expired on November 4, 2019.\25\ Today,
Cboe lists third-Friday p.m.-settled options on the S&P 500 Index under
the symbol ``SPXW.'' \26\ 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
[[Page 68887]]
close of trading in its Nasdaq-100 Index options.
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\22\ See supra note 4.
\23\ See supra note 6.
\24\ See supra note 7.
\25\ See supra note 8.
\26\ See supra note 9.
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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.\27\
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\27\ See supra note 12.
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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 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 Phlx if they
determine that this proposed rule change has made Phlx 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#0775726b622a64686a6a626973744774626429606871"><span class="__cf_email__" data-cfemail="3341465f561e505c5e5e565d4740734056501d545c45">[email protected]</span></a>. Please include
file number SR-Phlx-2023-45 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-Phlx-2023-45. 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-Phlx-2023-45 and should be
submitted on or before October 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22007 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
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