Notice2023-25108
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permit the Listing and Trading of XND Options
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
November 15, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 219 (Wednesday, November 15, 2023)</title>
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[Federal Register Volume 88, Number 219 (Wednesday, November 15, 2023)]
[Notices]
[Pages 78417-78422]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98886; File No. SR-ISE-2023-24]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Permit the
Listing and Trading of XND Options
November 8, 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 October 27, 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 permit the listing and trading of options
based on 1/100 of the value of the Nasdaq-100 Index[supreg] (``Nasdaq-
100'').
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
The purpose of the proposed rule change is to amend the Exchange's
rules to permit the listing and trading of index options on Nasdaq 100
Micro Index Options (``XND''). The XND options contract will be the
same in all respects as the current Nasdaq-100 Index options (``NDX'')
\3\ contract listed on the Exchange, except that it will be based on 1/
100 of the value of the Nasdaq-100 Index, and will be P.M.-Settled with
an exercise settlement value based on the closing index value of the
Nasdaq-100 Index on the day of expiration.\4\ The Exchange believes
that the proposed contract will be valuable for retail and other
investors that wish to trade micro options on the Nasdaq-100 Index.
Finally, today, Nasdaq Phlx
[[Page 78418]]
LLC (``Phlx'') has approval to list and trade XND options. The rules to
list and trade NDX [sic] options on ISE are identical to those of
Phlx.\5\
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\3\ See Options 4A, Section 12(a)(5).
\4\ In addition to the current Nasdaq-100 Index value, Nasdaq
will disseminate an Index value for XND that is 1/100 of the value
of the Nasdaq-100 Index.
\5\ 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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Nasdaq-100 Index
The Nasdaq-100 Index is a modified market capitalization-weighted
index that includes 100 of the largest non-financial companies listed
on The Nasdaq Stock Market LLC (``Nasdaq''),\6\ based on market
capitalization.\7\ 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.\8\
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\6\ Nasdaq is an affiliate of the Exchange.
\7\ The Nasdaq-100 Index is a broad-based index, as defined in
Options 4A, Section 3.
\8\ A description of the Nasdaq-100 Index 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>.
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XND Options Contract
Currently, the Exchange lists and trades NDX options that are based
on the full value of the Nasdaq-100 Index. In an effort to attract
additional interest in index options based on the Nasdaq-100 Index, the
Exchange now proposes to list and trade a new micro option contract
based on this index. XND options will trade independently of and in
addition to NDX options, and the XND options will be subject to the
same rules that presently govern the trading of index options based on
the Nasdaq-100 Index, including sales practice rules, margin
requirements, trading rules, and position and exercise limits. Similar
to NDX, XND options will be European-style and cash-settled, and will
have a contract multiplier of 100. The contract specifications for XND
options will mirror in all respects those of the NDX options contract
already listed on the Exchange, except that the Exchange proposes that
XND options will be based on 1/100 of the value of the Nasdaq-100
Index, and will be P.M.-settled pursuant to proposed Options 4A,
Section 12(a)(6). The ISE XND option contracts will trade identically
to Phlx XND options.\9\ Also, similar features are available with other
index options contracts listed and/or approved for trading on the
Exchange such as options on NQX (a reduced value index based on \1/5\
of the value of the Nasdaq-100 Index).\10\ The Exchange also proposes
to amend Options 4A, Section 12(a)(5)(ii) to permit options on the
Nasdaq 100 Micro Index to trade a.m.-settled.\11\
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\9\ See supra note 5. See also Phlx Options 4A, Section
12(a)(6).
\10\ See ISE Options 4A, Section 12(a)(6). NQX is P.M.-settled
and a European-style and cash-settled, with a contract multiplier of
100.
\11\ The Exchage also proposes to re-letter the internal list in
Options 4A, Section 12(a)(5)(ii) as A through E.
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The value of the Nasdaq-100 Index has increased significantly in
recent years such that the value of the index stood at 14,717.90, as of
the opening of trading on October 22,023. As a result of the increase
in the value of the underlying Nasdaq-100 Index, the premium for NDX
options has also increased. The Exchange believes that this has caused
NDX options to trade at a level that may be uncomfortably high for
certain retail and other investors. The Exchange believes that listing
options at a micro value will attract a greater source of retail
customer business. Further, listing options on a micro index will
provide an opportunity for investors to trade and hedge the market risk
associated with the Nasdaq-100 Index.
With an exercise settlement value based on 1/100 of the Nasdaq-100
Index, the Exchange believes that retail and other investors would be
able to use this trading vehicle while extending a smaller outlay of
capital. Furthermore, the proposed micro index will have a notional
value at a level that is comparable to similar products that have been
successful in the market, including the S&P 500 Mini SPX Options Index
(XSP), which had an index value of (428.45) as of the opening of
trading on October 2, 2023. Of note, Phlx XND options have traded at
this level since 2021. The Exchange therefore believes that basing the
proposed XND options contract on 1/100 of the value of the Nasdaq-100
Index should attract additional investors, and, in turn, create a more
active and liquid trading environment.
XND options will also be P.M.-settled as the Exchange believes that
market participants, and in particular, retail investors, who are the
target audience for this product, prefer P.M.-settled index options.
P.M.-settlement is preferred by retail investors as it allows market
participants to hedge their exposure for the full week. A.M.-settled
options by contrast are based on opening prices on the day of
expiration and therefore stop trading on the day prior, leaving
residual risk on the day of expiration. Feedback from Members that
handle retail order flow has indicated that P.M.-settlement is needed
to garner retail investor support for this product. In this regard, the
Exchange notes that XND options on Phlx are P.M.-settled and recently
received approval for permanency.\12\
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\12\ 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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Pursuant to Supplementary Material .07 to ISE Options 4A, Section
12, Phlx's proposal to list XND would permit XND, as a broad-based
index and part of the Nonstandard Expirations Program, to open for
trading Weekly Expirations on XND to expire on any Monday, Wednesday,
or Friday (other than the third Friday-of-the-month or days that
coincide with an EOM expiration). Additionally, the Exchange proposes
to amend Supplementary Material .07 to ISE Options 4A, Section 12 to
permit the listing and trading of XND options that expire on any
Tuesday or Thursday similar to Nasdaq-100 Index options which today
expire on each business day of the week. With this proposal, XND would
be permitted to open for trading Weekly Expirations to expire on any
Monday, Tuesday, Wednesday, Thursday or Friday. Today, Phlx's rules
permit XND to expire on any Monday, Tuesday, Wednesday, Thursday or
Friday pursuant to Options 4A, Section 12(b)(5).
Weekly Expirations in XND would be subject to all provisions of
this Rule and treated the same as options on the same underlying index
that expire on the third Friday of the expiration month; provided,
however, that Weekly Expirations shall be P.M.-settled and new series
in Weekly Expirations may be added up to and including on the
expiration date for an expiring Weekly Expiration. Further, the
Exchange may open for trading EOMs on any broad-based index eligible
for standard options trading to expire on last trading day of the
month. EOMs shall be subject to all provisions of this Rule and treated
the same as options on the same underlying index that expire on the
third Friday of the expiration month; provided, however, that EOMs
shall be P.M.-settled and new series in EOMs may be added up to and
including on the expiration date for an expiring
[[Page 78419]]
EOM.\13\ Today, XND options on Phlx are part of the Nonstandard
Program.\14\
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\13\ XND is a broad-based index.
\14\ See Phlx Options 4A, Section 12(b)(5).
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The Exchange does not believe that the introduction of a new P.M.-
settled Nasdaq-100 Index contract will cause any market disruptions, as
noted herein, Phlx XND options recently received approval for
permanency.\15\ The Exchange will monitor for any disruptions caused by
P.M.-settlement of the proposed XND options contract or the development
of any factors that could cause such disruptions. P.M.-settled options
predominate in the over-the-counter (``OTC'') market, and the Exchange
is not aware of any adverse effects in the OTC market attributable to
the P.M.-settlement feature. The Exchange is merely proposing to offer
a P.M.-settled product in an exchange environment, which offers the
additional benefits of added transparency, price discovery, and
stability.
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\15\ See supra note 12.
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Trading Hours, Minimum Increments, Expirations and Strike Prices
XND options will be available for trading during the Exchange's
standard trading hours for index options, i.e., from 9:30 a.m. to 4:15
p.m. (Eastern time), except that that on the last trading day,
transactions in expiring p.m.-settled broad-based index options may be
effected on the Exchange between the hours of 9:30 a.m. (Eastern time)
and 4:00 p.m. (Eastern time).\16\ The trading hours for XND options
will be the same as the trading hours for options on Nasdaq-100 Index.
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\16\ See Supplementary Material .07(c) to Options 4A, Section
12.
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XND options will trade with a minimum trading increment of $0.01
for all options series \17\ similar to Phlx XND options.\18\ ISE
proposes to adopt a new Supplementary Material .04 to Options 3,
Section 3 to state that for so long as Invesco QQQ Trust Series 1
(``QQQ'') options participate in the Penny Interval Program, the
minimum increments for XND options shall be the same as QQQ for all
options series (including LEAPS), which shall be $0.01 for options for
all other series.
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\17\ This is the case as long as QQQ options (``QQQ'')
participate in the Penny Interval Program.
\18\ See Phlx Supplementary Material .03 to Options 3, Section
3.
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The Exchange proposes that XND options will have monthly expiration
dates on the third Friday of each month (i.e., Expiration Friday), and
the Exchange proposes to list XND options in expiration months
consistent with those of other index option products available on the
Exchange.\19\ In addition, the Exchange may list long term index
options series (``LEAPS'') that expire from twelve (12) to sixty (60)
months from the date of issuance.\20\ With the addition of XND, the
Exchange proposes to amend the first sentence of Options 4A, Section
12(b)(1)(i) to provide that ``Index long term options series may be
based on either the full value, reduced value or micro index value of
the underlying index.'' There may be up to ten (10) expiration months,
none further out than sixty (60) months. Strike price intervals and
continuity Rules shall not apply to such options series until the time
to expiration is less than twelve (12) months. Bid/ask differentials
for long-term options contracts are specified within Options 2, Section
4(b)(4)(i)(A). Further, the Exchange proposes to add rule text at
Options 4A, Section 12(b)(3)(ii) that provides, ``Micro index long term
options series may expire at six-month intervals. When a new expiration
month is listed, series may be near or bracketing the current index
value. Additional series may be added when the value of the underlying
index increases or decreases by ten (10) to fifteen (15) percent.'' XND
options would also be eligible to be added to the Short Term Option
Series Program (``Weeklies'') and/or Quarterly Options Series Program
(``Quarterlies'') if designated by the Exchange Supplementary Material
.01 and .02 to Options 4A, Section 12, respectively.\21\
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\19\ Options 4A, Section 12(a)(3) currently provides that the
Exchange may list: (i) up to six (6) standard monthly expirations at
any one time in a class, but will not list index options that expire
more than twelve (12) months out; (ii) up to 12 standard monthly
expirations at any one time for any class that the Exchange (as the
Reporting Authority) uses to calculate a volatility index; and (iii)
up to 12 standard (monthly) expirations in NDX options and NQX
options.
\20\ See Options 4A, Section 12(b)(3).
\21\ The Exchange expects that it will add XND options to the
Weeklies program.
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Further, as noted herein, the Exchange proposes to permit XND
options to be listed and traded in accordance with the Nonstandard
Expirations Program, which permits broad-based indexes to list 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 End of
Month (``EOM'') expiration), and permit XND options to separately
expire on Tuesdays and Thursdays, similar to options on the Nasdaq-100
Index. Weekly Expirations would be subject to all provisions of Options
4A, Section 12 and would be treated the same as options on the same
underlying index that expire on the third Friday of the expiration
month. New series in Weekly Expirations could be added up to and
including on the expiration date for an expiring Weekly Expiration. The
maximum number of expirations that could be listed for each Weekly
Expiration (i.e., a Monday expiration, Wednesday expiration, or Friday
expiration, as applicable) in a given class would be the same as the
maximum number of expirations permitted for standard options on the
same broad-based index.\22\ Further, the Exchange could open for
trading EOMs on any broad-based index eligible for standard options
trading to expire on last trading day of the month. EOMs would be
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 EOMs would be P.M.-settled
and new series in EOMs could be added up to and including on the
expiration date for an expiring EOM.\23\ Today, Phlx XND options trade
in the Nonstandards Program.\24\
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\22\ Weekly Expirations would not need to be for consecutive
Monday, Wednesday, or Friday expirations as applicable. However, the
expiration date of a non-consecutive expiration would not be
permitted beyond what would be considered the last expiration date
if the maximum number of expirations were listed consecutively.
Weekly Expirations that are first listed in a given class could
expire up to four weeks from the actual listing date. If the last
trading day of a month were a Monday, Wednesday, or Friday and the
Exchange were to list EOMs and Weekly Expirations as applicable in a
given class, the Exchange would list an EOM instead of a Weekly
Expiration in the given class. Other expirations in the same class
would not be counted as part of the maximum number of Weekly
Expirations for a broad-based index class. If the Exchange were not
open for business on a respective Monday, the normally Monday
expiring Weekly Expirations would expire on the following business
day. If the Exchange were not open for business on a respective
Wednesday or Friday, the normally Wednesday or Friday expiring
Weekly Expirations would expire on the previous business day. See
Supplementary Material .07(a) to Options 4A, Section 12.
\23\ The maximum number of expirations that could be listed for
EOMs in a given class would be the same as the maximum number of
expirations permitted for standard options on the same broad-based
index. EOM expirations would not need to be for consecutive end of
month expirations. However, the expiration date of a non-consecutive
expiration may not be beyond what would be considered the last
expiration date if the maximum number of expirations were listed
consecutively. EOMs that are first listed in a given class could
expire up to four weeks from the actual listing date. Other
expirations would not be counted as part of the maximum numbers of
EOM expirations for a broad-based index class. See Supplementary
Material .07(a) to Options 4A, Section 12.
\24\ See Phlx Options 4A, Section 12(b)(5).
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Generally, pursuant to Options 4A, Section 12(c)(1), except as
provided in
[[Page 78420]]
Options 4A, Section 12(c)(5),\25\ the exercise (strike) price intervals
will be no less than $5, provided that the Exchange may determine to
list strike prices at no less than $2.50 intervals for options on the
following indexes (which may also be known as sector indexes). The
Exchange proposes to amend Options 4A, Section 12(c)(1) to add XND
options to the list of classes where strike price intervals of no less
than $2.50 are generally permitted and note, ``if the strike price is
less than $200.'' The Exchange proposes to adopt the same strike price
intervals for XND options as are listed for XND options on Phlx \26\
and currently approved for Reduced Value Nasdaq 100 Options within
Options 4A, Section 12(c)(5). Thus, notwithstanding Options 4A, Section
12(c)(1), the interval between strike prices of series of XND options
will be $1 or greater, subject to the conditions described in Options
4A, Section 12(c)(5).\27\ The Exchange will not list LEAPS on XND
options at intervals less than $5. If the Exchange determines to add
XND options to the Weeklies or Quarterlies programs such options will
be listed with expirations and strike prices described in Options 4A,
Section 12(c)(5).
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\25\ Proposed Options 4A, Section 12(c)(1) provides that the
interval between strike prices of series of Mini-Nasdaq-100 Index
(``MNX'' or ``Mini-NDX''), Nasdaq 100 Reduced Value Index (``NQX'')
or Nasdaq 100 Micro Index Options (``XND'') options will be $1 or
greater, subject to certain conditions.
\26\ See Phlx Options 4A, Section 12(a)(2).
\27\ See also Phlx Supplementary Material .02 to Options 4A,
Section 12 describing XND options.
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Position and Exercise Limits; Margin
As with NDX, in determining compliance with Options 4A, Section 6,
Position Limits, there will be no position limits for broad-based index
option contracts in the XND class.\28\ Although there will be no
position limits for XND options, the Exchange proposes to amend Options
4A, Section 6 to include XND. Options 4A, Section 6(c) provides,
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\28\ The Exchange is amending Options 4A, Section 6(a) to
reflect this proposed change.
Positions in reduced-value index options shall be aggregated with
positions in full-value indices. For such purposes, reduced-value
contracts will be counted consistent with their value (e.g., 5 NQX
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reduced-value contracts equal 1 NDX full-value contract).
Since the Exchange is proposing to list a micro index contract that is
based on 1/100 of the value of the Nasdaq-100 Index, Options 4A,
Section 6(c) would apply. In addition, as with NDX, there would be no
exercise limits for XND.\29\ The same rules for position and exercise
limits to XND options on Phlx.\30\ Finally, the Exchange proposes to
apply broad-based index margin requirements for the purchase and sale
of XND options that are the same as margin requirements currently in
place for NDX options.
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\29\ See Options 4A, Section 10 which provides that exercise
limits for index options contracts shall be equivalent to the
position limits described in Options 4A, Section 6.
\30\ See Phlx Options 4A, Section 6, Phlx Options 4A, Section
10.
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Surveillance and Capacity
The Exchange represents that it has sufficient capacity to handle
additional quotations and message traffic associated with the proposed
listing and trading of XND options. Further, the Exchange has analyzed
its capacity and represents that it believes the Exchange and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle any additional traffic associated with the listing
of the maximum number nonstandard expirations permitted pursuant to
Supplementary Material .07 to Options 4A, Section 12.
Index options are integrated into the Exchange's existing
surveillance system architecture and are thus subject to the relevant
surveillance processes. The Exchange represents that it has adequate
surveillance procedures to monitor trading in XND options thereby
aiding in the maintenance of a fair and orderly market.
The Exchange notes that it is amending Options 4A, Section 12 to
include the Nasdaq 100 Micro Index Options within the Rule to conform
to the amendments proposes herein.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act,\31\ in general, and furthers the
objectives of section 6(b)(5) of the Act,\32\ 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. Specifically, the Exchange believes
that the listing and trading of a micro index P.M.-settled index option
contract based on the Nasdaq-100 Index will attract order flow to the
Exchange, increase the variety of listed options, and provide a
valuable hedge tool to retail and other investors.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5) and compete with similar products that
are offered on Cboe such as SPXW and OEX.
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The Exchange believes that the proposed rule change will further
the Exchange's goal of introducing new and innovative products to the
marketplace. Specifically, the Exchange believes that XND options would
provide additional opportunities for market participants to trade and
hedge exposure to the Nasdaq-100 Index as it does today on Phlx. The
proposed XND options product is identical to XND options on Phlx.\33\
Additionally, the proposed XND options product is similar to NDX
options that are currently listed and traded on the Exchange with two
important differences: (1) XND options will be based on 1/100 the value
of the Nasdaq-100 Index, and (2) XND options will be P.M.-settled.
These differences are based on the Exchanges experience listing NDX
options, and are designed to attract additional participation from
retail and other investors.
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\33\ See Phlx Options 4A, Section 12.
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Based on the trading of XND options on Phlx, the Exchange believes
that the proposed contract specifications will be attractive to market
participants, and will remove impediments to and perfect the mechanism
of a free and open market and a national market system. The nonstandard
expirations would expand the ability of investors to hedge risks
against market movements stemming from economic releases or market
events that occur during the month and at the end of the month.
Accordingly, the Exchange believes that weekly expirations and EOMs
should create greater trading and hedging opportunities and
flexibility, and provide customers with the ability to tailor their
investment objectives more closely.
Currently, the Exchange believes that there continues to be unmet
market demand for exchange-listed index options on the Nasdaq-100
Index. This unmet demand stems in part from the high value of the
Nasdaq-100 Index and the consequently higher cost of purchasing NDX
options. The high value of the Nasdaq-100 Index has made it more
difficult for retail and other investors to comfortably purchase
options on the index. The Exchange believes that a micro index option
would allow additional participation from these investors.
Specifically, the Exchange believes that basing the contract on a micro
value of the Nasdaq-100 Index will encourage additional participation
by retail and other investors due to the reduced capital outlay needed
to trade these options. While the NQX product has attracted retail
trading volume to a certain point given that the NQX product represents
[[Page 78421]]
\1/5\ the value of the Nasdaq-100 Index, the Exchange believes that XND
options, which represent \1/100\ of the Nasdaq-100 Index, may strike a
more appropriate balance for other retail investors with its reduced
size. This value is more similar to other competitive index option
products, such as Cboe's Mini-S&P 500 Index (``XSP'').
Furthermore, based on experience with XND options on Phlx, the
Exchange believes that providing P.M.-settlement will make this product
more attractive to market participants and help garner additional
support for this new index options product. Specifically, the Exchange
believes that P.M.-settlement will be attractive to retail and other
investors that want to use these options to hedge an entire week of
risk without leaving residual risk on the day of expiration, and
without having to actively manage these positions, for example, by
rolling their hedge into the next expiration. Finally, the Exchange
proposes to offer such a product so that it can compete effectively
with similar index option products offered by options markets such as
Cboe which offers SPXW and OEX. Recently, the Commission approved the
permanency of XND as a P.M.-settled product.\34\ Additionally, the
Exchange notes that Nasdaq has an automated closing cross that
facilitates orderly closings by aggregating a large pool of liquidity,
across a variety of order types, in a single venue. The Exchange
believes that Nasdaq's closing procedures are well-equipped to mitigate
imbalance pressure at the close. Also, the Exchange believes that the
proposal will provide additional trading and hedging opportunities for
investors.
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\34\ See supra note 12.
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XND options will be subject to the same rules that presently govern
the trading of index options based on the Nasdaq-100 Index, including
sales practice rules, margin requirements, trading rules, and position
and exercise limits. The Exchange therefore believes that the rules
applicable to trading in XND options are consistent with the protection
of investors and the public interest. Furthermore, the Exchange
represents that it has sufficient systems capacity and adequate
surveillance procedures to handle trading in XND options.
With respect to the Exchange's proposal to adopt new Supplementary
Material .04 to Options 3, Section 3 to provide that minimum increments
for bids and offers for XND options be the same as those for QQQ,
regardless of the value at which the option series is quoted, may
promote competition and benefit investors. This proposal aligns the
minimum increments for XND options with those for QQQ options in order
to allow market participants to quote in minimum increments of $0.01 is
consistent with the Act because allowing participants to quote in
smaller increments may provide the opportunity for reduced spreads,
thereby lowering costs to investors. In addition, because both XND and
QQQ are based on the Nasdaq-100 Index it would be reasonable for the
minimum increments of bids and offers to be the same for both types of
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. XND options would be
available for trading to all market participants. The proposed rule
change will facilitate the listing and trading of a new option product
that will enhance competition among market participants, to the benefit
of investors and the marketplace. The listing of XND 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 Index.
Furthermore, this product could offer a competitive alternative to
other existing investment products that seek to allow investors to gain
broad market exposure. Finally, it is possible for other exchanges to
develop or license the use of a new or different index to compete with
the Nasdaq-100 Index and seek Commission approval to list and trade
options on such an index.
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
The Exchange has filed the proposed rule change pursuant to section
19(b)(3)(A)(iii) of the Act \35\ and Rule 19b-4(f)(6) thereunder.\36\
Because the foregoing 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)(iii) of the Act \37\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\38\
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\35\ 15 U.S.C. 78s(b)(3)(A)(iii).
\36\ 17 CFR 240.19b-4(f)(6).
\37\ 15 U.S.C. 78s(b)(3)(A)(iii).
\38\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-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 pursuant to Rule 19b-4(f)(6) under the
Act \39\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ 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 requested that the Commission waive the 30-day operative delay so
that it may immediately list and trade XND options on the Exchange,
which are currently listed on Phlx. Further, according to the Exchange,
the rules to list and trade XND options on ISE are identical to those
of Phlx.\41\ The Exchange has stated that waiver of the operative delay
would deepen the liquidity pool for XND options and allow ISE to
compete with similar products that are offered on other exchanges. The
Commission believes that the proposed rule change presents no novel
issues and that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the operative delay and designates the
proposed rule change operative upon filing.\42\
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\39\ 17 CFR 240.19b-4(f)(6).
\40\ 17 CFR 240.19b-4(f)(6)(iii).
\41\ See Phlx Options 4A, Section 12.
\42\ 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 should be approved or disapproved.
[[Page 78422]]
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#2153544d440c424e4c4c444f5552615244420f464e57"><span class="__cf_email__" data-cfemail="fa888f969fd7999597979f948e89ba899f99d49d958c">[email protected]</span></a>. Please include
file number SR-ISE-2023-24 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-2023-24. 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-2023-24 and should be
submitted on or before December 6, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25108 Filed 11-14-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on November 15, 2023.
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.