Notice2023-25547
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a Proposed Rule Change To Permit the Listing and Trading of P.M.-Settled Nasdasq-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
November 20, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 222 (Monday, November 20, 2023)</title>
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[Federal Register Volume 88, Number 222 (Monday, November 20, 2023)]
[Notices]
[Pages 80792-80793]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25547]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98935; File No. SR-ISE-2023-20]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a
Proposed Rule Change To Permit the Listing and Trading of P.M.-Settled
Nasdasq-100 Index[supreg] Options With a Third-Friday-of-the-Month
Expiration
November 14, 2023.
I. Introduction
On September 28, 2023, Nasdaq ISE, LLC (``ISE'' 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 p.m.-settled Nasdaq-100 Index options
with a third-Friday-of-the-month (``Third Friday'') expiration. The
proposed rule change was published for comment in the Federal Register
on October 4, 2023.\3\ The Commission did not receive any comment
letters and is approving 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. 98643 (September 29,
2023), 88 FR 68843 (``Notice'').
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II. Description of the Proposal
ISE proposes to amend its rules to permit the listing and trading
of p.m.-settled Nasdaq-100 Index (``NDXP'') options with a Third Friday
expiration. The Exchange currently can list a.m.-settled Third Friday
expirations on Nasdaq-100 Index (``NDX'') options.\4\ With this
proposal, the Exchange would have Third Friday expirations on NDX
options that are both a.m.-settled and p.m.-settled on the same day.\5\
The Exchange states that the conditions for listing options on NDXP
with Third Friday expirations will be similar to the a.m.-settled NDX
Third Friday expirations.\6\ 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.
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\4\ See Notice, supra note 3 at 68842.
\5\ See id.
\6\ See id.
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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.\7\ Strike price intervals would be set at
no less than $2.50.\8\ Consistent with existing rules for index
options, the Exchange would allow up to nine near-term expiration
months \9\ as well as LEAPS.\10\ The product would have European-style
exercise. Because the product is based on NDX, there would be no
position limits.\11\
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\7\ See Options 3, Section 3, Minimum Increments.
\8\ See Options 4A, Section 12(c)(1).
\9\ 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.
\10\ See Options 4A, Section 12(b)(1).
\11\ For a more detailed description of the proposed Third
Friday NDXP contract, see Notice, supra note 3.
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NDXP options are series of the NDX options class.\12\ 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.\13\ 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 NDXP options will be
aggregated together with all other standard expirations for applicable
reporting and other requirements.\14\
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\12\ See Notice, supra note 3 at 68842.
\13\ See Supplementary Material .07(a) to Options 4, Section 5.
\14\ See Options 3, Section 6(c) and (d).
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As with NDX, 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 NDXP, the Exchange
may consider imposing additional margin upon the account maintaining
such under-hedged position pursuant to its authority pursuant to
Exchange Rules Options 6E, Section 2.\15\ The trading hours for NDXP,
including Third Friday NDXP, will be from 9:30 a.m. to 4:15 p.m.
Eastern Time.\16\
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\15\ See Notice, supra note 3 at 68843.
\16\ The Exchange notes that trading in NDXP will ordinarily
cease at 4:00 p.m. on the day on which the exercise-settlement value
is calculated. See Notice, supra note 3 at 68843, n. 16.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.\17\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\18\ which requires, among
other things, that the Exchange's rules be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\17\ 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).
\18\ 15 U.S.C. 78f(b)(5).
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In support of its proposal, the Exchange notes that the Commission
recently approved trading of Third Friday expirations for options based
on \1/5\ the value of the Nasdaq-100 Index (``NQX'').\19\ The Exchange
states that the introduction of Third Friday NDXP will attract order
flow to the Exchange, increase the variety of listed options to
investors, and provide a valuable hedge tool to investors.\20\ The
Exchange
[[Page 80793]]
further believes that listing Third Friday NDXP 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.\21\ Further, the
Exchange states it 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.\22\ The Exchange states it
will monitor for any such disruptions or the development of any factors
that could cause such disruptions.\23\ Finally, the Exchange represents
it has sufficient capacity to handle additional traffic associated with
listing Third Friday NDXP options and that it has in place adequate
surveillance procedures to monitor trading in Third Friday NDXP
options.\24\
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\19\ 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)
(``ISE Pilot Approval'').
\20\ See Notice, supra note 3 at 68843.
\21\ See id.
\22\ See id.
\23\ See id.
\24\ See id.
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The Commission has had concerns about the adverse effects and
impact of p.m.- settlement upon market volatility and the operation of
fair and orderly markets on the underlying cash market at or near the
close of trading on expiration days.\25\ However, the Commission
recently approved proposals from several exchanges, including the
Exchange, to permanently establish programs permitting the listing and
trading of certain p.m.-settled broad-based index options.\26\ In
approving these proposals, the Commission reviewed data provided by the
exchanges in their filings, the exchanges' pilot data and reports, as
well as an analysis conducted at the direction of Staff from the
Commission's Division of Economic and Risk Analysis and concluded that
analysis of the pilot data did not identify any significant economic
impact on the underlying component securities surrounding the close as
a result of expiring p.m.-settled options nor did it indicate a
deterioration in market quality for an existing product when a new
p.m.-settled expiration was introduced.\27\ Further, the Commission
stated that significant changes in closing procedures in the decades
since index options moved to a.m. settlement may also serve to mitigate
the potential impact of p.m.-settled index options on the underlying
cash markets.\28\
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\25\ See Securities Exchange Act Release No. 65256 (September 2,
2011), 76 FR 55969, at 55972 (September 9, 2011) (SR-C2-2011-008)
(Order approving proposed rule change to establish a pilot program
to list and trade SPXPM options on the C2 Options Exchange,
Incorporated).
\26\ See e.g., ISE Pilot Approval; Securities Exchange Act
Release Nos. 98451 (September 20, 2023), 88 FR 66088 (September 26,
2023) (SR-Phlx-203-07) (Order approving a nonstandard expirations
pilot program and p.m.-settled XND options) and 98454 (September 20,
2023), 88 FR 66103 at 66103-04 (September 26, 2023) (SR-CBOE-2023-
005)(Order approving p.m.-settled Third Friday SPX options).
\27\ See e.g., ISE Pilot Approval, 88 FR at 66114.
\28\ See id.
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As noted above, the Exchange currently may trade Third Friday NQX
options in addition to p.m.-settled NDX option with nonstandard
expirations.\29\ The Exchange's proposal, which would permit p.m.-
settled Third Friday NDX, is reasonably designed as a limited expansion
of existing p.m.-settled broad-based index option programs and may
provide the investing public and other market participants more
flexibility to closely tailor their investment and hedging decisions.
The Exchange has represented that it has an adequate surveillance
program in place to monitor trading in the Third Friday NDXP options
and has the necessary systems capacity to support the new options
series.\30\ The Commission expects the Exchange to continue to monitor
any potential risks from large p.m.-settled positions and take
appropriate action on a timely basis if warranted.
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\29\ See supra note 19. In addition, the Commission previously
approved a pilot program permitting the listing and trading of Third
Friday NDX options on Nasdaq PHLX LLC (``Phlx''). See Securities
Exchange Act Release No. 81293 (August 2, 2017), 82 FR 37138 (August
8, 2017) (approving SR-Phlx-2017-04). Phlx did not list any options
under the program and subsequently removed the rule from its rule
book. See Securities Exchange Act Release No. 87517 (November 13,
2019), 84 FR 63910 (November 19, 2019) (SR-Phlx-2019-49).
\30\ See supra note 24 and accompanying text.
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Accordingly, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act \31\ and the rules and
regulations thereunder applicable to a national securities exchange.
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\31\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\32\ that the proposed rule change (SR-ISE-2023-20) be, and hereby
is, approved.
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\32\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25547 Filed 11-17-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on November 20, 2023.
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