Notice2023-27270
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Monthly Options Series and Amend the Nonstandard Expirations Program
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
December 13, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 88, Number 238 (Wednesday, December 13, 2023)]
[Notices]
[Pages 86404-86410]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27270]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99104; File No. SR-ISE-2023-32]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt Monthly
Options Series and Amend the Nonstandard Expirations Program
December 7, 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 November 29, 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 adopt Monthly Options Series and (ii)
amend its Nonstandard Expirations Program.
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.
[[Page 86405]]
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 Exchange proposes to (i) adopt Monthly Options Series and (ii)
amend its Nonstandard Expirations Program. Each change is discussed in
detail below.
Monthly Options Series
The Exchange proposes to amend its Rules to accommodate the listing
of options series that would expire at the close of business on the
last business day of a calendar month (``Monthly Options Series'').\3\
Pursuant to proposed Supplementary Material .08(a) to Options 4,
Section 5 and Supplementary Material .06(a) to Options 4A, Section 12,
the Exchange may list Monthly Options Series for up to five currently
listed option classes that are either index options or options on
exchange-traded funds (``ETFs'').\4\ In addition, the Exchange may also
list Monthly Options Series on any options classes that are selected by
other securities exchanges that employ a similar program under their
respective rules.\5\ The Exchange may list 12 expirations for Monthly
Options Series. Monthly Options Series need not be for consecutive
months; however, the expiration date of a nonconsecutive expiration may
not be beyond what would be considered the last expiration date if the
maximum number of expirations were listed consecutively.\6\ Other
expirations in the same class are not counted as part of the maximum
numbers of Monthly Options Series expirations for a class.\7\ Monthly
Options Series will be P.M.-settled.\8\
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\3\ The proposed rule change defines the term ``Monthly Options
Series'' in Options 4A, Section 2(l) (and re-letters current
paragraphs (l) through (p) as (m) through (q)) as a series in an
options class that is approved for listing and trading on the
Exchange in which the series is opened for trading on any business
day and that expires at the close of business on the last business
day of a calendar month. The Exchange also proposes to fix an
incorrect cross cite to the definition of broad-based index in
Options 4A, Section 3(d)(1).
\4\ The Exchange proposes to amend Options 4, Section 5(a) to
provide that proposed Supplementary Material .08 to Options 4,
Section 5 will describe how the Exchange will fix a specific
expiration date and exercise price for Monthly Options Series. This
is consistent with language in current Options 4, Section 5(a) for
other Short Term Option Series and Quarterly Options Series.
\5\ The Commission recently approved a Cboe Options proposed
rule change to adopt substantively identical Monthly Options Series.
See Securities Exchange Act Release No. 98915 (November 13, 2023),
88 FR 80356 (November 17, 2023) (SR-CBOE-2023-049) (``Cboe Monthly
Approval Order'').
\6\ The Exchange notes this provision considers consecutive
monthly listings. In other words, as other expirations (such as
Quarterly Options Series) are not counted as part of the maximum,
those expirations would not be considered when considering when the
last expiration date would be if the maximum number were listed
consecutively. For example, if it is January 2024 and the Exchange
lists Quarterly Options Series in class ABC with expirations in
March, June, September, December, and the following March, the
Exchange could also list Monthly Options Series in class ABC with
expirations in January, February, April, May, July, August, October,
and November 2024 and January and February of 2025. This is because,
if Quarterly Options Series, for example, were counted, the Exchange
would otherwise never be able to list the maximum number of Monthly
Options Series. This is consistent with the listing provisions for
Quarterly Options Series, which permit calendar quarter expirations.
The need to list series with the same expiration in the current
calendar year and the following calendar year (whether Monthly or
Quarterly expiration) is to allow market participants to execute
one-year strategies pursuant to which they may roll their exposures
in the longer-dated options (e.g. January 2025) prior to the
expiration of the nearer-dated option (e.g. January 2024).
\7\ See proposed Supplementary Material .08(b) to Options 4,
Section 5 and proposed Supplementary Material .06(b) to Options 4A,
Section 12.
\8\ See proposed Supplementary Material .08(c) to Options 4,
Section 5 and proposed Supplementary Material .06(c) to Options 4A,
Section 12.
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The strike price of each Monthly Options Series will be fixed at a
price per share, with at least two, but no more than five, strike
prices above and at least two, but no more than five, strike prices
below the value of the underlying index or price of the underlying
security at about the time that a Monthly Options Series is opened for
trading on the Exchange. The Exchange will list strike prices for
Monthly Options Series that are reasonably related to the current price
of the underlying security or current index value of the underlying
index to which such series relates at about the time such series of
options is first opened for trading on the Exchange. The term
``reasonably related to the current price of the underlying security or
index value of the underlying index'' means that the exercise price is
within 30% of the current underlying security price or index value.\9\
Additional Monthly Options Series of the same class may be open 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 security moves substantially from the initial
exercise price or prices. To the extent that any additional strike
prices are listed by the Exchange, such additional strike prices will
be within 30% above or below the closing price of the underlying index
or security on the preceding day. The Exchange may also open additional
strike prices of Monthly Options Series that are more than 30% above or
below the current price of the underlying security, 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 will not be considered when
determining customer interest under this provision. The opening of the
new Monthly Options Series will not affect the series of options of the
same class previously opened.\10\ The interval between strike prices on
Monthly Options Series will be the same as the interval for strike
prices for series in that same options class that expire in accordance
with the normal monthly expiration cycle.\11\
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\9\ See proposed Supplementary Material .08(d) to Options 4,
Section 5 and proposed Supplementary Material .06(d) to Options 4A,
Section 12. The Exchange notes these proposed provisions are
consistent with the initial series provision for the Quarterly
Options Series program in Supplementary Material .02(d) to Options
4A, Section 12. While different than the initial strike listing
provision for the Quarterly Options Series program in current
Supplementary Material .04(c) to Options 4, Section 5, the Exchange
believes the proposed provision is appropriate, as it contemplates
classes that may have strike intervals of $5 or greater. For
consistency, the Exchange also proposes to amend Supplementary
Material .04(c) to Options 4, Section 5 to incorporate the same
provision for initial series. The Exchange also proposes a non-
substantive punctuation changes in the Quarterly Options Series
header in Supplementary Material .04 to Options 4, Section 5 and
Supplementary Material .02 to Options 4A, Section 12.
\10\ See proposed Supplementary Material .08(e) to Options 4,
Section 5 and proposed Supplementary Material .06(e) to Options 4A,
Section 12.
\11\ See proposed Supplementary Material .08(f) to Options 4,
Section 5 and proposed Supplementary Material .06(f) to Options 4A,
Section 12. See also Options 4, Section 5(d), (e), Supplementary
Material .01, .02, .05, .06 (permissible strikes prices for ETF
classes) and Options 4, Section 5(f) and Options 4A, Section 12(c)
(permissible strike prices for index options).
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By definition, Monthly Options Series can never expire in the same
week as a standard expiration series (which expire on the third Friday
of a month) in the same class expires. The same, however, is not the
case with regards to Short
[[Page 86406]]
Term Options Series \12\ or Quarterly Options Series. Therefore, to
avoid any confusion in the marketplace, the Exchange proposes to amend
Supplementary Material .03 to Options 4, Section 5 and Supplementary
Material .01 to Options 4A, Section 12 \13\ to provide the Exchange
will not list a Short Term Options Series in a class on a date on which
a Monthly Options Series or Quarterly Options Series expires.\14\
Similarly, proposed Supplementary Material .08(b) to Options 4, Section
5 and Supplementary Material .06(b) to Options 4A, Section 12 provide
that no Monthly Options Series may expire on a date that coincides with
an expiration date of a Quarterly Options Series in the same index or
ETF class. In other words, the Exchange will not list a Short Term
Options Series on an index or ETF if a Monthly Options Series on that
index or ETF were to expire on the same date, nor will the Exchange
list a Monthly Options Series on an ETF or index if a Quarterly Options
Series on that index or ETF were to expire on the same date to prevent
the listing of series with concurrent expirations.\15\
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\12\ The Exchange proposes non-substantive changes to clarify in
Options 4A, Section 12(a)(3) that index options contracts may expire
at three (3)-month intervals, in consecutive weeks or in consecutive
months (as specified by class in Options 4A, Section 12). This is
merely a clarification for punctuation and clarity.
\13\ The Exchange also proposes a non-substantive punctuation
change in Supplementary Material .01 to Options 4A, Section 12.
\14\ The Exchange also proposes to make a non-substantive change
to Supplementary Material .03 to Options 4, Section 5 and
Supplementary Material .01 to Options 4A, Section 12 to change
current references to ``monthly options series'' to ``standard
expiration options series'' (i.e., series that expire on the third
Friday of a month), to eliminate potential confusion. The current
references to ``monthly options series'' are intended to refer to
those series that expire on the third Friday of a month, which are
generally referred to in the industry as standard expirations.
\15\ The Exchange notes this would not prevent the Exchange from
listing a P.M.-settled Monthly Options Series on an index with the
same expiration date as an A.M.-settled Short Term Options Series on
the same index, both of which may expire on a Friday. In other
words, the Exchange may list a P.M-settled Monthly Options Series on
an index concurrent with an A.M.-settled Short Term Options Series
on that index and both of which expire on a Friday. The Exchange
believes this concurrent listing would provide investors with yet
another hedging mechanism and is reasonable given these series would
not be identical (unlike if they were both P.M.-settled). This could
not occur with respect to ETFs, as all Short Term Options Series on
ETFs are P.M.-settled.
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With respect to Monthly Options Series added pursuant to proposed
Options 4, Section 5, Supplementary Material .08(a) through (f) and
proposed Options 4A, Section 12, Supplementary Material .06(a) through
(f), the Exchange will, on a monthly basis, review series that are
outside a range of five strikes above and five strikes below the
current price of the underlying index or security, and delist series
with no open interest in both the put and the call series having a: (i)
strike higher than the highest strike price with open interest in the
put and/or call series for a given expiration month; and (ii) strike
lower than the lowest strike price with open interest in the put and/or
call series for a given expiration month. Notwithstanding this
delisting policy, customer requests to add strikes and/or maintain
strikes in Monthly Options Series in series eligible for delisting will
be granted. In connection with this delisting policy, if the Exchange
identifies series for delisting, the Exchange will notify other options
exchanges with similar delisting policies regarding eligible series for
delisting and will work with such other exchanges to develop a uniform
list of series to be delisted, so as to ensure uniform series delisting
of multiply listed Monthly Options Series.\16\
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\16\ See proposed Supplementary Material .08(g) to Options 4,
Section 5 and proposed Supplementary Material .06(g) to Options 4A,
Section 12.
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The Exchange believes that Monthly Options Series will provide
investors with another flexible and valuable tool to manage risk
exposure, minimize capital outlays, and be more responsive to the
timing of events affecting the securities that underlie option
contracts. The Exchange believes limiting Monthly Options Series to
five classes will ensure the addition of these new series will have a
negligible impact on the Exchange's and the Options Price Reporting
Authority's (``OPRA's'') quoting capacity. The Exchange represents it
has the necessary systems capacity to support new options series that
will result from the introduction of Monthly Options Series.
The Exchange also proposes to amend Options 4A, Sections 6 and 7 to
provide that positions in Monthly Options Series will be aggregated
with positions in options contracts on the same underlying security or
index. This is consistent with how position (and exercise) limits are
currently imposed on series with other expirations (Short Term Options
Series, and Quarterly Options Series). Therefore, positions in options
within class of index or ETF options, regardless of their expirations,
would continue to be subject to existing position (and exercise)
limits. The Exchange believes this will address potential manipulative
schemes and adverse market impacts surrounding the use of options.
The Exchange also represents its current surveillance programs will
apply to Monthly Options Series and will properly monitor trading in
the proposed Monthly Options Series. The Exchange currently lists
Quarterly Options Series in certain index and ETF classes, which expire
at the close of business at the end of four calendar months (i.e., the
end of each calendar quarter), and has not experienced any market
disruptions nor issues with capacity. The Exchange's surveillance
programs currently in place to support and properly monitor trading in
these Quarterly Options Series, as well as Short Term Option Series and
standard expiration series, will apply to the proposed Monthly Options
Series. The Exchange believes its surveillances continue to be designed
to deter and detect violations of its Rules, including position and
exercise limits and possible manipulative behavior, and these
surveillances will apply to Monthly Options Series that the Exchange
determines to list for trading. Ultimately, the Exchange does not
believe the proposed rule change raises any unique regulatory concerns
because existing safeguards--such as position and exercise limits (and
the aggregation of options overlying the same index or ETF) and
reporting requirements--would continue to apply.
Nonstandard Expirations Program
The Exchange proposes to amend Options 4A, Section 12,
Supplementary Material .07, which governs its Nonstandard Expirations
Program (``Program''), to permit P.M.-settled options on any broad-
based index eligible for standard options trading that expire on
Tuesday or Thursday.\17\ Currently under the Program, the Exchange is
permitted to list P.M.-settled options on any broad-based index
eligible for standard trading that expire on: (1) any Monday,
Wednesday, or Friday (other than the third Friday-of-the-month or days
that coincide with an EOM expiration (as defined below) and, with
respect to options on the Nasdaq-100 Index (``NDX options'') and the
Nasdaq 100 Micro Index (``XND options'') any Tuesday or Thursday
(``Weekly Expirations'') and (2) the last trading day of the month
(``End of Month Expirations'' or ``EOMs'').\18\ The Exchange notes that
permitting Tuesday and Thursday expirations for all broad-based
indexes, as proposed, would be in
[[Page 86407]]
addition to the options with Monday, Wednesday and Friday expirations
that the Exchange may (and does) already list on those indexes, as they
are permissible Weekly Expirations for options on a broad-based index
pursuant to Supplementary Material .07(a) to Options 4A, Section 12.
The proposal merely expands the availability of Tuesday and Thursday
Weekly Expirations, and thus all Weekly Expirations available under the
Program, to all broad-based indexes eligible for standard options
trading, on which the Exchange may currently list Monday, Wednesday,
and Friday Weekly expirations under the Program.
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\17\ The Exchange's proposal is based on a recently approved
rule change by Cboe Options. See SR-CBOE-2023-054 (``Cboe
Nonstandard Approval Order'').
\18\ See Supplementary Material .07 to Options 4A, Section 12.
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The Program for Weekly Expirations will apply to any broad-based
index option with Tuesday and Thursday expirations in the same manner
as it currently applies to all other P.M.-settled broad-based index
options with Monday, Wednesday, and Friday expirations and to NDX and
XND options with Tuesday and Thursday expirations. Specifically, as set
forth in Options 4A, Section 12, Supplementary Material .07, Weekly
Expirations, including the proposed Tuesday and Thursday expirations,
are 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; provided, however, that Weekly
Expirations are 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.
The maximum number of expirations that may be listed for each
Weekly Expiration (i.e., a Monday expiration, Tuesday expiration,
Wednesday expiration, Thursday expiration, or Friday expiration, as
applicable) in a given class is the same as the maximum number of
expirations permitted in Options 4A, Section 12(a)(3) for standard
options on the same broad-based index. Weekly Expirations need not be
for consecutive Monday, Tuesday, Wednesday, Thursday, or Friday
expirations as applicable; however, the expiration date of a
nonconsecutive expiration may not be 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 may expire up to four weeks from the actual listing date.
If the Exchange lists EOMs and Weekly Expirations as applicable in a
given class, the Exchange will list an EOM instead of a Weekly
Expiration that expires on the same day in the given class. Other
expirations in the same class are not counted as part of the maximum
number of Weekly Expirations for an applicable broad-based index class.
If the Exchange is not open for business on a respective Monday, the
normally Monday expiring Weekly Expirations will expire on the
following business day. If the Exchange is not open for business on a
respective Tuesday, Wednesday, Thursday, or Friday, the normally
Tuesday, Wednesday, Thursday, or Friday expiring Weekly Expirations
will expire on the previous business day. If two different Weekly
Expirations on a broad-based index would expire on the same day because
the Exchange is not open for business on a certain weekday, the
Exchange will list only one of such Weekly Expirations. In addition,
like all Weekly Expirations, pursuant to Supplementary Material .07(c)
to Options 4A, Section 12, transactions in expiring broad-based index
options with Tuesday and Thursday expirations may be effected on the
Exchange between the hours of 9:30 a.m. and 4:00 p.m. on their last
trading day (Eastern Time).
The Exchange believes that that the introduction of Tuesday and
Thursday expirations for all broad-based index options (rather than
offering those expirations for just two indexes) will expand hedging
tools available to market participants while also providing greater
trading opportunities, regardless of in which index option market they
participate. By offering expanded Tuesday and Thursday expirations
along with the current Monday, Wednesday and Friday expirations, the
proposed rule change will allow market participants to purchase options
on all broad-based index options available for trading on the Exchange
in a manner more aligned with specific timing needs and more
effectively tailor their investment and hedging strategies and manage
their portfolios. In particular, the proposed rule change will allow
market participants to roll their positions on more trading days, thus
with more precision, spread risk across more trading days and
incorporate daily changes in the markets, which may reduce the premium
cost of buying protection.
The Exchange believes there is sufficient investor interest and
demand in Tuesday and Thursday expirations for broad-based index
options beyond NDX and XND to warrant inclusion in the Program and that
the Program, as amended, will continue to provide investors with
additional means of managing their risk exposures and carrying out
their investment objectives.\19\ With regard to the impact of this
proposal on system capacity, the Exchange has analyzed its capacity and
represents that it believes that the Exchange and OPRA have the
necessary systems capacity to handle any potential additional traffic
associated with trading of broad-based index options with Tuesday and
Thursday expirations. The Exchange does not believe that its Members
will experience any capacity issues as a result of this proposal and
represents that it will monitor the trading volume associated with any
possible additional options series listed as a result of this proposal
and the effect (if any) of these additional series on market
fragmentation and on the capacity of the Exchange's automated systems.
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\19\ The Exchange currently lists Tuesday and Thursday
expirations in NDX and XND options pursuant to the Program. The
Exchange also already allows options on broad-based indexes to
expire on Tuesdays for normally Monday or Wednesday expiring options
when the Exchange is not open for business on a respective Monday or
Wednesday (as applicable), and already allows options on broad-based
indexes to expire on Thursdays for normally Friday expiring options
when the Exchange is not open for business on a respective Friday.
Also, EOM options in any broad-based indexes may currently be listed
to expire on a Tuesday or Thursday.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\20\ in general, and with
Section 6(b)(5) of the Act,\21\ 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.
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\20\ 15 U.S.C. 78f.
\21\ 15 U.S.C. 78f(b)(5).
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Monthly Options Series
In particular, the Exchange believes the introduction of Monthly
Options Series will remove impediments to and perfect the mechanism of
a free and open market and a national market system by expanding
hedging tools available to market participants. The Exchange believes
the proposed monthly expirations will allow market participants to
transact in the index and ETF options listed pursuant to the proposed
rule change based on their timing as needed and allow them to
[[Page 86408]]
tailor their investment and hedging needs more effectively. Further,
the Exchange believes the availability of Monthly Options Series would
protect investors and the public interest by providing investors with
more flexibility to closely tailor their investment and hedging
decisions in these options, thus allowing them to better manage their
risk exposure.
The Exchange believes the Quarterly Options Series Program has been
successful to date and the proposed Monthly Options Series program
simply expands the ability of investors to hedge risk against market
movements stemming from economic releases or market events that occur
at months' ends in the same way the Quarterly Options Series Program
has expanded the landscape of hedging for quarter-end news. Monthly
Options Series will also complement Short Term Options Series, which
allow investors to hedge risk against events that occur throughout a
month. The Exchange believes the availability of additional expirations
should create greater trading and hedging opportunities for investors,
as well as provide investors with the ability to tailor their
investment objectives more effectively.
The Exchange notes that the proposed terms of Monthly Options
Series, including the limitation to five index and ETF option classes,
are substantively the same as the current terms of Quarterly Options
Series.\22\ Quarterly Options Series expire on the last business day of
a calendar quarter, which is the last business day of every third
month. The proposed Monthly Options Series would fill the gaps between
Quarterly Options Series expirations by permitting series to expire on
the last business day of every month, rather than every third month.
The proposed Monthly Options Series may be listed in accordance with
the same terms as Quarterly Options Series, including permissible
strikes.\23\ As is the case with Quarterly Options Series, no Short
Term Options Series may expire on the same day as a Monthly Options
Series. Similarly, as proposed, no Monthly Options Series may expire on
the same day as a Quarterly Options Series. The Exchange believes
preventing listing series with concurrent expirations in a class will
eliminate potential investors confusion and thus protect investors and
the public interest. Given that Quarterly Options Series the Exchange
currently lists are essentially Monthly Options Series that can expire
at the end of only certain calendar months, the Exchange believes it is
reasonable to list Monthly Options Series in accordance with the same
terms, as it will promote just and equitable principles of trade. The
Exchange believes limiting Monthly Options Series to five classes will
ensure the addition of these new series will have a negligible impact
on the Exchange's and OPRA's quoting capacity. The Exchange represents
it has the necessary systems capacity to support new options series
that will result from the introduction of Monthly Options Series.
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\22\ Compare proposed Supplementary Material .08 to Options 4,
Section 5 and proposed Supplementary Material .06 to Options 4A,
Section 12 to Supplementary Material .04 to Options 4, Section 5 and
Supplementary Material .02 to Options 4A, Section 12.
\23\ The Exchange notes the proposed maximum number of
expirations is consistent with the maximum number of expirations
permitted for end-of-month (``EOM'') series in index classes. See
Supplementary Material .07(b) (which states that the maximum number
of expirations that may be listed for EOMs in a given class is the
same as the maximum number of expirations permitted for standard
options on the same broad-based index back (i.e., up to 12 standard
monthly expirations on the majority of index options currently
listed on the Exchange, as set forth in Options 4A, Section
12(a)(3)).
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The Exchange further believes the proposed rule change regarding
the treatment of Monthly Options Series with respect to determining
compliance with position and exercise limits is designed to prevent
fraudulent and manipulative acts and practices and promote just and
equitable principles of trade. Monthly Options Series will be
aggregated with options overlying the same ETF or index for purposes of
compliance with position (and exercise) limits, which is consistent
with how position (and exercise) limits are currently imposed on series
with other expirations (Short Term Options Series and Quarterly Options
Series). Therefore, options positions within ETF or index option
classes for which Monthly Options Series are listed, regardless of
their expirations, would continue to be subject to existing position
(and exercise) limits. The Exchange believes this will address
potential manipulative schemes and adverse market impacts surrounding
the use of options. The Exchange also represents its current
surveillance programs will apply to Monthly Options Series and will
properly monitor trading in the proposed Monthly Options Series. The
Exchange currently trades Quarterly Options Series in certain index and
ETF classes, which expire at the close of business at the end of four
calendar months (i.e., the end of each calendar quarter), and has not
experienced any market disruptions nor issues with capacity. The
Exchange's surveillance programs currently in place to support and
properly monitor trading in these Quarterly Options Series, as well as
Short Term Option Series and standard expiration series, will apply to
the proposed Monthly Options Series. The Exchange believes its
surveillances continue to be designed to deter and detect violations of
its Rules, including position and exercise limits and possible
manipulative behavior, and these surveillances will apply to Monthly
Options Series that the Exchange determines to list for trading.
Ultimately, the Exchange does not believe the proposed rule change
raises any unique regulatory concerns because existing safeguards--such
as position and exercise limits (and the aggregation of options
overlying the same ETF or index) and reporting requirements--would
continue to apply.
Nonstandard Expirations Program
The Exchange believes that the proposed rule change will 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. The Exchange believes that the introduction of Tuesday
and Thursday expirations for all broad-based index options (rather than
offering those expirations for just two indexes) will provide investors
with expanded hedging tools and greater trading opportunities and
flexibility, regardless of in which index option market they
participate. As a result, investors will have additional means to
manage their risk exposures and carry out their investment objectives.
By offering expanded Tuesday and Thursday expirations along with the
current Monday, Wednesday and Friday expirations, the proposed rule
change will allow market participants to purchase options on all broad-
based index options available for trading on the Exchange in a manner
more aligned with specific timing needs and more effectively tailor
their investment and hedging strategies and manage their portfolios.
For example, the proposed rule change will allow market participants to
roll their positions on more trading days, thus with more precision,
spread risk across more trading days and incorporate daily changes in
the markets, which may reduce the premium cost of buying protection.
The Exchange represents that it believes that it has the necessary
systems capacity to support any additional traffic associated with
trading of options on all broad-based index options with Tuesday and
Thursday expirations and does not believe that its
[[Page 86409]]
Members will experience any capacity issues as a result of this
proposal.
The Commission previously recognized that listing Tuesday and
Thursday expirations for NDX and XND options was consistent with the
Act.\24\ The Exchange noted that Tuesday and Thursday expirations in
these index options would offer additional investment options to
investors and may be useful for their investment or hedging
objectives.\25\ The Exchange also notes it previously listed P.M.-
settled broad-based index options with weekly expirations pursuant to a
pilot program, so the Commission could monitor the impact of P.M.
settlement of cash-settled index derivatives on the underlying cash
markets (while recognizing that these risks may have been mitigated
given enhanced closing procedures in use in the primary equity
markets); however, the Commission recently approved a proposed rule
change to make that pilot program permanent. The Commission noted that
the data it reviewed in connection with the pilot demonstrated that
these options (including SPX and XSP options with Tuesday and Thursday
expirations) ``benefitted investors and other market participants by
providing more flexible trading and hedging opportunities while also
having no disruptive impact on the market'' and were thus consistent
with the Act.\26\ The proposed rule change is consistent with these
findings, as it will benefit investors and other market participants
that participate in the markets for broad-based index options other
than NDX and XND options in the same manner by providing them with more
flexible trading and hedging opportunities. Additionally, the Exchange
does not believe the listing of additional P.M.-settled options on
other broad-based indexes will have any significant economic impact on
the underlying component securities surrounding the close as a result
of expiring p.m.-settled options or impact market quality, based on the
data provided to and reviewed by the Commission (and the Commission's
own conclusions based on that review, as noted above) and due to the
significant changes in closing procedures in the decades since index
options moved to A.M.-settlement.\27\
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\24\ See Securities Exchange Act Release Nos. 95393 (July 29,
2022), 87 FR 47807 (August 4, 2022) (SR-ISE-2022-13) (``NDX Options
Rule Change''); and 98886 (November 8, 2023), 88 FR 78417 (November
15, 2023) (SR-ISE-2023-24) (``XND Options Rule Change'')
\25\ See NDX Options Rule Change at 47808; and XND Options Rule
Change at 78421.
\26\ See Securities Exchange Act Release No. 98450 (September
20, 2023), 88 FR 66111 (September 26, 2023) (SR-ISE-2023-08) at
66114.
\27\ See id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
Monthly Options Series
The Exchange does not believe the proposed rule change to list
Monthly Options Series will impose any burden on intra-market
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, as any Monthly Options Series the Exchange lists
for trading will be available in the same manner for all market
participants who wish to trade such options. The Exchange notes the
proposed terms of Monthly Options Series, including the limitation to
five index and ETF option classes, are substantively the same as the
current terms of Quarterly Options Series.\28\ Quarterly Options Series
expire on the last business day of a calendar quarter, which is the
last business day of every third month, making the concept of Monthly
Options Series in a limited number of index and ETF options not novel.
The proposed Monthly Options Series will fill the gaps between
Quarterly Options Series expirations by permitting series to expire on
the last business day of every month, rather than every third month.
The proposed Monthly Options Series may be listed in accordance with
the same terms as Quarterly Options Series, including permissible
strikes.\29\ Monthly Options Series will trade on the Exchange in the
same manner as other options in the same class.
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\28\ See Supplementary Material .04 to Options 4, Section 5 and
Supplementary Material .02 to Options 4A, Section 12.
\29\ See supra note 23.
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The Exchange does not believe the proposed rule change to list
Monthly Options Series will impose any burden on inter-market
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, as nothing prevents other options exchanges from
proposing similar rules.\30\ As discussed above, the proposed rule
change would permit listing of Monthly Options Series in five index or
ETF options, as well as any other classes that other exchanges may list
under similar programs. To the extent that the availability of Monthly
Options Series makes the Exchange a more attractive marketplace to
market participants at other exchanges, market participants are free to
elect to become market participants on the Exchange.
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\30\ As noted above, at least one other options exchange
recently adopted a substantively identical Monthly Options Series
program. See Cboe Monthly Approval Order.
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The Exchange does not believe the proposed rule change to provide
that positions in Monthly Options Series will be aggregated with
positions in options contracts on the same underlying index or security
for purposes of determining compliance with position (and exercise)
limits will impose any burden on intra-market competition that is not
necessary or appropriate in furtherance of the purposes of the Act, as
it will apply in the same manner to all market participants. The
Exchange proposes to apply position (and exercise) limits to Monthly
Options Series in the same manner it applies position limits to series
with other expirations (Short Term Options Series and Quarterly Options
Series). Therefore, positions in options in a class of ETF or index
options, regardless of their expirations, would continue to be subject
to existing position (and exercise) limits. Additionally, the Exchange
does not believe this proposed rule change will impose any burden on
inter-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act, because it will address
potential manipulative schemes and adverse market impacts surrounding
the use of options.
Nonstandard Expirations Program
The Exchange does not believe that the proposed rule change will
impose any burden on intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act because options
on broad-based indexes with Tuesday and Thursday expirations will be
available to all market participants. By listing options on all
available broad-based indexes that expire on Tuesdays and Thursdays,
the proposed rule change will provide all investors that participate in
the markets for options on all broad-based indexes available for
trading on the Exchange with greater trading and hedging opportunities
and flexibility to meet their investment and hedging needs, which are
already available for NDX and XND options. Additionally, Tuesday and
Thursday expiring broad-based index options will trade in the same
manner as Weekly Expirations currently trade, including Tuesday and
Thursday expiring NDX and XND options.
The Exchange does not believe that the proposal to list options on
all broad-based indexes with Tuesday and Thursday expirations will
impose any
[[Page 86410]]
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because these options are
proprietary Exchange products. Other exchanges offer nonstandard
expiration programs for index options as well as short-term options
programs for certain equity options (including options on certain
exchange-traded funds that track broad-based indexes) that expire on
Tuesdays and Thursdays \31\ and are welcome to similarly propose to
list Tuesday and Thursday options on those index or equity products. To
the extent that the addition of options on additional broad-based
indexes that expire on Tuesdays and Thursdays being available for
trading on the Exchange makes the Exchange a more attractive
marketplace to market participants at other exchanges, such market
participants are free to elect to become market participants on the
Exchange.
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\31\ See, e.g., Phlx Options 4A, Section 12 (permitting
nonstandard expirations, including expirations on Tuesdays and
Thursdays, for NDX and XND options). See also Cboe Nonstandard
Approval Order (permitting nonstandard expirations, including
expirations on Tuesdays and Thursdays, for SPX and XSP options).
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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 \32\ and Rule 19b-4(f)(6) thereunder.\33\
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 \34\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\35\
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\32\ 15 U.S.C. 78s(b)(3)(A)(iii).
\33\ 17 CFR 240.19b-4(f)(6).
\34\ 15 U.S.C. 78s(b)(3)(A)(iii).
\35\ 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 \36\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \37\ 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 the Exchange may list Monthly Options Series and options on all
broad-based indexes with Tuesday and Thursday expirations close in time
to Cboe Options, which the Exchange believes will benefit investors by
promoting competition in both of these programs. The Exchange notes
that its proposal is substantively identical to the proposals submitted
by Cboe Options for its Monthly Options Series program \38\ and
Nonstandard Expirations Program.\39\ 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.\40\
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\36\ 17 CFR 240.19b-4(f)(6).
\37\ 17 CFR 240.19b-4(f)(6)(iii).
\38\ See Cboe Monthly Approval Order, supra note 5.
\39\ See Cboe Nonstandard Approval Order, supra note 17.
\40\ 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.
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#552720393078363a3838303b2126152630367b323a23"><span class="__cf_email__" data-cfemail="1b696e777e36787476767e756f685b687e78357c746d">[email protected]</span></a>. Please include
file number SR-ISE-2023-32 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-2023-32. 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-2023-32 and should be
submitted on or before January 3, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27270 Filed 12-12-23; 8:45 am]
BILLING CODE 8011-01-P
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