Notice2023-27274
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Monthly Options Series and 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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<title>Federal Register, Volume 88 Issue 238 (Wednesday, December 13, 2023)</title>
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[Federal Register Volume 88, Number 238 (Wednesday, December 13, 2023)]
[Notices]
[Pages 86393-86399]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27274]
[[Page 86393]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99106; File No. SR-PHLX-2023-54]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Related to Monthly
Options Series and 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 December 4, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (i) adopt a 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/phlx/rules">https://listingcenter.nasdaq.com/rulebook/phlx/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to (i) adopt Monthly Options Series and (ii)
amend its Nonstandard Expirations Program in Options 4A, Options Index
Rules. Each change is discussed in detail below.
Monthly Options Series
The Exchange proposes to amend its Rules to accommodate the listing
of option series that would expire at the close of business on the last
business day of a calendar month (``Monthly Options Series'').\3\ Of
note, Nasdaq ISE, LLC (``ISE'') will separately file a rule change to
adopt a Monthly Options Series for ETFs. Phlx's Options 4 rules, which
govern the ability to transact options on ETFs, incorporate by
reference ISE's Options 4 rules. This rule change proposes to amend
Phlx's index options rules to adopt a Monthly Options Series program.
Pursuant to proposed Options 4A, Section 12(b)(5), the Exchange may
list Monthly Options Series for up to five currently listed option
classes that are either index options or options on 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 Exchange proposes to define a ``Monthly Options Series''
in Options 4A, Section 2(a)(14) to mean, for the purposes of Options
4A, 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 proposes to
renumber the subsequent definitions in Options 4A, Section 2.
\4\ As provided in proposed Options 4A, Section 12(b)(5)(a), the
Exchange may list Monthly Options Series for up to five currently
listed option classes that are either index options or options on
ETFs; the five Monthly Options Series include both index options and
options on ETFs.
\5\ See Securities Exchange Act Release No. 98915 (November 13,
2023), 88 FR 80356 (November 17, 2023) (SR-Cboe-2023-049) (Order
Approving a Proposed Rule Change To Adopt Monthly Options Series)
(``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 Options 4A, Section 12(b)(5)(b).
\8\ See proposed Options 4A, Section 12(b)(5)(c).
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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
[[Page 86394]]
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 Options 4A, Section 12(b)(5)(d). The Exchange
notes this proposed provision is consistent with the initial series
provision for the Quarterly Options Series program in Options 4A,
Section 12(b)(3)(C).
\10\ See proposed Options 4A, Section 12(b)(5)(e).
\11\ See proposed Options 4A, Section 12(b)(5)(f) (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 Term Option Series \12\ or Quarterly Options
Series. Therefore, to avoid any confusion in the marketplace, the
Exchange proposes to amend Options 4A Section 12(b)(5)(b) to provide
the Exchange will not list a Short Term Option Series in a class on a
date on which a Monthly Options Series or Quarterly Options Series
expires.\13\ Similarly, proposed Options 4A, Section 12(b)(5)(b)
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. In other words, the Exchange will not list a Short Term
Option Series on an index if a Monthly Options Series on that index
were to expire on the same date, nor will the Exchange list a Monthly
Options Series on an index if a Quarterly Options Series on that index
were to expire on the same date to prevent the listing of series with
concurrent expirations.\14\
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\12\ Today, Options 4A, Section 12(a)(4) provides that index
options may have expiration months and weeks, which expirations may
occur in consecutive weeks. The Exchange proposes to add ``as
specified below'' to this rule text.
\13\ The Exchange also proposes to make non-substantive changes
to Options 4A, Section 12(b)(4) and Options 4A, Section 12(b)(4)(B)
to reference standard options series and 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.
\14\ 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 Option 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 Option 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).
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With respect to Monthly Options Series added pursuant to proposed
Options 4A, Section 12(b)(5)(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 pursuant to Options 4A, Section 12(b)(5)(g)(1). 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.\15\
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\15\ See Options 4A, Section 12(b)(5)(g)(3).
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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 notes that Options 4A, Section 6, Position Limits for
Broad-Based Index Options, will apply to Monthly Options Series. In
Options 4A, Section 6(e), Monthly Options Series will be aggregated
with positions in options contracts on the same underlying security or
index.\16\ This is consistent with how position (and exercise) limits
are currently imposed on series with other expirations (Short Term
Option Series and Quarterly Options Series). Therefore, positions in
options within class of index, 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.
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\16\ Pursuant to Options 4A, Section 10, exercise limits for
index option contracts shall be equivalent to the position limits
described in Options 4A, Section 6.
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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 ETF classes pursuant to Options 4,
Section 5, 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) and reporting requirements--would continue to
apply.
Nonstandard Expirations Program
The Exchange proposes to amend Options 4A, Section 12(b)(6), as
renumbered in this proposal,\17\ 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.\18\ Currently under the
[[Page 86395]]
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'').\19\ The Exchange notes that
permitting Tuesday and Thursday expirations for all broad-based
indexes, as proposed, would be in 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 Options 4A,
Section 12(b)(6). 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 proposes to renumber current Options 4A,
Section 12(b)(5), titled Nonstandard Expiration Pilot Program,
Options 4A, Section 12(b)(6). Additionally, the Exchange proposes to
remove the word ``Pilot'' as the program is no longer a pilot. 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).
\18\ The Exchange's proposal is based on a recently approved
rule change by Cboe Options. See Securities Exchange Act Release No.
98957 (November 15, 2023), 88 FR 81130 (November 21, 2023) (SR-CBOE-
2023-054) (order Approving a Proposed Rule Change To Amend Rule 4.13
To Expand the Nonstandard Expirations Program To Include P.M.-
Settled Options on Broad-Based Indexes That Expire on Tuesday or
Thursday) (``Cboe Nonstandard Approval Order'').
\19\ 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(b)(6), 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, Options 4A, Section 12(b)(6), 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.\20\ 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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\20\ 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 the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of section 6(b) of the Act.\21\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \22\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and
[[Page 86396]]
practices, 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.
Additionally, the Exchange believes the proposed rule change is
consistent with the section 6(b)(5) \23\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ Id.
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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 options listed pursuant to the proposed rule
change based on their timing as needed and allow them to 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 Option 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 the proposed terms of Monthly Options Series,
including the limitation to list up to five options classes that are
either index options or options on ETFs, are substantively the same as
the current terms of Quarterly Options Series for ETF classes.\24\
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.\25\ As is the case with Quarterly Options Series, no Short
Term Option 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 the Exchange currently lists Quarterly
Options Series in certain ETF classes pursuant to Options 4, Section 5,
which expire at the close of business at the end of four calendar
months (i.e., the end of each calendar quarter), 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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\24\ See Options 4, Section 5. As noted herein, ISE will file a
rule change to amend Options 4, Section 5 and Phlx's Options 4 rules
are incorporated by reference to ISE's Options 4 rules.
\25\ The Exchange notes the proposed maximum number of
expirations is consistent with the maximum number of expirations
permitted for end-of-month series in index classes. See Options 4A,
Section 12(a)(4) which permits 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, Nasdaq-100 ESG Index
Options, and XND options).
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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 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 Option Series, and Quarterly Options
Series).\26\ Therefore, options positions within 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 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) and reporting
requirements--would continue to apply.
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\26\ See Cboe Monthly Approval Order; see also Options 4A,
Section 6 regarding position limits for broad-based index options).
Pursuant to Options 4A, Section 10, exercise limits for index option
contracts shall be equivalent to the position limits described in
Options 4A, Section 6.
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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
[[Page 86397]]
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 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.\27\ 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.\28\ 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.\29\ 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.\30\ 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.\31\
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\27\ See Securities Exchange Act Release Nos. 96411 (November
30, 2022), 87 FR 74688 (December 6, 2022) (SR-Phlx-2022-38) (``XND
Options Rule Change''); and 95391 (July 29, 2022), 87 FR 47797
(August 4, 2022) (SR-Phlx-2022-22) (``NDX Rule Change'').
\28\ See XND Options Rule Change at 74689; and NDX Options Rule
Change at 47798.
\29\ See supra note 17.
\30\ See supra note 17.
\31\ 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 change 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 intramarket
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
list up to five options classes that are either index options or
options on ETFs, are substantively the same as the current terms of
Quarterly Options Series.\32\ 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 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.\33\ Monthly Options Series will
trade on the Exchange in the same manner as other options in the same
class.
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\32\ See proposed Options 4A, Section 12(b)(5)(a).
\33\ See supra note 25.
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The Exchange does not believe the proposed rule change to list
Monthly Options Series will impose any burden on intermarket
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.\34\ As discussed above, the proposed rule
change would permit listing Monthly Options Series in up to five
options classes that are either index options or options on ETFs, 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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\34\ See Cboe Monthly Approval Order.
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The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition. Similar to Short Term
Option Series and Quarterly Options Series, the Exchange believes the
introduction of Monthly Options Series will not impose an undue burden
on competition. The Exchange believes that it will, among other things,
expand hedging tools available to market participants. The Exchange
believes Monthly Options Series will allow market participants to
purchase options based on their timing as needed and allow them to
tailor their investment and hedging needs more effectively.
The Exchange does not believe the proposed rule change regarding
aggregation of positions for purposes of determining compliance with
position (and exercise) limits will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because it will apply in the same manner to all
market participants. The Exchange proposes to apply position
[[Page 86398]]
(and exercise) limits to Monthly Options Series in the same manner it
applies position limits to series with other expirations (Short Term
Option Series and Quarterly Options Series). Therefore, positions in
options in a class of 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 intermarket 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 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 \35\ 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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\35\ See, e.g., ISE 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 \36\ and Rule 19b-4(f)(6) thereunder.\37\
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 \38\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\39\
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\36\ 15 U.S.C. 78s(b)(3)(A)(iii).
\37\ 17 CFR 240.19b-4(f)(6).
\38\ 15 U.S.C. 78s(b)(3)(A)(iii).
\39\ 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 \40\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \41\ 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 \42\ and
Nonstandard Expirations Program.\43\ 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.\44\
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\40\ 17 CFR 240.19b-4(f)(6).
\41\ 17 CFR 240.19b-4(f)(6)(iii).
\42\ See Cboe Monthly Approval Order, supra note 5.
\43\ See Cboe Nonstandard Approval Order, supra note 18.
\44\ 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#a1d3d4cdc48cc2ceccccc4cfd5d2e1d2c4c28fc6ced7"><span class="__cf_email__" data-cfemail="80f2f5ece5ade3efedede5eef4f3c0f3e5e3aee7eff6">[email protected]</span></a>. Please include
file number SR-PHLX-2023-54 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-PHLX-2023-54. 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
[[Page 86399]]
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-PHLX-2023-54 and should be submitted on
or before January 3, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-27274 Filed 12-12-23; 8:45 am]
BILLING CODE 8011-01-P
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