Notice2024-18785
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To Amend Complex Order Risk Protections
Primary source
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Published
August 22, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 163 (Thursday, August 22, 2024)</title>
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[Federal Register Volume 89, Number 163 (Thursday, August 22, 2024)]
[Notices]
[Pages 68014-68016]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18785]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100743; File No. SR-ISE-2024-39]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change To Amend Complex Order Risk Protections
August 16, 2024.
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 August 9, 2024, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III 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 to amend Options 3, Section 16, Complex Order Risk
Protections.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 3, Section 16, Complex Order
Risk Protections. Specifically, the Exchange proposes to amend Options
3, Section 16(b), Strategy Protections, to provide that the protections
in Options 3, Section 16(b) would not apply to a Complex Order that
includes at least one P.M.-settled leg and at least one A.M.-settled
leg.
The Exchange received approval to permit the listing and trading of
p.m.-settled Nasdasq-100 Index[supreg] options \3\ with a third-Friday
of-the-month
[[Page 68015]]
expiration.\4\ With this amendment, Options 4A, Section 12 was amended
to permit the listing of p.m.-settled third-Friday-of-the-month
Expiration Dates under the trading symbol ``NDXP.'' Therefore, ISE may
list third-Friday-of-the-month expirations on Nasdaq-100 Index options
that are both a.m.-settled and p.m.-settled on the same day.\5\
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\3\ Nasdaq-100 Index options trade under the symbol (``NDX'').
\4\ See Securities Exchange Act Release No. 98935 (November 14,
2023), 88 FR 80792 (November 20, 2023) (SR-ISE-2023-20) (Order
Approving a Proposed Rule Change To Permit the Listing and Trading
of P.M.-Settled Nasdaq-100 Index[supreg] Options With a Third-
Friday-of-the-Month Expiration) (``SR-ISE-2023-20). The Exchange has
not yet listed a Third-Friday-of-the Month P.M. expiration.
\5\ The conditions for listing p.m.-settled third-Friday-of-the-
month expirations on Nasdaq-100 Index options will be similar to
those for a.m.-settled third-Friday-of-the-month expirations on
Nasdaq-100 Index options.
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Pursuant to Options 3, Section 14(a)(1), a Complex Options Strategy
is the simultaneous purchase and/or sale of two or more different
options series in the same underlying security, for the same account,
in a ratio that is equal to or greater than one-to-three (.333) and
less than or equal to three-to-one (3.00) and for the purpose of
executing a particular investment strategy. Only those Complex Options
Strategies with no more than the applicable number of legs, as
determined by the Exchange on a class-by-class basis, are eligible for
processing.\6\ Pursuant to Options 3, Section 16(b), Vertical Spread
Protections,\7\ Calendar Spread Protections,\8\ Butterfly Spread
Protections \9\ and BOX Spread Protections \10\ apply throughout the
trading day to Complex Orders, including pre-market, during the Opening
Process and during a trading halt.\11\
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\6\ The term ``complex strategy'' includes Complex Options
Strategies, Stock-Option Strategies, and Stock-Complex Strategies.
See Options 3, Section 14(a)(4).
\7\ A vertical spread is an order to buy a call (put) option and
to sell another call (put) option in the same security with the same
expiration but at a higher (lower) strike price. See Options 3,
Section 16(b)(1).
\8\ A calendar spread is an order to buy a call (put) option
with a longer expiration and to sell another call (put) option with
a shorter expiration in the same security at the same strike price.
See Options 3, Section 16(b)(2).
\9\ A butterfly spread is a three legged Complex Order with the
following: (1) two legs to buy (sell) the same number of calls
(puts); (2) one leg to sell (buy) twice the number of calls (puts)
with a strike price at mid-point of the two legs to buy (sell); (3)
all legs have the same expiration; and (4) each leg strike price is
equidistant from the next sequential strike price. See Options 3,
Section 16(b)(3).
\10\ A box spread is a four legged Complex Order with the
following: (1) one pair of legs with the same strike price with one
leg to buy a call (put) and one leg to sell a put (call); (2) a
second pair of legs with a different strike price from the pair
described in (1) with one leg to sell a call (put) and one leg to
buy a put (call); (3) all legs have the same expiration; and (4) all
legs have equal volume. See Options 3, Section 16(b)(4).
\11\ The protections do not apply to Complex Orders being
auctioned and auction responses in the Facilitation Mechanism,
Solicited Order Mechanism within Options 3, Section 11, and Price
Improvement Mechanism within Options 3, Section 13 and do not apply
to Customer Cross Orders pursuant to Options 3, Section 12. See
Options 3, Section 16(b).
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With the approval of SR-ISE-2023-20, a Complex Options Strategy may
consist of legs with different expirations based on settlement (a.m. or
p.m.-settled). The Exchange proposes to provide at Options 3, Section
16(b) that the complex risk protections would not apply to a Complex
Order that includes at least one P.M.-settled leg and at least one
A.M.-settled leg. The last day of trading for A.M.-settled index
options shall be the business day preceding the business day of
expiration, or, in the case of an option contract expiring on a day
that is not a business day, the business day preceding the last day of
trading in the underlying securities prior to the expiration date.\12\
In contrast, the last day of trading for P.M.-settled index options
shall be the business day of expiration, or, in the case of an option
contract expiring on a day that is not a business day, on the last
business day before its expiration date.\13\
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\12\ See Options 4A, Section 12(a)(5).
\13\ See Options 4A, Section 12(a)(6).
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At this time, the Exchange proposes to not apply the strategy
protections in Options 3, Section 16(b) to a Complex Order that
includes at least one P.M.-settled leg and at least one A.M.-settled
leg.\14\ A Complex Order that includes at least one P.M.-settled leg
and at least one A.M.-settled leg would not qualify as a Vertical
Spread, Butterfly Spread, Calendar Spread or BOX Spread because the
P.M.-settled leg and the A.M.-settled leg would have different
expirations. The System considers these Complex Orders to be different
products, as well as customized Complex Orders, so System limitations
would prevent the application of the Strategy Price Protections to
these Complex Orders. The Exchange notes that the Vertical Spread
Protections, Butterfly Spread Protections and BOX Spread Protections
all have the same expirations unlike a Complex Order that includes at
least one P.M.-settled leg and at least one A.M.-settled leg. The
Exchange also notes that the System considers a Calendar Spread to have
all legs in the same product, unlike a Complex Order that includes at
least one P.M.-settled leg and at least one A.M.-settled leg. A Complex
Order that includes at least one P.M.-settled leg and at least one
A.M.-settled leg would still be subject to the price limits for Complex
Orders in Options 3, Section 16(a) and the price protections in Options
3, Section 16(c), namely the Complex Order Price Protection, Size
Limitation and Price Level Protection.
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\14\ The a.m. expiration and p.m. expiration would have
different settlement days.
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Implementation
The Exchange intends to begin implementation of the proposed rule
change by Q1 2025. The Exchange will announce the date to Members in an
Options Trader Alert.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\15\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\16\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general to protect
investors and the public interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The Exchange's proposal to exclude a Complex Order that includes at
least one P.M.-settled leg and at least one A.M.-settled leg \17\ from
the strategy protections in Options 3, Section 16(b) removes
impediments to and perfect the mechanism of a free and open market
because it would not qualify as a Vertical Spread, Butterfly Spread,
Calendar Spread, or BOX Spread because the P.M.-settled leg and the
A.M.-settled leg would have different expirations. The System considers
these Complex Orders to be different products, as well as customized
Complex Orders, so System limitations would prevent the application of
the Strategy Price Protections to these Complex Orders. The Exchange
notes that the Vertical Spread Protections, Butterfly Spread
Protections and BOX Spread Protections all have the same expirations
unlike a Complex Order that includes at least one P.M.-settled leg and
at least one A.M.-settled leg. The Exchange also notes that the System
considers a Calendar Spread to have all legs in the same product,
unlike a Complex Order that includes at least one P.M.-settled leg and
at least one A.M.-settled leg. A Complex Order that includes at least
one P.M.-settled leg and at least one A.M.-settled leg would still be
subject to the price limits for Complex Orders in Options 3, Section
[[Page 68016]]
16(a) and the price protections in Options 3, Section 16(c), namely the
Complex Order Price Protection, Size Limitation and Price Level
Protection. Finally, the Exchange's proposal informs Members that the
strategy protections would not apply in those cases where the Member
elected to utilize a combination of A.M.-Settled and P.M.-Settled leg
expirations in the Complex Order.
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\17\ The a.m. expiration and p.m. expiration would have
different settlement days.
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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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange's proposal does not impose an undue burden on intra-
market competition because the proposed changes are going to apply
equally to all Members. The Exchange's proposal does not impose an
undue burden on inter-market competition as other exchanges that
utilize third-Friday of-the-month P.M.-Settled Options could also adopt
a similar rule.
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
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 \18\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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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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#5b292e373e76383436363e352f281b283e38753c342d"><span class="__cf_email__" data-cfemail="5f2d2a333a723c3032323a312b2c1f2c3a3c71383029">[email protected]</span></a>. Please include
file number SR-ISE-2024-39 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-2024-39. 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-2024-39 and should be
submitted on or before September 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-18785 Filed 8-21-24; 8:45 am]
BILLING CODE 8011-01-P
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