Notice2025-01995
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend FLEX Floor Trading
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
January 31, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 20 (Friday, January 31, 2025)</title>
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[Federal Register Volume 90, Number 20 (Friday, January 31, 2025)]
[Notices]
[Pages 8726-8728]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-01995]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102293; File No. SR-PHLX-2024-51]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To Amend FLEX Floor Trading
January 27, 2025.
I. Introduction
On October 8, 2024, Nasdaq PHLX LLC filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to: (i) amend Options 8, Section
34, FLEX Trading to clarify certain functionality; (ii) list p.m.-
settled FLEX Index Options whose exercise settlement value is derived
from closing prices on the last trading day prior to expiration that
expire on or within two business days of a third Friday-of-the-month
expiration day for a non-FLEX Option (``FLEX PM Third Friday
Options''); (iii) permit FLEX Options on certain Exchange-Traded Funds
(``ETFs'') to be settled by delivery in cash if the underlying security
meets prescribed criteria and set forth the applicable position and
exercise limits for these options; and (iv) require that position and
exercise limits for FLEX Options be aggregated with non-FLEX options in
certain circumstances. The proposed rule change was published for
comment in the Federal Register on October 29, 2024.\3\ On December 12,
2024, pursuant to Section 19(b)(2) of the Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ The
Commission has received no comment letters on the proposed rule change.
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 101413 (October 23,
2024), 89 FR 86007 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 101889, 89 FR 103002
(December 18, 2024). The Commission designated January 27, 2025, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change <SUP>7</SUP>
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\7\ For a complete description of the Exchange's proposal, see
the Notice, supra note 3.
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In 2023, the Exchange filed a rule change to amend the manner in
which FLEX Options are transacted on Phlx's Trading Floor.\8\ Prior to
the implementation of SR-Phlx-2023-22, the Exchange filed a rule change
to
[[Page 8727]]
amend FLEX Options rules and further delay SR-Phlx-2023-22.\9\ The
Exchange proposes to further amend the rules proposed in SR-Phlx-2023-
22 and SR-Phlx-2024-24, and proposes to implement the changes in this
proposal, as well as SR-Phlx-2023-22 and SR-Phlx-2024-24, at the same
time.
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\8\ See Securities Exchange Act Release No. 97658 (June 7,
2023), 88 FR 38562 (June 13, 2023) (SR-Phlx-2023-22) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Various Options 8 Rules). SR-Phlx-2023-22 amended FLEX Orders in 3
ways. First, the Exchange amended the rules to require FLEX Orders
to be reported into Phlx's Options Floor Based Management System or
``FBMS,'' thereby further automating the execution and reporting of
FLEX Options. All executed FLEX contracts will be reported to OPRA
and sent to the OCC for clearing, similar to all other equity,
equity index and U.S. dollar-settled foreign currency options orders
executed on the Exchange's trading floor. Second, the Exchange
removed its RFQ process including the BBO Improvement Interval
Process, with the rule change. Third, the Exchange reorganized
Options 8, Section 34 to restructure the rule to include additional
information which describes current FLEX trading on Phlx. With
respect to Cabinet Orders, SR-Phlx-2023-22 amended Options 8,
Section 33 to require Cabinet Orders to be reported into FBMS. With
this change, members and member organizations will be required to
record all Cabinet Orders represented in the trading crowd into
FBMS. All executed contracts will be reported to OPRA and sent to
OCC for clearing similar to all other equity, equity index and U.S.
dollar-settled foreign currency options orders executed on the
Exchange's trading floor.
\9\ See Securities Exchange Act Release No. 100321 (June 12,
2024), 89 FR 51580 (June 18, 2024) (SR-Phlx-2024-24) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Delay Implementation of Certain Exchange Options 8 Rules and Amend
Options 8, Section 34(b)). Phlx further delayed the implementation
so that it could implement SR-Phlx-2023-22 while also completing an
OCC industry rule change prior.
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Specifically, the Exchange proposes to: (i) amend Options 8,
Section 34, FLEX Trading to clarify certain functionality; (ii) permit
the listing of FLEX PM Third Friday Options; (iii) permit FLEX Options
on certain ETFs to be settled by delivery in cash if the underlying
security meets prescribed criteria and set forth the applicable
position and exercise limits for these options; and (iv) require that
position and exercise limits for FLEX Options be aggregated with non-
FLEX options in certain circumstances.
The following proposed changes are described in more detail in the
Notice. The Exchange proposes to amend Options 8, Section 34, related
to FLEX Options, to provide greater detail to FLEX Options rules,
including sections relating to characteristics, exclusions, and
exercise price.\10\ The Exchange also proposes to amend language
related to the settlement style of FLEX Options to align the Exchange's
rule text with those of Cboe Exchange, Inc. (``Cboe'').\11\ The
Exchange also proposes to allow the listing of FLEX PM Third Friday
Options. The Exchange notes that Cboe received approval of its pilot
program that permitted the listing of FLEX PM Third Friday Options.\12\
The Exchange also proposes corresponding changes to describe the index
values of P.M.-settled and A.M.-settled FLEX Index Options.\13\ The
Exchange also proposes to introduce FLEX Equity Options that are cash-
settled, along with corresponding changes to describe FLEX Options that
are settled with physical delivery.\14\ Finally, the Exchange proposes
to require that position and exercise limits for FLEX Options be
aggregated with non-FLEX options in certain circumstances, as well as
provide further detail to exercise limits.\15\
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\10\ See Notice, supra note 3 at 86008.
\11\ See id.
\12\ See Securities Exchange Act Release No. 99222 (December 21,
2023), 88 FR 89771 (December 28, 2023) (SR-CBOE-2023-018) (``FLEX
Settlement Pilot Approval''). In support of making the pilot a
permanent program, Cboe cited to its own review of pilot data during
the course of the pilot program and a study by the Commission's
Division of Economic and Risk Analysis (``DERA'') staff. See FLEX
Settlement Pilot Approval, notes 18 and 35.
\13\ See Notice, supra note 3 at 86008-86009.
\14\ See Notice, supra note 3 at 86009-86011.
\15\ See id. at 86009.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-Phlx-
2024-51 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\16\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\17\ the Commission is
providing notice of the grounds for disapproval under consideration. As
described above, the Exchange has proposed to adopt rules that will
govern the listing and trading of FLEX Options. The Commission is
instituting proceedings to allow for additional analysis of, and input
from commenters with respect to, the proposed rule change's consistency
with the Act, and in particular, Section 6(b)(5) of the Act, which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.\18\
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\17\ Id.
\18\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization [`SRO'] that proposed the rule change.''
\19\ The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\20\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\21\
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\19\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\20\ Id.
\21\ Id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange
Act \22\ to determine whether the proposal should be approved or
disapproved.
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\22\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with Section 6(b)(5) of the Act \23\ or any other
provision of the Act, or the rules and regulations thereunder. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of data,
views, and arguments, the Commission will consider, pursuant to Rule
19b-4 under the Act,\24\ any request for an opportunity to make an oral
presentation.\25\
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\23\ 15 U.S.C. 78f(b)(5).
\24\ 17 CFR 240.19b-4.
\25\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by February 21, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
March 7, 2025. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal, in
addition to any other
[[Page 8728]]
comments they may wish to submit about the proposed rule change.
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#b8cacdd4dd95dbd7d5d5ddd6cccbf8cbdddb96dfd7ce"><span class="__cf_email__" data-cfemail="2052554c450d434f4d4d454e5453605345430e474f56">[email protected]</span></a>. Please include
file number SR-Phlx-2024-51 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-2024-51. 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-Phlx-2024-51 and should be
submitted on or before February 21, 2025. Rebuttal comments should be
submitted by March 7, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01995 Filed 1-30-25; 8:45 am]
BILLING CODE 8011-01-P
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