[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18297-18299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06739]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88484; File No. SR-ISE-2020-13]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, 
Section 8, Opening

March 26, 2020.
    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 March 24, 2020, 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 amend ISE Rules at Options 3, Section 8, 
titled ``Opening.''
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.com/, 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 ISE Rules at Options 3, Section 8, 
titled ``Opening.'' The Exchange proposes to rename this rule ``Options 
Opening Process.'' Specifically, the Exchange is proposing to amend the 
definition of ``market for the underlying security.''
    Today Options 3, Section 8(a)(2) describes ``market for the 
underlying security'' as ``. . . either the primary listing market or 
the primary volume market (defined as the market with the most 
liquidity in that underlying security for the previous two calendar 
months), as determined by the Exchange by underlying and announced to 
the membership on the Exchange's website.''
    The Exchange proposes to amend this definition by replacing the 
term ``primary volume market'' with ``an alternative market designated 
by the primary market.'' The Exchange anticipates that an alternative 
market would be necessary if the primary listing market were 
impaired.\3\ In the event that a primary market is impaired and 
utilizes its designated alternative market, the Exchange would utilize 
that market as the underlying.\4\ The Exchange further proposes an 
additional contingency. In the event that the primary market is unable 
to open, and an alternative market is not designated (and/or the 
designated alternative market does not open), the Exchange may utilize 
a non-primary market to open all underlying securities from the primary 
market. The Exchange will select the non-primary market with the most 
liquidity in the aggregate for all underlying securities that trade on 
the primary market for the previous two calendar months, excluding the 
primary and alternate markets. The Exchange notes that in order to open 
an option series it would require an equity market's underlying quote. 
If another equity market displays opening prices for the underlying 
security, the Exchange proposes to utilize those quotes. This proposed 
change to the current System would allow the Exchange to open in 
situations where the primary market is experiencing an issue and also 
where an alternative market designated by the primary market may not be 
designated by the primary market or is unable to open. The Exchange 
believes that this proposal would effectively provide the Exchange with 
additional opportunities to open the market and provide its members 
with a venue in which to transact options trading. The Exchange notes 
that utilizing a non-primary market with the most liquidity in the 
aggregate for all underlying securities for the previous two calendar 
months will ensure that the Exchange opens with quotes which are 
representative of the volume on that primary market. The Exchange 
believes that this proposal will enable it to open in the event that 
there are issues with the primary market or the alternate market 
assigned by the primary.
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    \3\ The Exchange notes that the primary listing market and the 
primary volume market as defined in ISE's Rules could be the same 
market and therefore an alternative market is not available under 
the current Rule.
    \4\ For example, in the event that the New York Stock Exchange 
LLC was unable to open because of an issue with its market and it 
designated NYSE Arca, Inc. (``NYSE Arca'') as its alternative 
market, then PHLX [sic] would utilize NYSE Arca as the market for 
the underlying.
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    The Exchange also proposes to make a corresponding amendment to 
Options 3, Section 8(c)(2) to replace the reference to ``primary 
market'' with the defined term ``market for the underlying security.''
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest by providing for alternative processes to determine the 
market for the underlying. The Exchange's proposal to amend the 
definition of ``market for the underlying security'' within Options 3, 
Section 8(a)(2) is consistent with the Act.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    First, the Exchange's proposal would remove the concept of a 
primary volume market and replace that concept with an

[[Page 18298]]

alternative market designated by the primary market. The Exchange notes 
that it is most likely the case that the primary market is the primary 
volume market, so this term offers no contingency in most cases. The 
primary market has the ability to designate an alternate primary market 
when the primary market is experiencing difficulties. In those 
situations, the Exchange proposes to utilize the alternate primary 
market to open its market. For example, in the event that the New York 
Stock Exchange LLC was unable to open because of an issue with its 
market and it designated NYSE Arca as its alternative market, then ISE 
would utilize NYSE Arca as the market for the underlying security.
    Second, the Exchange proposes another alternative in the event that 
the primary market does not open and an alternate primary market is not 
designated and/or is also unable to open. In this situation, the 
Exchange proposes to utilize a non-primary market to open its market. 
The Exchange will select the non-primary market with the most liquidity 
in the aggregate for all underlying securities from the primary market 
for the previous two calendar months, excluding the primary and 
alternate markets. For example, in the event that the New York Stock 
Exchange LLC was unable to open because of an issue with its market and 
it designated NYSE Arca as its alternative market, and the alternate 
primary was unable to open or NYSE was unable to designate an alternate 
market because of system difficulties, then ISE would determine which 
non-primary market had the most liquidity in the aggregate for all 
underlying securities for the previous two calendar months, excluding 
the primary and alternate markets. The Exchange would utilize that 
market to open all underlying securities from the primary market. The 
Exchange notes that in order to open an option series it would require 
an equity market's underlying quote. The Exchange notes that utilizing 
a non-primary market with the most liquidity in the aggregate for all 
underlying securities for the previous two calendar months will ensure 
that the Exchange opens based on the next best alternative to the 
primary market given the circumstances. This contingency will provide 
the Exchange with the ability to open in situations where the primary 
market is experiencing an issue and also where an alternative primary 
market may also be impacted.
    The Exchange believes that this proposal would protect investors 
and the general public by providing additional venues for ISE to 
utilize as part of its Opening Process and thereby allow investors to 
transact on its market. The Exchange desires to open its market despite 
any issues that may arise with the underlying market. The Exchange is 
proposing alternate methods to open its market to account for 
situations which may arise if the primary market is unable to open, and 
if the proposed alternate designated market is unable to open. The 
Exchange notes that once the market opens with an underlying price, the 
options market may continue to trade for the remainder of the trading 
day. The Exchange believes it benefits investors and the general public 
to have the options market available to enter new positions, or close 
open positions.

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. Amending the definition of 
``market for the underlying security'' within Options 3, Section 
8(a)(2) does not burden competition. The Exchange's proposal offers 
alternative paths to open the Exchange in the event that the primary 
market or even a designated alternate primary market experiences an 
issue. The Exchange's proposal is intended to create additional 
certainty that in the event of an issue with the primary market, the 
Exchange would have other equity markets to look to with respect to 
underlying prices on which to open the Exchange. This proposal also 
does not impact the ability of other options markets to open.

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) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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 \9\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \10\ 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 asked the Commission to waive the 30-day operative delay so that 
the Exchange may amend its rules to permit the Exchange to utilize 
additional venues to open its market if the primary market and any 
designated alternate market for the underlying security are 
experiencing an issue and unable to open, thereby allowing investors to 
transact on its market in such a situation. The Exchange believes that 
having its options market available to enter new positions or close 
open positions would benefit investors and the general public. For 
these reasons, the Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Therefore, the Commission hereby waives the operative 
delay and designates the proposal as operative upon filing.\11\
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    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission also has 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.

[[Page 18299]]

Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2020-13 on the subject line.

Paper Comments

     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-2020-13. 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 (http://www.sec.gov/rules/sro.shtml). 
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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2020-13 and should be submitted on 
or before April 22, 2020.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06739 Filed 3-31-20; 8:45 am]
 BILLING CODE 8011-01-P


