[Federal Register Volume 85, Number 221 (Monday, November 16, 2020)]
[Notices]
[Pages 73113-73121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25179]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90384; File No. SR-BX-2020-032]


Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
of Proposed Rule Change To Amend Options 4, Section 5, To Limit Short 
Term Options Series Intervals Between Strikes Which are Available for 
Quoting and Trading on BX

November 9, 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 November 6, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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 proposes to amend Options 4, Section 5, ``Series of 
Options Contracts Open for Trading.'' This proposal seeks to limit 
Short Term Options Series intervals between strikes which are available 
for quoting and trading on BX.

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 4, Section 5, ``Series of 
Options Contracts Open for Trading.'' Specifically, this proposal seeks 
to limit the intervals between strikes for multiply listed equity 
options classes within the Short Term Options Series program that have 
an expiration date more than twenty-one days from the listing date.
Background
    Today, BX's listing rules within Options 4, Section 5 permits the 
Exchange, after a particular class of options (call option contracts or 
put option contracts relating to a specific underlying stock, Exchange-
Traded

[[Page 73114]]

Fund Share,\3\ or ETN \4\) has been approved for listing and trading on 
the Exchange, to open for trading series of options therein. The 
Exchange may list series of options for trading on a weekly,\5\ monthly 
\6\ or quarterly \7\ basis. Options 4, Section 5(d) sets forth the 
intervals between strike prices of series of options on individual 
stocks.\8\ In addition to those intervals, the Exchange may list series 
of options pursuant to the $1 Strike Price Interval Program,\9\ the 
$0.50 Strike Program,\10\ the $2.50 Strike Price Program,\11\ and the 
$5 Strike Program.\12\
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    \3\ Exchange-Traded Fund Share shall include shares or other 
securities that are traded on a national securities exchange and are 
defined as an ``NMS stock'' under Rule 600 of Regulation NMS, and 
that (i) represent interests in registered investment companies (or 
series thereof) organized as open-end management investment 
companies, unit investment trusts or similar entities, that hold 
portfolios of securities and/or financial instruments including, but 
not limited to, stock index futures contracts, options on futures, 
options on securities and indexes, equity caps, collars and floors, 
swap agreements, forward contracts, repurchase agreements and 
reverse repurchase agreements comprising or otherwise based on or 
representing investments in broad-based indexes or portfolios of 
securities and/or Financial Instruments and Money Market Instruments 
(the ``Money Market Instruments'') (or that hold securities in one 
or more other registered investment companies that themselves hold 
such portfolios of securities and/or Financial Instruments and Money 
Market Instruments (ii) represent interests in a trust or similar 
entity that holds a specified non-U.S. currency or currencies 
deposited with the trust or similar entity when aggregated in some 
specified minimum number may be surrendered to the trust by the 
beneficial owner to receive the specified non-U.S. currency or 
currencies and pays the beneficial owner interest and other 
distributions on the deposited non-U.S. currency or currencies, if 
any, declared and paid by the trust (``Currency Trust Shares''), 
(iii) represent commodity pool interests principally engaged, 
directly or indirectly, in holding and/or managing portfolios or 
baskets of securities, commodity futures contracts, options on 
commodity futures contracts, swaps, forward contracts and/or options 
on physical commodities and/or non-U.S. currency (``Commodity Pool 
ETFs''), (iv) represent interests in the SPDR[supreg] Gold Trust, 
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS 
Gold Trust, the ETFS Silver Trust, the ETFS Palladium Trust, the 
ETFS Platinum Trust or the Sprott Physical Gold Trust or (v) 
represents an interest in a registered investment company 
(``Investment Company'') organized as an open-end management company 
or similar entity, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser consistent 
with the Investment Company's investment objectives and policies, 
which is issued in a specified aggregate minimum number in return 
for a deposit of a specified portfolio of securities and/or a cash 
amount with a value equal to the next determined net asset value 
(``NAV''), and when aggregated in the same specified minimum number, 
may be redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to 
the next determined NAV (``Managed Fund Share''); provided the 
conditions within Options 4, Section 3(i)(A) and (B) are met. See 
Options 4, Section 3(i).
    \4\ Securities deemed appropriate for options trading shall 
include shares or other securities (``Equity Index-Linked 
Securities,'' ``Commodity-Linked Securities,'' ``Currency-Linked 
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,'' 
collectively known as ``Index-Linked Securities'' or ``ETNs'') that 
are principally traded on a national securities exchange and an 
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the 
Securities Exchange Act of 1934), and represent ownership of a 
security that provides for the payment at maturity, as described 
within Options 4, Section 3(l)(i)(1)-(6). See Options 4, Section 
3(l)(i).
    \5\ The weekly listing program is known as the Short Term 
Options Series Program and is described within Supplementary 
Material .03 of Options 4, Section 5.
    \6\ The Exchange will open at least one expiration month for 
each class of options open for trading on the Exchange. See Options 
4, Section 5(g). The monthly expirations are subject to certain 
listing criteria for underlying securities described within Options 
4, Section 3. Monthly listings expire the third Friday of the month. 
The term ``expiration date'' when used in respect of a series of 
binary options other than event options means the last day on which 
the options may be automatically exercised. In the case of a series 
of event options (other than credit default options or credit 
default basket options) that are be automatically exercised prior to 
their expiration date upon receipt by the Corporation of an event 
confirmation, the expiration date is the date specified by the 
listing Exchange; provided, however, that when an event confirmation 
is deemed to have been received by the Corporation with respect to 
such series of options, the expiration date will be accelerated to 
the date on which such event confirmation is deemed to have been 
received by the Corporation or such later date as the Corporation 
may specify. In the case of a series of credit default options or 
credit default basket options, the expiration date is the fourth 
business day after the last trading day for such series as such 
trading day is specified by the Exchange on which the series of 
options is listed; provided, however, that when an event 
confirmation is deemed to have been received by the Corporation with 
respect to a series of credit default options or single payout 
credit default basket options prior to the last trading day for such 
series, the expiration date for options of that series will be 
accelerated to the second business day following the day on which 
such event confirmation is deemed to have been received by the 
Corporation. ``Expiration date'' means, in respect of a series of 
range options expiring prior to February 1, 2015, the Saturday 
immediately following the third Friday of the expiration month of 
such series, and, in respect of a series of range options expiring 
on or after February 1, 2015 means the third Friday of the 
expiration month of such series, or if such Friday is a day on which 
the Exchange on which such series is listed is not open for 
business, the preceding day on which such Exchange is open for 
business. See The Options Clearing Corporation (``OCC'') By-Laws at 
Section 1.
    \7\ The quarterly listing program is known as the Quarterly 
Options Series Program and is described within Supplementary 
Material .04 of Options 4, Section 5.
    \8\ Except as otherwise provided in the Supplementary Material 
of Options 4, Section 5, the interval between strike prices of 
series of options on individual stocks will be: (1) $2.50 or greater 
where the strike price is $25.00 or less; (2) $5.00 or greater where 
the strike price is greater than $25.00; and (3) $10.00 or greater 
where the strike price is greater than $200.00.
    The interval between strike prices of series of options on 
Exchange-Traded Fund Shares approved for options trading pursuant to 
Section 3(i) of this Options 4 shall be fixed at a price per share 
which is reasonably close to the price per share at which the 
underlying security is traded in the primary market at or about the 
same time such series of options is first open for trading on the 
Exchange, or at such intervals as may have been established on 
another options exchange prior to the initiation of trading on the 
Exchange.
    Pursuant to Options 4, Section 5(e), notwithstanding any other 
provision regarding the interval of strike prices of series of 
options on Exchange-Traded Fund Shares in this rule, the interval of 
strike prices on SPDR[supreg] S&P 500[supreg] ETF (``SPY''), iShares 
Core S&P 500 ETF (``IVV''), PowerShares QQQ Trust (``QQQ''), iShares 
Russell 2000 Index Fund (``IWM''), and the SPDR[supreg] Dow 
Jones[supreg] Industrial Average ETF (``DIA'') options will be $1 or 
greater.
    \9\ The $1 Strike Interval Program is described within 
Supplementary Material .01 of Options 4, Section 5.
    \10\ The $0.50 Strike Interval Program is described within 
Supplementary Material .05 of Options 4, Section 5.
    \11\ The $2.50 Strike Interval Program is described within 
Supplementary Material .02 of Options 4, Section 5.
    \12\ The $5.00 Strike Interval Program is described within 
Supplementary Material .06 of Options 4, Section 5.
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    The Exchange's proposal seeks to amend the listing of weekly series 
of options as proposed within new Supplementary Material .03(f) of 
Options 4, Section 5, by limiting the intervals between strikes in 
multiply listed equity options, excluding Exchange-Traded Fund Shares 
and ETNs, that have an expiration date more than twenty-one days from 
the listing date. This proposal does not amend monthly or quarterly 
listing rules nor does it amend the $1 Strike Price Interval Program, 
the $0.50 Strike Program, the $2.50 Strike Price Program, or the $5 
Strike Program.
Short Term Options Series Program
    Today, Supplementary Material .03 of Options 4, Section 5 permits 
BX to open for trading on any Thursday or Friday that is a business day 
(``Short Term Option Opening Date'') series of options on an option 
class that expires at the close of business on each of the next five 
Fridays that are business days and are not Fridays in which monthly 
options series or Quarterly Options Series expire (``Short Term Option 
Expiration Dates''), provided an option class has been approved for 
listing and trading on the Exchange.\13\ Today, the

[[Page 73115]]

Exchange may open up to thirty initial series for each option class 
that participates in the Short Term Option Series Program.\14\ Further, 
if the Exchange opens less than thirty (30) Short Term Option Series 
for a Short Term Option Expiration Date, additional series may be 
opened 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 
exercise price or prices of the series already opened.\15\
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    \13\ The Exchange may have no more than a total of five Short 
Term Option Expiration Dates, not including any Monday or Wednesday 
SPY Expirations as provided below. If the Exchange is not open for 
business on the respective Thursday or Friday, the Short Term Option 
Opening Date will be the first business day immediately prior to 
that respective Thursday or Friday. Similarly, if the Exchange is 
not open for business on a Friday, the Short Term Option Expiration 
Date will be the first business day immediately prior to that 
Friday. With respect to Wednesday SPY Expirations, the Exchange may 
open for trading on any Tuesday or Wednesday that is a business day 
series of options on the SPDR S&P 500 ETF Trust (SPY) to expire on 
any Wednesday of the month that is a business day and is not a 
Wednesday in which Quarterly Options Series expire (``Wednesday SPY 
Expirations''). With respect to Monday SPY Expirations, the Exchange 
may open for trading on any Friday or Monday that is a business day 
series of options on the SPY to expire on any Monday of the month 
that is a business day and is not a Monday in which Quarterly 
Options Series expire (``Monday SPY Expirations''), provided that 
Monday SPY Expirations that are listed on a Friday must be listed at 
least one business week and one business day prior to the 
expiration. The Exchange may list up to five consecutive Wednesday 
SPY Expirations and five consecutive Monday SPY Expirations at one 
time; the Exchange may have no more than a total of five Wednesday 
SPY Expirations and a total of five Monday SPY Expirations. Monday 
and Wednesday SPY Expirations will be subject to the provisions of 
this Rule. See Supplementary Material .03 of Options 4, Section 5.
    \14\ See Supplementary Material .03 of Options 4, Section 5(c).
    \15\ See Supplementary Material .03 of Options 4, Section 5(d).
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    The Exchange may open for trading Short Term Option Series on the 
Short Term Option Opening Date that expire on the Short Term Option 
Expiration Date at strike price intervals of (i) $0.50 or greater where 
the strike price is less than $100, and $1 or greater where the strike 
price is between $100 and $150 for all option classes that participate 
in the Short Term Options Series Program; (ii) $0.50 for option classes 
that trade in one dollar increments and are in the Short Term Option 
Series Program; or (iii) $2.50 or greater where the strike price is 
above $150. During the month prior to expiration of an option class 
that is selected for the Short Term Option Series Program (``Short Term 
Option''), the strike price intervals for the related non-Short Term 
Option (``Related non-Short Term Option'') shall be the same as the 
strike price intervals for the Short Term Option.\16\
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    \16\ See Options 4, Section 5(e).
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    The Exchange may select up to fifty currently listed option classes 
on which Short Term Option Series may be opened on any Short Term 
Option Opening Date. In addition to the fifty option class restriction, 
the Exchange may also list Short Term Option Series on any option 
classes that are selected by other securities exchanges that employ a 
similar program under their respective rules. For each option class 
eligible for participation in the Short Term Option Series Program, the 
Exchange may open up to thirty Short Term Option Series for each 
expiration date in that class. The Exchange may also open Short Term 
Option Series that are opened by other securities exchanges in option 
classes selected by such exchanges under their respective short term 
option rules.\17\
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    \17\ See Supplementary Material .03(a) of Options 4, Section 5.
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    BX notes that listings in the weekly program comprise a significant 
part of the standard listing in options markets. The below diagrams 
demonstrate the percentage of weekly listings as compared to Long-Term 
Option Series or LEAPs and quarterly listings in 2015 as compared to 
2020. The weekly strikes increased 8.9% compound annual growth rate 
(``CAGR'') from 2015 as compared to a 4.3% CAGR for standard 
expirations using 3rd 2015 Friday expirations.
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[[Page 73116]]


[GRAPHIC] [TIFF OMITTED] TN16NO20.023

Proposal
    BX proposes to limit the intervals between strikes in options 
listed as part of the Short Term Option Series Program that have an 
expiration date more than twenty-one days from the listing date, by 
adopting proposed Supplementary Material .03(f) of Options 4, Section 5 
as well as proposed Supplementary Material .07 of Options 4, Section 5, 
with respect to listing Short Term Option Series in equity options, 
excluding Exchange-Traded Fund Shares and ETNs) (collectively ``Strike 
Interval Proposal''). BX's Strike Interval Proposal would limit the 
intervals between strikes by utilizing the table proposed within 
Supplementary Material .07 of Options 4, Section 5. With the Strike 
Interval Proposal, BX would limit intervals between strikes for 
expiration dates of option series beyond twenty-one days utilizing the 
below three-tiered table which considers both the share price and 
average daily volume for the option series.\18\
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    \18\ Additional information comparing the current listing 
program to this proposal is available at: https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal.

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                                                                                                            Share price
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                                                                                            $25 to less     $75 to less    $150 to less       $500 or
                 Tier                         Average daily volume         Less than $25     than $75        than $150       than $500        greater
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1.....................................  greater than 5,000..............           $0.50           $1.00           $1.00           $5.00           $5.00
2.....................................  1,000 to 5,000..................            1.00            1.00            1.00            5.00           10.00
3.....................................  0 to 1,000......................            2.50            5.00            5.00            5.00           10.00
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    The Share Price would be the closing price on the primary market on 
the last day of the calendar quarter. This value would be used to 
derive the column from which to apply strike intervals throughout the 
next calendar quarter. The Average Daily Volume would be the total 
number of options contracts traded in a given security for the 
applicable calendar quarter divided by the number of trading days in 
the applicable calendar quarter. Beginning on the second trading day in 
the first month of each calendar quarter, the Average Daily Volume 
shall be calculated by utilizing data from the prior calendar quarter 
based on Customer-cleared volume at OCC. For options listed on the 
first trading day of a given calendar quarter, the Average Daily Volume 
shall be calculated using the calendar quarter prior to the last 
trading calendar quarter.\19\ In the event of a corporate action, the 
Share Price of the surviving company would be utilized. These metrics 
are intended to align expectations for determining which strike 
intervals will be utilized. Finally, notwithstanding the limitations 
imposed by Options 4, Section 5 at proposed Supplementary Material .07, 
this Strike Interval Proposal does not amend the range of strikes that 
may be listed pursuant to Options 4, Section 5 at Supplementary 
Material .03, regarding the Short Term Option Series Program.
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    \19\ For example, options listed as of January 4, 2021 would be 
calculated on January 5, 2021 using the Average Daily Volume from 
July 1, 2020 to September 30, 2020.
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    By way of example, if the Share Price for a symbol was $142 at the 
end of a calendar quarter, with an Average Daily Volume greater than 
5,000, thereby, requiring strike intervals to be listed $1.00 apart, 
that strike interval would apply for the calendar quarter, regardless 
of whether the Share Price changed to greater than $150 during that 
calendar quarter.\20\
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    \20\ The Exchange notes that any limits on intervals imposed by 
the Exchange's Rules will continue to apply. In this example, the 
strikes would be in $1 intervals up to $150, which is the upper 
limit imposed by Supplementary Material .03(e) of Options 4, Section 
5.
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    The proposed table within Supplementary Material .07 of Options 4, 
Section 5 takes into account the notional value of a security, as well 
as Average Daily Volume in the underlying stock, in order to limit the 
intervals between strikes in the Short Term Options listing program. 
The Exchange utilizes OCC Customer-cleared volume, as customer volume 
is an appropriate proxy for demand. The OCC Customer-cleared volume 
represents the majority of options volume executed on the Exchange 
that, in turn, reflects the demand in the marketplace. The options 
series listed on BX are intended to meet customer demand by offering an 
appropriate number of strikes. Non-Customer cleared OCC volume 
represents the supply side. The strike intervals for listing strikes in 
certain

[[Page 73117]]

options are intended to remove repetitive and unnecessary strike 
listings across the weekly expiries. BX's Strike Interval Proposal 
seeks to reduce the number of strikes in the furthest weeklies, where 
there exist wider markets and therefore lower market quality. Below are 
two tables which focus on data for 10 of the most and least actively 
traded symbols \21\ and demonstrate average spreads in weekly options 
during the month of August 2020.
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    \21\ The table represents stock in the following securities: 
Apple, Tesla, Microsoft Corporation, Advanced Micro Devices, Inc., 
Bank of America Corp., NRG Energy Inc., Ferrari NV, Community Health 
Systems Inc., Navistar International Corp, and Jabil Inc.
[GRAPHIC] [TIFF OMITTED] TN16NO20.024

    The proposed table within Supplementary Material .07 of Options 4, 
Section 5 is intended to distribute strike intervals in multiply listed 
equity options where there is less volume as measured by the Average 
Daily Volume tiers. Therefore, the lower the Average Daily Volume, the 
greater the proposed spread between strike intervals. Options classes 
with higher volume contain the most liquid symbols and strikes, 
therefore the finer the proposed spread between strike intervals. 
Additionally, lower-priced shares have finer strike intervals than 
higher-priced shares when comparing the proposed spread between strike 
intervals.\22\
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    \22\ The Exchange notes that is has discussed the proposed 
strike intervals with various members. The Exchange has gathered 
information regarding where trading in weeklies generally occurs to 
arrive at the proposed strike intervals.
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    Today, weeklies are available on 16% of underlying products. The 
Exchange's Strike Interval Proposal curtails the density of strike 
intervals listed in series of options, without reducing the classes of 
options available for trading on BX. The Exchange's Strike Interval 
Proposal would reduce 2% of the total number of strikes that equates to 
81,000 strikes.\23\
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    \23\ The Exchange notes that this proposal is an initial attempt 
at reducing strikes and anticipates filing additional proposals to 
continue reducing strikes. The above-referenced data, specifically 
the percentage of underlying products and percentage of and total 
number of strikes, are approximations and may vary slightly at the 
time of this filing.

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[[Page 73118]]

[GRAPHIC] [TIFF OMITTED] TN16NO20.025

[GRAPHIC] [TIFF OMITTED] TN16NO20.026

    The above table represents the inconsistency of demand for series 
of options beyond twenty-one calendar days.
    BX's Strike Interval Proposal focuses on strikes in multiply listed 
equity options, and excludes Exchange-Traded Fund Shares and ETNs, as 
the majority of strikes reside within equity options.

[[Page 73119]]

[GRAPHIC] [TIFF OMITTED] TN16NO20.027

    While the current listing rules permit BX to list a number of 
weekly strikes on its market, in an effort to encourage Market Makers 
to deploy capital more efficiently, as well as improve displayed market 
quality, BX's Strike Interval Proposal reduces the number of listed 
weekly options. As BX's Strike Interval Proposal seeks to reduce the 
number of weekly options that would be listed on its market in later 
weeks, Market Makers would be required to quote in fewer weekly strikes 
as a result of the Strike Interval Proposal. Specifically, the Strike 
Interval Proposal aims to reduce the density of strike intervals that 
would be listed in later weeks, by creating limitations for intervals 
between strikes which have an expiration date more than twenty-one days 
from the listing date. The table takes into account customer demand for 
certain options classes, by considering both the Share Price and the 
Average Daily Volume, to arrive at the manner which weekly strike 
intervals may be listed. The intervals for listing strikes in equity 
options is intended to remove certain strike intervals where there 
exist clusters of strikes whose characteristics closely resemble one 
another and, therefore, do not serve different trading needs,\24\ 
rendering these strikes less useful.
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    \24\ For example, two strikes that are densely clustered may 
have the same risk properties and may also be the same percentage 
out-of-the money.
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    This Strike Interval Proposal serves to respond to comments 
received from industry members with respect to the increasing number of 
strikes that are required to be quoted by market makers in the options 
industry. BX requires Lead Market Makers and Market Makers to quote a 
certain amount of time in the trading day in their assigned options 
series to maintain liquidity in the market.\25\ With an increasing 
number of strikes being listed across options exchanges, Market Makers 
must expend their capital to ensure that they have the appropriate 
infrastructure to meet their quoting obligations on all options markets 
in which they are assigned in options series. The Exchange believes 
that this Strike Interval Proposal would limit the intervals between 
strikes, reducing the number of strikes listed on BX, and thereby allow 
Lead Market Makers and Market Makers to expend their capital in the 
options market in a more efficient manner. Due to this increased 
efficiency, the Exchange believes that this Strike Interval Proposal 
would improve overall market quality on BX by limiting the intervals 
between strikes in multiply listed equity options that have an 
expiration date more than twenty-one days, from the listing date.
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    \25\ See Options 2, Sections 4(j) and 5.
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    This Strike Interval Proposal is intended to be the first in a 
series of proposals to limit the number of listed options series listed 
on BX and other Nasdaq affiliated markets. The Exchange intends to 
decrease the overall number of strikes listed on Nasdaq exchanges in a 
methodical fashion, so that it may monitor progress and feedback from 
its membership. While limiting the intervals between listed strikes is 
the goal of this rule change, BX's Strike Interval Proposal is intended 
to balance that goal with the needs of market participants. BX believes 
that various strike intervals continue to offer market participants the 
ability to select the appropriate strike interval to meet that market 
participant's investment objective.
Implementation
    The Exchange intends to begin implementation of the proposed rule 
change prior to March 31, 2021. The Exchange will issue an Options 
Trader Alert to Participants to provide notification of the 
implementation date.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 73120]]

of the Act,\26\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\27\ 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. The Strike Proposal seeks to limit the intervals between 
strikes listed in the Short Term Options Series program that have an 
expiration date more than twenty-one days. While the current listing 
rules permit BX to list a number of weekly strikes on its market, the 
Exchange's Strike Interval Proposal removes impediments to and perfects 
the mechanism of a free and open market and a national market system by 
encouraging Market Makers to deploy capital more efficiently and 
improving market quality overall on BX through limiting the intervals 
between strikes when applying the strike interval table to multiply 
listed equity options that have an expiration date more than twenty-one 
days from the listing date. Also, as BX's Strike Interval Proposal 
seeks to reduce the number of weekly options that would be listed on 
its market in later weeks, Market Makers would be required to quote in 
fewer weekly strikes as a result of the Strike Interval Proposal. 
Amending BX's listing rules to limit the intervals between strikes for 
multiply listed equity options that have an expiration date more than 
twenty-one days causes less disruption in the market as the majority of 
the volume traded in weekly options exists in options series which have 
an expiration date of twenty-one days or less. The Exchange's Strike 
Interval Proposal curtails the number of strike intervals listed in 
series of options without reducing the number of classes of options 
available for trading on BX.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Strike Interval Proposal takes into account customer demand for 
certain options classes by considering both the Share Price and the 
Average Daily Volume in the underlying security to arrive at the manner 
in which weekly strike intervals would be listed in the later weeks for 
each multiply listed equity options class. The Exchange utilizes OCC 
Customer-cleared volume, as customer volume is an appropriate proxy for 
demand. The OCC Customer-cleared volume represents the majority of 
options volume executed on the Exchange that, in turn, reflects the 
demands in the marketplace. The options series listed on BX is intended 
to meet customer demand by offering an appropriate number of strikes. 
Non-Customer cleared OCC volume represents the supply side.
    The Strike Interval Proposal for listing strikes in certain 
multiply listed equity options is intended to remove certain strikes 
where there exist clusters of strikes whose characteristics closely 
resemble one another and, therefore, do not serve different trading 
needs that renders the strikes less useful and thereby protects 
investors and the general public by removing an abundance of 
unnecessary choices for an options series, while also improving market 
quality. BX's Strike Interval Proposal seeks to reduce the number of 
strikes in the furthest weeklies, where there exist wider markets, and, 
therefore, lower market quality. The implementation of the proposed 
table is intended to spread strike intervals in multiply listed equity 
options, where there is less volume that is measured by the average 
daily volume tiers. Therefore, the lower the average daily volume, the 
greater the proposed spread between strike intervals. Options classes 
with higher volume contain the most liquid symbols and strikes, 
therefore the finer the proposed spread between strike intervals. 
Additionally, lower-priced shares have finer strike intervals than 
higher-priced shares when comparing the proposed spread between strike 
intervals.\28\
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    \28\ The Exchange notes that is has discussed the proposed 
strike intervals with various members. The Exchange has gathered 
information regarding where trading in weeklies generally occurs to 
arrive at the proposed strike intervals.
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    Beginning on the second trading day in the first month of each 
calendar quarter, the Average Daily Volume shall be calculated by 
utilizing data from the prior calendar quarter based on OCC Customer-
cleared volume. Utilizing the second trading day allows the Exchange to 
accumulate data regarding OCC Customer-cleared volume from the entire 
prior quarter. Beginning on the second trading day would allow trades 
executed on the last day of the previous calendar quarter to have 
settled \29\ and be accounted for in the calculation of Average Daily 
Volume. Utilizing the previous three months is appropriate because this 
time period would help reduce the impact of unusual trading activity as 
a result of unique market events, such as a corporate action (i.e., it 
would result in a more reliable measure of average daily trading volume 
than would a shorter period).
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    \29\ Options contracts settle one business day after trade date. 
Strike listing determinations are made the day prior to the start of 
trading in each series.
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    This Strike Interval Proposal serves to respond to comments 
received from industry members with respect to the increasing number of 
strikes that are required to be quoted by market makers in the options 
industry. Today, BX requires Lead Market Makers and Market Makers to 
quote a certain amount of time in the trading day in their assigned due 
options series to maintain liquidity in the market.\30\ With an 
increasing number of strikes due to tighter intervals being listed 
across options exchanges, Market Makers must expend their capital to 
ensure that they have the appropriate infrastructure to meet their 
quoting obligations on all options markets in which they are assigned 
in options series. The Exchange believes that this Strike Interval 
Proposal would limit the intervals between strikes listed on BX and 
thereby allow Lead Market Makers and Market Makers to expend their 
capital in the options market in a more efficient manner that removes 
impediments to and perfect the mechanism of a free and open market and 
a national market system. The Exchange also believes that this Strike 
Interval Proposal would improve overall market quality on BX for the 
protection of investors and the general public by limiting the 
intervals between strikes when applying the strike interval table to 
multiply listed equity options which have an expiration date more than 
twenty-one days from the listing date.
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    \30\ See Options 2, Sections 4(j) and 5.
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    This Strike Interval Proposal is intended to be the first in a 
series of proposals to limit the number of listed options series listed 
on BX and other Nasdaq affiliated markets. The Exchange intends to 
decrease the overall number of strikes listed on Nasdaq exchanges in a 
methodical fashion in order that it may monitor progress and feedback 
from its membership. While limiting the intervals between strikes 
listed is the goal of this rule change, BX's Strike Interval Proposal 
is intended to balance that goal with the needs of market participants. 
The Exchange believes that varied strike intervals continue to offer 
market participants the ability to select the appropriate strike 
interval to meet that market participant's investment objective.

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 Strike Interval Proposal 
limits the number of Short Term Options Series strike intervals 
available for quoting and

[[Page 73121]]

trading on BX for all BX Participants. While the current listing rules 
permit BX to list a number of weekly strikes on its market, in an 
effort to encourage Market Makers to deploy capital more efficiently, 
as well as improve displayed market quality, BX's Strike Interval 
Proposal seeks to reduce the number of weekly options that would be 
listed on its market in later weeks, without reducing the number of 
series or classes of options available for trading on BX. As BX's 
Strike Interval Proposal seeks to reduce the number of weekly options 
that would be listed on its market in later weeks, Market Makers would 
be required to quote in fewer weekly strikes as a result of the Strike 
Interval Proposal.
    The Exchange's Strike Interval Proposal, which is intended to 
decrease the overall number of strikes listed on BX, does not impose an 
undue burden on intra-market competition as all Participants may only 
transact options in the strike intervals listed for trading on BX. 
While limiting the intervals of strikes listed on BX is the goal of 
this Strike Interval Proposal, the goal continues to balance the needs 
of market participants by continuing to offer a number of strikes to 
meet a market participant's investment objective.
    The Exchange's Strike Interval Proposal does not impose an undue 
burden on inter-market competition as this Strike Interval Proposal 
does not impact the listings available at another self-regulatory 
organization. In fact, BX is proposing to list a smaller amount of 
weekly equity options in an effort to curtail the increasing number of 
strikes that are required to be quoted by market makers in the options 
industry. Other options markets may choose to replicate the Exchange's 
Strike Interval Proposal and, thereby, further decrease the overall 
number of strikes within the options industry.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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

     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-BX-2020-032 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-BX-2020-032. 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 
20549-1090 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-BX-2020-032, and should be 
submitted on or before December 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-25179 Filed 11-13-20; 8:45 am]
BILLING CODE 8011-01-P


