[Federal Register Volume 87, Number 71 (Wednesday, April 13, 2022)]
[Notices]
[Pages 21940-21942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07855]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94632; File No. SR-ISE-2022-09]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Extend a Pilot 
To Permit the Listing and Trading of Options Based on \1/5\ the Value 
of the Nasdaq-100 Index and the Nonstandard Expirations Pilot

    April 7, 2022.

    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 31, 2022, Nasdaq ISE, LLC (``ISE'' 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 extend the pilot to permit the listing and 
trading of options based on \1/5\ the value of the Nasdaq-100 Index 
(``Nasdaq-100'') and the Exchange's nonstandard expirations pilot 
program, both currently set to expire on May 4, 2022.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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
    ISE proposes to extend 2 pilots, which are both set to expire on 
May 4, 2022. The Exchange proposes to extend (1) its pilot to permit 
the listing and trading of options based on \1/5\ the value of the 
Nasdaq-100 Index (``NQX Pilot''), and (2) the Exchange's nonstandard 
expirations pilot program (``Nonstandard Pilot'').
NQX Pilot
    ISE filed a rule change to permit the listing and trading of index 
options on the Nasdaq 100 Reduced Value Index (``NQX'') on a twelve 
month pilot basis.\3\ NQX options trade independently of and in 
addition to NDX options, and the NQX options are subject to the same 
rules that presently govern the trading of index options based on the 
Nasdaq-100, including sales practice rules, margin requirements, 
trading rules, and position and exercise limits. Similar to NDX, NQX 
options are European-style and cash-settled, and have a contract 
multiplier of 100. The contract specifications for NQX options mirror 
in all respects those of the NDX options contract listed on the 
Exchange, except that NQX options are based on \1/5\ of the value of 
the Nasdaq-100, and are P.M.-settled pursuant to Options 4A, Section 
12(a)(6).
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    \3\ See Securities Exchange Act Release No. 82911 (March 20, 
2018), 83 FR 12966 (March 26, 2018) (SR-ISE-2017-106) (Approval 
Order).
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    The Exchange proposes to amend ISE Options 4A, Section 12(a)(6)(i) 
to extend the current NQX Pilot period to November 4, 2022. The NQX 
Pilot was previously extended with the last extension through May 4, 
2022.\4\ The Exchange continues to have sufficient capacity to handle 
additional quotations and message traffic associated with the listing 
and trading of NQX options. In addition, index options are integrated 
into the Exchange's existing surveillance system architecture and are 
thus subject to the relevant surveillance processes. The Exchange also 
continues to have adequate surveillance procedures to monitor trading 
in NQX options thereby aiding in the maintenance of a fair and orderly 
market. Additionally, there is continued investor interest in these 
products and this extension will provide additional time to collect 
data related to the NQX Pilot. The Exchange believes that the proposed 
extension of the NQX Pilot will not have an adverse impact on capacity.
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    \4\ See Securities Exchange Act Release Nos.86071 (June 10, 
2019), 84 FR 27822 (June 14, 2019) (SR-ISE-2019-18); 87379 (October 
22, 2019), 84 FR 57793 (October 28, 2019) (SR-ISE-2019-27); 88683 
(April 17, 2020), 85 FR 22768 (April 23, 2020) (SR-ISE-2020-18); 
90257 (October 22, 2020), 85 FR 68387 (October 28, 2020) (SR-ISE-
2020-33); 91485 (April 6, 2021), 86 FR 19052 (April 12, 2021) (SR-
ISE-2021-05); and 93448 (October 28, 2021), 86 FR 60717 (November 3, 
2021) (SR-ISE-2021-22).
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NQX Pilot Report
    The Exchange currently makes public on its website the data and 
analysis previously submitted to the Commission on the NQX Pilot and 
will continue to make public any data or analysis it submits under the 
NQX Pilot in the future. The Exchange intends to submit a rule change 
proposing permanency of the NQX Pilot and would either provide 
additional data in such proposal or in an annual report. The Exchange 
would continue to provide the Commission with ongoing data unless and 
until the NQX Pilot is made permanent or discontinued.
Nonstandard Pilot
    ISE filed a rule change for the listing and trading on the 
Exchange, on a twelve month pilot basis, of p.m.-settled options on 
broad-based indexes with nonstandard expirations dates.\5\ The

[[Page 21941]]

Nonstandard Pilot permits both Weekly Expirations and End of Month 
(``EOM'') expirations similar to those of the a.m.-settled broad-based 
index options, except that the exercise settlement value of the options 
subject to the pilot are based on the index value derived from the 
closing prices of component stocks. The Nonstandard Pilot was extended 
various times with the last extension through May 4, 2022.\6\
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    \5\ See Securities Exchange Act Release No. 82612 (February 1, 
2018), 83 FR 5470 (February 7, 2018) (approving SR-ISE-2017-111) 
(Order Approving a Proposed Rule Change To Establish a Nonstandard 
Expirations Pilot Program).
    \6\ See Securities Exchange Act Release Nos. 85030 (February 1, 
2019), 84 FR 2633 (February 7, 2019) (SR-ISE-2019-01); 85672 (April 
17, 2019), 84 FR 16899 (April 23, 2019) (SR-ISE-2019-11); 87380 
(October 22, 2019), 84 FR 57786 (October 28, 2019) (SR-ISE-2019-28); 
88681 (April 17, 2020), 85 FR 22775 (April 23, 2020) (SR-ISE-2020-
17); 90265 (October 23, 2020), 85 FR 68605 (October 29, 2020) (SR-
ISE-2020-34); 91486 (April 6, 2021), 86 FR 19048 (April 12, 2021) 
(SR-ISE-2021-06); and 93449 (October 28, 2021), 86 FR 60679 
(November 3, 2021) (SR-ISE-2021-23).
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    Supplementary Material .07(a) to Options 4A, Section 12 provides 
that the Exchange may open for trading Weekly Expirations on any broad-
based index eligible for standard options trading to expire on any 
Monday, Wednesday, or Friday (other than the third Friday-of-the-month 
or days that coincide with an EOM expiration). Weekly Expirations are 
subject to all provisions of Options 4A, Section 12 and are treated the 
same as options on the same underlying index that expire on the third 
Friday of the expiration month. Unlike the standard monthly options, 
however, Weekly Expirations are p.m.-settled.
    Pursuant to Supplementary Material .07(b) to Options 4A, Section 12 
the Exchange may open for trading EOM expirations on any broad-based 
index eligible for standard options trading to expire on the last 
trading day of the month. EOM expirations are subject to all provisions 
of Options 4A, Section 12 and treated the same as options on the same 
underlying index that expire on the third Friday of the expiration 
month. However, the EOM expirations are p.m.-settled.
    The Exchange now proposes to amend Supplementary Material .07(c) to 
Options 4A, Section 12 so that the duration of the Nonstandard Pilot 
for these nonstandard expirations will be through November 4, 2022. The 
Exchange continues to have sufficient systems capacity to handle p.m.-
settled options on broad-based indexes with nonstandard expirations 
dates and has not encountered any issues or adverse market effects as a 
result of listing them. Additionally, there is continued investor 
interest in these products. The Exchange will continue to make public 
on its website any data and analysis it submits to the Commission under 
the Nonstandard Pilot. The Exchange believes that the proposed 
extension of the Nonstandard Pilot will not have an adverse impact on 
capacity.
Nonstandard Pilot Report
    The Exchange intends to submit a rule change proposing permanency 
of the Nonstandard Pilot and would either provide additional data in 
such proposal or in an annual report. The Exchange would continue to 
provide the Commission with ongoing data unless and until the 
Nonstandard Pilot is made permanent or discontinued.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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NQX Pilot
    In particular, the Exchange believes that the NQX Pilot has been 
successful to date. The Exchange has not encountered any problems with 
the NQX Pilot. By extending the NQX Pilot, the Exchange believes it 
will attract order flow to the Exchange, increase the variety of listed 
options, and provide a valuable hedge tool to retail and other 
investors. Specifically, the Exchange believes that the NQX Pilot will 
provide additional trading and hedging opportunities for investors 
while providing the Commission with data to monitor for and assess any 
potential for adverse market effects of allowing P.M.-settlement for 
NQX options, including on the underlying component stocks.
Nonstandard Pilot
    The Exchange believes the proposed rule change will protect 
investors and the public interest by providing the Exchange, the 
Commission and investors the benefit of additional time to analyze 
nonstandard expiration options. In particular, the Exchange believes 
that the Nonstandard Pilot has been successful to date. The Exchange 
has not encountered any problems with the Nonstandard Pilot. By 
extending the Nonstandard Pilot, investors may continue to benefit from 
a wider array of investment opportunities. Additionally, both the 
Exchange and the Commission may continue to monitor the potential for 
adverse market effects of p.m.-settlement on the market, including the 
underlying cash equities market, at the expiration of these options.

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 believes that 
the proposed rule change will not impose an undue burden on inter-
market competition as this rule change will continue to facilitate the 
listing and trading of new option products that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. Furthermore, these products could offer a competitive 
alternative to other existing investment products. Finally, it is 
possible for other exchanges to develop or license the use of a new or 
different index to compete with these products and seek Commission 
approval to list and trade options on such an index.
NQX Pilot
    NQX options would be available for trading to all market 
participants and therefore would not impose an undue burden on intra-
market competition. The continued listing of the NQX Pilot will enhance 
competition by providing investors with an additional investment 
vehicle, in a fully-electronic trading environment, through which 
investors can gain and hedge exposure to the Nasdaq-100.
Nonstandard Pilot
    Options with nonstandard expirations would be available for trading 
to all market participants. The continued listing of the Nonstandard 
Pilot will enhance competition by providing investors with an 
additional investment vehicle, in a fully-electronic trading 
environment, through which investors can gain and hedge exposure to the 
Nasdaq-100.

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.

[[Page 21942]]

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 \9\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2022-09 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-2022-09. 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-2022-09, and should be submitted on 
or before May 4, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07855 Filed 4-12-22; 8:45 am]
BILLING CODE 8011-01-P


