[Federal Register Volume 87, Number 115 (Wednesday, June 15, 2022)]
[Notices]
[Pages 36188-36191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12840]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95077; File No. SR-Phlx-2022-25]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Options 
4A, Section 12, Terms of Index Options Contracts

June 9, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 6, 2022, Nasdaq PHLX LLC (``Phlx'' 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain rule text within Options 4A, 
Section 12, Terms of Index Options Contracts, related to the listing of 
options on the Nasdaq-100[supreg] Volatility Index.
    The Exchange also proposes to amend the Short Term Option Series 
Program within Options 4A, Section 12(b)(4).
    The text of the proposed rule change is available on the Exchange's 
website at

[[Page 36189]]

https://listingcenter.nasdaq.com/rulebook/phlx/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
    The Exchange proposes to amend certain rule text within Options 4A, 
Section 12, Terms of Index Options Contracts, related to the listing of 
options on the Nasdaq-100[supreg] Volatility Index (``VOLQ''). The 
Exchange also proposes to amend the Short Term Option Series Program 
within Options 4A, Section 12(b)(4). The changes are described below.
VOLQ
    In 2021, Phlx received approval \3\ to list and trade options on 
VOLQ. Phlx subsequently received approval \4\ to amend the calculation 
of its final settlement price for options on VOLQ. Phlx has issued an 
Options Trader Alert announcing the launch of VOLQ on June 14, 2022.\5\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 91781 (May 5, 2021), 
86 FR 25918 (May 11, 2021) (SR-Phlx-2020-41) (Notice of Filing of 
Amendment Nos. 1 and 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List 
and Trade Options on a Nasdaq-100 Volatility Index) (``VOLQ Options 
Approval Order'').
    \4\ See Securities Exchange Act Release No. 93628 (November 19, 
2021), 86 FR 67555 (November 26, 2021) (SR-Phlx-2021-56) (Order 
Approving a Proposed Rule Change To Amend Options 4A, Section 12 
Regarding the Calculation of the Closing Volume Weighted Average 
Price for Options on the Nasdaq-100 Volatility Index in Certain 
Circumstances) (``Amendment to VOLQ Options'').
    \5\ See Options Trader Alert #2022-16 (http://www.nasdaqtrader.com/MicroNews.aspx?id=OTA 2022-16).
---------------------------------------------------------------------------

Background
    VOLQ is a new options index product that would enable retail and 
institutional investors to manage volatility versus price risk. This 
index will measure ``at-the-money'' volatility, a precise measure of 
volatility used by investors. Unlike other indexes, this proposed novel 
product isolates at-the-money volatility for precise trading and 
hedging strategies. This product will provide investors information on 
volatility index returns by allowing them to observe increases and 
decreases of the Volatility Index. Specifically, VOLQ options will 
measure changes in 30-day implied volatility of the Nasdaq-100 Index 
(commonly known as and referred to by its ticker symbol, NDX). Options 
on the Volatility Index will be cash-settled and will have European-
style exercise provisions.
Minimum Increments
    The Exchange will list VOLQ options with standard minimum 
increments of $0.05 for options trading below $3.00 and $0.10 for all 
other series pursuant to Options 3, Section 3(a).\6\ The minimum 
increments for VOLQ options were set forth in the VOLQ Options Original 
Filing which stated, ``The Exchange proposes to utilize nickel and dime 
increments for trading the Volatility Index options. The Exchange 
believes that these trading increments will enable traders to make the 
most effective use of the product for trading and hedging purposes.'' 
\7\ Similarly, the VOLQ Options Approval Order provided, ``All options 
on the Volatility Index will have a minimum increment of $0.05 for 
options trading below $3.00 and $0.10 for all other series.'' \8\
---------------------------------------------------------------------------

    \6\ Phlx Options 3, Section 3(a) provides, ``Except as provided 
in Supplementary Material to Options 3, Section 3 below, all options 
on stocks, index options, and Exchange Traded Fund Shares trading at 
a price of $3.00 or higher shall have a minimum increment of $.10, 
and all options on stocks and index options trading at a price under 
$3.00 shall have a minimum increment of $.05.''
    \7\ See Securities Exchange Act Release No. 89725 (September 1, 
2020), 85 FR 55544 at 55549 (September 8, 2020) (SR-Phlx-2020-41) 
(Notice of Filing of Proposed Rule Change To List and Trade Options 
on a Nasdaq-100[supreg] Volatility Index) (``VOLQ Options Original 
Filing'').
    \8\ See VOLQ Options Approval Order at 25920.
---------------------------------------------------------------------------

    The Exhibit 5 attached to the VOLQ Options Original Filing 
inadvertently noted that VOLQ options would be traded in $.01 
increments.\9\ At this time, the Exchange proposes to remove the rule 
text within Supplementary Material .04 of Options 3, Section 3. The 
rule text is inconsistent with the VOLQ Options Original Filing and the 
VOLQ Options Approval. Removing the rule text would avoid confusion 
since the standard minimum increments specified within Options 3, 
Section 3(a) would apply. No other change is required to Options 3, 
Section 3 with respect to VOLQ options.
---------------------------------------------------------------------------

    \9\ See VOLQ Options Original Filing at Exhibit 5, ``.04 All 
Nasdaq-100[supreg] Volatility Index Options shall have a minimum 
increment of $.01.''
---------------------------------------------------------------------------

Closing Settlement Period
    Phlx noted in the VOLQ Options Original Filing and the Amendment to 
VOLQ Options that,

[t]he Closing VWAP shall be determined by reference to the prices 
and sizes of executed orders or quotes in the thirty-two underlying 
Nasdaq-100[supreg] index (``NDX'') component options on Phlx, Nasdaq 
ISE, LLC and Nasdaq GEMX, LLC markets. Executed orders shall include 
simple orders and complex orders (excluding out-of-sequence and late 
trades), however, individual leg executions of a complex order will 
only be included if the executed price of the leg is at or within 
the NBBO. The following process is used to calculate the Closing 
VWAP of the VOLQ options. At the end of individual one-second time 
observations during a 300 second period of time (the ``Closing 
Settlement Period'') commencing at 9:32:010 on the expiration day 
(or 2.01 minutes after the open of trading in the event trading does 
not commence at 9:30:000 a.m. ET), and continuing each second for 
the next 300 seconds, the number of contracts traded at each price 
during the observation period is multiplied by that price to yield a 
Reference Number.
* * * * *
In the event of a trading halt in one or more options, excluding a 
halt in all Nasdaq-100 index options, prior to the completion of the 
Closing Settlement Period, the Exchange would continue to look back 
for a One Second VWAP prior to looking forward. In the event of a 
trading halt in all Nasdaq-100 index options, the Exchange would 
commence the calculation of the settlement window beginning 2:00:01 
minutes after the re-opening of trading and publish that value on 
its website. In this scenario, the Exchange would not look back 
prior to the trading halt.

    At this time, Phlx proposes to amend the formatting of the 
timeframes for the Closing Settlement Period. The Exchange proposes to 
revise the references to ``9:32:010'' and ``9:30:000'' to instead state 
``9:32:01'' and ``9:30:00,'' respectively. Representing the minutes as 
two decimals will avoid confusion as to the time intended. 
Additionally, the Exchange proposes to revise references to ``2.01'' 
and ``2.00.01'' to instead state ``two minutes and one second'' for 
clarity. These amendments are intended to conform the rule text and 
bring clarity to the timeframes.
Short Term Option Series Program
    In 2013, Phlx amended the Short Term Option Series Program for 
equity options within Rule 1012 (currently Options 4, Section 5) to 
change the number of currently listed option classes on which Short 
Term Option Series may be opened on any Short Term Option Opening Date 
from thirty

[[Page 36190]]

to fifty options classes.\10\ Further, Phlx also amended the number of 
Short Term Option Series that the Exchange may open for each expiration 
date in that class from twenty to thirty.\11\ At that time, the 
Exchange neglected to update the index options rules to make similar 
changes to the Short Term Option Series Program given that the amount 
of options classes that may participate in the Short Term Option Series 
Program is aggregated between equity options and index options and is 
not apportioned between equity and index options.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release Nos. 70682 (October 15, 
2013), 78 FR 62809 (October 22, 2013) (SR-Phlx-2013-101) (Notice of 
Filing of Proposed Rule Change Regarding the Short Term Option 
Series Program); and 71004 (December 6, 2013), 78 FR 75437 (December 
11, 2013) (SR-Phlx-2013-101) (Order Granting Approval of Proposed 
Rule Change Regarding the Short Term Options Program).
    \11\ Id.
---------------------------------------------------------------------------

    Today, Options 4A, Section 12(b)(4) provides,

    The Exchange may select up to thirty (30) currently listed 
option classes on which Short Term Option Series may be opened on 
any Short Term Option Opening Date. In addition to the thirty-option 
class restriction, the Exchange also may 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 index option class eligible for participation in the 
Short Term Option Series Program, the Exchange may open up to twenty 
(20) Short Term Option Series on index options 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.

    At this time, the Exchange proposes to amend Options 4A, Section 
12(b)(4) to increase the number of currently listed options classes on 
which Short Term Option Series may be opened on any Short Term Option 
Opening Date from thirty to fifty options classes for index options. 
Additionally, the Exchange proposes to amend the number of Short Term 
Option Series the Exchange may open on index options for each 
expiration date in that class from twenty to thirty. These amendments 
would align the limitations within Options 4A, Section 12(b)(4) with 
those currently within Supplementary .03(a) to Options 4, Section 5.
    As noted above, this amendment will not result in a greater number 
of listings in the Short Term Option Series Program because the amount 
of options classes that may participate in the Short Term Option Series 
Program is aggregated between equity options and index options and is 
not apportioned between equity and index options. Amending Options 4A, 
Section 12(b)(4) to conform to the limitations provided within 
Supplementary .03(a) to Options 4, Section 5 will avoid confusion by 
making clear the aggregate limitations within equity and index options 
for listing Short Term Option Series. Today, Cboe has similar 
limitations within its equity and index Short Term Option Series 
Program.\12\
---------------------------------------------------------------------------

    \12\ See Cboe Exchange, Inc. Rules 4.5 and 4.13.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Removing inadvertent rule text describing minimum increments is 
consistent with the Act and will avoid confusion. The minimum 
increments for VOLQ options were set forth in the VOLQ Options Original 
Filing and the VOLQ Options Approval. The standard minimum increments 
specified within Options 3, Section 3(a) would apply to VOLQ options.
    Amending the formatting of the timeframes for the Closing 
Settlement Period is consistent with the Act. The proposed amendments 
to the timeframes will conform the rule text and bring clarity to the 
rule.
    In 2013, Phlx amended the Short Term Option Series Program for 
equity options within Rule 1012 (currently Options 4, Section 5) to 
change the number of currently listed option classes on which Short 
Term Option Series may be opened on any Short Term Option Opening Date 
from thirty to fifty options classes.\15\ Further, Phlx also amended 
the number of Short Term Option Series that the Exchange may open for 
each expiration date in that class from twenty to thirty.\16\ At that 
time, the Exchange neglected to update the index options rules to make 
similar changes to the Short Term Option Series Program given that the 
amount of options classes that may participate in the Short Term Option 
Series Program is aggregated between equity options and index options 
and is not apportioned between equity and index options. Amending 
Options 4A, Section 12(b)(4) to conform to the limitations provided 
within Supplementary .03(a) to Options 4, Section 5 will avoid 
confusion by making clear the aggregate limitations within equity and 
index options for listing Short Term Option Series. Also, aligning the 
limitations within Options 4A, Section 12(b)(4) with those currently 
within Supplementary .03(a) to Options 4, Section 5 will not result in 
a greater number of listings in the Short Term Option Series Program 
because the amount of options classes that may participate in the Short 
Term Option Series Program is aggregated between equity options and 
index options and is not apportioned between equity and index options. 
Today, Cboe has similar limitations within its equity and index Short 
Term Option Series Program.\17\
---------------------------------------------------------------------------

    \15\ See note 10 above.
    \16\ See note 10 above.
    \17\ See note 12 above.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. Removing inadvertent rule text describing minimum increments 
does not impose an undue burden on competition because it will avoid 
confusion for investors.
    Amending the formatting of the timeframes for the Closing 
Settlement Period does not impose an undue burden on competition, 
rather the amendment will conform the rule text and bring clarity to 
the rule.
    Finally, amending Options 4A, Section 12(b)(4) to conform to the 
limitations provided within Supplementary .03(a) to Options 4, Section 
5 will avoid confusion by making clear the aggregate limitations within 
equity and index options for listing Short Term Option Series. Also, 
aligning the limitations within Options 4A, Section 12(b)(4) with those 
currently within Supplementary .03(a) to Options 4, Section 5 will not 
result in a greater number of listings in the Short Term Option Series 
Program because the amount of options classes that may participate in 
the Short Term Option Series Program is aggregated between equity 
options and index options and is not apportioned between equity and 
index options. Today, Cboe has similar limitations within its equity 
and index Short Term Option Series Program.\18\
---------------------------------------------------------------------------

    \18\ See note 12 above.

---------------------------------------------------------------------------

[[Page 36191]]

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 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 \19\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\20\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \21\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \22\ 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 it 
may make these changes to clarify its rules and remove any ambiguity 
before the planned June 14, 2022 launch of VOLQ options. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest as the proposed rule 
change does not raise any new or novel issues. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\23\
---------------------------------------------------------------------------

    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ 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).
---------------------------------------------------------------------------

    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 change 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-Phlx-2022-25 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-Phlx-2022-25. 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-Phlx-2022-25, and should be submitted on 
or before July 6, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12840 Filed 6-14-22; 8:45 am]
BILLING CODE 8011-01-P


