[Federal Register Volume 87, Number 149 (Thursday, August 4, 2022)]
[Notices]
[Pages 47807-47809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95393; File No. SR-ISE-2022-13]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Granting 
Approval of a Proposed Rule Change To Permit the Listing and Trading of 
P.M.-Settled Nasdaq-100 Index Options That Expire on Tuesday or 
Thursday Under Its Nonstandard Expirations Pilot Program

July 29, 2022.

I. Introduction

    On June 1, 2022, Nasdaq ISE, LLC (``ISE'' or the Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to add P.M.-
settled Nasdaq-100 Index (``NDX'') options that expire on Tuesday or 
Thursday to the Exchange's Nonstandard Expirations Pilot Program 
(``Pilot Program''). The proposed rule change was published for comment 
in the Federal Register on June 21, 2022.\3\ No comments were received. 
The Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 95101 (June 14, 
2022), 87 FR 36894 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend Supplementary Material .07 to 
Options 4A, Section 12, which governs its Pilot Program, to permit 
P.M.-settled Nasdaq-100 Index (``NDXP'') options that expire on Tuesday 
or Thursday. Under the existing Pilot Program, the Exchange is 
permitted to list P.M.-settled options on broad-based indexes that 
expire on: (1) any Monday, Wednesday, or Friday (``Weekly 
Expirations'') and (2) the last trading day of the month (``End of 
Month Expirations'' or ``EOMs'').\4\
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    \4\ See Supplementary Material .07 to Options 4A, Section 12.
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    Specifically, the proposed rule change amends Supplementary 
Material .07(a) Options 4A, Section 12 to add NDXP options (P.M.-
settled) that expire on Tuesday or Thursday (``Tuesday and Thursday 
NDXP Expirations'') as permissible Weekly Expirations under the Pilot 
Program (currently set to expire on November 4, 2022).\5\ The Exchange 
notes that permitting Tuesday and Thursday NDXP Expirations, as 
proposed, is in addition to the NDXP options with Monday, Wednesday and 
Friday expirations that the Exchange may (and does) already list 
pursuant to Supplementary Material .07(a) to Options 4A, Section 12.\6\ 
The Pilot Program for Weekly Expirations will apply to Tuesday and 
Thursday NDXP Expirations in the same manner as it currently applies to 
P.M.-settled broad-based index options with Monday, Wednesday and 
Friday expirations.\7\ As proposed, Supplementary Material .07(a) to 
Options 4A, Section 12 provides that the Exchange may open for trading 
Weekly Expirations on NDX options to expire on any Tuesday or Thursday 
(other than days that coincide with the third Friday-of-the-month or an 
EOM expiration).\8\
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    \5\ See Notice, supra note 3, at 36894.
    \6\ See id.
    \7\ See id.
    \8\ See id.
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    The proposed weekly Tuesday and Thursday NDXP Expirations will be 
subject to all provisions of Supplementary Material .07(a) to Options 
4A, Section 12 in the same manner as existing Monday, Wednesday, and 
Friday expirations.\9\ The maximum number of expirations that may be 
listed for each Weekly Expiration (i.e., a Monday expiration, Tuesday 
expiration, Wednesday expiration, Thursday expiration, or Friday 
expiration, as applicable) in a given class is the same as the maximum 
number of expirations permitted in Options 4A, Section 12(a)(3) for 
standard options on the same broad-based index (which is 12 for NDXP 
options).\10\ Further, other expirations in the same class are not 
counted as part of the maximum number of Weekly Expirations for an 
applicable broad-based index class.\11\ Weekly Expirations need not be 
for consecutive Monday, Tuesday, Wednesday, Thursday, or Friday 
expirations as applicable; however, the expiration date of a non-
consecutive expiration may not be beyond what would be considered the 
last expiration date if the maximum number of expirations were listed 
consecutively.\12\ Weekly Expirations that are initially listed in a 
given class may expire up to four weeks from the actual listing 
date.\13\ Additionally, the Tuesday and Thursday NDXP Expirations will 
be treated the same as options on the same underlying index that expire 
on the third Friday of the expiration month, except that they will be 
P.M.-settled and new series in Weekly Expirations may be added up to 
and including on the expiration date for an expiring Weekly 
Expiration.\14\
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    \9\ See id.
    \10\ See proposed Supplementary Material .07(a) to Options 4A, 
Section 12. See also Notice, supra note 3, at 36895.
    \11\ See proposed Supplementary Material .07(a) to Options 4A, 
Section 12.
    \12\ See id.
    \13\ See id.
    \14\ See also Notice, supra note 3, at 36894.
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    If the Exchange is not open for business on a Tuesday or Thursday, 
the normally Tuesday- or Thursday-expiring NDXP options will expire on 
the previous business day.\15\ The proposed rule change also adds that, 
if two different Weekly Expirations on NDX would expire on the same day 
because the Exchange is not open for business on a certain weekday, the 
Exchange will list only one of such

[[Page 47808]]

Weekly Expirations.\16\ Transactions in Weekly Expirations may be 
effected on the Exchange between the hours of 9:30 a.m. (Eastern Time) 
and 4:15 p.m. (Eastern Time), except that on the last trading day, 
transactions in expiring Weekly Expirations may be effected on the 
Exchange between the hours of 9:30 a.m. (Eastern time) and 4:00 p.m. 
(Eastern time).\17\
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    \15\ See id. at 36895.
    \16\ See id. The Exchange believes it is appropriate to clarify 
in the rule text that the Exchange will list just one Weekly 
Expiration in such a case, as the two Weekly Expirations would 
essentially be the same options contract. Id.
    \17\ See id.
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Pilot Report
    The Exchange proposes to abide by the same reporting requirements 
for the trading of Tuesday and Thursday NDXP Expirations that it does 
for the trading of P.M.-settled options on broad-based indexes that 
expire on any Monday, Wednesday, or Friday pursuant to the Pilot 
Program.\18\ The Exchange represented that it will continue to provide 
the Commission with ongoing data regarding Tuesday and Thursday NDXP 
Expirations unless and until the Nonstandard Pilot is made permanent or 
discontinued.\19\ As provided in the Pilot Program Approval Order,\20\ 
the annual report will contain an analysis of volume, open interest and 
trading patterns. In addition, for series that exceed certain minimum 
open interest parameters, the annual report will provide analysis of 
index price volatility and, if needed, share trading activity.\21\ 
Additionally, the Exchange will provide the Commission with any 
additional data or analyses the Commission requests because it deems 
such data or analyses necessary to determine whether the Pilot Program, 
including Tuesday and Thursday NDXP Expirations as proposed, is 
consistent with the Exchange Act.\22\ As it does for current Pilot 
Program products, the Exchange will make public on its website all data 
and analyses in connection with Tuesday and Thursday NDXP Expirations 
it submits to the Commission under the Pilot Program.\23\ Going 
forward, the Exchange states that it will include the same areas of 
analysis for Tuesday and Thursday NDXP Expirations.\24\ The Exchange 
also proposes to include the following market quality data, over sample 
periods determined by the Exchange and the Commission, for NDXP options 
(NDXP and standard NDX options) as part of the annual reports going 
forward: (1) time-weighted relative quoted spreads; (2) relative 
effective spreads; and (3) time-weighted bid and offer sizes.\25\
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    \18\ See id.
    \19\ See id.
    \20\ 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).
    \21\ See Notice, supra note 3, at 36895.
    \22\ See id.
    \23\ See id.
    \24\ See id.
    \25\ See id. at 36895-96.
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Implementation
    The Exchange proposes to implement this rule change on or before 
August 1, 2022. The Exchange will issue an Options Trader Alert to 
notify members and member organizations of the implementation date.\26\
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    \26\ See id. at 36896.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b) of the Act.\27\ In particular, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act, \28\ which requires, among other things, 
that a national securities exchange have rules designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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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    \27\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \28\ 15 U.S.C. 78f(b)(5).
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    As the Commission noted in its recent order approving the listing 
and trading of P.M.-settled options on the S&P 500 Index that expire on 
Tuesday or Thursday, the Commission has had concerns about the 
potential adverse effects and impact of P.M. settlement upon market 
volatility and the operation of fair and orderly markets on the 
underlying cash markets at or near the close of trading, including for 
cash-settled derivatives contracts based on a broad-based index.\29\ 
The potential impact today remains unclear, given the significant 
changes in the closing procedures of the primary markets in recent 
decades. The Commission is mindful of the historical experience with 
the impact of P.M. settlement of cash-settled index derivatives on the 
underlying cash markets, but recognizes that these risks may be 
mitigated today by the enhanced closing procedures that are now in use 
at the primary equity markets.
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    \29\ See Securities Exchange Act Release No. 94682 (April 12, 
2022), 87 FR 22993 (April 18, 2022) (CBOE-2022-005).
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    The Exchange's proposal to add Tuesday and Thursday NDXP 
Expirations to the existing Pilot Program would offer additional 
investment options to investors and may be useful for their investment 
or hedging objectives while providing the Commission with data to 
monitor the effects of Tuesday and Thursday NDXP Expirations and the 
impact of P.M. settlement on the markets. To assist the Commission in 
assessing any potential impact of Tuesday and Thursday NDXP Expirations 
on the options markets as well as the underlying cash equities markets, 
the Exchange will be required to submit data to the Commission in 
connection with the Pilot Program.\30\ Further, including the proposed 
Tuesday and Thursday NDXP Expirations in the Pilot Program, together 
with the data and analysis that the Exchange will provide to the 
Commission, will allow the Exchange and the Commission to monitor for 
and assess any potential for adverse market effects of allowing Tuesday 
and Thursday NDXP Expirations, including on the underlying component 
stocks. In particular, the data collected from the Pilot Program will 
help inform the Commission's consideration of whether the Pilot 
Program, as amended to include Tuesday and Thursday NDXP Expirations, 
should be modified, discontinued, extended, or permanently approved. 
Furthermore, the Exchange's ongoing analysis of the Pilot Program 
should help it monitor any potential risks from large P.M.-settled 
positions and take appropriate action if warranted.
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    \30\ See Notice, supra note 3, at 36895-96.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Ac t.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-ISE-2022-13), be, and hereby 
is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).


[[Page 47809]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16660 Filed 8-3-22; 8:45 am]
BILLING CODE 8011-01-P


