Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 11807 

8Each sub-adviser would be registered with the 

Commission as an investment adviser under the 

Advisers Act or not subject to such registration. 

9Applicants state that technology that includes 

visual capabilities will be used unless 

unanticipated circumstances arise. Applicants also 

state that the Board could not rely upon the relief 

to approve a Sub-Advisory Agreement by written 

consent or another form of absentee approval by the 

Board. 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

2(a)(20) of the Act.8 The Adviser would 

retain overall responsibility for the 

management and investment of the 

assets of each Subadvised Series. 

III. Applicable Law 

6. Section 15(c) of the Act prohibits a 

registered investment company having a 

board from entering into, renewing or 

performing any contract or agreement 

whereby a person undertakes regularly 

to act as an investment adviser 

(including a sub-adviser) to the 

investment company, unless the terms 

of such contract or agreement and any 

renewal thereof have been approved by 

the vote of a majority of the investment 

company’s board members who are not 

parties to such contract or agreement, or 

interested persons of any such party, 

cast in person at a meeting called for the 

purpose of voting on such approval. 

7. Section 6(c) of the Act provides that 

the Commission may exempt any 

person, security, or transaction or any 

class or classes of persons, securities, or 

transactions from any provisions of the 

Act, or any rule thereunder, if such 

exemption is necessary or appropriate 

in the public interest and consistent 

with the protection of investors and the 

purposes fairly intended by the policy 

and provisions of the Act. Applicants 

state that the requested relief meets this 

standard for the reasons discussed 

below. 

IV. Arguments in Support of the 

Requested Relief 

8. Applicants assert that boards of 

registered investment companies, 

including the Board, typically hold inperson meetings on a quarterly basis. 

Applicants state that during the three to 

four month period between board 

meeting dates, market conditions may 

change or investment opportunities may 

arise such that the Adviser may wish to 

make a Sub-Adviser Change. Applicants 

also state that at these moments it may 

be impractical, and/or costly to hold an 

additional in-person Board meeting, 

especially given the geographic 

diversity of Board members and the 

additional cost of holding in-person 

meetings. 

9. As a result, Applicants believe that 

the requested relief would allow the 

Subadvised Series to operate more 

efficiently. In particular, Applicants 

assert that without the delay inherent in 

holding in-person Board meetings (and 

the attendant difficulty of obtaining the 

necessary quorum for, and the 

additional costs of, an unscheduled inperson Board meeting), the Subadvised 

Series would be able to act quicker and 

with less expense to add or replace subadvisers when the Board and the 

Adviser believe that a Sub-Adviser 

Change would benefit the Subadvised 

Series. 

10. Applicants also note that the inperson meeting requirement in Section 

15(c) of the Act was designed to prohibit 

absentee approval of advisory 

agreements. Applicants state that 

condition 1 to the requested relief is 

designed to avoid such absentee 

approval by requiring that the Board 

approve a Sub-Adviser Change at a 

meeting where all participating Board 

members can hear each other and be 

heard by each other during the 

meeting.9

11. Applicants, moreover, represent 

that the Board would conduct any such 

non-in-person consideration of a SubAdvisory Agreement in accordance with 

its typical process for approving SubAdvisory Agreements. Consistent with 

Section 15(c) of the Act, the Board 

would request and evaluate such 

information as may reasonably be 

necessary to evaluate the terms of any 

Sub-Advisory Agreement, and the 

Adviser and sub-adviser would provide 

such information. 

12. Finally, Applicants note that that 

if one or more Board members request 

that a Sub-Adviser Change be 

considered in-person, then the Board 

would not be able to rely on the relief 

and would have to consider the SubAdviser Change at an in-person meeting. 

V. Applicants’ Conditions 

Applicants agree that any order 

granting the requested relief will be 

subject to the following conditions: 

1. The Independent Board Members 

will approve the Sub-Adviser Change at 

a non-in-person meeting in which Board 

members may participate by any means 

of communication that allows those 

Board members participating to hear 

each other simultaneously during the 

meeting. 

2. Management will represent that the 

materials provided to the Board for the 

non-in-person meeting include the same 

information the Board would have 

received if approval of a Sub-Adviser 

Change were sought at an in-person 

Board meeting. 

3. The notice of the non-in-person 

meeting will explain the need for 

considering the Sub-Adviser Change at 

a non-in-person meeting. Once notice of 

the non-in-person meeting to consider a 

Sub-Adviser Change is sent, Board 

members will be given the opportunity 

to object to considering the Sub-Adviser 

Change at a non-in-person Board 

meeting. If a Board member requests 

that the Sub-Adviser Change be 

considered in-person, the Board will 

consider the Sub-Adviser Change at an 

in-person meeting, unless such request 

is rescinded. 

4. A Subadvised Series’ ability to rely 

on the requested relief will be disclosed 

in the Subadvised Series’ registration 

statement. 

5. In the event that the Commission 

adopts a rule under the Act providing 

substantially similar relief to that in the 

order requested in the Application, the 

requested order will expire on the 

effective date of that rule. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04043 Filed 2–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91178; File No. SR–Phlx– 

2021–07] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing of 

Proposed Rule Change To Permit the 

Listing and Trading of Options Based 

on 1/100th the Value of the Nasdaq-100 

Index®

February 22, 2021. 

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 February 

10, 2021, 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

Exchange’s rules to permit the listing 


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3 See Options 4A, Section 12(e)(II). 

4 In addition to the current Nasdaq-100 Index 

value, Nasdaq will disseminate an Index value for 

XND that is 1/00 of the value of the Nasdaq-100 

Index. 

5 Nasdaq is an affiliate of the Exchange. 

6 The Nasdaq-100 Index is a broad-based index, 

as defined in Options 4A, Section 3. 

7 A description of the Nasdaq-100 Index is 

available on Nasdaq’s website at https://

indexes.nasdaqomx.com/docs/methodology_

NDX.pdf. 

8 See ISE Options 4A, Section 12(a)(6). NQX is 

P.M.-settled and a European-style and cash-settled, 

with a contract multiplier of 100. 

9 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); and 88681 (April 17, 2020), 85 

FR 22775 (April 23, 2020) (SR–ISE–2020–17). See 

also Securities Exchange Act Release Nos. 84835 

(December 17, 2018), 83 FR 65773 (December 21, 

2018) (SR–Phlx–2018–80); 85669 (April 17, 2019), 

84 FR 16913 (April 23, 2019) (SR–Phlx–2019–13); 

87381 (October 22, 2019), 84 FR 57788 (October 28, 

2019) (SR–Phlx–2019–43); and 88684 (April 17, 

2020), 85 FR 22781 (April 23, 2020) (SR–Phlx– 

2020–24). 

and trading of index options on Nasdaq 

100 Micro Index Options (‘‘XND’’). 

The text of the proposed rule change 

is available on the Exchange’s website at 

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 purpose of the proposed rule 

change is to amend the Exchange’s rules 

to permit the listing and trading of 

index options on Nasdaq 100 Micro 

Index Options (‘‘XND’’). The XND 

options contract will be the same in all 

respects as the current Nasdaq-100 

Index options (‘‘NDX’’) 3 contract listed 

on the Exchange, except that it will be 

based on 1/100th of the value of the 

Nasdaq-100 Index, and will be P.M.- 

Settled with an exercise settlement 

value based on the closing index value 

of the Nasdaq-100 Index on the day of 

expiration.4 The Exchange believes that 

the proposed contract will be valuable 

for retail and other investors that wish 

to trade micro options on the Nasdaq100 Index. 

I. Nasdaq-100 Index 

The Nasdaq-100 Index is a modified 

market capitalization-weighted index 

that includes 100 of the largest nonfinancial companies listed on The 

Nasdaq Stock Market LLC (‘‘Nasdaq’’),5

based on market capitalization.6 It does 

not contain securities of financial 

companies, including investment 

companies. Security types generally 

eligible for the Nasdaq-100 Index 

include common stocks, ordinary 

shares, American Depository Receipts, 

and tracking stocks. Security or 

company types not included in the 

Nasdaq-100 Index are closed-end funds, 

convertible debentures, exchange traded 

funds, limited liability companies, 

limited partnership interests, preferred 

stocks, rights, shares or units of 

beneficial interest, warrants, units and 

other derivative securities.7

II. XND Options Contract 

Currently, the Exchange lists and 

trades NDX options that are based on 

the full value of the Nasdaq-100 Index. 

In an effort to attract additional interest 

in index options based on the Nasdaq100 Index, the Exchange now proposes 

to list and trade a new micro option 

contract based on this index. XND 

options will trade independently of and 

in addition to NDX options, and the 

XND options will be subject to the same 

rules that presently govern the trading 

of index options based on the Nasdaq100 Index, including sales practice 

rules, margin requirements, trading 

rules, and position and exercise limits. 

Similar to NDX, XND options will be 

European-style and cash-settled, and 

will have a contract multiplier of 100. 

The contract specifications for XND 

options will mirror in all respects those 

of the NDX options contract already 

listed on the Exchange, except that the 

Exchange proposes that XND options 

will be based on 1/100th of the value of 

the Nasdaq-100 Index, and will be P.M.- 

settled pursuant to proposed Options 

4A, Section 12(a)(5). 

Similar features are available with 

other index options contracts listed and/ 

or approved for trading on the Exchange 

and other options exchanges, including 

the Exchange’s affiliate, Nasdaq ISE, 

LLC (‘‘ISE’’), which lists options on 

NQX (a reduced value index based on 

1⁄5 of the value of the Nasdaq-100 

Index).8

The value of the Nasdaq-100 Index 

has increased significantly in recent 

years such that the value of the index 

stood at 12,112.11, as of the opening of 

trading on November 25, 2020. As a 

result of the increase in the value of the 

underlying Nasdaq-100 Index, the 

premium for NDX options has also 

increased. The Exchange believes that 

this has caused NDX options to trade at 

a level that may be uncomfortably high 

for certain retail and other investors. 

The Exchange believes that listing 

options at a micro value will attract a 

greater source of retail customer 

business. Further, listing options on a 

micro index will provide an opportunity 

for investors to trade and hedge the 

market risk associated with the Nasdaq100 Index. 

With an exercise settlement value 

based on 1/100th of the Nasdaq-100 

Index, the Exchange believes that retail 

and other investors would be able to use 

this trading vehicle while extending a 

smaller outlay of capital. Furthermore, 

the proposed micro index will have a 

notional value at a level that is 

comparable to similar products that 

have been successful in the market, 

including the S&P 500 Mini SPX 

Options Index (XSP), which had an 

index value of (363.55) as of the opening 

of trading on November 25th, 2020. The 

Exchange therefore believes that basing 

the proposed XND options contract on 

1/100 of the value of the Nasdaq-100 

Index should attract additional 

investors, and, in turn, create a more 

active and liquid trading environment. 

XND options will also be P.M.-settled 

as the Exchange believes that market 

participants, and in particular, retail 

investors, who are the target audience 

for this product, prefer P.M.-settled 

index options. P.M.-settlement is 

preferred by retail investors as it allows 

market participants to hedge their 

exposure for the full week. A.M.-settled 

options by contrast are based on 

opening prices on the day of expiration 

and therefore stop trading on the day 

prior, leaving residual risk on the day of 

expiration. Feedback from Members that 

handle retail order flow has indicated 

that P.M.-settlement is needed to garner 

retail investor support for this product. 

In this regard, the Exchange notes that 

there is ample precedent for P.M.- 

settlement of broad-based index options 

as described in various P.M.-settled 

pilot filings.9 In addition, Cboe offers 

P.M.-settled index options based on 

both the Standard & Poor’s 500 index 


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10 See Securities Exchange Act Release No. 80060 

(February 17, 2017), 82 FR 11673 (February 24, 

2017) (SR–CBOE–2016–091) (Approval Order). 

11 XND is a broad-based index. Options 4A, 

Section 12(b)(5) provides, 

Nonstandard Expirations Pilot Program 

(A) Weekly Expirations. 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 shall 

be subject to all provisions of this Rule and treated 

the same as options on the same underlying index 

that expire on the third Friday of the expiration 

month; provided, however, that Weekly Expirations 

shall 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. 

The maximum number of expirations that may be 

listed for each Weekly Expiration (i.e., a Monday 

expiration, Wednesday expiration, or Friday 

expiration, as applicable) in a given class is the 

maximum number of expirations permitted for 

standard index options in Options 4A, Section 

12(a)(4). Weekly Expirations need not be for 

consecutive Monday, Wednesday, 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. Weekly 

Expirations that are initially listed in a given class 

may expire up to four weeks from the actual listing 

date. If the last trading day of a month is a Monday, 

Wednesday, or Friday and the Exchange lists EOMs 

and Weekly Expirations as applicable in a given 

class, the Exchange will list an EOM instead of a 

Weekly Expiration in the given class. Other 

expirations in the same class are not counted as part 

of the maximum number of Weekly Expirations for 

a broad-based index class. If the Exchange is not 

open for business on a respective Monday, the 

normally Monday expiring Weekly Expirations will 

expire on the following business day. If the 

Exchange is not open for business on a respective 

Wednesday or Friday, the normally Wednesday or 

Friday expiring Weekly Expirations will expire on 

the previous business day. 

(B) End of Month (‘‘EOM’’) Expirations. The 

Exchange may open for trading EOMs on any broadbased index eligible for standard options trading to 

expire on last trading day of the month. EOMs shall 

be subject to all provisions of this Rule and treated 

the same as options on the same underlying index 

that expire on the third Friday of the expiration 

month; provided, however, that EOMs shall be 

P.M.-settled and new series in EOMs may be added 

up to and including on the expiration date for an 

expiring EOM. 

The maximum number of expirations that may be 

listed for EOMs in a given class is the same as the 

maximum number of expirations permitted for 

standard options on the same broad-based index. 

EOM expirations need not be for consecutive end 

of month expirations; 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. EOMs that are first listed in a given 

class may expire up to four weeks from the actual 

listing date. Other expirations in the same class are 

not counted as part of the maximum numbers of 

EOM expirations for a broad-based index class. 

(C) Duration of Nonstandard Expirations Pilot 

Program. The Nonstandard Expirations Pilot 

Program shall be through May 4, 2021. 

(D) Weekly Expirations and EOM Trading Hours. 

Transactions in Weekly Expirations and EOMs 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 and 

EOMs may be effected on the Exchange between the 

hours of 9:30 a.m. (Eastern time) and 4:00 p.m. 

(Eastern time). 

12 See Options 4A, Section 12(b)(5)(D). 

13 These increments differ from the minimum 

increments within Phlx Options 3, Section 3(a), 

which 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.’’ While XND options 

have a minimum increment of a penny, these 

options are not within the Penny Interval Program. 

14 See Securities Exchange Act Release No. 70087 

(August 6, 2013), 78 FR 47809 (July 31, 2013) (SR– 

Cboe–2013–055) (Notice of Filing of Amendment 

No. 1 and Order Granting Accelerated Approval of 

a Proposed Rule Change, as Modified by 

Amendment No. 1, to List and Trade a P.M.-settled 

Mini-SPX Index Option Product) (‘‘Approval Filing 

for XSP’’). 

15 QQQ is an exchange-traded fund based on the 

Nasdaq-100 Index. 

(‘‘SPXW’’),10 and the Quarterly Russell 

2000 Index Options [sic] (‘‘RUTW’’). 

Pursuant to Phlx Options 4A, Section 

12(b)(5), XND would become part of the 

Nonstandard Expirations Pilot Program. 

Pursuant to the provisions of this pilot 

which currently is set to expire on May 

4, 2021, 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 shall be 

subject to all provisions of this Rule and 

treated the same as options on the same 

underlying index that expire on the 

third Friday of the expiration month; 

provided, however, that Weekly 

Expirations shall 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. Further, the Exchange may 

open for trading EOMs on any broadbased index eligible for standard 

options trading to expire on last trading 

day of the month. EOMs shall be subject 

to all provisions of this Rule and treated 

the same as options on the same 

underlying index that expire on the 

third Friday of the expiration month; 

provided, however, that EOMs shall be 

P.M.-settled and new series in EOMs 

may be added up to and including on 

the expiration date for an expiring 

EOM.11

The Exchange does not believe that 

the introduction of a new P.M.-settled 

Nasdaq-100 Index contract will cause 

any market disruptions. The Exchange 

will monitor for any disruptions caused 

by P.M.-settlement of the proposed XND 

options contract or the development of 

any factors that could cause such 

disruptions. P.M.-settled options 

predominate in the over-the-counter 

(‘‘OTC’’) market, and the Exchange is 

not aware of any adverse effects in the 

OTC market attributable to the P.M.- 

settlement feature. The Exchange is 

merely proposing to offer a P.M.-settled 

product in an exchange environment, 

which offers the additional benefits of 

added transparency, price discovery, 

and stability. 

III. Trading Hours, Minimum 

Increments, Expirations and Strike 

Prices 

XND options will be available for 

trading during the Exchange’s standard 

trading hours for index options, i.e., 

from 9:30 a.m. to 4:15 p.m. New York 

time.12

XND options will trade with a 

minimum trading increment of $0.01 for 

options for all other series.13 Today, 

Cboe lists a reduced-value contract on 

the S&P 500 Index in the form of XSP 

options with minimum increments of 

$0.01 for all option series, regardless of 

price.14 The minimum increments for 

bids and offers for SPDR options 

(‘‘SPY’’), an exchange-traded fund that 

also tracks the performance of 1/10th 

the value of the S&P 500 Index, is $0.01, 

regardless of whether the options series 

is quoted above, at, or below $3. Cboe 

noted in their Approval Filing for XSP 

that since the prices of both XSP options 

and SPY options are based, in a similar 

manner, on 1/10th the size of the S&P 

500 Index, CBOE proposes to amend 

Interpretation and Policy .03 to Rule 

6.42 to state that for so long as SPY 

options participate in the Penny Pilot 

program (now Penny Interval Program), 

the minimum increments for XSP 

options shall be the same as SPY for all 

options series (including LEAPS). 

Likewise, XND options are similar in 

size to the INVESCO QQQ TrustTM, 

Series 1 (‘‘QQQ’’),15 which is the ETF on 

the Nasdaq-100 Index (roughly 1/40th of 

the Nasdaq-100 Index). Phlx proposes to 

adopt a new Supplementary Material 

.03 to Options 3, Section 3 to state that 

for so long as QQQ options participate 

in the Penny Interval Program, the 

minimum increments for XND options 

shall be the same as QQQ for all options 

series (including LEAPS), which shall 

be $0.01 for options for all other series. 

The Exchange also proposes to 

renumber current Supplementary 

Material .03 to Options 3, Section 3 as 

.04. 

The Exchange proposes that XND 

options will have monthly expiration 

dates on the third Friday of each month 

(i.e., Expiration Friday), and the 


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16 Options 4A, Section 12(a)(4) currently provides 

that the Exchange may list: (i) Up to six (6) standard 

monthly expirations at any one time in a class, but 

will not list index options that expire more than 

twelve (12) months out; (ii) up to 12 standard 

monthly expirations at any one time for any class 

that the Exchange (as the Reporting Authority) uses 

to calculate a volatility index; and (iii) up to 12 

standard (monthly) expirations in NDX options. 

17 See Options 4A, Section 12(b)(2). 

18 The Exchange expects that it will add XND 

options to the Weeklies program. 

19 Weekly Expirations would not need to be for 

consecutive Monday, Wednesday, or Friday 

expirations as applicable. However, the expiration 

date of a non-consecutive expiration would not be 

permitted beyond what would be considered the 

last expiration date if the maximum number of 

expirations were listed consecutively. Weekly 

Expirations that are first listed in a given class 

could expire up to four weeks from the actual 

listing date. If the last trading day of a month were 

a Monday, Wednesday, or Friday and the Exchange 

were to list EOMs and Weekly Expirations as 

applicable in a given class, the Exchange would list 

an EOM instead of a Weekly Expiration in the given 

class. Other expirations in the same class would not 

be counted as part of the maximum number of 

Weekly Expirations for a broad-based index class. 

If the Exchange were not open for business on a 

respective Monday, the normally Monday expiring 

Weekly Expirations would expire on the following 

business day. If the Exchange were not open for 

business on a respective Wednesday or Friday, the 

normally Wednesday or Friday expiring Weekly 

Expirations would expire on the previous business 

day. See Options 4A, Section 12(b)(5)(A). 

20 The maximum number of expirations that 

could be listed for EOMs in a given class would be 

the same as the maximum number of expirations 

permitted for standard options on the same broadbased index. EOM expirations would not need to 

be for consecutive end of month expirations. 

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. 

EOMs that are first listed in a given class could 

expire up to four weeks from the actual listing date. 

Other expirations would not be counted as part of 

the maximum numbers of EOM expirations for a 

broad-based index class. See Options 4A, Section 

12(b)(5)(B). 

21 Supplementary Material .04 to Options 4A, 

Section 12 provides, ‘‘Supplementary 

Notwithstanding subsection (a) to this Options 4A, 

Section 12, the interval between strike prices of 

series of Alpha Index options will be $1 or greater. 

The Exchange will list at least two strike prices 

above and two strike prices below the current value 

of each Alpha Index option at about the time a 

series is opened for trading on the Exchange. The 

Exchange may also list additional strike prices at 

any price point, with a minimum of a $1.00 interval 

between strike prices, as required to meet the needs 

of customers.’’ 

22 The Exchange is amending Options 4A, Section 

6(a)(ii) to reflect this proposed change. 

23 See Options 4A, Section 10 which provides 

that exercise limits for index options contracts shall 

be equivalent to the position limits described in 

Options 4A, Section 6. 

Exchange proposes to list XND options 

in expiration months consistent with 

those of other index option products 

available on the Exchange.16 In 

addition, the Exchange may list long 

term index options series (‘‘LEAPS’’) 

that expire from twelve (12) to sixty (60) 

months from the date of issuance.17

XND options would also be eligible to 

be added to the Short Term Option 

Series Program (‘‘Weeklies’’) and/or 

Quarterly Options Series Program 

(‘‘Quarterlies’’) if designated by the 

Exchange pursuant to Options 4A, 

Section 12(b)(4) and (b)(3), 

respectively.18

Further, the Exchange proposes to 

permit XND options to be listed and 

traded in accordance with the 

Nonstandard Expirations Pilot Program. 

This would permit the Exchange to 

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-themonth or days that coincide with an 

End of Month (‘‘EOM’’) expiration). 

Weekly Expirations would be subject to 

all provisions of Options 4A, Section 12 

and would be treated the same as 

options on the same underlying index 

that expire on the third Friday of the 

expiration month. New series in Weekly 

Expirations could be added up to and 

including on the expiration date for an 

expiring Weekly Expiration. The 

maximum number of expirations that 

could be listed for each Weekly 

Expiration (i.e., a Monday expiration, 

Wednesday expiration, or Friday 

expiration, as applicable) in a given 

class would be the same as the 

maximum number of expirations 

permitted for standard options on the 

same broad-based index.19 Further, the 

Exchange could open for trading EOMs 

on any broad-based index eligible for 

standard options trading to expire on 

last trading day of the month. EOMs 

would be 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 

EOMs would be P.M.-settled and new 

series in EOMs could be added up to 

and including on the expiration date for 

an expiring EOM.20

Generally, pursuant to Options 4A, 

Section 12(a)(2), except as provided in 

Supplementary Material .04 to Options 

4A, Section 12,21 the exercise (strike) 

price intervals will be no less than $5, 

provided that the Exchange may 

determine to list strike prices at no less 

than $2.50 intervals for options on the 

following indexes (which may also be 

known as sector indexes). The Exchange 

proposes to amend Options 4A, Section 

12(a)(2) to add XND options to the list 

of classes where strike price intervals of 

no less than $2.50 are generally 

permitted and note, ‘‘if the strike price 

is less than $200.’’ The Exchange 

proposes to adopt the same strike price 

intervals for XND options as currently 

approved for Reduced Value Nasdaq 

100 Options within Supplementary 

Material .02 to Options 4A, Section 12. 

Thus, notwithstanding Options 4A, 

Section 12(a)(2), the interval between 

strike prices of series of XND options 

will be $1 or greater, subject to the 

conditions described in Supplementary 

Material .02 to Options 4A, Section 12. 

The Exchange will not list LEAPS on 

XND options at intervals less than $5. If 

the Exchange determines to add XND 

options to the Weeklies or Quarterlies 

programs such options will be listed 

with expirations and strike prices 

described in Supplementary Material 

.02 to Options 4A, Section 12. 

IV. Position and Exercise Limits; Margin 

As with NDX, in determining 

compliance with Options 4A, Section 6, 

Position Limits, there will be no 

position limits for broad-based index 

option contracts in the XND class.22

Although there will be no position 

limits for XND options, the Exchange 

proposes to amend Options 4A, Section 

6 to include XND. Options 4A, Section 

6(e) provides, 

Full value, reduced value, long term 

and quarterly expiring options based on 

the same index shall be aggregated. 

Reduced value or mini-size contracts 

shall be aggregated with full value or 

full-size contracts and counted by the 

amount by which they equal a full value 

contract (e.g., ten (10) one tenth (1/10th) 

value contracts equal one (1) full value 

contract). Positions in Short Term 

Options Series and Quarterly Options 

Series shall be aggregated with positions 

in options contracts of the same index. 

Nonstandard Expirations (as provided 

for in Options 4A, Section 5(b)(vii)) on 

a broad-based index shall be aggregated 

with option contracts on the same 

broad-based index and shall be subject 

to the overall position limit. 

Since the Exchange is proposing to 

list a micro index contract that is based 

on 1/100 of the value of the Nasdaq-100 

Index, Options 4A, Section 6(e) would 

apply. In addition, as with NDX, there 

would be no exercise limits for XND.23

Finally, the Exchange proposes to apply 

broad-based index margin requirements 

for the purchase and sale of XND 

options that are the same as margin 

requirements currently in place for NDX 

options. 

V. Other Amendments 

The Exchange proposes to add a new 

Options 4A, Section 12(a)(5) titled 

‘‘European-Style Exercise’’ similar to 

ISE Rules at Options 4A, Section 

12(a)(4). The rule would provide, 


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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 11811 

24 ISE Rules do not reference a micro index 

product but rather a reduced value index. 

25 Based on the data elements to be provided to 

the Commission for the NDXPM pilot. See supra 

note 7. 

‘‘European-Style Exercise.’’ The 

following European-style index options, 

some of which may be A.M.-settled as 

provided in subparagraph (e), are 

approved for trading on the Exchange: 

(i) Full-size Nasdaq 100 Index; and 

(ii) Nasdaq 100 Micro Index Options. 

The addition of this rule text will 

bring greater clarity to the Exchange’s 

rules regarding which index options 

will trade European-Style Exercise. 

The Exchange also proposes to add 

rule text within Options 4A, Section 

12(b)(2) which describes LEAPS. This 

rule text is similar to rule text within 

ISE Options 4A, Section 12(b). The 

Exchange proposes to provide, 

(i) Index long-term options series may 

be based on either the full or micro 

index value of the underlying index. 

There may be up to ten (10) expiration 

months, none further out than sixty (60) 

months. Strike price interval, bid/ask 

differential and continuity rules shall 

not apply to such options series until 

the time to expiration is less than twelve 

(12) months. 

(ii) When a new index long-term 

options series is listed, such series will 

be opened for trading either when there 

is buying or selling interest, or forty (40) 

minutes prior to the close, whichever 

occurs first. No quotations will be 

posted for such options series until they 

are opened for trading. 

(iii) Micro Index Long Term Options 

Series. Micro index Long Term Options 

Series on the following stock indices are 

approved for trading on the Exchange: 

(A) Nasdaq 100 Index 

(1) Expiration Months. Micro index 

long term options series may expire at 

six-month intervals. When a new 

expiration month is listed, series may be 

near or bracketing the current index 

value. Additional series may be added 

when the value of the underlying index 

increases or decreases by ten (10) to 

fifteen (15) percent. 

Similar to ISE, the Exchange proposes 

to provide within the rule text that 

Index LEAPS may be based on either the 

full or micro index value of the 

underlying index.24 The Exchange 

proposes to permit up to ten (10) 

expiration months, however not further 

out than sixty (60) months, similar to 

ISE. Finally, the Exchange proposes to 

state that strike price interval, bid/ask 

differential and continuity rules shall 

not apply to such options series until 

the time to expiration is less than twelve 

(12) months, similar to ISE. 

With respect to new index LEAPS, the 

Exchange proposes to permit such series 

to be opened for trading either when 

there is buying or selling interest, or 

forty (40) minutes prior to the close, 

whichever occurs first, similar to ISE. 

Also, similar to ISE, no quotations will 

be posted for such options series until 

they are opened for trading. 

Finally, the Exchange proposes to 

note the expiration months for Micro 

index LEAPS. Micro index LEAPS may 

expire at six-month intervals. When a 

new expiration month is listed, series 

may be near or bracketing the current 

index value. Additional series may be 

added when the value of the underlying 

index increases or decreases by ten (10) 

to fifteen (15) percent. These proposed 

changes are similar to ISE. 

VI. Surveillance and Capacity 

The Exchange represents that it has 

sufficient capacity to handle additional 

quotations and message traffic 

associated with the proposed listing and 

trading of XND options. Further, the 

Exchange has analyzed its capacity and 

represents that it believes the Exchange 

and the Options Price Reporting 

Authority (‘‘OPRA’’) have the necessary 

systems capacity to handle any 

additional traffic associated with the 

listing of the maximum number 

nonstandard expirations permitted 

pursuant to Options 4A, Section 

12(b)(5). 

Index options are integrated into the 

Exchange’s existing surveillance system 

architecture and are thus subject to the 

relevant surveillance processes. The 

Exchange represents that it has adequate 

surveillance procedures to monitor 

trading in XND options thereby aiding 

in the maintenance of a fair and orderly 

market. 

The Exchange notes that it is 

amending Options 4A, Section 12 to 

include the Nasdaq 100 Micro Index 

Options within the Rule to conform to 

the amendments proposes herein. 

VII. Pilot Program Reports 

The Exchange proposes to list and 

trade XND options on a pilot basis for 

a pilot period expiring on May 4, 2021 

(‘‘Pilot Program’’). If the Exchange were 

to propose an extension of the program 

or should the Exchange propose to make 

the program permanent, then the 

Exchange would submit a filing 

proposing such amendments to the 

program. The Exchange notes that any 

positions established under the pilot 

would not be impacted by the 

expiration of the pilot. For example, a 

position in an XND options series that 

expires beyond the conclusion of the 

pilot period could be established during 

the pilot. If the Pilot Program were not 

extended, then the position could 

continue to exist. However, the 

Exchange notes that any further trading 

in the series would be restricted to 

transactions where at least one side of 

the trade is a closing transaction. 

The Exchange proposes to submit a 

Pilot Program report to the Commission 

at least two months prior to the 

expiration date of the Pilot Program (the 

‘‘annual report’’). The annual report 

would contain an analysis of volume, 

open interest, and trading patterns. The 

analysis would examine trading in the 

proposed option product as well as 

trading in the securities that comprise 

the Nasdaq-100. In addition, for series 

that exceed certain minimum open 

interest parameters, the annual report 

would provide analysis of index price 

volatility and share trading activity. In 

addition to the annual report, the 

Exchange would provide the 

Commission with periodic interim 

reports while the pilot is in effect that 

would contain some, but not all, of the 

information contained in the annual 

report. The annual report would be 

provided to the Commission on a 

confidential basis. The annual report 

would contain the following volume 

and open interest data: 25

(1) Monthly volume aggregated for all 

trades; 

(2) monthly volume aggregated by 

expiration date; 

(3) monthly volume for each 

individual series; 

(4) month-end open interest 

aggregated for all series; 

(5) month-end open interest for all 

series aggregated by expiration date; and 

(6) month-end open interest for each 

individual series. 

In addition to the annual report, the 

Exchange would provide the 

Commission with interim reports of the 

information listed in Items (1) through 

(6) above periodically as required by the 

Commission while the pilot is in effect. 

These interim reports would also be 

provided on a confidential basis. 

Finally, the annual report would 

contain the following analysis of trading 

patterns in Expiration Friday, P.M.- 

settled XND option series in the pilot: 

(1) A time series analysis of open 

interest; and (2) an analysis of the 

distribution of trade sizes. Also, for 

series that exceed certain minimum 

parameters, the annual report would 

contain the following analysis related to 

index price changes and underlying 

share trading volume at the close on 

Expiration Fridays: a comparison of 

index price changes at the close of 

trading on a given Expiration Friday 


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11812 Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 

26 15 U.S.C. 78f(b). 

27 15 U.S.C. 78f(b)(5). 

28 See Cboe Regulatory Circular RG10–112. 

29 See supra note 9. 

with comparable price changes from a 

control sample. The data would include 

a calculation of percentage price 

changes for various time intervals and 

compare that information to the 

respective control sample. The 

Exchange would provide a calculation 

of share volume for a sample set of the 

component securities representing an 

upper limit on share trading that could 

be attributable to expiring in-the-money 

series. Raw percentage price change 

data as well as percentage price change 

data normalized for prevailing market 

volatility, as measured by an 

appropriate index as agreed by the 

Commission and the Exchange, would 

be provided. The data would include a 

comparison of the calculated share 

volume for securities in the sample set 

to the average daily trading volumes of 

those securities over a sample period. 

The minimum open interest parameters, 

control sample, time intervals, method 

for randomly selecting the component 

securities, and sample periods would be 

determined by the Exchange and the 

Commission. 

The Exchange proposes to add rule 

text at Options 4A, Section 12(a)(6) 

which provides, ‘‘In addition to A.M.- 

settled Nasdaq-100 Index options 

approved for trading on the Exchange 

pursuant to Options 4A, Section 

12(a)(5), the Exchange may also list 

options on the Nasdaq 100 Micro Index 

Options (‘‘XND’’) whose exercise 

settlement value is derived from closing 

prices on the expiration day (‘‘P.M.- 

settled’’). XND options will be listed for 

trading for a pilot period expiring on 

May 4, 2021.’’ 

Implementation 

The Exchange intends to begin 

implementation of the proposed rule 

change in Q1 2021. The Exchange will 

issue an Options Trader Alert to 

Participants with the date of 

implementation. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) 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. Specifically, the 

Exchange believes that the listing and 

trading of a micro index P.M.-settled 

index option contract based on the 

Nasdaq-100 Index will attract order flow 

to the Exchange, increase the variety of 

listed options, and provide a valuable 

hedge tool to retail and other investors. 

The Exchange believes that the 

proposed rule change will further the 

Exchange’s goal of introducing new and 

innovative products to the marketplace. 

Specifically, the Exchange believes that 

XND options would provide additional 

opportunities for market participants to 

trade and hedge exposure to the Nasdaq100 Index. The proposed XND options 

product is similar to NDX options that 

are currently listed and traded on the 

Exchange with two important 

differences: (1) XND options will be 

based on 1/100 the value of the Nasdaq100 Index, and (2) XND options will be 

P.M.-settled. These differences are based 

on the Exchanges experience listing 

NDX options, and are designed to attract 

additional participation from retail and 

other investors. Based on feedback 

received from members, the Exchange 

believes that the proposed contract 

specifications will be attractive to 

market participants, and will remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system. The 

nonstandard expirations would expand 

the ability of investors to hedge risks 

against market movements stemming 

from economic releases or market events 

that occur during the month and at the 

end of the month. Accordingly, the 

Exchange believes that weekly 

expirations and EOMs should create 

greater trading and hedging 

opportunities and flexibility, and 

provide customers with the ability to 

more closely tailor their investment 

objectives. 

Currently, the Exchange believes that 

there continues to be unmet market 

demand for exchange-listed index 

options on the Nasdaq-100 Index. This 

unmet demand stems in part from the 

high value of the Nasdaq-100 Index and 

the consequently higher cost of 

purchasing NDX options. As noted 

above, the value of the Nasdaq-100 was 

12,112.11 as of the opening of trading 

on November 25, 2020, and this high 

value has made it more difficult for 

retail and other investors to comfortably 

purchase options on the index. The 

Exchange believes that a micro index 

option would allow additional 

participation from these investors. 

Specifically, the Exchange believes that 

basing the contract on a micro value of 

the Nasdaq-100 Index will encourage 

additional participation by retail and 

other investors due to the reduced 

capital outlay needed to trade these 

options. The ISE NQX product has 

attracted retail trading volume to a 

certain point given that the NQX 

product represents 1⁄5 the value of the 

Nasdaq-100 Index. The Exchange 

believes that XND options, which 

represent 1/100 of the Nasdaq-100 

Index, may strike a more appropriate 

balance for other retail investors with its 

reduced size. This value is more similar 

to other competitive index option 

products. 

Furthermore, based on member 

feedback, the Exchange believes that 

providing P.M.-settlement will make 

this product more attractive to market 

participants and help garner additional 

support for this new index options 

product. Specifically, the Exchange 

believes that P.M.-settlement will be 

attractive to retail and other investors 

that want to use these options to hedge 

an entire week of risk without leaving 

residual risk on the day of expiration, 

and without having to actively manage 

these positions, for example, by rolling 

their hedge into the next expiration. For 

this reason, other popular index option 

products have been transitioning to 

P.M.-settlement. For example, due to 

market demand for P.M.-settlement, 

Cboe Exchange, Inc. (‘‘Cboe’’) 

transitioned its heavily traded SPX 

index options to P.M.-settlement, and 

removed related A.M.-settled 

products.28 The Exchange believes that 

market participants similarly desire 

P.M.-settlement for index options on the 

Nasdaq-100 Index, and proposes to offer 

such a product so that it can compete 

effectively with similar index option 

products offered by options markets 

such as Cboe which offers SPXW and 

OEX. 

When cash-settled index options were 

first introduced in the 1980s, they 

generally utilized closing-price 

settlement procedures (i.e., P.M.- 

settlement). Due to concerns raised by 

the Commission on the impact of P.M.- 

settlement on market volatility and the 

operation of fair and orderly markets on 

the underlying cash market at or near 

the close of trading on expiration day, 

however, exchanges moved to A.M.- 

settlement for these products. As 

discussed in the recent approval of the 

NDXP product,29 however, the 

Commission has recognized that these 

risks may be mitigated today by the 

enhanced closing procedures that are 

now employed by the primary equity 

markets. The Exchange believes that the 

concerns that led to the transition to 

a.m.-settlement for index derivatives 

have been largely mitigated today. 

Opening procedures in the 1990s were 


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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Notices 11813 

30 17 CFR 200.30–3(a)(12). 

deemed acceptable to mitigate one-sided 

order flow driven by index option 

expiration. Nasdaq now has an 

automated closing cross that that 

facilitates orderly closings by 

aggregating a large pool of liquidity, 

across a variety of order types, in a 

single venue. The Exchange believes 

that Nasdaq’s closing procedures are 

well-equipped to mitigate imbalance 

pressure at the close. Furthermore, the 

Exchange believes that the proposal is 

designed to mitigate any potential 

concerns regarding P.M. settlement. 

Specifically, the Exchange believes that 

the proposal will provide additional 

trading and hedging opportunities for 

investors. 

XND options will be subject to the 

same rules that presently govern the 

trading of index options based on the 

Nasdaq-100 Index, including sales 

practice rules, margin requirements, 

trading rules, and position and exercise 

limits. The Exchange therefore believes 

that the rules applicable to trading in 

XND options are consistent with the 

protection of investors and the public 

interest. Furthermore, the Exchange 

represents that it has sufficient systems 

capacity and adequate surveillance 

procedures to handle trading in XND 

options. 

With respect to the Exchange’s 

proposal to adopt new Supplementary 

Material .03 to Options 3, Section 3 to 

provide that minimum increments for 

bids and offers for XND options be the 

same as those for QQQ, regardless of the 

value at which the option series is 

quoted, may promote competition and 

benefit investors. This proposal aligns 

the minimum increments for XND 

options with those for QQQ options in 

order to allow market participants to 

quote in minimum increments of $0.01 

is consistent with the Act because 

allowing participants to quote in smaller 

increments may provide the opportunity 

for reduced spreads, thereby lowering 

costs to investors. In addition, because 

both XND and QQQ are based on 

Nasdaq-100 Index it would be 

reasonable for the minimum increments 

of bids and offers to be the same for both 

types of 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. XND options 

would be available for trading to all 

market participants. The proposed rule 

change will facilitate the listing and 

trading of a new option product that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. The listing of XND 

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 Index. Furthermore, this 

product could offer a competitive 

alternative to other existing investment 

products that seek to allow investors to 

gain broad market exposure. Finally, it 

is possible for other exchanges to 

develop or license the use of a new or 

different index to compete with the 

Nasdaq-100 Index and seek Commission 

approval to list and trade options on 

such an index. 

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 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the 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– 

Phlx–2021–07 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–2021–07. 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–2021–07, and should 

be submitted on or before March 19, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.30

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–03949 Filed 2–25–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–34199] 

Commission Statement on Insurance 

Product Fund Substitution 

Applications 

February 23, 2021. 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Commission statement. 

The Commission is issuing a 

statement regarding applications for 

orders approving the substitution of 

certain securities pursuant to section 

26(c) of the Investment Company Act of 

1940, as amended, (the ‘‘Act’’) (and 


khammond on DSKJM1Z7X2PROD with NOTICES