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[Federal Register Volume 88, Number 222 (Monday, November 20, 2023)]
[Notices]
[Pages 80792-80793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25547]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98935; File No. SR-ISE-2023-20]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a 
Proposed Rule Change To Permit the Listing and Trading of P.M.-Settled 
Nasdasq-100 Index[supreg] Options With a Third-Friday-of-the-Month 
Expiration

November 14, 2023.

I. Introduction

    On September 28, 2023, Nasdaq ISE, LLC (``ISE'' or ``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 
permit the listing and trading of p.m.-settled Nasdaq-100 Index options 
with a third-Friday-of-the-month (``Third Friday'') expiration. The 
proposed rule change was published for comment in the Federal Register 
on October 4, 2023.\3\ The Commission did not receive any comment 
letters and 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. 98643 (September 29, 
2023), 88 FR 68843 (``Notice'').
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II. Description of the Proposal

    ISE proposes to amend its rules to permit the listing and trading 
of p.m.-settled Nasdaq-100 Index (``NDXP'') options with a Third Friday 
expiration. The Exchange currently can list a.m.-settled Third Friday 
expirations on Nasdaq-100 Index (``NDX'') options.\4\ With this 
proposal, the Exchange would have Third Friday expirations on NDX 
options that are both a.m.-settled and p.m.-settled on the same day.\5\ 
The Exchange states that the conditions for listing options on NDXP 
with Third Friday expirations will be similar to the a.m.-settled NDX 
Third Friday expirations.\6\ The Exchange proposes to amend Options 4A, 
Section 12(a)(6) to provide that in addition to a.m.-settled Nasdaq-100 
Index options approved for trading on the Exchange, the Exchange may 
also list options on the Nasdaq-100 Index whose exercise settlement 
value is the closing value of the Nasdaq-100 Index on the expiration 
day.
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    \4\ See Notice, supra note 3 at 68842.
    \5\ See id.
    \6\ See id.
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    The proposed contract would use a $100 multiplier, and the minimum 
trading increment would be $0.05 for options trading below $3.00 and 
$0.10 for all other series.\7\ Strike price intervals would be set at 
no less than $2.50.\8\ Consistent with existing rules for index 
options, the Exchange would allow up to nine near-term expiration 
months \9\ as well as LEAPS.\10\ The product would have European-style 
exercise. Because the product is based on NDX, there would be no 
position limits.\11\
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    \7\ See Options 3, Section 3, Minimum Increments.
    \8\ See Options 4A, Section 12(c)(1).
    \9\ The Exchange proposes the same expiration month options for 
NDXP as are permitted for the Nasdaq-100 Index, since both options 
classes are derived from the Nasdaq-100 Index.
    \10\ See Options 4A, Section 12(b)(1).
    \11\ For a more detailed description of the proposed Third 
Friday NDXP contract, see Notice, supra note 3.
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    NDXP options are series of the NDX options class.\12\ Currently, 
these NDXP options may expire any day of the week: Mondays, Tuesdays, 
Wednesdays, Thursdays, Fridays, as applicable (other than third-Friday-
of-the-month), and the last trading day of the month.\13\ Third Friday 
p.m.-settled options trading under the NDXP symbol will be a new type 
of series under the Nasdaq-100 Index options class and not a new 
options class--therefore all Third-Friday NDXP options will be 
aggregated together with all other standard expirations for applicable 
reporting and other requirements.\14\
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    \12\ See Notice, supra note 3 at 68842.
    \13\ See Supplementary Material .07(a) to Options 4, Section 5.
    \14\ See Options 3, Section 6(c) and (d).
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    As with NDX, whenever the Exchange determines that additional 
margin is warranted in light of the risks associated with an under-
hedged NDXP option position, including Third Friday NDXP, the Exchange 
may consider imposing additional margin upon the account maintaining 
such under-hedged position pursuant to its authority pursuant to 
Exchange Rules Options 6E, Section 2.\15\ The trading hours for NDXP, 
including Third Friday NDXP, will be from 9:30 a.m. to 4:15 p.m. 
Eastern Time.\16\
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    \15\ See Notice, supra note 3 at 68843.
    \16\ The Exchange notes that trading in NDXP will ordinarily 
cease at 4:00 p.m. on the day on which the exercise-settlement value 
is calculated. See Notice, supra note 3 at 68843, n. 16.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\17\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\18\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \17\ 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).
    \18\ 15 U.S.C. 78f(b)(5).
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    In support of its proposal, the Exchange notes that the Commission 
recently approved trading of Third Friday expirations for options based 
on \1/5\ the value of the Nasdaq-100 Index (``NQX'').\19\ The Exchange 
states that the introduction of Third Friday NDXP will attract order 
flow to the Exchange, increase the variety of listed options to 
investors, and provide a valuable hedge tool to investors.\20\ The 
Exchange

[[Page 80793]]

further believes that listing Third Friday NDXP would not have any 
adverse effects or impact on market volatility and the operation of 
fair and orderly markets on the underlying cash market at or near the 
close of trading in its Nasdaq-100 Index options.\21\ Further, the 
Exchange states it does not believe that any market disruptions will be 
encountered with the introduction of Nasdaq-100 Index options with 
third-Friday-of-the-month expiration dates.\22\ The Exchange states it 
will monitor for any such disruptions or the development of any factors 
that could cause such disruptions.\23\ Finally, the Exchange represents 
it has sufficient capacity to handle additional traffic associated with 
listing Third Friday NDXP options and that it has in place adequate 
surveillance procedures to monitor trading in Third Friday NDXP 
options.\24\
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    \19\ See Securities Exchange Act Release No. 98450 (September 
20, 2023), 88 FR 66 111 (September 26, 2023) (SR-ISE-2023-08) (Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, to Make Permanent Certain P.M.-Settled Pilots) 
(``ISE Pilot Approval'').
    \20\ See Notice, supra note 3 at 68843.
    \21\ See id.
    \22\ See id.
    \23\ See id.
    \24\ See id.
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    The Commission has had concerns about the adverse effects and 
impact of p.m.- settlement upon market volatility and the operation of 
fair and orderly markets on the underlying cash market at or near the 
close of trading on expiration days.\25\ However, the Commission 
recently approved proposals from several exchanges, including the 
Exchange, to permanently establish programs permitting the listing and 
trading of certain p.m.-settled broad-based index options.\26\ In 
approving these proposals, the Commission reviewed data provided by the 
exchanges in their filings, the exchanges' pilot data and reports, as 
well as an analysis conducted at the direction of Staff from the 
Commission's Division of Economic and Risk Analysis and concluded that 
analysis of the pilot data did not identify any significant economic 
impact on the underlying component securities surrounding the close as 
a result of expiring p.m.-settled options nor did it indicate a 
deterioration in market quality for an existing product when a new 
p.m.-settled expiration was introduced.\27\ Further, the Commission 
stated that significant changes in closing procedures in the decades 
since index options moved to a.m. settlement may also serve to mitigate 
the potential impact of p.m.-settled index options on the underlying 
cash markets.\28\
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    \25\ See Securities Exchange Act Release No. 65256 (September 2, 
2011), 76 FR 55969, at 55972 (September 9, 2011) (SR-C2-2011-008) 
(Order approving proposed rule change to establish a pilot program 
to list and trade SPXPM options on the C2 Options Exchange, 
Incorporated).
    \26\ See e.g., ISE Pilot Approval; Securities Exchange Act 
Release Nos. 98451 (September 20, 2023), 88 FR 66088 (September 26, 
2023) (SR-Phlx-203-07) (Order approving a nonstandard expirations 
pilot program and p.m.-settled XND options) and 98454 (September 20, 
2023), 88 FR 66103 at 66103-04 (September 26, 2023) (SR-CBOE-2023-
005)(Order approving p.m.-settled Third Friday SPX options).
    \27\ See e.g., ISE Pilot Approval, 88 FR at 66114.
    \28\ See id.
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    As noted above, the Exchange currently may trade Third Friday NQX 
options in addition to p.m.-settled NDX option with nonstandard 
expirations.\29\ The Exchange's proposal, which would permit p.m.-
settled Third Friday NDX, is reasonably designed as a limited expansion 
of existing p.m.-settled broad-based index option programs and may 
provide the investing public and other market participants more 
flexibility to closely tailor their investment and hedging decisions. 
The Exchange has represented that it has an adequate surveillance 
program in place to monitor trading in the Third Friday NDXP options 
and has the necessary systems capacity to support the new options 
series.\30\ The Commission expects the Exchange to continue to monitor 
any potential risks from large p.m.-settled positions and take 
appropriate action on a timely basis if warranted.
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    \29\ See supra note 19. In addition, the Commission previously 
approved a pilot program permitting the listing and trading of Third 
Friday NDX options on Nasdaq PHLX LLC (``Phlx''). See Securities 
Exchange Act Release No. 81293 (August 2, 2017), 82 FR 37138 (August 
8, 2017) (approving SR-Phlx-2017-04). Phlx did not list any options 
under the program and subsequently removed the rule from its rule 
book. See Securities Exchange Act Release No. 87517 (November 13, 
2019), 84 FR 63910 (November 19, 2019) (SR-Phlx-2019-49).
    \30\ See supra note 24 and accompanying text.
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    Accordingly, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \31\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \31\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (SR-ISE-2023-20) be, and hereby 
is, approved.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25547 Filed 11-17-23; 8:45 am]
BILLING CODE 8011-01-P
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