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[Federal Register Volume 90, Number 20 (Friday, January 31, 2025)]
[Notices]
[Pages 8726-8728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01995]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102293; File No. SR-PHLX-2024-51]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Amend FLEX Floor Trading

January 27, 2025.

I. Introduction

    On October 8, 2024, Nasdaq PHLX LLC 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: (i) amend Options 8, Section 
34, FLEX Trading to clarify certain functionality; (ii) list p.m.-
settled FLEX Index Options whose exercise settlement value is derived 
from closing prices on the last trading day prior to expiration that 
expire on or within two business days of a third Friday-of-the-month 
expiration day for a non-FLEX Option (``FLEX PM Third Friday 
Options''); (iii) permit FLEX Options on certain Exchange-Traded Funds 
(``ETFs'') to be settled by delivery in cash if the underlying security 
meets prescribed criteria and set forth the applicable position and 
exercise limits for these options; and (iv) require that position and 
exercise limits for FLEX Options be aggregated with non-FLEX options in 
certain circumstances. The proposed rule change was published for 
comment in the Federal Register on October 29, 2024.\3\ On December 12, 
2024, pursuant to Section 19(b)(2) of the Act,\4\ the Commission 
designated a longer period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to disapprove the proposed rule change.\5\ The 
Commission has received no comment letters on the proposed rule change. 
The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove 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. 101413 (October 23, 
2024), 89 FR 86007 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 101889, 89 FR 103002 
(December 18, 2024). The Commission designated January 27, 2025, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change 7
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    \7\ For a complete description of the Exchange's proposal, see 
the Notice, supra note 3.
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    In 2023, the Exchange filed a rule change to amend the manner in 
which FLEX Options are transacted on Phlx's Trading Floor.\8\ Prior to 
the implementation of SR-Phlx-2023-22, the Exchange filed a rule change 
to

[[Page 8727]]

amend FLEX Options rules and further delay SR-Phlx-2023-22.\9\ The 
Exchange proposes to further amend the rules proposed in SR-Phlx-2023-
22 and SR-Phlx-2024-24, and proposes to implement the changes in this 
proposal, as well as SR-Phlx-2023-22 and SR-Phlx-2024-24, at the same 
time.
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    \8\ See Securities Exchange Act Release No. 97658 (June 7, 
2023), 88 FR 38562 (June 13, 2023) (SR-Phlx-2023-22) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Various Options 8 Rules). SR-Phlx-2023-22 amended FLEX Orders in 3 
ways. First, the Exchange amended the rules to require FLEX Orders 
to be reported into Phlx's Options Floor Based Management System or 
``FBMS,'' thereby further automating the execution and reporting of 
FLEX Options. All executed FLEX contracts will be reported to OPRA 
and sent to the OCC for clearing, similar to all other equity, 
equity index and U.S. dollar-settled foreign currency options orders 
executed on the Exchange's trading floor. Second, the Exchange 
removed its RFQ process including the BBO Improvement Interval 
Process, with the rule change. Third, the Exchange reorganized 
Options 8, Section 34 to restructure the rule to include additional 
information which describes current FLEX trading on Phlx. With 
respect to Cabinet Orders, SR-Phlx-2023-22 amended Options 8, 
Section 33 to require Cabinet Orders to be reported into FBMS. With 
this change, members and member organizations will be required to 
record all Cabinet Orders represented in the trading crowd into 
FBMS. All executed contracts will be reported to OPRA and sent to 
OCC for clearing similar to all other equity, equity index and U.S. 
dollar-settled foreign currency options orders executed on the 
Exchange's trading floor.
    \9\ See Securities Exchange Act Release No. 100321 (June 12, 
2024), 89 FR 51580 (June 18, 2024) (SR-Phlx-2024-24) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Delay Implementation of Certain Exchange Options 8 Rules and Amend 
Options 8, Section 34(b)). Phlx further delayed the implementation 
so that it could implement SR-Phlx-2023-22 while also completing an 
OCC industry rule change prior.
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    Specifically, the Exchange proposes to: (i) amend Options 8, 
Section 34, FLEX Trading to clarify certain functionality; (ii) permit 
the listing of FLEX PM Third Friday Options; (iii) permit FLEX Options 
on certain ETFs to be settled by delivery in cash if the underlying 
security meets prescribed criteria and set forth the applicable 
position and exercise limits for these options; and (iv) require that 
position and exercise limits for FLEX Options be aggregated with non-
FLEX options in certain circumstances.
    The following proposed changes are described in more detail in the 
Notice. The Exchange proposes to amend Options 8, Section 34, related 
to FLEX Options, to provide greater detail to FLEX Options rules, 
including sections relating to characteristics, exclusions, and 
exercise price.\10\ The Exchange also proposes to amend language 
related to the settlement style of FLEX Options to align the Exchange's 
rule text with those of Cboe Exchange, Inc. (``Cboe'').\11\ The 
Exchange also proposes to allow the listing of FLEX PM Third Friday 
Options. The Exchange notes that Cboe received approval of its pilot 
program that permitted the listing of FLEX PM Third Friday Options.\12\ 
The Exchange also proposes corresponding changes to describe the index 
values of P.M.-settled and A.M.-settled FLEX Index Options.\13\ The 
Exchange also proposes to introduce FLEX Equity Options that are cash-
settled, along with corresponding changes to describe FLEX Options that 
are settled with physical delivery.\14\ Finally, the Exchange proposes 
to require that position and exercise limits for FLEX Options be 
aggregated with non-FLEX options in certain circumstances, as well as 
provide further detail to exercise limits.\15\
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    \10\ See Notice, supra note 3 at 86008.
    \11\ See id.
    \12\ See Securities Exchange Act Release No. 99222 (December 21, 
2023), 88 FR 89771 (December 28, 2023) (SR-CBOE-2023-018) (``FLEX 
Settlement Pilot Approval''). In support of making the pilot a 
permanent program, Cboe cited to its own review of pilot data during 
the course of the pilot program and a study by the Commission's 
Division of Economic and Risk Analysis (``DERA'') staff. See FLEX 
Settlement Pilot Approval, notes 18 and 35.
    \13\ See Notice, supra note 3 at 86008-86009.
    \14\ See Notice, supra note 3 at 86009-86011.
    \15\ See id. at 86009.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-Phlx-
2024-51 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \16\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\17\ the Commission is 
providing notice of the grounds for disapproval under consideration. As 
described above, the Exchange has proposed to adopt rules that will 
govern the listing and trading of FLEX Options. The Commission is 
instituting proceedings to allow for additional analysis of, and input 
from commenters with respect to, the proposed rule change's consistency 
with the Act, and in particular, Section 6(b)(5) of the Act, which 
requires, among other things, that the rules of a national securities 
exchange 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.\18\
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    \17\ Id.
    \18\ 15 U.S.C. 78f(b)(5).
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
self-regulatory organization [`SRO'] that proposed the rule change.'' 
\19\ The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\20\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\21\
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    \19\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \20\ Id.
    \21\ Id.
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    For these reasons, the Commission believes it is appropriate to 
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange 
Act \22\ to determine whether the proposal should be approved or 
disapproved.
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    \22\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is consistent with Section 6(b)(5) of the Act \23\ or any other 
provision of the Act, or the rules and regulations thereunder. Although 
there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of data, 
views, and arguments, the Commission will consider, pursuant to Rule 
19b-4 under the Act,\24\ any request for an opportunity to make an oral 
presentation.\25\
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    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 17 CFR 240.19b-4.
    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by February 21, 2025. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
March 7, 2025. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, in 
addition to any other

[[Page 8728]]

comments they may wish to submit about the proposed rule change. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2024-51 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-2024-51. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-Phlx-2024-51 and should be 
submitted on or before February 21, 2025. Rebuttal comments should be 
submitted by March 7, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01995 Filed 1-30-25; 8:45 am]
BILLING CODE 8011-01-P
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