Document ID: SEC-2017-1999-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2017-12-05T05:00Z

[Federal Register Volume 82, Number 232 (Tuesday, December 5, 2017)]
[Notices]
[Pages 57518-57520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26124]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82170; File No. SR-PHLX-2017-96]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section 
(a)(i)(D) of Rule 1012, Series of Options Open for Trading

November 29, 2017.
    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 November 17, 2017, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend Section (a)(i)(D) of Rule 1012, 
Series of Options Open for Trading, to delete two sentences regarding 
opening for trading of long term option series, which sentences have 
effectively been superseded by another rule.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/, 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
    Section (a)(i)(D) of Rule 1012 currently provides that the Exchange 
may list, with respect to any class of stock or Exchange-Traded Fund 
Share options series, options having from twelve up to thirty-nine 
months from the time they are listed until expiration. There may be up 
to six expiration 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 nine months.
    Section (a)(i)(D) also provides in its last two sentences that such 
option series will open for trading either when there is buying or 
selling interest, or 40 minutes prior to the close, whichever occurs 
first, and that no quotations need to be posted for such option series 
until they are opened for trading. The Exchange proposes to delete the 
outdated provision of Section (a)(i)(D) regarding the time of opening 
as inconsistent with, and unnecessary in view of, Rule 1017, Openings 
in Options, which governs in detail all openings on the Exchange, 
including openings in long term option series.\3\ The Exchange proposes 
to delete the Section (a)(i)(D) provision that no quotations need to be 
posted for such option series until they are opened for trading as 
superfluous, given that no quotations need to be posted for any series 
of options traded on the Exchange until they are opened for trading.\4\
---------------------------------------------------------------------------

    \3\ The Exchange recently amended Rule 1017, Openings in 
Options, which clarified the manner in which the opening process 
occurs on Phlx. See Securities Exchange Act Release No. 80820 (May 
31, 2017), 82 FR 26171 (June 6, 2017) (SR-Phlx-2017-40).
    \4\ The Exchange interprets ``posted'' in Section (a)(i)(D) as 
meaning published on the Options Price Reporting Authority 
(``OPRA''). Rule 1017(d)(iii) provides that ``[t]he Specialist 
assigned in a particular equity or index option must enter a Valid 
Width Quote, in 90% of their assigned series, not later than one 
minute following the dissemination of a quote or trade by the market 
for the underlying security or, in the case of index options, 
following the receipt of the opening price in the underlying 
index.'' The quote resulting from the Specialist's obligation under 
Rule 1017(d)(iii) is considered in the opening process of Rule 1017, 
and the Exchange publishes a quote in the option series once the 
option has been opened pursuant to that rule.
---------------------------------------------------------------------------

    Rule 1017 does provide in great detail for a fully automated 
opening of trading when there is buying or selling interest in all 
options series, including long term option series. Generally speaking, 
the fully automated opening process begins when either (1) a ``valid 
width'' specialist quote is submitted, (2) valid width quotes are 
received from at least two Exchange market makers within two minutes of 
the opening trade or quote in the underlying security or (3) after two 
minutes of the opening trade or quote in the underlying, valid width 
quotes are received from one Exchange market maker. If an opening 
imbalance exists outside of an acceptable range, the system will 
initiate an imbalance process. During this process the Exchange will 
consider interest on the Exchange as well as interest on away 
exchanges. If there is not an opening imbalance outside of an 
acceptable range on the Exchange, the system will verify that a 
``quality opening market'' exists in order to validate the opening 
price prior to executing interest on the opening. A quality opening 
market is a bid/ask spread with an acceptable differential as defined 
by the Exchange. The bid/ask spread is made up of the best available 
bid, on the Exchange as well as away markets, and the best available 
offer, on the Exchange as well as away market. The acceptable bid/ask 
spread differentials can be found on the Exchange's Web site.
    Rule 1017 does not provide for the opening of long term option 
series 40 minutes prior to the close. The Exchange proposes to remove 
this inconsistent anachronism, still found in Rule 1012(A)(i)(D), as 
the Exchange no longer believes that long term options warrant special 
opening treatment but should open like other options under Rule 1017, 
pursuant to a fully automated process in which options open once 
certain precise conditions have been met. Although removing the 
provision that long term option series must open forty minutes prior to 
the close of trading even if there is no buying or selling interest, 
the Exchange believes it will be rare for a long term option series not 
to have buying or selling interest in any event, due to Exchange 
members' quoting obligations.

[[Page 57519]]

    A number of exchanges' long term options series rules contain the 
same provisions contained in the last two sentences of Rule 
1012(A)(i)(D). These provisions appear to have been put in place due to 
the fact that long-term series are usually very inactively traded.\5\ 
Although long term options series continue to be inactively traded, the 
Exchange no longer believes it is necessary to accommodate long term 
options openings in this manner, and prefers to have the procedures 
specified in Rule 1017 apply uniformly across options classes for the 
sake of efficient operation of the Exchange and the minimization of 
investor confusion. The Exchange believes it is counterintuitive to 
impose such requirements with respect to long-term series when the 
requirements do not apply for other series that may be opened pursuant 
to Rule 1017. Further, the Exchange has no systemic means to force an 
option to open forty minutes prior to the close.
---------------------------------------------------------------------------

    \5\ See, e.g., Securities Exchange Act Release No. 30010 
(November 27, 1991), 56 FR 63747 (December 5, 1991) (SR-NYSE-91-33) 
(Filing and Order Granting Accelerated Approval of Proposed Rule 
Change by the New York Stock Exchange, Inc., Relating to the Listing 
of Long-Term Equity Options), in which the Commission found that the 
New York Stock Exchange's proposal to open the long-term series for 
trading either when there is buying or selling interest or 40 
minutes prior to the close (whichever occurs first) was consistent 
with the approach taken by the other options exchanges and was 
consistent with the Act because long-term series are usually very 
inactively traded. See also Chicago Board Options Exchange Rule 
5.8(b) and NYSE Arca Rule 6.3(e)(i), which contain the same 
provisions the Exchange proposes to delete.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ 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, 
by eliminating an outdated provision regarding opening of long term 
option series, thereby eliminating an internal inconsistency in the 
Exchange's rulebook. The language the Exchange is proposing to remove 
is inconsistent with Rule 1017. Permitting opening of long term options 
series in the same manner as all other options, under the fully 
automated process set forth in Rule 1017 will result in operational 
efficiencies for the Exchange and will minimize potential investor 
confusion regarding the Exchange's opening procedures.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The opening process for long 
term option series will continue to operate in the same manner as 
today, pursuant to Rule 1017. The proposal does not change the intense 
competition that exists among the options markets for options business 
including on the opening. Nor does the Exchange believe that the 
proposal will impose any burden on intra-market competition; the 
opening process involves many types of participants and interest. The 
proposal merely removes an outdated rule provision that is inconsistent 
with Rule 1017.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \8\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-PHLX-2017-96 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-2017-96. 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 Web site (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 Web site 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-2017-96, and should be 
submitted on or before December 26, 2017.

[[Page 57520]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26124 Filed 12-4-17; 8:45 am]
BILLING CODE 8011-01-P