Document ID: SEC-2022-0833-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2022-06-21T04:00Z

[Federal Register Volume 87, Number 118 (Tuesday, June 21, 2022)]
[Notices]
[Pages 36894-36897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13149]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95101; File No. SR-ISE-2022-13]

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

June 14, 2022.
    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 June 1, 2022, Nasdaq ISE, LLC (``ISE'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to permit P.M.-settled Nasdaq-100 
Index[supreg] (``NDX'') options that expire on Tuesday or Thursday 
under its Nonstandard Expirations Pilot Program.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/ise/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 Exchange proposes to amend Supplementary Material .07 of 
Options 4A, Section 12, which governs its Nonstandard Expirations Pilot 
Program (``Pilot Program''), to permit P.M.-settled Nasdaq-100 Index 
(``NDXP'') options that expire on Tuesday or Thursday. Under the 
existing Pilot Program, the Exchange is permitted to list P.M.-settled 
options on broad-based indexes that expire on: (1) any Monday, 
Wednesday, or Friday (``Weekly Expirations'') and (2) the last trading 
day of the month (``End of Month Expirations'' or ``EOMs'').\3\ Today, 
Cboe Exchange, Inc. (``Cboe'') is permitted to list P.M.-settled S & P 
500 Index options that expire on Tuesday or Thursday under its 
Nonstandard Expirations Pilot Program.\4\
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    \3\ See Supplementary Material .07 of Options 4A, Section 12.
    \4\ See Securities Exchange Act Release No. 94682 (April 12, 
2022), 87 FR 22993 (April 18, 2022) (SR-CBOE-2022-005) (Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 1, To Expand 
the Nonstandard Expirations Pilot Program To Include P.M.-Settled 
S&P 500 Index Options That Expire on Tuesday or Thursday).
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    Specifically, the proposed rule change amends Supplementary 
Material .07(a) of Options 4A, Section 12 to add NDXP options (P.M.-
settled) that expire on Tuesday or Thursday as permissible Weekly 
Expirations under the Pilot Program (currently set to expire on 
November 4, 2022). The Exchange notes that permitting NDXP options with 
Tuesday and Thursday expirations, as proposed, is in addition to the 
NDXP options with Monday, Wednesday and Friday expirations that the 
Exchange may (and does) already list, as they are permissible Weekly 
Expirations for options on a broad-based index (e.g., NDX) pursuant to 
Supplementary Material .07(a) of Options 4A, Section 12. The Pilot 
Program for Weekly Expirations will apply to NDXP options with Tuesday 
and Thursday expirations in the same manner as it currently applies to 
P.M.-settled broad-based index options with Monday, Wednesday and 
Friday expirations. That is, as proposed, Supplementary Material .07(a) 
of Options 4A, Section 12 provides that 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). In addition, the Exchange may also open for trading 
Weekly Expirations on NDX options to expire on any Tuesday or Thursday 
(other than days that coincide with the third Friday-of-the-month or an 
EOM expiration).\5\
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    \5\ In the event that the third Friday of a given month is a 
holiday and the Exchange is not open for trading, the Exchange would 
not list both an A.M.-settled NDX option as well as P.M.-settled 
NDXP.
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    Monday, Wednesday and Friday weekly expirations are subject to all 
provisions of Supplementary Material .07(a) of Options 4A, Section 12 
as would be the proposed Tuesday and Thursday expirations. 
Additionally, the Monday, Wednesday and Friday weekly expirations are 
treated the same as options on the same underlying index that expire on 
the third Friday of the expiration month as would be the proposed 
Tuesday and Thursday expirations; provided, however, that Weekly 
Expirations (including the new Tuesday and Thursday 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

[[Page 36895]]

maximum number of expirations that may be listed for each Weekly 
Expiration (i.e., a Monday expiration, Tuesday expiration, Wednesday 
expiration, Thursday expiration, or Friday expiration, as applicable) 
in a given class is the same as the maximum number of expirations 
permitted in Supplementary Material .07 of Options 4A, Section 12 for 
standard options on the same broad-based index (which is 12 for NDXP 
options).
    Weekly Expirations need not be for consecutive Monday, Tuesday, 
Wednesday, Thursday, or Friday expirations as applicable; however, the 
expiration date of a non-consecutive expiration may not be beyond what 
would be considered the last expiration date if the maximum number of 
expirations were listed consecutively. Weekly Expirations that are 
first listed in a given class may expire up to four weeks from the 
actual listing date. If the Exchange lists EOMs and Weekly Expirations 
as applicable in a given class, the Exchange will list an EOM instead 
of a Weekly Expiration that expires on the same day in the given 
class.\6\ Other expirations in the same class are not counted as part 
of the maximum number of Weekly Expirations for an applicable \7\ 
broad-based index class.
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    \6\ Given that each trading day of the week, as proposed, could 
be the last trading day of the month and the day in which a Weekly 
Expiration expires, the Exchange updates this rule text to 
streamline the language.
    \7\ The Exchange updates the rule text for additional clarity.
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    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 Tuesday, Wednesday, Thursday, or Friday, the normally 
Tuesday, Wednesday, Thursday, or Friday expiring Weekly Expirations 
will expire on the previous business day.
    The proposed rule change also adds that, if two different Weekly 
Expirations on NDX options would expire on the same day because the 
Exchange is not open for business on a certain weekday, the Exchange 
will list only one of such Weekly Expirations. The Exchange believes it 
is appropriate to clarify in the rule text that the Exchange will list 
just one Weekly Expiration in such a case, as the two Weekly 
Expirations would essentially be the same options contract. For 
example, if the Exchange listed NDXP options with proposed Thursday 
expirations and Friday expirations and the Exchange was closed for 
business on a Friday then, pursuant to current Supplementary Material 
.07(a) of Options 4A, Section 12, the normally expiring Friday 
expiration would expire on the previous business day--essentially 
making it an NDXP option with a Thursday expiration. Thus, expiring 
NDXP options in this case will always have the same weekday expiration 
(per the example, it is an NDXP option with a Thursday expiration, 
whether it was listed as an NDXP with a Thursday expiration or a Friday 
expiration). As such, for the sake of clarity in the rules and to 
mitigate any confusion regarding the listing of NDXP options when the 
Exchange is closed for business, the proposed rule change provides that 
the Exchange will list just one Weekly Expiration if two Weekly 
Expirations would expire on the same day due to the Exchange being 
closed for business. Transactions in Weekly Expirations may be effected 
on the Exchange between the hours of 9:30 a.m. (Eastern Time) and 4:15 
p.m. (Eastern Time), except that on the last trading day, transactions 
in expiring p.m.-settled broad-based index options may be effected on 
the Exchange between the hours of 9:30 a.m. (Eastern time) and 4:00 
p.m. (Eastern time).
    The Exchange believes that that the introduction of NDXP options 
with Tuesday and Thursday expirations will expand hedging tools 
available to market participants while also providing greater trading 
opportunities. By offering NDXP options with Tuesday and Thursday 
expirations along with the current Monday, Wednesday and Friday 
expirations, the proposed rule change will allow market participants to 
purchase NDXP options in a manner more aligned with specific timing 
needs and more effectively tailor their investment and hedging 
strategies and manage their portfolios.
    In particular, the proposed rule change will allow market 
participants to roll their positions on more trading days, thus with 
more precision, spread risk across more trading days and incorporate 
daily changes in the markets, which may reduce the premium cost of 
buying protection. The Exchange proposes to abide by the same reporting 
requirements for the trading of NDXP options that expire on any Tuesday 
or Thursday that it does for the trading of P.M.-settled options on 
broad-based indexes that expire on any Monday, Wednesday, or Friday 
pursuant to the Pilot Program.
Pilot Report
    The Exchange intends to submit a rule change proposing permanency 
of the Nonstandard Pilot to the Commission and would include data 
regarding NDXP options that expire on Tuesdays or Thursdays as it does 
for current Weekly Expirations on any broad-based index option either 
by providing additional data in such proposal or in an annual report 
regarding NDXP options that expire on each trading day of the week, as 
proposed. The Exchange would continue to provide the Commission with 
ongoing data regarding NDXP options that expire on Tuesdays or 
Thursdays unless and until the Nonstandard Pilot is made permanent or 
discontinued.
    As provided in the Pilot Program Approval Order,\8\ the annual 
report will contain an analysis of volume, open interest and trading 
patterns. In addition, for series that exceed certain minimum open 
interest parameters, the annual report will provide analysis of index 
price volatility and, if needed, share trading activity.\9\ 
Additionally, the Exchange will provide the Commission with any 
additional data or analyses the Commission requests because it deems 
such data or analyses necessary to determine whether the Pilot Program, 
including NDXP options with Tuesday and Thursday expirations as 
proposed, is consistent with the Exchange Act. As it does for current 
Pilot Program products, the Exchange will make public on its website 
all data and analyses in connection with NDXP options with Tuesday and 
Thursday expirations it submits to the Commission under the Pilot 
Program. Going forward, the Exchange will include the same areas of 
analysis for NDXP options with Tuesday and Thursday expirations. The 
Exchange also proposes to include the following

[[Page 36896]]

market quality data, over sample periods determined by the Exchange and 
the Commission, for NDXP options (NDXP and standard NDX options) as 
part of the annual reports going forward: (1) time-weighted relative 
quoted spreads; (2) relative effective spreads; and (3) time-weighted 
bid and offer sizes.
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    \8\ See Securities Exchange Act Release No. 82612 (February 1, 
2018), 83 FR 5470 (February 7, 2018) (approving SR-ISE-2017-111) 
(Order Approving a Proposed Rule Change To Establish a Nonstandard 
Expirations Pilot Program) (``Pilot Program Approval Order'').
    \9\ Specifically, for all Weekly Expirations and EOM series, the 
annual report will contain the following volume and open interest 
data for each broad-based index overlying Weekly Expiration and EOM 
options: (1) Monthly volume aggregated for all Weekly Expiration and 
EOM series, (2) Volume in Weekly Expiration and EOM series 
aggregated by expiration date, (3) Month-end open interest 
aggregated for all Weekly Expiration and EOM series, (4) Month-end 
open interest for EOM series aggregated by expiration date and open 
interest for Weekly Expiration series aggregated by expiration date, 
(5) Ratio of monthly aggregate volume in Weekly Expiration and EOM 
series to total monthly class volume, and (6) Ratio of month-end 
open interest in EOM series to total month-end class open interest 
and ratio of open interest in each Weekly Expiration series to total 
class open interest. In addition, the annual report will contain the 
information noted above for standard Expiration Friday, AM-settled 
series, if applicable, for the period covered in the pilot report as 
well as for the six-month period prior to the initiation of the 
pilot. See Pilot Program Approval Order at 5471 and 5472.
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    The Exchange believes there is sufficient investor interest and 
demand in NDXP options with Tuesday and Thursday expirations to warrant 
inclusion in the Pilot Program and that the Pilot Program, as amended, 
will continue to provide investors with additional means of managing 
their risk exposures and carrying out their investment objectives.\10\ 
The Exchange notes that during the Pilot Program's 4 year tenure, the 
Exchange has not observed any significant adverse market effects or 
identified any regulatory concerns as a result of the Pilot Program, 
nor does it believe that additional expirations listed under the Pilot 
Program would result in any such impact or regulatory concerns. Based 
on a study conducted by Commission staff on the pilot data (including 
quarterly, weekly, EOM and third Friday expirations for P.M.-settled 
NDX options),\11\ there is no evidence of any significant adverse 
economic impact to the futures, index, or underlying index component 
securities markets as a result of the quantity of P.M.-settled NDX 
options that settle at the close or the amount of expiring open 
interest in P.M.-settled NDX options.\12\
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    \10\ The Exchange additionally notes that it already allows NDXP 
options to expire on Tuesdays for normally Monday or Wednesday 
expiring NDXP options when the Exchange is not open for business on 
a respective Monday or Wednesday (as applicable), and already allows 
NDXP options to expire on Thursdays for normally Friday expiring 
NDXP options when the Exchange is not open for business on a 
respective Friday.
    \11\ See Securities and Exchange Commission, Division of 
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM 
Cash-Settled Index Option Pilots (February 2, 2021) (``DERA Staff PM 
Pilot Memo''), available at: https://www.sec.gov/dera/staff-papers/studies-and-reports/analysis-of-pm-cash-settled-index-option-pilots.
    \12\ See DERA Staff PM Pilot Memo at 3. For example, the largest 
settlement event that occurred during the time period of the study 
(a settlement of $100.4 billion of notional on December 29, 2017) 
had an estimated impact on the futures price of only approximately 
0.02% (a predicted impact of $0.54 relative to a closing futures 
price of $2,677).
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    With regard to the impact of this proposal on System capacity, the 
Exchange has analyzed its capacity and represents that it believes that 
the Exchange and OPRA have the necessary systems capacity to handle any 
potential additional traffic associated with trading of NDXP options 
with Tuesday and Thursday expirations. The Exchange does not believe 
that its Members will experience any capacity issues as a result of 
this proposal and represents that it will monitor the trading volume 
associated with any possible additional options series listed as a 
result of this proposal and the effect (if any) of these additional 
series on market fragmentation and on the capacity of the Exchange's 
automated systems. While this proposal may increase the number of 
strike intervals listed on ISE, the amount of additional strike 
intervals added should be insignificant.
Implementation
    Provided this rule change is approved, the Exchange proposes to 
implement this rule change on or before August 1, 2022. The Exchange 
will issue an Options Trader Alert to notify Members of the 
implementation date.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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 the proposed rule change 
is consistent with the Section 6(b)(5) \15\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitation transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \16\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange does not believe that the addition of 
NDXP options with Tuesday and Thursday expirations to the Pilot Program 
will raise any prohibitive regulatory concerns, nor adversely impact 
fair and orderly markets on expiration days. The Exchange has not 
experienced any meaningful regulatory concerns, nor adverse impact on 
fair and orderly markets, in connection with the Pilot Program that has 
permitted the listing and trading of NDXP options with Monday, 
Wednesday and Friday expirations since 2018. Particularly, and as 
described above, the Exchange does not believe increases in the number 
P.M.-settled NDX options series will have any significant adverse 
economic impact on the futures, index, or underlying index component 
securities markets. The Exchange believes that the proposed rule change 
will provide investors with greater trading and hedging opportunities 
and flexibility, allowing them to transact in NDXP options in a manner 
more aligned with specific timing needs and more effectively tailor 
their investment and hedging objectives by listing NDXP options that 
expire each trading day of the week.
    The Exchange notes also that it will include analysis in connection 
with NDXP options that expire on Tuesdays and Thursdays, in the same 
manner that it currently does for other Pilot Program products, as well 
as the additional market quality data as described above, in either a 
permanency proposal or in an annual report it submits to the 
Commission, and will provide the Commission with any additional data or 
analyses that it may request if it deems such data or analyses 
necessary to determine whether the Pilot Program, including NDXP 
options with Tuesday and Thursday expirations as proposed, is 
consistent with the Exchange Act.
    The Exchange represents that it believes that it has the necessary 
systems capacity to support any additional traffic associated with 
trading of NDXP options with Tuesday and Thursday expirations and does 
not believe that its Members will experience any capacity issues as a 
result of this proposal. The Exchange will monitor the trading volume 
associated with any possible additional options series listed and the 
effect (if any) of these additional series on market fragmentation and 
on the capacity of the Exchange's automated systems. The Exchange again 
notes that, as a result of an NDXP options strike mitigation initiative 
recently implemented by the Exchange, the number of NDXP options series 
listed on the Exchange once Tuesday and Thursday expirations become 
available will be less than the number of such series that were listed 
prior to the implementation of the strike mitigation initiative.

[[Page 36897]]

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. The Exchange does not 
believe that the proposed rule change will impose any burden on intra-
market competition that is not necessary or appropriate in furtherance 
of the purposes of the Act because NDXP options with Tuesday and 
Thursday expirations will be available to all market participants. By 
listing NDXP options that expire Tuesdays and Thursdays, the proposed 
rule change will provide all investors that participate in the NDX 
options market greater trading and hedging opportunities and 
flexibility to meet their investment and hedging needs.
    Additionally, Tuesday and Thursday expiring NDXP options will trade 
in the same manner as Weekly Expirations currently trade. The Exchange 
does not believe that the proposal to list NDXP options with Tuesday 
and Thursday expirations will impose any burden on inter-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because NDX options (including NDXP options) are 
proprietary Exchange products. Also, Cboe similarly lists Tuesday and 
Thursday options within their non-standard program.\17\ To the extent 
that the addition of NDXP options that expire on Tuesdays and Thursdays 
available for trading on the Exchange makes the Exchange a more 
attractive marketplace to market participants at other exchanges, such 
market participants are free to elect to become market participants on 
the Exchange.
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    \17\ See supra note 4.
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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 [email protected]. Please include 
File Number SR-ISE-2022-13 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-ISE-2022-13. 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-ISE-2022-13, 
and should be submitted on or before July 12, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13149 Filed 6-17-22; 8:45 am]
BILLING CODE 8011-01-P