Document ID: SEC-2023-1310-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2023-11-17T05:00Z

[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80348-80349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25378]

[[Page 80348]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98905; File No. SR-ISE-2023-11]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a 
Proposed Rule Change To Amend the Short Term Option Series Program To 
Permit the Listing of Two Wednesday Expirations for Options on Certain 
Exchange Traded Products

November 13, 2023.

I. Introduction

    On May 31, 2023, Nasdaq ISE, LLC (``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 amend the 
Exchange's short term option series program (``Short Term Option Series 
Program'') in Supplementary Material .03 of Options 4, Section 5 
(Series of Options Contracts Open for Trading). The proposed rule 
change was published for comment in the Federal Register on June 20, 
2023.\3\ On August 2, 2023, the Commission designated a longer period 
within which to act on the proposed rule change.\4\ On September 15, 
2023, the Commission instituted proceedings to determine whether to 
approve or disapprove the proposed rule change.\5\
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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. 97719 (June 13, 
2023), 88 FR 39876 (``Notice'').
    \4\ See Securities Exchange Act Release No. 98040, 88 FR 53569 
(August 8, 2023) (designating September 18, 2023, as the date by 
which the Commission shall either approve, disapprove, or institute 
proceedings to determine whether the proposed rule change should be 
disapproved).
    \5\ See Securities Exchange Act Release No. 98409, 88 FR 65208 
(September 21, 2023). Comments on the proposed rule change are 
available at: https://www.sec.gov/comments/sr-ise-2023-11/srise202311.htm.
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    This order approves the proposed rule change.

II. Description of the Proposal 6
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    \6\ For a full description of the proposal, refer to the Notice, 
supra note 3.
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    Currently, the Exchange may open for trading series of options on 
certain symbols that expire at the close of business on each of the 
next two Mondays, Tuesdays, Wednesdays, and Thursdays, respectively, 
that are business days and are not business days in which monthly 
options series or Quarterly Options Series expire (``Short Term Option 
Daily Expirations'').\7\ The Exchange proposes to expand the Short Term 
Option Series Program \8\ to permit the listing of two Wednesday 
expirations for options on the United States Oil Fund, LP, United 
States Natural Gas Fund, LP, SPDR Gold Shares, iShares Silver Trust, 
and iShares 20+ Year Treasury Bond ETF (collectively, ``Wednesday ETP 
Expirations'').\9\
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    \7\ See Supplementary Material .03 to Options 4, Section 5. 
Currently, the Exchange may list no more than a total of two Monday 
and Wednesday expirations on the iShares Russell 2000 ETF (``IWM'') 
and no more than a total of two Monday, Tuesday, Wednesday, and 
Thursday expirations on the SPDR S&P 500 ETF Trust (``SPY'') and the 
Invesco QQQ Trust (``QQQ''). See Table 1, Supplementary Material .03 
to Options 4, Section 5.
    \8\ Options 1, Section 1(a)(49) provides that a Short Term 
Option Series means a series in an option class that is approved for 
listing and trading on the Exchange in which the series is opened 
for trading on any Monday, Tuesday, Wednesday, Thursday or Friday 
that is a business day and that expires on the Monday, Tuesday, 
Wednesday, Thursday, or Friday of the following business week that 
is a business day, or, in the case of a series that is listed on a 
Friday and expires on a Monday, is listed one business week and one 
business day prior to that expiration. If a Tuesday, Wednesday, 
Thursday or Friday is not a business day, the series may be opened 
(or shall expire) on the first business day immediately prior to 
that Tuesday, Wednesday, Thursday or Friday. For a series listed 
pursuant to this section for Monday expiration, if a Monday is not a 
business day, the series shall expire on the first business day 
immediately following that Monday.
    \9\ The United States Oil Fund, LP, United States Natural Gas 
Fund, LP, SPDR Gold Shares, iShares Silver Trust, and iShares 20+ 
Year Treasury Bond ETF are referred to collectively as the ``ETPs.''
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    According to the Exchange, the Wednesday ETP Expirations would be 
similar to the existing Short Term Option Daily Expirations in that the 
Exchange may open for trading on any Tuesday or Wednesday that is a 
business day (beyond the current week) \10\ series of options on the 
ETPs that expire on any Wednesday of the month that is a business day 
and is not a Wednesday in which Quarterly Options Series expire.\11\ 
And like Short Term Option Daily Expirations, in the event that 
Wednesday ETP Expirations would expire on a Wednesday, and that 
Wednesday is the same day that a Quarterly Options Series expires, the 
Exchange would skip that week's listing and instead list the following 
week; the two weeks would therefore not be consecutive. Options on each 
of the ETPs with Friday expirations would continue to have a total of 
five Short Term Option Expiration Dates, provided those Friday 
expirations are not Fridays in which monthly options series or 
Quarterly Options Series expire. The interval between strike prices for 
the proposed Wednesday ETP Expirations would be the same as those for 
the current Short Term Option Series for Friday expirations applicable 
to the Short Term Option Series Program.\12\ As is the case with other 
equity options series listed pursuant to the Short Term Option Series 
Program, the Wednesday ETP Expirations series would be P.M.-settled.
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    \10\ The Exchange proposes to clarify the rule text in 
Supplementary Material .03 to Options 4, Section 5 to specify that 
it can list two Short Term Option Expiration Dates beyond the 
current week for each Monday, Tuesday, Wednesday, and Thursday 
expiration. Consistent with the current operation of the rule, the 
Exchange states that if it adds a Wednesday expiration (``Wednesday 
Expiration'') on a Tuesday, there would be three outstanding 
Wednesday Expirations at one time. See Notice, supra note 3, 88 FR 
at 39877, n.4.
    \11\ See id. at 39877.
    \12\ The Wednesday ETP Expirations would have a strike interval 
of $0.50 or greater for strike prices below $100, $1 or greater for 
strike prices between $100 and $150, and $2.50 or greater for strike 
prices above $150.
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    In support of its proposal, the Exchange represents that it has an 
adequate surveillance program in place to detect manipulative trading 
in the proposed option expirations, in the same way that it monitors 
trading in the current Short Term Option Daily Expirations.\13\ The 
Exchange also represents that it has the necessary system capacity to 
support and properly monitor trading in the proposed new 
expirations.\14\ Additionally, the Exchange states that it does not 
believe that any market disruptions will be encountered with the 
introduction of these proposed option expirations.\15\ The Exchange 
currently trades Short Term Option Daily Expirations on SPY, QQQ, and 
IWM, including Wednesday Expirations, and states that it has not 
experienced any market disruptions nor issues with capacity.\16\ 
Further, the Exchange provides data comparing the ETPs to SPY, QQQ, and 
IWM, which have Wednesday Expirations today.\17\ According to the 
Exchange, the occurrence of the ETPs moving through at least one strike 
price after the close of trading has been less frequent than for SPY, 
QQQ, and IWM. In addition, the average annualized closing volatility in 
the last thirty minutes of trading for the ETPs has historically been 
lower than that of SPY, QQQ, and IWM.\18\ Finally, the Exchange states 
that the ETPs trade within ``complexes'' where, in addition to the 
underlying security, there are multiple highly-correlated instruments 
available for hedging.\19\ Therefore, the Exchange believes the

[[Page 80349]]

proposal would not be a strain on liquidity providers.\20\
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    \13\ See id. at 39884.
    \14\ See id.
    \15\ See id.
    \16\ See id. at 39878.
    \17\ See id. at 39882-83.
    \18\ See id. at 39883.
    \19\ See id. at 39884.
    \20\ See id.
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III. Discussion and Commission Findings

    The Commission received one supportive comment on the proposed rule 
change from a market maker. The commenter states that there is a great 
amount of liquidity in the Short Term Option Daily Expirations, and 
they do not cause market disruption and may be used to hedge more 
narrowly defined risks.\21\ The commenter expects that the proposed 
Wednesday ETP Expirations to exhibit the same characteristics and 
provide the same benefits.\22\
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    \21\ See letter from Richard J. McDonald, Susquehanna 
International Group, LLP (October 20, 2023).
    \22\ See id.
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    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b) of the Act.\23\ The Commission 
finds that the proposed rule change is consistent with Section 6(b)(5) 
of the Act,\24\ which requires, among other things, that a national 
securities exchange have rules 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 facilitating 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.
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    \23\ 15 U.S.C. 78f(b). 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).
    \24\ 15 U.S.C. 78f(b)(5).
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    As noted above, the Exchange currently has Wednesday Expirations 
for SPY, QQQ, and IWM. The Exchange proposes to limit the listing of 
additional Wednesday Expirations to the five ETPs, which generally have 
similar or lower volatility in terms of post-closing and end of day 
volatility as SPY, QQQ, and IWM. And, like SPY, QQQ, and IWM, the ETPs 
have multiple highly-correlated instruments available for hedging. In 
addition, the Wednesday ETP Expirations will be subject to the same 
rules for Wednesday Expirations in SPY, QQQ, and IWM. Further, as noted 
above, the commenter expects that the proposed Wednesday ETP 
Expirations to exhibit the same characteristics and provide the same 
benefits as existing Short Term Option Daily Expirations in SPY, QQQ, 
and IWM.\25\ The Exchange's proposal is reasonably designed as a 
limited expansion of Wednesday Expirations and may provide the 
investing public and other market participants more flexibility to 
closely tailor their investment and hedging decisions using options on 
these ETPs, thus allowing them to better manage their risk exposure. 
Further, the Exchange has represented that it has an adequate 
surveillance program in place to detect manipulative trading in the 
Wednesday ETP Expirations and has the necessary systems capacity to 
support the new options series.\26\ The proposal, which would overall 
add a small number of Wednesday ETP Expirations by limiting the 
additional Wednesday Expirations to five ETPs and to two weeks beyond 
the current week, reasonably balances the Exchange's desire to offer a 
wider array of investment opportunitieswith the need to avoid 
unnecessary proliferation of options series.
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    \25\ See supra note 22 and accompanying text.
    \26\ See supra notes 13 and 14, and accompanying text.
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    Therefore, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \27\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \27\ 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,\28\ that the proposed rule change (SR-ISE-2023-11), be, and hereby 
is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25378 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P