Document ID: SEC-2023-1295-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2023-11-15T05:00Z

[Federal Register Volume 88, Number 219 (Wednesday, November 15, 2023)]
[Notices]
[Pages 78417-78422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25108]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98886; File No. SR-ISE-2023-24]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Permit the 
Listing and Trading of XND Options

November 8, 2023.
    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 October 27, 2023, 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.
---------------------------------------------------------------------------

    \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 permit the listing and trading of options 
based on 1/100 of the value of the Nasdaq-100 Index[supreg] (``Nasdaq-
100'').
    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 purpose of the proposed rule change is to amend the Exchange's 
rules to permit the listing and trading of index options on Nasdaq 100 
Micro Index Options (``XND''). The XND options contract will be the 
same in all respects as the current Nasdaq-100 Index options (``NDX'') 
\3\ contract listed on the Exchange, except that it will be based on 1/
100 of the value of the Nasdaq-100 Index, and will be P.M.-Settled with 
an exercise settlement value based on the closing index value of the 
Nasdaq-100 Index on the day of expiration.\4\ The Exchange believes 
that the proposed contract will be valuable for retail and other 
investors that wish to trade micro options on the Nasdaq-100 Index. 
Finally, today, Nasdaq Phlx

[[Page 78418]]

LLC (``Phlx'') has approval to list and trade XND options. The rules to 
list and trade NDX [sic] options on ISE are identical to those of 
Phlx.\5\
---------------------------------------------------------------------------

    \3\ See Options 4A, Section 12(a)(5).
    \4\ In addition to the current Nasdaq-100 Index value, Nasdaq 
will disseminate an Index value for XND that is 1/100 of the value 
of the Nasdaq-100 Index.
    \5\ See Securities Exchange Act Release No. 98451 (September 20, 
2023), 88 FR 66088 (September 26, 2023) (SR-Phlx-2023-07) (Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Make Permanent Certain P.M.-Settled Pilots).
---------------------------------------------------------------------------

Nasdaq-100 Index
    The Nasdaq-100 Index is a modified market capitalization-weighted 
index that includes 100 of the largest non-financial companies listed 
on The Nasdaq Stock Market LLC (``Nasdaq''),\6\ based on market 
capitalization.\7\ It does not contain securities of financial 
companies, including investment companies. Security types generally 
eligible for the Nasdaq-100 Index include common stocks, ordinary 
shares, American Depository Receipts, and tracking stocks. Security or 
company types not included in the Nasdaq-100 Index are closed-end 
funds, convertible debentures, exchange traded funds, limited liability 
companies, limited partnership interests, preferred stocks, rights, 
shares or units of beneficial interest, warrants, units and other 
derivative securities.\8\
---------------------------------------------------------------------------

    \6\ Nasdaq is an affiliate of the Exchange.
    \7\ The Nasdaq-100 Index is a broad-based index, as defined in 
Options 4A, Section 3.
    \8\ A description of the Nasdaq-100 Index is available on 
Nasdaq's website at https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf.
---------------------------------------------------------------------------

XND Options Contract
    Currently, the Exchange lists and trades NDX options that are based 
on the full value of the Nasdaq-100 Index. In an effort to attract 
additional interest in index options based on the Nasdaq-100 Index, the 
Exchange now proposes to list and trade a new micro option contract 
based on this index. XND options will trade independently of and in 
addition to NDX options, and the XND options will be subject to the 
same rules that presently govern the trading of index options based on 
the Nasdaq-100 Index, including sales practice rules, margin 
requirements, trading rules, and position and exercise limits. Similar 
to NDX, XND options will be European-style and cash-settled, and will 
have a contract multiplier of 100. The contract specifications for XND 
options will mirror in all respects those of the NDX options contract 
already listed on the Exchange, except that the Exchange proposes that 
XND options will be based on 1/100 of the value of the Nasdaq-100 
Index, and will be P.M.-settled pursuant to proposed Options 4A, 
Section 12(a)(6). The ISE XND option contracts will trade identically 
to Phlx XND options.\9\ Also, similar features are available with other 
index options contracts listed and/or approved for trading on the 
Exchange such as options on NQX (a reduced value index based on \1/5\ 
of the value of the Nasdaq-100 Index).\10\ The Exchange also proposes 
to amend Options 4A, Section 12(a)(5)(ii) to permit options on the 
Nasdaq 100 Micro Index to trade a.m.-settled.\11\
---------------------------------------------------------------------------

    \9\ See supra note 5. See also Phlx Options 4A, Section 
12(a)(6).
    \10\ See ISE Options 4A, Section 12(a)(6). NQX is P.M.-settled 
and a European-style and cash-settled, with a contract multiplier of 
100.
    \11\ The Exchage also proposes to re-letter the internal list in 
Options 4A, Section 12(a)(5)(ii) as A through E.
---------------------------------------------------------------------------

    The value of the Nasdaq-100 Index has increased significantly in 
recent years such that the value of the index stood at 14,717.90, as of 
the opening of trading on October 22,023. As a result of the increase 
in the value of the underlying Nasdaq-100 Index, the premium for NDX 
options has also increased. The Exchange believes that this has caused 
NDX options to trade at a level that may be uncomfortably high for 
certain retail and other investors. The Exchange believes that listing 
options at a micro value will attract a greater source of retail 
customer business. Further, listing options on a micro index will 
provide an opportunity for investors to trade and hedge the market risk 
associated with the Nasdaq-100 Index.
    With an exercise settlement value based on 1/100 of the Nasdaq-100 
Index, the Exchange believes that retail and other investors would be 
able to use this trading vehicle while extending a smaller outlay of 
capital. Furthermore, the proposed micro index will have a notional 
value at a level that is comparable to similar products that have been 
successful in the market, including the S&P 500 Mini SPX Options Index 
(XSP), which had an index value of (428.45) as of the opening of 
trading on October 2, 2023. Of note, Phlx XND options have traded at 
this level since 2021. The Exchange therefore believes that basing the 
proposed XND options contract on 1/100 of the value of the Nasdaq-100 
Index should attract additional investors, and, in turn, create a more 
active and liquid trading environment.
    XND options will also be P.M.-settled as the Exchange believes that 
market participants, and in particular, retail investors, who are the 
target audience for this product, prefer P.M.-settled index options. 
P.M.-settlement is preferred by retail investors as it allows market 
participants to hedge their exposure for the full week. A.M.-settled 
options by contrast are based on opening prices on the day of 
expiration and therefore stop trading on the day prior, leaving 
residual risk on the day of expiration. Feedback from Members that 
handle retail order flow has indicated that P.M.-settlement is needed 
to garner retail investor support for this product. In this regard, the 
Exchange notes that XND options on Phlx are P.M.-settled and recently 
received approval for permanency.\12\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 98451 (September 
20, 2023), 88 FR 66088 (September 26, 2023) (SR-Phlx-2023-07) (Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Make Permanent Certain P.M.-Settled Pilots).
---------------------------------------------------------------------------

    Pursuant to Supplementary Material .07 to ISE Options 4A, Section 
12, Phlx's proposal to list XND would permit XND, as a broad-based 
index and part of the Nonstandard Expirations Program, to open for 
trading Weekly Expirations on XND to expire on any Monday, Wednesday, 
or Friday (other than the third Friday-of-the-month or days that 
coincide with an EOM expiration). Additionally, the Exchange proposes 
to amend Supplementary Material .07 to ISE Options 4A, Section 12 to 
permit the listing and trading of XND options that expire on any 
Tuesday or Thursday similar to Nasdaq-100 Index options which today 
expire on each business day of the week. With this proposal, XND would 
be permitted to open for trading Weekly Expirations to expire on any 
Monday, Tuesday, Wednesday, Thursday or Friday. Today, Phlx's rules 
permit XND to expire on any Monday, Tuesday, Wednesday, Thursday or 
Friday pursuant to Options 4A, Section 12(b)(5).
    Weekly Expirations in XND would be subject to all provisions of 
this Rule and treated the same as options on the same underlying index 
that expire on the third Friday of the expiration month; provided, 
however, that Weekly 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. Further, the 
Exchange may open for trading EOMs on any broad-based index eligible 
for standard options trading to expire on last trading day of the 
month. EOMs shall be subject to all provisions of this Rule and treated 
the same as options on the same underlying index that expire on the 
third Friday of the expiration month; provided, however, that EOMs 
shall be P.M.-settled and new series in EOMs may be added up to and 
including on the expiration date for an expiring

[[Page 78419]]

EOM.\13\ Today, XND options on Phlx are part of the Nonstandard 
Program.\14\
---------------------------------------------------------------------------

    \13\ XND is a broad-based index.
    \14\ See Phlx Options 4A, Section 12(b)(5).
---------------------------------------------------------------------------

    The Exchange does not believe that the introduction of a new P.M.-
settled Nasdaq-100 Index contract will cause any market disruptions, as 
noted herein, Phlx XND options recently received approval for 
permanency.\15\ The Exchange will monitor for any disruptions caused by 
P.M.-settlement of the proposed XND options contract or the development 
of any factors that could cause such disruptions. P.M.-settled options 
predominate in the over-the-counter (``OTC'') market, and the Exchange 
is not aware of any adverse effects in the OTC market attributable to 
the P.M.-settlement feature. The Exchange is merely proposing to offer 
a P.M.-settled product in an exchange environment, which offers the 
additional benefits of added transparency, price discovery, and 
stability.
---------------------------------------------------------------------------

    \15\ See supra note 12.
---------------------------------------------------------------------------

Trading Hours, Minimum Increments, Expirations and Strike Prices
    XND options will be available for trading during the Exchange's 
standard trading hours for index options, i.e., from 9:30 a.m. to 4:15 
p.m. (Eastern time), except that 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).\16\ The trading hours for XND options 
will be the same as the trading hours for options on Nasdaq-100 Index.
---------------------------------------------------------------------------

    \16\ See Supplementary Material .07(c) to Options 4A, Section 
12.
---------------------------------------------------------------------------

    XND options will trade with a minimum trading increment of $0.01 
for all options series \17\ similar to Phlx XND options.\18\ ISE 
proposes to adopt a new Supplementary Material .04 to Options 3, 
Section 3 to state that for so long as Invesco QQQ Trust Series 1 
(``QQQ'') options participate in the Penny Interval Program, the 
minimum increments for XND options shall be the same as QQQ for all 
options series (including LEAPS), which shall be $0.01 for options for 
all other series.
---------------------------------------------------------------------------

    \17\ This is the case as long as QQQ options (``QQQ'') 
participate in the Penny Interval Program.
    \18\ See Phlx Supplementary Material .03 to Options 3, Section 
3.
---------------------------------------------------------------------------

    The Exchange proposes that XND options will have monthly expiration 
dates on the third Friday of each month (i.e., Expiration Friday), and 
the Exchange proposes to list XND options in expiration months 
consistent with those of other index option products available on the 
Exchange.\19\ In addition, the Exchange may list long term index 
options series (``LEAPS'') that expire from twelve (12) to sixty (60) 
months from the date of issuance.\20\ With the addition of XND, the 
Exchange proposes to amend the first sentence of Options 4A, Section 
12(b)(1)(i) to provide that ``Index long term options series may be 
based on either the full value, reduced value or micro index value of 
the underlying index.'' There may be up to ten (10) expiration months, 
none further out than sixty (60) months. Strike price intervals and 
continuity Rules shall not apply to such options series until the time 
to expiration is less than twelve (12) months. Bid/ask differentials 
for long-term options contracts are specified within Options 2, Section 
4(b)(4)(i)(A). Further, the Exchange proposes to add rule text at 
Options 4A, Section 12(b)(3)(ii) that provides, ``Micro index long term 
options series may expire at six-month intervals. When a new expiration 
month is listed, series may be near or bracketing the current index 
value. Additional series may be added when the value of the underlying 
index increases or decreases by ten (10) to fifteen (15) percent.'' XND 
options would also be eligible to be added to the Short Term Option 
Series Program (``Weeklies'') and/or Quarterly Options Series Program 
(``Quarterlies'') if designated by the Exchange Supplementary Material 
.01 and .02 to Options 4A, Section 12, respectively.\21\
---------------------------------------------------------------------------

    \19\ Options 4A, Section 12(a)(3) currently provides that the 
Exchange may list: (i) up to six (6) standard monthly expirations at 
any one time in a class, but will not list index options that expire 
more than twelve (12) months out; (ii) up to 12 standard monthly 
expirations at any one time for any class that the Exchange (as the 
Reporting Authority) uses to calculate a volatility index; and (iii) 
up to 12 standard (monthly) expirations in NDX options and NQX 
options.
    \20\ See Options 4A, Section 12(b)(3).
    \21\ The Exchange expects that it will add XND options to the 
Weeklies program.
---------------------------------------------------------------------------

    Further, as noted herein, the Exchange proposes to permit XND 
options to be listed and traded in accordance with the Nonstandard 
Expirations Program, which permits broad-based indexes to list 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 End of 
Month (``EOM'') expiration), and permit XND options to separately 
expire on Tuesdays and Thursdays, similar to options on the Nasdaq-100 
Index. Weekly Expirations would be subject to all provisions of Options 
4A, Section 12 and would be treated the same as options on the same 
underlying index that expire on the third Friday of the expiration 
month. New series in Weekly Expirations could be added up to and 
including on the expiration date for an expiring Weekly Expiration. The 
maximum number of expirations that could be listed for each Weekly 
Expiration (i.e., a Monday expiration, Wednesday expiration, or Friday 
expiration, as applicable) in a given class would be the same as the 
maximum number of expirations permitted for standard options on the 
same broad-based index.\22\ Further, the Exchange could open for 
trading EOMs on any broad-based index eligible for standard options 
trading to expire on last trading day of the month. EOMs would be 
subject to all provisions of Options 4A, Section 12 and treated the 
same as options on the same underlying index that expire on the third 
Friday of the expiration month. However, the EOMs would be P.M.-settled 
and new series in EOMs could be added up to and including on the 
expiration date for an expiring EOM.\23\ Today, Phlx XND options trade 
in the Nonstandards Program.\24\
---------------------------------------------------------------------------

    \22\ Weekly Expirations would not need to be for consecutive 
Monday, Wednesday, or Friday expirations as applicable. However, the 
expiration date of a non-consecutive expiration would not be 
permitted 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 could 
expire up to four weeks from the actual listing date. If the last 
trading day of a month were a Monday, Wednesday, or Friday and the 
Exchange were to list EOMs and Weekly Expirations as applicable in a 
given class, the Exchange would list an EOM instead of a Weekly 
Expiration in the given class. Other expirations in the same class 
would not be counted as part of the maximum number of Weekly 
Expirations for a broad-based index class. If the Exchange were not 
open for business on a respective Monday, the normally Monday 
expiring Weekly Expirations would expire on the following business 
day. If the Exchange were not open for business on a respective 
Wednesday or Friday, the normally Wednesday or Friday expiring 
Weekly Expirations would expire on the previous business day. See 
Supplementary Material .07(a) to Options 4A, Section 12.
    \23\ The maximum number of expirations that could be listed for 
EOMs in a given class would be the same as the maximum number of 
expirations permitted for standard options on the same broad-based 
index. EOM expirations would not need to be for consecutive end of 
month expirations. 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. EOMs that are first listed in a given class could 
expire up to four weeks from the actual listing date. Other 
expirations would not be counted as part of the maximum numbers of 
EOM expirations for a broad-based index class. See Supplementary 
Material .07(a) to Options 4A, Section 12.
    \24\ See Phlx Options 4A, Section 12(b)(5).
---------------------------------------------------------------------------

    Generally, pursuant to Options 4A, Section 12(c)(1), except as 
provided in

[[Page 78420]]

Options 4A, Section 12(c)(5),\25\ the exercise (strike) price intervals 
will be no less than $5, provided that the Exchange may determine to 
list strike prices at no less than $2.50 intervals for options on the 
following indexes (which may also be known as sector indexes). The 
Exchange proposes to amend Options 4A, Section 12(c)(1) to add XND 
options to the list of classes where strike price intervals of no less 
than $2.50 are generally permitted and note, ``if the strike price is 
less than $200.'' The Exchange proposes to adopt the same strike price 
intervals for XND options as are listed for XND options on Phlx \26\ 
and currently approved for Reduced Value Nasdaq 100 Options within 
Options 4A, Section 12(c)(5). Thus, notwithstanding Options 4A, Section 
12(c)(1), the interval between strike prices of series of XND options 
will be $1 or greater, subject to the conditions described in Options 
4A, Section 12(c)(5).\27\ The Exchange will not list LEAPS on XND 
options at intervals less than $5. If the Exchange determines to add 
XND options to the Weeklies or Quarterlies programs such options will 
be listed with expirations and strike prices described in Options 4A, 
Section 12(c)(5).
---------------------------------------------------------------------------

    \25\ Proposed Options 4A, Section 12(c)(1) provides that the 
interval between strike prices of series of Mini-Nasdaq-100 Index 
(``MNX'' or ``Mini-NDX''), Nasdaq 100 Reduced Value Index (``NQX'') 
or Nasdaq 100 Micro Index Options (``XND'') options will be $1 or 
greater, subject to certain conditions.
    \26\ See Phlx Options 4A, Section 12(a)(2).
    \27\ See also Phlx Supplementary Material .02 to Options 4A, 
Section 12 describing XND options.
---------------------------------------------------------------------------

Position and Exercise Limits; Margin
    As with NDX, in determining compliance with Options 4A, Section 6, 
Position Limits, there will be no position limits for broad-based index 
option contracts in the XND class.\28\ Although there will be no 
position limits for XND options, the Exchange proposes to amend Options 
4A, Section 6 to include XND. Options 4A, Section 6(c) provides,
---------------------------------------------------------------------------

    \28\ The Exchange is amending Options 4A, Section 6(a) to 
reflect this proposed change.

Positions in reduced-value index options shall be aggregated with 
positions in full-value indices. For such purposes, reduced-value 
contracts will be counted consistent with their value (e.g., 5 NQX 
---------------------------------------------------------------------------
reduced-value contracts equal 1 NDX full-value contract).

Since the Exchange is proposing to list a micro index contract that is 
based on 1/100 of the value of the Nasdaq-100 Index, Options 4A, 
Section 6(c) would apply. In addition, as with NDX, there would be no 
exercise limits for XND.\29\ The same rules for position and exercise 
limits to XND options on Phlx.\30\ Finally, the Exchange proposes to 
apply broad-based index margin requirements for the purchase and sale 
of XND options that are the same as margin requirements currently in 
place for NDX options.
---------------------------------------------------------------------------

    \29\ See Options 4A, Section 10 which provides that exercise 
limits for index options contracts shall be equivalent to the 
position limits described in Options 4A, Section 6.
    \30\ See Phlx Options 4A, Section 6, Phlx Options 4A, Section 
10.
---------------------------------------------------------------------------

Surveillance and Capacity
    The Exchange represents that it has sufficient capacity to handle 
additional quotations and message traffic associated with the proposed 
listing and trading of XND options. Further, the Exchange has analyzed 
its capacity and represents that it believes the Exchange and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any additional traffic associated with the listing 
of the maximum number nonstandard expirations permitted pursuant to 
Supplementary Material .07 to Options 4A, Section 12.
    Index options are integrated into the Exchange's existing 
surveillance system architecture and are thus subject to the relevant 
surveillance processes. The Exchange represents that it has adequate 
surveillance procedures to monitor trading in XND options thereby 
aiding in the maintenance of a fair and orderly market.
    The Exchange notes that it is amending Options 4A, Section 12 to 
include the Nasdaq 100 Micro Index Options within the Rule to conform 
to the amendments proposes herein.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\31\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\32\ 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 
that the listing and trading of a micro index P.M.-settled index option 
contract based on the Nasdaq-100 Index will attract order flow to the 
Exchange, increase the variety of listed options, and provide a 
valuable hedge tool to retail and other investors.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5) and compete with similar products that 
are offered on Cboe such as SPXW and OEX.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change will further 
the Exchange's goal of introducing new and innovative products to the 
marketplace. Specifically, the Exchange believes that XND options would 
provide additional opportunities for market participants to trade and 
hedge exposure to the Nasdaq-100 Index as it does today on Phlx. The 
proposed XND options product is identical to XND options on Phlx.\33\ 
Additionally, the proposed XND options product is similar to NDX 
options that are currently listed and traded on the Exchange with two 
important differences: (1) XND options will be based on 1/100 the value 
of the Nasdaq-100 Index, and (2) XND options will be P.M.-settled. 
These differences are based on the Exchanges experience listing NDX 
options, and are designed to attract additional participation from 
retail and other investors.
---------------------------------------------------------------------------

    \33\ See Phlx Options 4A, Section 12.
---------------------------------------------------------------------------

    Based on the trading of XND options on Phlx, the Exchange believes 
that the proposed contract specifications will be attractive to market 
participants, and will remove impediments to and perfect the mechanism 
of a free and open market and a national market system. The nonstandard 
expirations would expand the ability of investors to hedge risks 
against market movements stemming from economic releases or market 
events that occur during the month and at the end of the month. 
Accordingly, the Exchange believes that weekly expirations and EOMs 
should create greater trading and hedging opportunities and 
flexibility, and provide customers with the ability to tailor their 
investment objectives more closely.
    Currently, the Exchange believes that there continues to be unmet 
market demand for exchange-listed index options on the Nasdaq-100 
Index. This unmet demand stems in part from the high value of the 
Nasdaq-100 Index and the consequently higher cost of purchasing NDX 
options. The high value of the Nasdaq-100 Index has made it more 
difficult for retail and other investors to comfortably purchase 
options on the index. The Exchange believes that a micro index option 
would allow additional participation from these investors. 
Specifically, the Exchange believes that basing the contract on a micro 
value of the Nasdaq-100 Index will encourage additional participation 
by retail and other investors due to the reduced capital outlay needed 
to trade these options. While the NQX product has attracted retail 
trading volume to a certain point given that the NQX product represents

[[Page 78421]]

\1/5\ the value of the Nasdaq-100 Index, the Exchange believes that XND 
options, which represent \1/100\ of the Nasdaq-100 Index, may strike a 
more appropriate balance for other retail investors with its reduced 
size. This value is more similar to other competitive index option 
products, such as Cboe's Mini-S&P 500 Index (``XSP'').
    Furthermore, based on experience with XND options on Phlx, the 
Exchange believes that providing P.M.-settlement will make this product 
more attractive to market participants and help garner additional 
support for this new index options product. Specifically, the Exchange 
believes that P.M.-settlement will be attractive to retail and other 
investors that want to use these options to hedge an entire week of 
risk without leaving residual risk on the day of expiration, and 
without having to actively manage these positions, for example, by 
rolling their hedge into the next expiration. Finally, the Exchange 
proposes to offer such a product so that it can compete effectively 
with similar index option products offered by options markets such as 
Cboe which offers SPXW and OEX. Recently, the Commission approved the 
permanency of XND as a P.M.-settled product.\34\ Additionally, the 
Exchange notes that Nasdaq has an automated closing cross that 
facilitates orderly closings by aggregating a large pool of liquidity, 
across a variety of order types, in a single venue. The Exchange 
believes that Nasdaq's closing procedures are well-equipped to mitigate 
imbalance pressure at the close. Also, the Exchange believes that the 
proposal will provide additional trading and hedging opportunities for 
investors.
---------------------------------------------------------------------------

    \34\ See supra note 12.
---------------------------------------------------------------------------

    XND options will be subject to the same rules that presently govern 
the trading of index options based on the Nasdaq-100 Index, including 
sales practice rules, margin requirements, trading rules, and position 
and exercise limits. The Exchange therefore believes that the rules 
applicable to trading in XND options are consistent with the protection 
of investors and the public interest. Furthermore, the Exchange 
represents that it has sufficient systems capacity and adequate 
surveillance procedures to handle trading in XND options.
    With respect to the Exchange's proposal to adopt new Supplementary 
Material .04 to Options 3, Section 3 to provide that minimum increments 
for bids and offers for XND options be the same as those for QQQ, 
regardless of the value at which the option series is quoted, may 
promote competition and benefit investors. This proposal aligns the 
minimum increments for XND options with those for QQQ options in order 
to allow market participants to quote in minimum increments of $0.01 is 
consistent with the Act because allowing participants to quote in 
smaller increments may provide the opportunity for reduced spreads, 
thereby lowering costs to investors. In addition, because both XND and 
QQQ are based on the Nasdaq-100 Index it would be reasonable for the 
minimum increments of bids and offers to be the same for both types of 
options.

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. XND options would be 
available for trading to all market participants. The proposed rule 
change will facilitate the listing and trading of a new option product 
that will enhance competition among market participants, to the benefit 
of investors and the marketplace. The listing of XND will enhance 
competition by providing investors with an additional investment 
vehicle, in a fully-electronic trading environment, through which 
investors can gain and hedge exposure to the Nasdaq-100 Index. 
Furthermore, this product could offer a competitive alternative to 
other existing investment products that seek to allow investors to gain 
broad market exposure. Finally, it is possible for other exchanges to 
develop or license the use of a new or different index to compete with 
the Nasdaq-100 Index and seek Commission approval to list and trade 
options on such an index.

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

    The Exchange has filed the proposed rule change pursuant to section 
19(b)(3)(A)(iii) of the Act \35\ and Rule 19b-4(f)(6) thereunder.\36\ 
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 \37\ and subparagraph (f)(6) of 
Rule 19b-4 thereunder.\38\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \36\ 17 CFR 240.19b-4(f)(6).
    \37\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \38\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \39\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that it may immediately list and trade XND options on the Exchange, 
which are currently listed on Phlx. Further, according to the Exchange, 
the rules to list and trade XND options on ISE are identical to those 
of Phlx.\41\ The Exchange has stated that waiver of the operative delay 
would deepen the liquidity pool for XND options and allow ISE to 
compete with similar products that are offered on other exchanges. The 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\42\
---------------------------------------------------------------------------

    \39\ 17 CFR 240.19b-4(f)(6).
    \40\ 17 CFR 240.19b-4(f)(6)(iii).
    \41\ See Phlx Options 4A, Section 12.
    \42\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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.

[[Page 78422]]

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-ISE-2023-24 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-2023-24. 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-ISE-2023-24 and should be 
submitted on or before December 6, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25108 Filed 11-14-23; 8:45 am]
BILLING CODE 8011-01-P