Document ID: SEC-2022-0816-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2022-06-16T04:00Z

[Federal Register Volume 87, Number 116 (Thursday, June 16, 2022)]
[Notices]
[Pages 36353-36355]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12940]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95085; File No. SR-ISE-2022-10]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend ISE 
Options 4, Section 5, Series of Options Contracts Open for Trading

June 10, 2022.

I. Introduction

    On April 11, 2022, Nasdaq ISE, LLC (``ISE'' or ``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 Supplementary Material .07 to Options 4, Section 5 to limit the 
strike price intervals for certain Short Term Options Series with an 
expiration date more than twenty-one days from the listing date. The 
proposed rule change was published for comment in the Federal Register 
on April 27, 2022.\3\ On June 1, 2022, the Exchange filed Amendment No. 
1, which replaced and superseded the proposed rule change in its 
entirety.\4\ This order approves the proposed rule change, as modified 
by Amendment No. 1.
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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. 94773 (April 11, 
2022), 87 FR 25065 (``Notice''). The Commission received comment 
letters that are not germane to the proposed rule change and are 
available on the Commission's website at: https://www.sec.gov/comments/sr-ise-2022-10/srise202210.htm.
    \4\ In Amendment No. 1, the Exchange revised the three examples 
provided in the proposal for greater clarity. Because the changes in 
Amendment No. 1 do not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues, 
Amendment No. 1 is not subject to notice and comment. Amendment No. 
1 is available on the Commission's website at: https://www.sec.gov/comments/sr-ise-2022-10/srise202210.htm.
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II. Description of Proposed Rule Change, as Modified by Amendment No. 1

Background

    Pursuant to Supplementary Material .03 to Options 4, Section 5, the 
Exchange may open for trading certain option series that expire at the 
close of business on each of the next five Fridays that are business 
days and are not Fridays in which monthly options series or quarterly 
option series expire (``Short Term Option Series Program''). 
Supplementary Material .03(e) \5\ specifies the strike intervals for 
the Short Term Option Series Program.
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    \5\ Supplementary Material .03(e) of Options 4, Section 5 
states, ``Strike Interval. During the month prior to expiration of 
an option class that is selected for the Short Term Option Series 
Program pursuant to this Rule (``Short Term Option''), the strike 
price intervals for the related non-Short Term Option (``Related 
non-Short Term Option'') shall be the same as the strike price 
intervals for the Short Term Option. The Exchange may open for 
trading Short Term Option Series on the Short Term Option Opening 
Date that expire on the Short Term Option Expiration Date at strike 
price intervals of (i) $0.50 or greater where the strike price is 
less than $100, and $1 or greater where the strike price is between 
$100 and $150 for all option classes that participate in the Short 
Term Options Series Program; (ii) $0.50 for option classes that 
trade in one dollar increments and are in the Short Term Option 
Series Program; or (iii) $2.50 or greater where the strike price is 
above $150.''
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    To reduce the density of strike intervals that would be listed in 
later weeks, ISE amended Options 4, Section 5 to limit the intervals 
between strikes

[[Page 36354]]

in equity options listed as part of the Short Term Option Series 
Program, excluding Exchange-Traded Fund Shares and ETNs, that have an 
expiration date more than twenty-one days from the listing date 
(``Outer STOs'').\6\ The Strike Interval Proposal adopted Supplementary 
Material .07 to Options 4, Section 5, which specifies the applicable 
strike intervals for Outer STOs, and Supplementary Material .03(f), 
which provides that the strike intervals for Outer STOs shall be based 
on the table within Supplementary Material .07.\7\ Currently, the table 
within Supplementary Material .07 to Options 4, Section 5 provides: \8\
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    \6\ See Securities Exchange Act Release No. 91930 (May 18, 
2021), 86 FR 27907 (May 24, 2021) (SR-ISE-2021-09) (``Strike 
Interval Proposal'').
    \7\ See supra note 6. See also Supplementary Material .03(f) of 
Options 4, Section 5 and Supplementary Material .07 to Options 4, 
Section 5.
    \8\ The Share Price would be the closing price on the primary 
market on the last day of the calendar quarter and the Average Daily 
Volume would be the total number of options contracts traded in a 
given security for the applicable calendar quarter divided by the 
number of trading days in the applicable calendar quarter The 
Average Daily Volume would be the total number of options contracts 
traded in a given security for the applicable calendar quarter 
divided by the number of trading days in the applicable calendar 
quarter. Beginning on the second trading day in the first month of 
each calendar quarter, the Average Daily Volume shall be calculated 
by utilizing data from the prior calendar quarter based on Customer-
cleared volume at The Options Clearing Corporation. For options 
listed on the first trading day of a given calendar quarter, the 
Average Daily Volume shall be calculated using the quarter prior to 
the last trading calendar quarter. See Supplementary Material .07 to 
Options 4, Section 5.

                                                                       Share Price
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                                                                                            $25 to less     $75 to less    $150 to less       $500 or
                   Tier                         Average daily volume       Less than $25     than $75        than $150       than $500        greater
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1.........................................  Greater than 5,000..........           $0.50           $1.00           $1.00           $5.00           $5.00
2.........................................  Greater than 1,000 to 5,000.            1.00            1.00            1.00            5.00           10.00
3.........................................  0 to 1,000..................            2.50            5.00            5.00            5.00           10.00
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    According to the Exchange, the Strike Interval Proposal was 
designed to reduce the density of strike intervals that would be listed 
in later weeks within the Short Term Options Series Program by 
utilizing limitations for intervals between strikes with an expiration 
date more than twenty-one days from the listing date.\9\ However, there 
may be instances where the allowable strike intervals under 
Supplementary Material .07 and Supplementary Material .03(e) conflict, 
potentially resulting in narrower strike intervals in those series with 
more than twenty-one days from the listing date.\10\
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    \9\ See Amendment No. 1, supra note 4, at 13-14.
    \10\ See e.g., Amendment No. 1, supra note 4, Examples 1-3 at 8-
10.
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Proposal

    The Exchange proposes to amend Supplementary Material .07 to 
Options 4, Section 5, to state that when Supplementary Material .07 and 
Supplementary Material .03(e) conflict, the greater interval would 
apply. Specifically, the Exchange proposes to add a new sentence within 
Supplementary Material .07 which states, ``To the extent there is a 
conflict between applying Supplementary Material .03(e) and the below 
table, the greater interval would apply.'' \11\ Supplementary Material 
.03(e) would apply to Outer STOs only in the event that the interval 
would be greater.\12\ The Exchange states that this rule change would 
harmonize strike intervals as between inner weeklies (those having less 
than twenty-one days from the listing date) and outer weeklies (those 
having more than twenty-one days from the listing date) so that strike 
intervals are not widening closer to expiration.\13\ The Exchange 
provides Example 1 below to illustrate this point: \14\
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    \11\ See Amendment No. 1, supra note 4, at 7.
    \12\ See id. at 7-8.
    \13\ See id. at 14.
    \14\ See id. at 8. The Exchange provided three examples in 
Amendment No. 1. See also supra note 10.
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    Example 1: Assume a Tier 1 stock that closed on the last day of Q1 
with a quarterly share price higher than $75 but less than $150. 
Therefore, utilizing the table within Supplementary Material .07, the 
interval would be $1.00 for strikes added during Q2 even for strikes 
above $150. Next, assume during Q2 the share price rises above $150. 
Utilizing only the table within Supplementary Material .07, the 
interval would be $1.00 even though the stock is now trading above $150 
because the Share Price for purposes of Supplementary Material .07 was 
calculated utilizing data from the prior calendar quarter. However, a 
separate rule, Supplementary Material .03(e), provides that the 
Exchange may list a Short Term Option Series at $2.50 intervals where 
the strike price is above $150. In other words, there is a potential 
conflict between the permitted strike intervals above $150. In this 
example, Supplementary Material .07 would specify a $1.00 interval 
whereas Supplementary Material .03(e) would specify a $2.50 interval. 
As proposed, the Exchange proposes to apply the greater interval. The 
greater interval would then be $2.50 as per Supplementary Material 
.03(e) in this scenario. Therefore, the following strikes would be 
eligible to list: $152.5 and $157.5. For strikes less than $150, the 
following strikes would be eligible to list: $149 and $148 because 
Short Term Options Series with expiration dates more than 21 days from 
the listing date as well as Short Term Options Series with expiration 
dates less than 21 days from the listing date would both be eligible to 
list $1 intervals pursuant to Supplementary Material .07 and 
Supplementary Material .03(e) of Options 5, Section 4.
    The Exchange also proposes to amend the first sentence of 
Supplementary Material .07 to provide, ``With respect to listing Short 
Term Option Series in equity options, excluding Exchange-Traded Fund 
Shares and ETNs, which have an expiration date more than twenty-one 
days from the listing date, the following table, which specifies the 
applicable interval for listing, will apply as noted within 
Supplementary Material .03(f).'' \15\ The Exchange proposes to add the 
phrase ``which specifies the applicable interval for listing'' to make 
clear that the only permitted intervals are as specified in the table 
within Supplementary Material .07, except in the case where 
Supplementary Material .03(e) provides for a greater interval as 
described above.\16\ The Exchange also proposes to update the reference 
within this sentence from Supplementary Material .03(e) to 
Supplementary Material .03(f), as paragraph (f) indicates when the 
table within Supplementary Material .07 applies.\17\
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    \15\ See Amendment No. 1, supra note 4, at 6.
    \16\ See id.
    \17\ See id. at 7.
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    The Exchange also proposes to delete the sentence from 
Supplementary Material .07, which states, ``The below table indicates 
the applicable strike

[[Page 36355]]

intervals and supersedes Supplementary Material .03(d) which permits 
additional series to be opened for trading on the Exchange when the 
Exchange deems it necessary to maintain an orderly market, to meet 
customer demand or when the market price of the underlying security 
moves substantially from the exercise price or prices of the series 
already opened.'' \18\ The Exchange states that Supplementary Material 
.07 is related to strike intervals, but does not supersede rules 
governing the addition of option series.\19\ The Exchange further 
states that Supplementary Material .07 and Supplementary Material 
.03(d) do not conflict, and deleting the reference to Supplementary 
.03(d) will avoid confusion.\20\
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    \18\ See id. at 10.
    \19\ See id.
    \20\ See id.
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    Finally, the Exchange proposes to delete the sentence from 
Supplementary Material .03, which states, ``Notwithstanding the 
limitations imposed by Supplementary Material .07, this proposal does 
not amend the range of strikes that may be listed pursuant to 
Supplementary Material .03, regarding the Short Term Option Series 
Program.'' \21\ The Exchange states that while the range limitations 
continue to be applicable to the table within Supplementary Material 
.07, the strike ranges do not conflict with strike intervals and 
therefore the sentence is not necessary.\22\ The Exchange further 
states that Supplementary Material .03(f) otherwise indicates when 
Supplementary Material .07 would apply.\23\
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    \21\ See id. at 10-11.
    \22\ See id. at 11.
    \23\ See id.
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    The Exchange proposes to implement this rule change on August 1, 
2022.\24\ The Exchange represents that it will issue an Options Trader 
Alert to notify Members of the implementation date.\25\
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    \24\ See id.
    \25\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act,\27\ which requires, among other 
things, that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \26\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Exchange states that the Strike Interval Proposal was designed 
to reduce the density of strike intervals that have an expiration date 
more than twenty-one days from the listing date.\28\ In support of the 
current proposal, the Exchange states it would result in a reduction of 
the number of strikes listed in a manner consistent with the intent of 
the Strike Interval Proposal, which was to reduce strikes which were 
further out in time and would harmonize strike intervals for the Short 
Term Option Series such that strike intervals would not widen as the 
expiration date approaches.\29\ The Exchange further states that Strike 
Interval Proposal continues to reduce the number of strikes listed on 
ISE, allowing Lead Market Makers and Market Makers to expend their 
capital in the options market in a more efficient manner, thereby 
improving overall market quality on ISE.\30\
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    \28\ See Amendment No. 1, supra note 4, at 13-14.
    \29\ See id. at 14.
    \30\ See id. at 14.
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    The Exchange's proposal to apply the greater interval to Outer STOs 
in cases where Supplementary Material .03(e) and .07 conflict serves to 
increase, and thus limit, the intervals between strikes in those cases. 
The proposal seeks to continue to focus more granular strike increments 
on those series where they are more relevant, applicable, and likely 
more in demand from customers and eliminate certain clusters of 
relatively granular strikes in further out weekly series, consistent 
with the Strike Interval Proposal.\31\ Further, the proposal would add 
additional clarity to the Exchange's Short Term Option Series rules, 
which should provide greater certainty as to the permitted strike 
intervals and minimize confusion. The Commission believes that the 
proposal is reasonably designed to effectuate the Exchange's goal of 
balancing a reduction in the number of strikes in the Short Term Option 
Series Program with the needs of market participants. Accordingly, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act \32\ and 
the rules and regulations thereunder applicable to a national 
securities exchange.
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    \31\ See also Securities Exchange Act Release No. 91125 (Feb. 
12, 2021), 86 FR 10375 (Feb. 19, 2021) (SR-BX-2020-032) (Order 
approving proposal by Nasdaq BX, Inc. to limit Short Term Options 
Series intervals).
    \32\ 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,\33\ that the proposed rule change (SR-ISE-2022-10), as modified by 
Amendment No. 1, be and hereby is, approved.
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    \33\ 15 U.S.C. 78f(b)(2).
    \34\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12940 Filed 6-15-22; 8:45 am]
BILLING CODE 8011-01-P