Document ID: SEC-2018-0573-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2018-04-12T04:00Z

[Federal Register Volume 83, Number 71 (Thursday, April 12, 2018)]
[Notices]
[Pages 15881-15883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07526]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83006; File No. SR-ISE-2018-30]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend ISE Rules 
700, 2008, and 2009

April 6, 2018.
    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 March 29, 2018, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``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 amend ISE Rules 700, Days and Hours of 
Business, at Section (c); 2008, Days and Hours of Business; and 2009, 
Terms of Index Option Contracts, Supplementary Material .07, 
Nonstandard Expirations Pilot Program.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule filing is to establish that transactions 
in expiring p.m.-settled broad-based index options, including Weekly 
Expirations and End of Month (``EOM'') options, may be effected on the 
Exchange only until 4:00 p.m. (Eastern Time) on the last trading 
day.\3\ The terms of p.m.-settled broad-based index options specify 
that their exercise settlement value is based on the index value 
derived from the closing prices of component stocks.
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    \3\ The listing and trading of p.m.-settled options on broad-
based indexes with nonstandard expiration dates, including Weekly 
Expirations and EOM options, has been approved by the Commission on 
a pilot basis for an initial period of twelve months expiring on 
February 1, 2019 (the ``Nonstandard Expirations Pilot Program'' or 
``Pilot Program''). See Supplementary Material .07 of Rule 2009 and 
Securities Exchange Act Release No. 82612 (February 1, 2018), 83 FR 
5470 (February 7, 2018) (SR-ISE-2017-111). To date, no Weekly 
Expirations or EOM options have been listed on the Exchange.
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    Currently, ISE Rule 700(c) provides that broad-based index options 
may trade until 4:15 p.m. each business day. The Exchange now proposes 
to add language to Rule 700(c) to establish 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 same new language is proposed 
to be added to Rules 2008, Trading Sessions, and 2009, Terms of Index 
Option Contracts, at Supplementary Material .07(d), Weekly Expirations 
and EOM Trading Hours. The proposed new language is substantively 
identical to language in Rule 24.9(e), Weekly Expirations and

[[Page 15882]]

EOM Trading Hours on the Last Trading Day, of the Cboe Exchange, Inc. 
(CBOE). The 4:00 p.m. close of trading would apply only on the last 
trading day of the expiring p.m.-settled options.
    As CBOE explained in the proposed rule change adopting current CBOE 
Rule 24.9(e), Weekly Expirations and EOM options which are p.m.-settled 
are priced in the market based on corresponding futures values. On the 
last day of trading, the closing prices of the component stocks (which 
are used to derive the exercise settlement value) are known at 4:00 
p.m. (Eastern Time) (or soon after) when the equity markets close. 
Despite the fact that the exercise settlement value is fixed at or soon 
after 4:00 p.m. (Eastern Time), if trading in expiring Weekly 
Expirations and EOMs were to continue for an additional fifteen minutes 
until 4:15 p.m. (Eastern Time) they would not be priced on 
corresponding futures values, but rather the known cash value. At the 
same time, the prices of non-expiring Weekly Expiration and EOM series 
would continue to move and be priced in response to changes in 
corresponding futures prices. Because of the potential pricing 
divergence that could occur between 4:00 and 4:15 p.m. on the final 
trading day in expiring Weekly Expirations and EOMs (e.g., switch from 
pricing off of futures to cash), the Exchange believes that, in order 
to mitigate potential investor confusion, it is appropriate to cease 
trading in expiring Weekly Expirations and EOMs at 4:00 p.m. on the 
last day of trading.\4\
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    \4\ See Securities Exchange Act Release No. 64243 (April 7, 
2011), 76 FR 20771 (April 13, 2011) (SR-CBOE-2011-038) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
Close of Trading Hours for Expiring End of Week and End of Month 
Expirations).
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    Because the potential pricing divergence issue applies to all ISE-
listed p.m.-settled options, including but not limited to the Weekly 
Expiration and EOM series listed on ISE, the Exchange proposes to add 
the exception providing for a 4:00 close of trading on the last trading 
day before expiration to ISE's Rule 700(c) which sets forth the trading 
hours for all broad-based index options, and Rule 2008, Trading 
Sessions, in addition to Rule 2009, Supplementary Material .07(d).
    Thus, as revised, Rule 700(c) would provide that options on a 
broad-based index, as defined in ISE Rule 2001, may be traded on the 
Exchange until 4:15 p.m. each business day, 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). The exception would 
also be added to Rule 2008(a) which currently provides, in relevant 
part, that except as otherwise provided in Rule 2008 or under unusual 
conditions as may be determined by the President or his designee, 
transactions in index options may be effected on the Exchange between 
the hours of 9:30 a.m. (Eastern Time) and 4:15 p.m. (Eastern Time). 
Finally, the same change would be made to Supplementary Material .07(d) 
of Rule 2009, which currently provides that transactions in Weekly 
Expirations and EOMs may be effected on the Exchange between the hours 
of 9:30 a.m. (Eastern Time) and 4:15 p.m. (Eastern Time).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest, 
by conforming the trading hours on the last trading day of Weekly 
Expiration and EOM options to the trading hours on CBOE. The existence 
of dissimilar closing times applicable to different options exchanges 
would likely lead to confusion for options investors and broker-
dealers. Additionally, preventing continued trading on a p.m.-settled 
broad-based index option after the exercise settlement value has been 
fixed eliminates potential confusion and thereby protects investors and 
the public interest. The Exchange notes that p.m.-settled options on 
the S&P 500 index and on p.m.-settled XSP [sic] options cease trading 
at 4:00 p.m. Eastern Time on the last day of trading pursuant to CBOE 
Rule 24.6, Days and Hours of Business, Interpretations and Policies 
.04.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange does 
not believe the proposal will impose any burden on intramarket 
competition as all market participants will be treated in the same 
manner with respect to trading hours of expiring p.m.-settled broad-
based index options.

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

    No written comments were either solicited or received.

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

    Because the 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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) 
thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \9\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\10\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest as it will allow the 
Exchange to immediately conform the trading hours on the final trading 
day in expiring p.m.-settled broad-based index options to those of 
another exchange, eliminate a potential source of confusion on the part 
of the investing public, as well as avoid potential pricing divergence 
difficulties that could occur between 4:00 and 4:15 p.m. (Eastern 
Time). The Exchange's proposal does not raise new issues. Accordingly, 
the Commission hereby waives the 30-day operative delay requirement and 
designates the

[[Page 15883]]

proposed rule change as operative upon filing.\11\
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    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ 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).
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    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.

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-2018-30 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-2018-30. 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-2018-30, and should be submitted on 
or before May 3, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07526 Filed 4-11-18; 8:45 am]
 BILLING CODE 8011-01-P