Document ID: SEC-2023-1136-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2023-10-04T04:00Z

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68885-68887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22007]

[[Page 68885]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98644; File No. SR-Phlx-2023-45]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Proposed Rule Change To Permit the Listing and Trading of P.M.-
Settled Nasdaq-100 Index Options With a Third-Friday-of-the-Month 
Expiration

September 29, 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 September 28, 2023, Nasdaq PHLX LLC (``Phlx'' 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 p.m.-
settled Nasdaq-100 Index[supreg] options \3\ with a third-Friday-of-
the-month expiration.
---------------------------------------------------------------------------

    \3\ Nasdaq-100 Index options trade under the symbol (``NDX'').
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/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
    Phlx proposes to amend its rules to permit the listing and trading 
of p.m.-settled Nasdaq-100 Index options with a third-Friday-of-the-
month expiration date. The Exchange notes that p.m.-settled options 
were recently approved and included a p.m.-settled third-Friday-of-the-
month expiration for trading of options based on 1/100 the value of the 
Nasdaq-100 Index.\4\
---------------------------------------------------------------------------

    \4\ 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).
---------------------------------------------------------------------------

    By way of background, the Nasdaq-100 Index, a modified market 
capitalization-weighted index, includes 100 of the largest non-
financial companies listed on The Nasdaq Stock Market LLC, based on 
market capitalization. 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.\5\ Today, the Exchange may list a.m.-settled 
third-Friday-of-the-month expirations on Nasdaq-100 Index options. 
Previously, Phlx received approval to permit the listing and trading, 
on a pilot basis, of NASDAQ-100 options with p.m.-settled third-Friday-
of-the-month expiration dates.\6\ The Exchange extended the pilot 
through May 6, 2019, and, subsequently through November 4, 2019, 
because p.m.-settled options on the Nasdaq-100 Index had not yet been 
listed by Phlx.\7\ The Exchange did not renew this Pilot a third time 
and therefore the Pilot expired on November 4, 2019.\8\ Today, Cboe 
Exchange, Inc. (``Cboe'') lists third-Friday p.m.-settled options on 
the Standard & Poor's 500 Index (``S&P 500 Index'') under the symbol 
``SPXW.'' \9\
---------------------------------------------------------------------------

    \5\ A description of the Nasdaq-100 is available on Nasdaq's 
website at https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf.
    \6\ See Securities Exchange Act Release No. 81293 (August 2, 
2017), 82 FR 37138 (August 8, 2017) (approving SR-Phlx-2017-04) 
(Order Granting Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2, To Permit the Listing and Trading of P.M.-
Settled Nasdaq-100 Index Options on a Pilot Basis).
    \7\ See Securities Exchange Act Release Nos. 84685 (November 29, 
2019), 83 FR 62942 (December 6, 2018) (SR-Phlx-2018-76) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
the Pilot Period for the Listing of P.M.-Settled Nasdaq-100 Index 
Options Expiring on the Third Friday of the Month) and 85692 (April 
18, 2019), 84 FR 17213 (April 24, 2019) (SR-Phlx-2019-16) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Extend 
the Pilot Period for the Listing of P.M.-Settled Nasdaq-100 Index 
Options Expiring on the Third Friday of the Month).
    \8\ See Securities Exchange Act Release No. 87517 (November 13, 
2019), 84 FR 63910 (November 19, 2023) (SR-Phlx-2019-49) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Remove 
Rule Text From Phlx Rule 1101A).
    \9\ Cboe also lists a.m.-settled S&P 500 Index options that have 
standard third-Friday expirations. See Cboe Rule 4.10(e). Cboe's 
third-Friday-of-the-month pilot was recently approved. See 
Securities Exchange Act Release No. 98454 (September 20, 2023) (SR-
CBOE-2023-005) (Order Granting Approval of a Proposed Rule Change, 
as Modified by Amendment No. 1, to Make Permanent the Operation of 
the Program that Allows the Exchange to List P.M.-Settled Third 
Friday-of-the-Month S&P 500 Stock Index Options (``SPX'') Series).
---------------------------------------------------------------------------

    At this time, the Exchange proposes to amend Options 4A, Section 12 
to permit the listing of p.m.-settled third-Friday-of-the-month 
Expiration Dates under the trading symbol ``NDXP.'' Today, the Exchange 
may list a.m.-settled third-Friday-of-the-month expirations on Nasdaq-
100 Index options. With this proposal, the Exchange would have third-
Friday-of-the-month expirations on Nasdaq-100 Index options that are 
both a.m.-settled and p.m.-settled on the same day. The conditions for 
listing p.m.-settled third-Friday-of-the-month expirations on Nasdaq-
100 Index options will be similar to those for a.m.-settled third-
Friday-of-the-month expirations on Nasdaq-100 Index options.
    The proposed contract would use a $100 multiplier, and the minimum 
trading increment would be $0.05 for options trading below $3.00 and 
$0.10 for all other series.\10\ Strike price intervals would be set at 
no less than $2.50.\11\ Consistent with existing rules for index 
options, the Exchange would allow up to nine near-term expiration 
months \12\ as well as LEAPS.\13\ The

[[Page 68886]]

product would have European-style exercise. Because the product is 
based on the Nasdaq-100 Index there would be no position limits. Also, 
today, the Exchange notes that it has the flexibility to open for 
trading additional series in response to customer demand.\14\
---------------------------------------------------------------------------

    \10\ See Options 3, Section 3, Minimum Increments.
    \11\ See Options 4A, Section 12(a)(3).
    \12\ The Exchange proposes the same expiration month options for 
NDXP as are permitted for the Nasdaq-100 Index, since both options 
classes are derived from the Nasdaq-100 Index.
    \13\ Options 4A, Section 12(b) provides that after a particular 
class of stock index options has been approved for listing and 
trading on the Exchange, the Exchange shall from time to time open 
for trading series of options therein. Within each approved class of 
stock index options, the Exchange shall open for trading a minimum 
of one expiration month and series for each class of approved stock 
index options and may also open for trading series of options having 
not less than twelve and up to 60 months to expiration (long-term 
options series) as provided in subparagraph (b)(2). Prior to the 
opening of trading in any series of stock index options, the 
Exchange shall fix the expiration month and exercise price of option 
contracts included in each such series. Further, Options 4A, Section 
12(b)(2) provides that the Exchange may list, with respect to any 
class of stock index options or Nasdaq-100[supreg] Volatility Index 
options, series of options having not less than twelve and up to 60 
months to expiration, adding up to ten expiration months. Such 
series of options may be opened for trading simultaneously with 
series of options trading pursuant to this rule. Strike price 
intervals and continuity rules shall not apply to such options 
series until the time to expiration is less than twelve months. Bid/
ask differentials for long-term options contracts are specified 
within Options 2, Section 4(c)(1)(A).
    \14\ Options 4A, Section 12(b)(1) provides that additional 
series of stock index options of the same class may 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 index moves more than five strike 
prices from the initial exercise price or prices. The opening of a 
new series of options shall not affect the series of options of the 
same class previously opened. New series of options on an index may 
be added until the beginning of the month in which the options 
contract will expire. Due to unusual market conditions, the 
Exchange, in its discretion, may add a new series of options on 
indexes until the fourth business day prior to the business day of 
expiration, or, in the case of an index option contract expiring on 
a day that is not a business day, up to the fifth business day prior 
to expiration.
---------------------------------------------------------------------------

    NDXP options are series of the NDX options class. Currently, these 
NDXP options may expire any day of the week, Mondays, Tuesdays, 
Wednesdays, Thursdays, Fridays, as applicable (other than third-Friday-
of-the-month), and the last trading day of the month.\15\ Third-Friday 
p.m.-settled options trading under the NDXP symbol will be a new type 
of series under the Nasdaq-100 Index options class and not a new 
options class, therefore all third-Friday p.m.-settled NDXP options 
will be aggregated together with all other standard expirations for 
applicable reporting and other requirements.\16\
---------------------------------------------------------------------------

    \15\ See Options 3, Section 12(b)(5)(A).
    \16\ Options 3, Section 6(e) provides, ``Aggregation--Full 
value, reduced value, micro index value, long term and quarterly 
expiring options based on the same index shall be aggregated. 
Reduced value or mini-size and micro index contracts shall be 
aggregated with full value or full-size contracts and counted by the 
amount by which they equal a full value contract (e.g., a hundredth 
(1/100th)) value contracts equal one (1) full value contract). 
Positions in Short Term Options Series and Quarterly Options Series 
shall be aggregated with positions in options contracts of the same 
index. Nonstandard Expirations (as provided for in Options 4A, 
Section 5(b)(vii)) on a broad-based index shall be aggregated with 
option contracts on the same broad-based index and shall be subject 
to the overall position limit.''
---------------------------------------------------------------------------

    As with the Nasdaq-100 Index, whenever the Exchange determines that 
additional margin is warranted in light of the risks associated with an 
under-hedged NDXP option position, including third-Friday-of-the-month 
p.m.-settled NDXP, the Exchange may consider imposing additional margin 
upon the account maintaining such under-hedged position pursuant to its 
authority pursuant to under Exchange Rules Options 6E, Section 2. The 
trading hours for NDXP, including third-Friday-of-the-month p.m.-
settled NDXP, will be from 9:30 a.m. to 4:15 p.m. Eastern Time.\17\
---------------------------------------------------------------------------

    \17\ The Exchange notes that NDXP will ordinarily cease at 4:00 
p.m. on the day on which the exercise-settlement value is 
calculated.
---------------------------------------------------------------------------

    The Exchange proposes to amend Options 4A, Section 12(a)(6) to 
provide that in addition to a.m.-settled Nasdaq-100 Index options 
approved for trading on the Exchange, the Exchange may also list 
options on the Nasdaq-100 Index whose exercise settlement value is the 
closing value of the Nasdaq-100 Index on the expiration day.\18\
---------------------------------------------------------------------------

    \18\ The closing value of the Nasdaq-100 Index may change up 
until 17:15 Easter Time due to corrections to prices of the 
underlying component securities.
---------------------------------------------------------------------------

    The Exchange does not believe that any market disruptions will be 
encountered with the introduction of Nasdaq-100 Index options with 
third-Friday-of-the-month p.m.-settled expiration dates. The Exchange 
will monitor for any such disruptions or the development of any factors 
that could cause such disruptions.
    The adoption of trading third-Friday-of-the-month p.m.-settled 
options on the Nasdaq-100 Index on the same exchange that lists third-
Friday-of-the-month a.m.-settled options on the Nasdaq-100 Index would 
provide greater spread opportunities. This manner of trading in 
different products allows a market participant to utilize different 
expiration times, providing expanded trading opportunities. In the 
options market currently, market participants regularly trade similar 
or related products in conjunction with each other, which contributes 
to overall market liquidity.
    The Exchange represents that it has sufficient capacity to handle 
additional traffic associated with listing third-Friday-of-the-month 
p.m.-settled options, and that it has in place adequate surveillance 
procedures to monitor trading in these options thereby helping to 
ensure the maintenance of a fair and orderly market.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\19\ in general, and with 
Section 6(b)(5) of the Act,\20\ in that it is designed 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; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange. The Exchange believes that the proposed rule change is 
also consistent with Section 6(b)(8) of the Act \21\ in that it does 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    P.M.-settled options were recently approved and included a p.m.-
settled third-Friday-of-the-month expiration for trading of options on 
XND.\22\ Previously, Phlx received approval to permit the listing and 
trading, on a pilot basis, of NASDAQ-100 options with p.m.-settled 
third-Friday-of-the-month expiration dates.\23\ The Exchange extended 
the pilot through May 6, 2019, and, subsequently through November 4, 
2019, because p.m.-settled options on the NASDAQ-100 Index had not yet 
been listed by Phlx.\24\ The Exchange did not renew this Pilot a third 
time and therefore the Pilot expired on November 4, 2019.\25\ Today, 
Cboe lists third-Friday p.m.-settled options on the S&P 500 Index under 
the symbol ``SPXW.'' \26\ For these reasons, the Exchange desires to 
list a p.m.-settled third-Friday-of-the-month expiration for trading of 
options on the Nasdaq-100 Index. The Exchange believes that listing 
this expiry would not have any adverse effects or impact on market 
volatility and the operation of fair and orderly markets on the 
underlying cash market at or near the

[[Page 68887]]

close of trading in its Nasdaq-100 Index options.
---------------------------------------------------------------------------

    \22\ See supra note 4.
    \23\ See supra note 6.
    \24\ See supra note 7.
    \25\ See supra note 8.
    \26\ See supra note 9.
---------------------------------------------------------------------------

    Specifically, the Exchange believes that the introduction of 
Nasdaq-100 Index options with third-Friday-of-the-month p.m.-settled 
expiration dates will attract order flow to the Exchange, increase the 
variety of listed options to investors, and provide a valuable hedge 
tool to investors. Further, the Exchange believes this proposal will 
ensure market participants, particularly retail customers, have 
seamless access to p.m.-settled Nasdaq-100 Index options expiring every 
Friday of the month, which helps to remove impediments to and perfect 
the mechanism of a free and open market. The Exchange believes the 
proposed rule change will help to protect investors and the public 
interest by allowing market participants to enter options positions 
with the same underlying in one symbol that spans every Friday 
expiration in a month, thus providing a more efficient way to gain 
exposure and hedge risk.
    The adoption of trading third-Friday-of-the-month p.m.-settled 
options on the Nasdaq-100 Index on the same exchange that lists third-
Friday-of-the-month a.m.-settled options on the Nasdaq-100 Index would 
provide greater spread opportunities. This manner of trading in 
different products allows a market participant to utilize different 
expiration times, providing expanded trading opportunities. In the 
options market currently, market participants regularly trade similar 
or related products in conjunction with each other, which contributes 
to overall market liquidity.
    Third-Friday p.m. settled options trading under the NDXP symbol 
will be a new type of series under the Nasdaq-100 Index options class 
and not a new options class, therefore all third-Friday p.m.-settled 
NDXP options will be aggregated together with all other standard 
expirations for applicable reporting and other requirements.\27\
---------------------------------------------------------------------------

    \27\ See supra note 12.
---------------------------------------------------------------------------

    The Exchange does not believe that any market disruptions will be 
encountered with the introduction of Nasdaq-100 Index options with 
third-Friday-of-the-month expiration dates. The Exchange will monitor 
for any such disruptions or the development of any factors that could 
cause such disruptions.
    Finally, the Exchange represents that it has sufficient capacity to 
handle additional traffic associated with this new listing, and that it 
has in place adequate surveillance procedures to monitor trading in 
these options thereby helping to ensure the maintenance of a fair and 
orderly market.

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.
    The Exchange does not believe the rule change will impose a burden 
on intramarket competition because all market participants would have 
access to p.m.-settled Nasdaq-100 Index options expiring every Friday 
of the month and would be able to trade them under the NDXP symbol. The 
proposal will not impose a burden on intermarket competition because 
the options affected by this proposal are exclusive to the Exchange. 
Other options exchange may elect to adopt a similar expiry for a 
product listed on their markets.
    Additionally, the Exchange does not believe the proposal will 
impose any burden on intermarket competition as market participants on 
other exchanges are welcome to become members and trade at Phlx if they 
determine that this proposed rule change has made Phlx more attractive 
or favorable.

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 Exchange consents, the Commission will:
    A. by order approve or disapprove such 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-Phlx-2023-45 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-Phlx-2023-45. 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-Phlx-2023-45 and should be 
submitted on or before October 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22007 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P