Document ID: SEC-2017-1801-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2017-11-02T04:00Z

[Federal Register Volume 82, Number 211 (Thursday, November 2, 2017)]
[Notices]
[Pages 50921-50924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23831]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81975; File No. SR-Phlx-2017-79]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1, To Establish a 
Nonstandard Expirations Pilot Program on a Pilot Basis, for an Initial 
Period of Twelve Months From the Date of Approval of This Proposed Rule 
Change

October 27, 2017.
    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 12, 2017 Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, below, 
which Items have been prepared by the Exchange. On October 26, 2017, 
the Exchange filed Amendment No.1 to the proposal to amend and replace 
the original filing of SR-Phlx-2017-79 in its entirety. The Commission 
is publishing this notice, as modified by Amendment No. 1, 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 [sic] a [sic] proposal [sic] to establish 
a Nonstandard Expirations Pilot Program on a pilot basis, for an 
initial period of twelve months from the date of approval of this 
proposed rule change.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/ 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 permit the listing and 
trading, on a pilot basis, of p.m.-settled options on broad-based 
indexes with nonstandard expiration dates for an initial period of 
twelve months (the ``Nonstandard Expirations Pilot Program'' or ``Pilot 
Program'') from the date of approval of this proposed rule change.\3\ 
The Pilot Program would permit both weekly expirations (``Weekly 
Expirations'') and end of month (``EOM'') expirations as explained 
below. Contract terms for the Weekly Expirations and EOM expirations 
will be similar to those of the a.m. settled broad-based index options, 
except that the exercise settlement value will be based on the index 
value derived from the closing prices of component stocks.
---------------------------------------------------------------------------

    \3\ P.M.-settled NASDAQ-100 index options with standard third 
Friday of the month expiration dates (``NDXPM'') have previously 
been approved for listing on the Exchange on a pilot basis. NDXPM 
and NDX are separate option classes. See Securities Exchange Act 
Release No. 81293 (August 2, 2017), 82 FR 37138 (August 8, 2017) 
(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(R) Options on a Pilot Basis). The Exchange 
anticipates that it will file a proposed rule change in the near 
future to move these NDXPM index options with standard third Friday 
of the month expiration dates to the NDX index option class. The 
Exchange notes that the Chicago Board Options Exchange (``CBOE'') 
recently did likewise with its P.M.-settled S&P 500 Index Options 
(``SPXPM''). See Securities Exchange Act Release No. 80060 (February 
17, 2017), 82 FR 11673 (February 24, 2017) (approving SR-CBOE-2016-
091).
---------------------------------------------------------------------------

Weekly Expirations
    The Exchange proposes to add new subsection (b)(vii)(1), Weekly 
Expirations, to Rule 1101A, Terms of Options Contracts. Under the 
proposed new rule the Exchange would be permitted to open for trading 
Weekly Expirations on any broad-based index eligible for 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 EOM 
expiration). Weekly Expirations would be subject to all provisions of 
Rule 1101A and would be treated the same as options on the same 
underlying index that expire on the third Friday of the expiration 
month. Unlike the standard monthly options, however, Weekly Expirations 
would be p.m.-settled. New series in Weekly

[[Page 50922]]

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. 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.
End of Month (``EOM'') Expirations
    Under the proposal, 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 Rule 1101A 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.
    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.
Contract Terms Trading Rules
    Weekly Expirations and EOMs would be subject to the same rules that 
currently govern the trading of standard monthly broad-based index 
options, including sales practice rules, margin requirements, and floor 
trading procedures. Contract terms for Weekly Expirations and EOMs 
would be the same as those for standard monthly broad-based index 
options. Since Weekly Expirations and EOMs will be a new type of 
series, and not a new class, the Exchange proposes that Weekly 
Expirations and EOMs shall be aggregated for any applicable reporting 
and other requirements.\4\ Pursuant to new subsection (b)(vii)(4) of 
Rule 1101A, transactions in Weekly Expirations and EOMs could be 
effected on the Exchange between the hours of 9:30 a.m. (Eastern Time) 
and 4:15 p.m. (Eastern Time).
---------------------------------------------------------------------------

    \4\ See Rule 1001A(d) which sets forth the reporting 
requirements for certain market indexes that do not have position 
limits, including NDX. The Exchange is adding Nonstandard 
Expirations to Rule 1001A(e), Aggregation, to reflect the 
aggregation requirement. The Exchange notes that the proposed 
aggregation is consistent with the aggregation requirements for 
other types of option series (e.g. quarterly expiring options) that 
are listed on the Exchange and which do not expires on the customary 
``third Friday''.
---------------------------------------------------------------------------

    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 under the Pilot.
Pilot Program
    As stated above, this proposal is to establish a Nonstandard 
Expirations Pilot Program for broad-based index options on a pilot 
basis, for an initial period of twelve months from the date of approval 
of this proposed rule change. If the Exchange were to propose an 
extension of the Pilot or should the Exchange propose to make the Pilot 
permanent, the Exchange would submit a filing proposing such amendments 
to the Pilot.
    Further, any positions established under the Pilot would not be 
impacted by the expiration of the Pilot. For example, if the Exchange 
lists a Weekly Expiration or EOM that expires after the Pilot expires 
(and is not extended) then those positions would continue to exist.
    However, any further trading in those series would be restricted to 
transactions where at least one side of the trade is a closing 
transaction.
    As part of the Pilot, the Exchange will submit a Pilot report to 
the Commission at least two months prior to the expiration date of the 
Pilot (the ``annual report''). The annual report will contain an 
analysis of volume, open interest and trading patterns. In addition, 
for series that exceed certain minimum open interest parameters, the 
annual report will provide analysis of index price volatility and, if 
needed, share trading activity. The annual report will be provided to 
the Commission on a confidential basis.
Analysis of Volume and Open Interest
    For all Weekly Expirations and EOM series, the annual report will 
contain the following volume and open interest data for each broad-
based index overlying Weekly Expiration and EOM options:
    (1) Monthly volume aggregated for all Weekly Expiration and EOM 
series,
    (2) Volume in Weekly Expiration and EOM series aggregated by 
expiration date,
    (3) Month-end open interest aggregated for all Weekly Expiration 
and EOM series,
    (4) Month-end open interest for EOM series aggregated by expiration 
date and open interest for Weekly Expiration series aggregated by 
expiration date,
    (5) Ratio of monthly aggregate volume in Weekly Expiration and EOM 
series to total monthly class volume, and
    (6) Ratio of month-end open interest in EOM series to total month-
end class open interest and ratio of open interest in each Weekly 
Expiration series to total class open interest.
    In addition, the annual report will contain the information noted 
above for standard Expiration Friday, AM-settled series, if applicable, 
for the period covered in the pilot report as well as for the six-month 
period prior to the initiation of the pilot.
    Upon request by the SEC, the Exchange will provide a data file 
containing: (1) Weekly Expiration and EOM option volume data aggregated 
by series, and (2) Weekly Expiration open interest for each expiring 
series and EOM month-end open interest for expiring series.

[[Page 50923]]

Monthly Analysis of Weekly Expiration and EOM Trading Patterns
    In the annual report, the Exchange also proposes to identify Weekly 
Expiration and EOM trading patterns by undertaking a time series 
analysis of open interest in Weekly Expiration and EOM series 
aggregated by expiration date compared to open interest in near-term 
standard Expiration Friday A.M.-settled series in order to determine 
whether users are shifting positions from standard series to Weekly 
Expiration and EOM series. Declining open interest in standard series 
accompanied by rising open interest in Weekly Expiration and EOM series 
would suggest that users are shifting positions.
Provisional Analysis of Index Price Volatility and Share Trading 
Activity
    For each Weekly Expiration and EOM expiration that has open 
interest that exceeds certain minimum thresholds, the annual report 
will contain the following analysis related to index price changes and, 
if needed, underlying share trading volume at the close on expiration 
dates:
    (1) a comparison of index price changes at the close of trading on 
a given expiration date with comparable price changes from a control 
sample. The data will include a calculation of percentage price changes 
for various time intervals and compare that information to the 
respective control sample. Raw percentage price change data as well as 
percentage price change data normalized for prevailing market 
volatility, as measured by an appropriate index agreed by the 
Commission and the Exchange, will be provided; and
    (2) if needed, a calculation of share volume for a sample set of 
the component securities representing an upper limit on share trading 
that could be attributable to expiring in-the-money Weekly Expiration 
and EOM expirations. The data, if needed, will include a comparison of 
the calculated share volume for securities in the sample set to the 
average daily trading volumes of those securities over a sample period.
    The minimum open interest parameters, control sample, time 
intervals, method for selecting the component securities, and sample 
periods will be determined by the Exchange and the Commission.
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 expanding 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 more closely tailor their investment objectives.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 Weekly Expirations and EOMs. Additionally, the 
Exchange does not believe the proposal will impose any burden on 
intermarket competition as market participants are welcome to become 
members and trade at Phlx if they determine that this proposed rule 
change has made Phlx more attractive or favorable. Finally, all options 
exchanges are free to compete by listing and trading their own broad-
based index options with weekly or end of month expirations.

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 (i) as the Commission may 
designate up to 90 days of such date 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 shall: (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, as modified by Amendment No.1, is consistent with the Act. In 
particular, the Commission solicits comment on the following:
     Will the pilot data contemplated in this notice allow the 
Commission to determine whether the weekly and monthly PM-settled 
options proposed in this filing have adverse effects on market 
volatility and the operation of fair and orderly markets in the 
underlying cash market?
     Will the pilot data contemplated in this notice allow the 
Commission to determine whether the weekly and monthly PM-settled 
options proposed in this filing have adverse effects on liquidity, 
volume, open interest, trading patterns, and volatility in other option 
contracts with standard expirations?
     Will the pilot data contemplated in this notice allow the 
Commission to determine whether the weekly and monthly PM-settled 
options proposed in this filing have adverse effects on index price 
volatility?
     Will the weekly and monthly PM-settled options proposed in 
this filing affect the market for options contracts with nonstandard 
expirations offered by CBOE? If so, how? In addition, how would this 
proposal affect the data and information related to nonstandard 
expirations that are provided by CBOE?
     What concerns do market participants have related to the 
proposed Nonstandard Expirations Pilot Program? If any, please be 
specific in describing your concerns. If any, will the pilot data 
contemplated in this notice allow the Commission to examine whether the 
concerns are valid?
    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-Phlx-2017-79 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 50924]]

Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2017-79. 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 Web site (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 Web site 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-Phlx-2017-79, and should be 
submitted on or before November 24, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23831 Filed 11-1-17; 8:45 am]
 BILLING CODE 8011-01-P