Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .14 of Rule 504, Entitled “Series of Options Contracts Open for Trading”, 39636-39639 [2017-17550]

Download as PDF asabaliauskas on DSKBBXCHB2PROD with NOTICES 39636 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices 4. Applicants assert that the facility does not raise the concerns underlying section 12(d)(1) of the Act given that the Funds are part of the same group of investment companies and there will be no duplicative costs or fees to the Funds.4 Applicants also assert that the proposed transactions do not raise the concerns underlying sections 17(a)(1), 17(a)(3), 17(d) and 21(b) of the Act as the Funds would not engage in lending transactions that unfairly benefit insiders or are detrimental to the Funds. Applicants state that the facility will offer both reduced borrowing costs and enhanced returns on loaned funds to all participating Funds and each Fund would have an equal opportunity to borrow and lend on equal terms based on an interest rate formula that is objective and verifiable. With respect to the relief from section 17(a)(2) of the Act, applicants note that any collateral pledged to secure an interfund loan would be subject to the same conditions imposed by any other lender to a Fund that imposes conditions on the quality of or access to collateral for a borrowing (if the lender is another Fund) or the same or better conditions (in any other circumstance).5 5. Applicants also believe that the limited relief from section 18(f)(1) of the Act that is necessary to implement the facility (because the lending Funds are not banks) is appropriate in light of the conditions and safeguards described in the application and because the openend Funds would remain subject to the requirement of section 18(f)(1) that all borrowings of the open-end Fund, including combined interfund loans and bank borrowings, have at least 300% asset coverage. 6. Section 6(c) of the Act permits the Commission to exempt any persons or transactions from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Section 17(b) of the Act authorizes the 4 Applicants state that the obligation to repay an interfund loan could be deemed to constitute a security for the purposes of sections 17(a)(1) and 12(d)(1) of the Act. 5 Applicants state that any pledge of securities to secure an interfund loan could constitute a purchase of securities for purposes of section 17(a)(2) of the Act. VerDate Sep<11>2014 18:37 Aug 18, 2017 Jkt 241001 Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (a) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policies of each registered investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act. Rule 17d–1(b) under the Act provides that in passing upon an application filed under the rule, the Commission will consider whether the participation of the registered investment company in a joint enterprise, joint arrangement or profit sharing plan on the basis proposed is consistent with the provisions, policies and purposes of the Act and the extent to which such participation is on a basis different from or less advantageous than that of the other participants. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–17540 Filed 8–18–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81403; File No. SR–ISE– 2017–79] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .14 of Rule 504, Entitled ‘‘Series of Options Contracts Open for Trading’’ August 15, 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 August 10, 2017, 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 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00081 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes a proposal to amend Supplementary Material .14 of Rule 504, entitled ‘‘Series of Options Contracts Open for Trading.’’ The text of the proposed rule change is set forth below. Proposed new language is italicized; deleted text is in brackets. * * * * * Rule 504. Series of Options Contracts Open for Trading (a)–(h) No change. Supplementary Material to Rule 504 .01–.13 No change. .14 Notwithstanding any other provision regarding the interval of strike prices of series of options on ExchangeTraded Fund Shares in this rule, the interval of strike prices on SPDR S&P 500 ETF (‘‘SPY’’), iShares Core S&P 500 ETF (‘‘IVV’’), and the SPDR Dow Jones Industrial Average ETF (‘‘DIA’’) options will be $1 or greater. * * * * * 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 Exchange proposes to amend Rule 504 by modifying the strike setting regime for the iShares Core S&P 500 ETF (‘‘IVV’’) options. Specifically, the Exchange proposes to modify the interval setting regime for IVV options to allow $1 strike price intervals above $200. The Exchange believes that the proposed rule change would make IVV options easier for investors and traders to use and more tailored to their investment needs. Additionally, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on units of E:\FR\FM\21AUN1.SGM 21AUN1 asabaliauskas on DSKBBXCHB2PROD with NOTICES Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices the Standard & Poor’s Depository Receipts Trust (‘‘SPY’’), which is an exchange-traded fund (‘‘ETF’’) that is identical in all material respects to the IVV ETF. The SPY and IVV ETFs are identical in all material respects. The SPY and IVV ETFs are designed to roughly track the performance of the S&P 500 Index with the price of SPY and IVV designed to roughly approximate 1/10th of the price of the S&P 500 Index. Accordingly, SPY and IVV strike prices—having a multiplier of $100— reflect a value roughly equal to 1/10th of the value of the S&P 500 Index. For example, if the S&P 500 Index is at 1972.56, SPY and IVV options might have a value of approximately 197.26 with a notional value of $19,726. In general, SPY and IVV options provide retail investors and traders with the benefit of trading the broad market in a manageably sized contract. As options with an ETP underlying, SPY and IVV options are listed in the same manner as equity options under the Rules. IVV options currently trade at $5 intervals above a $200 strike price, whereas IVV options at or below a $200 strike price trade in $1 intervals. Further, pursuant to Supplementary Material .12 of Rule 504, 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. The Exchange’s proposal seeks to narrow the strike price intervals to $1 for IVV options above $200, in effect matching the strike setting regime for strike intervals in IVV options below $200 and matching the strike setting regime applied to SPY options. Currently, the S&P 500 Index is above 2000. The S&P 500 Index is widely regarded as the best single gauge of large cap U.S. equities and is widely quoted as an indicator of stock prices and investor confidence in the securities market. As a result, individual investors often use S&P 500 Index-related products to diversify their portfolios and benefit from market trends. Accordingly, the Exchange believes that offering a wide range of S&P 500 Indexbased options affords traders and investors important hedging and trading VerDate Sep<11>2014 18:37 Aug 18, 2017 Jkt 241001 opportunities. The Exchange believes that not having the proposed $1 strike price intervals above $200 in IVV significantly constricts investors’ hedging and trading possibilities. The Exchange proposes to amend Supplementary Material .14 of Rule 504 to allow IVV options to trade in $1 increments above a strike price of $200. Specifically, the Exchange proposes to amend Supplementary Material .14 of Rule 504 to state that the interval between strike prices of series of options on Units of IVV will be $1 or greater. The Exchange believes that by having smaller strike intervals in IVV, investors would have more efficient hedging and trading opportunities due to the lower $1 interval ascension. The proposed $1 intervals, particularly above the $200 strike price, will result in having at-themoney series based upon the underlying IVV moving less than 1%. The Exchange believes that the proposed strike setting regime is in line with the slower movements of broadbased indices. Furthermore, the proposed $1 intervals would allow option trading strategies (such as, for example, risk reduction/hedging strategies using IVV weekly options), to remain viable. Considering the fact that $1 intervals already exist below the $200 price point and that IVV is above the $200 level, the Exchange believes that continuing to maintain the artificial $200 level (above which intervals increase 500% to $5), would have a negative effect on investing, trading and hedging opportunities, and volume. The Exchange believes that the investing, trading, and hedging opportunities available with IVV options far outweighs any potential negative impact of allowing IVV options to trade in more finely tailored intervals above the $200 price point. The proposed strike setting regime would permit strikes to be set to more closely reflect values in the underlying S&P 500 Index and allow investors and traders to roll open positions from a lower strike to a higher strike in conjunction with the price movement of the underlying. Pursuant to the strike price intervals established pursuant to Rule 504(h), where the next higher available series would be $5 away above a $200 strike price, the ability to roll such positions is effectively negated. Accordingly, to move a position from a $200 strike to a $205 strike pursuant to the current rule, an investor would need for the underlying product to move 2.5%, and would not be able to execute a roll up until such a large movement occurred. With the proposed rule change, however, the investor would be in a significantly safer position of being able PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 39637 to roll his open options position from a $200 to a $201 strike price, which is only a 0.5% move for the underlying. The proposed rule change will allow the Exchange to better respond to customer demand for IVV strike prices more precisely aligned with current S&P 500 Index values. The Exchange believes that the proposed rule change, like the other strike price programs currently offered by the Exchange, will benefit investors by providing investors the flexibility to more closely tailor their investment and hedging decisions using IVV options. By allowing series of IVV options to be listed in $1 intervals between strike prices over $200, the proposal will moderately augment the potential total number of options series available on the Exchange. However, the Exchange believes it and the Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange also believes that members will not have a capacity issue due to the proposed rule change. In addition, the Exchange represents that it does not believe that this expansion will cause fragmentation of liquidity. In addition, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on SPY, which is an ETF that is identical in all material respects to the IVV ETF. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,3 in general, and furthers the objectives of Section 6(b)(5) of the Act,4 in particular, the requirements of Section 6(b) of the Act.5 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 6 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, 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. Additionally, the Exchange believes the proposed rule change is consistent with 3 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(5). 4 15 E:\FR\FM\21AUN1.SGM 21AUN1 asabaliauskas on DSKBBXCHB2PROD with NOTICES 39638 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices the Section 6(b)(5) 7 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the proposed rule change will allow investors to more easily use IVV options. Moreover, the proposed rule change would allow investors to better trade and hedge positions in IVV options where the strike price is greater than $200, and ensure that IVV options investors are not at a disadvantage simply because of the strike price. The Exchange also believes the proposed rule change is consistent with Section 6(b)(1) of the Act, which provides that the Exchange be organized and have the capacity to be able to carry out the purposes of the Act and the rules and regulations thereunder, and the rules of the Exchange. The rule change proposal allows the Exchange to respond to customer demand to allow IVV options to trade in $1 intervals above a $200 strike price. The Exchange does not believe that the proposed rule would create additional capacity issues or affect market functionality. As noted above, IVV options currently trade in wider $5 intervals above a $200 strike price, whereas these options at or below a $200 strike price trade in $1 intervals. This creates a situation where contracts on IVV options effectively may not be able to execute certain strategies such as, for example, rolling to a higher strike price, simply because of the arbitrary $200 strike price above which IVV options intervals increase by 500%. This proposal remedies the situation by establishing an exception to the current interval regime for IVV options to allow such options to trade in $1 or greater intervals at all strike prices. The Exchange believes that the proposed rule change, like other strike price programs currently offered by the Exchange, will benefit investors by giving them increased flexibility to more closely tailor their investment and hedging decisions. Moreover, the proposed rule change is consistent with a prior rule change.8 With regard to the impact of this proposal on system capacity, the Exchange believes it and OPRA have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. In addition, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on SPY,9 which is an ETF that is identical in all material respects to the IVV ETF. 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. Rather, the Exchange believes that the proposed rule change will result in additional investment options and opportunities to achieve the investment and trading objectives of market participants seeking efficient trading and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Specifically, the Exchange believes that IVV options investors and traders will significantly benefit from the availability of finer strike price intervals above a $200 price point. In addition, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on SPY,10 which is an ETF that is identical in all material respects to the IVV ETF. Thus, applying the same strike setting regime to SPY and IVV options will help level the playing field for options on similar, competing ETFs. 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 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 11 and subparagraph (f)(6) of Rule 19b–4 thereunder.12 9 See Supplementary Material .14 to Rule 504. 10 Id. 11 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) 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 12 17 7 Id. 8 See Securities Exchange Act Release No. 72998 (September 4, 2014), 79 FR 53813 (September 10, 2014) (Notice of Filing of Proposed Rule Change, Regarding Strike Price Intervals for SPY and DIA Options) (SR–ISE–2014–42). VerDate Sep<11>2014 18:37 Aug 18, 2017 Jkt 241001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 13 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 14 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 asked the Commission to waive the 30-day operative delay because this proposal permits listing IVV options in a manner permitted by the Chicago Board Options Exchange, Incorporated,15 and will provide investors with an alternative venue for trading IVV options. The Commission also notes that the proposed rule change is consistent with the strike price intervals in IVV options that is permitted on other exchanges and thus raises no new novel or substantive issues.16 Accordingly, the Commission hereby waives the operative delay and designates the proposal operative upon filing.17 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) 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 (https://www.sec.gov/ rules/sro.shtml); or as designated by the Commission. The Exchange has satisfied this requirement. 13 17 CFR 240.19b–4(f)(6). 14 17 CFR 240.19b–4(f)(6)(iii). 15 See Securities Exchange Act Release No. 80913 (June 13, 2017), 82 FR 27907 (June 19, 2017) (SR– CBOE–2017–048). 16 See NASDAQ PHLX LLC Rule 1012.05(a)(iv)(C); The Nasdaq Options Market LLC Rules, Chapter IV, Section 6, Supplementary Material .01(c); Miami International Securities Exchange, LLC Rule 404, Interpretations and Policies .10. 17 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). E:\FR\FM\21AUN1.SGM 21AUN1 Federal Register / Vol. 82, No. 160 / Monday, August 21, 2017 / Notices • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2017–79 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–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 (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 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE– 2017–79 and should be submitted on or before September 11, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–17550 Filed 8–18–17; 8:45 am] asabaliauskas on DSKBBXCHB2PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81401; File No. SR–Phlx– 2017–68] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 925 To Create a Limited Exception to the Exchange’s Procedures To Designate an Inactive Nominee as an Effective Permit Holder Intra-Day and Make a Non-Substantive Change to the Pricing Schedule August 15, 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 August 7, 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to (i) amend Rule 925 to create a limited exception to the Exchange’s existing procedures to designate an Inactive Nominee as an effective permit holder and (ii) make a non-substantive change to its Pricing Schedule related to the fees assessed to Inactive Nominees. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqphlx.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. 1 15 18 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:37 Aug 18, 2017 2 17 Jkt 241001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00084 Fmt 4703 Sfmt 4703 39639 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 (i) amend Rule 925 to create a limited exception to the Exchange’s existing procedures to designate an Inactive Nominee 3 as an effective permit holder and (ii) make a nonsubstantive change to its Pricing Schedule related to the fees assessed to Inactive Nominees. Rule 925 Today, the Exchange allows members on the Exchange’s trading floor to designate an ‘‘Inactive Nominee’’ pursuant to Rule 925. Rule 925(i) requires, among other criteria, that an individual must be approved as eligible to hold a permit in accordance with the Exchange’s By-Laws and Rules in order to be eligible for Inactive Nominee status. Additionally, the member organization with whom an Inactive Nominee is affiliated must pay an Inactive Nominee Fee for the privilege of maintaining the Inactive Nominee status.4 Furthermore, the Rule stipulates that an Inactive Nominee does not have any rights or privileges of a permit holder unless and until the Inactive Nominee becomes an effective permit holder and all applicable Exchange fees are paid. When a member organization desires to designate an Inactive Nominee as an effective permit holder, Rule 925(ii)(a) states that the member organization is required to notify the Exchange’s 3 The term ‘‘inactive nominee’’ shall mean a natural person associated with and designated as such by a member organization and who has been approved for such status and is registered as such with the Membership Department. An inactive nominee shall have no rights or privileges under a permit unless and until said inactive nominee becomes admitted as a member of the Exchange pursuant to the By-Laws and Rules of the Exchange. An inactive nominee merely stands ready to exercise rights under a permit upon notice by the member organization to the Membership Department on an expedited basis. See Rule 1(l). 4 The Exchange currently charges an Inactive Nominee Fee of $600 for a six month period, which will be assessed to the member organization at a rate of $100 per month for the applicable six month period unless the member organization provides proper notice of its intent to terminate an inactive nominee prior to the first day of the next billing month. An inactive nominee’s status expires after six months unless it has been reaffirmed in writing by the member organization or is sooner terminated. A member organization will be assessed the Inactive Nominee Fee every time the status is reaffirmed. See the Exchange’s Pricing Schedule at: https://nasdaqphlx.cchwallstreet.com/ NASDAQPHLXTools/ PlatformViewer.asp?selectednode=chp_1_4_ 10&manual=%2Fnasda qomxphlx%2Fphlx%2Fphlx-rulesbrd%2F. E:\FR\FM\21AUN1.SGM 21AUN1

Agencies

[Federal Register Volume 82, Number 160 (Monday, August 21, 2017)]
[Notices]
[Pages 39636-39639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17550]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81403; File No. SR-ISE-2017-79]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend 
Supplementary Material .14 of Rule 504, Entitled ``Series of Options 
Contracts Open for Trading''

August 15, 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 August 10, 2017, 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 a proposal to amend Supplementary Material 
.14 of Rule 504, entitled ``Series of Options Contracts Open for 
Trading.''
    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deleted text is in brackets.
* * * * *

Rule 504. Series of Options Contracts Open for Trading

    (a)-(h) No change.

Supplementary Material to Rule 504

    .01-.13 No change.
    .14 Notwithstanding any other provision regarding the interval of 
strike prices of series of options on Exchange-Traded Fund Shares in 
this rule, the interval of strike prices on SPDR S&P 500 ETF (``SPY''), 
iShares Core S&P 500 ETF (``IVV''), and the SPDR Dow Jones Industrial 
Average ETF (``DIA'') options will be $1 or greater.
* * * * *

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 Exchange proposes to amend Rule 504 by modifying the strike 
setting regime for the iShares Core S&P 500 ETF (``IVV'') options. 
Specifically, the Exchange proposes to modify the interval setting 
regime for IVV options to allow $1 strike price intervals above $200.
    The Exchange believes that the proposed rule change would make IVV 
options easier for investors and traders to use and more tailored to 
their investment needs. Additionally, the interval setting regime the 
Exchange proposes to apply to IVV options is currently applied to 
options on units of

[[Page 39637]]

the Standard & Poor's Depository Receipts Trust (``SPY''), which is an 
exchange-traded fund (``ETF'') that is identical in all material 
respects to the IVV ETF.
    The SPY and IVV ETFs are identical in all material respects. The 
SPY and IVV ETFs are designed to roughly track the performance of the 
S&P 500 Index with the price of SPY and IVV designed to roughly 
approximate 1/10th of the price of the S&P 500 Index. Accordingly, SPY 
and IVV strike prices--having a multiplier of $100--reflect a value 
roughly equal to 1/10th of the value of the S&P 500 Index. For example, 
if the S&P 500 Index is at 1972.56, SPY and IVV options might have a 
value of approximately 197.26 with a notional value of $19,726. In 
general, SPY and IVV options provide retail investors and traders with 
the benefit of trading the broad market in a manageably sized contract. 
As options with an ETP underlying, SPY and IVV options are listed in 
the same manner as equity options under the Rules.
    IVV options currently trade at $5 intervals above a $200 strike 
price, whereas IVV options at or below a $200 strike price trade in $1 
intervals. Further, pursuant to Supplementary Material .12 of Rule 504, 
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.
    The Exchange's proposal seeks to narrow the strike price intervals 
to $1 for IVV options above $200, in effect matching the strike setting 
regime for strike intervals in IVV options below $200 and matching the 
strike setting regime applied to SPY options. Currently, the S&P 500 
Index is above 2000. The S&P 500 Index is widely regarded as the best 
single gauge of large cap U.S. equities and is widely quoted as an 
indicator of stock prices and investor confidence in the securities 
market. As a result, individual investors often use S&P 500 Index-
related products to diversify their portfolios and benefit from market 
trends. Accordingly, the Exchange believes that offering a wide range 
of S&P 500 Index-based options affords traders and investors important 
hedging and trading opportunities. The Exchange believes that not 
having the proposed $1 strike price intervals above $200 in IVV 
significantly constricts investors' hedging and trading possibilities.
    The Exchange proposes to amend Supplementary Material .14 of Rule 
504 to allow IVV options to trade in $1 increments above a strike price 
of $200. Specifically, the Exchange proposes to amend Supplementary 
Material .14 of Rule 504 to state that the interval between strike 
prices of series of options on Units of IVV will be $1 or greater. The 
Exchange believes that by having smaller strike intervals in IVV, 
investors would have more efficient hedging and trading opportunities 
due to the lower $1 interval ascension. The proposed $1 intervals, 
particularly above the $200 strike price, will result in having at-the-
money series based upon the underlying IVV moving less than 1%.
    The Exchange believes that the proposed strike setting regime is in 
line with the slower movements of broad-based indices. Furthermore, the 
proposed $1 intervals would allow option trading strategies (such as, 
for example, risk reduction/hedging strategies using IVV weekly 
options), to remain viable. Considering the fact that $1 intervals 
already exist below the $200 price point and that IVV is above the $200 
level, the Exchange believes that continuing to maintain the artificial 
$200 level (above which intervals increase 500% to $5), would have a 
negative effect on investing, trading and hedging opportunities, and 
volume.
    The Exchange believes that the investing, trading, and hedging 
opportunities available with IVV options far outweighs any potential 
negative impact of allowing IVV options to trade in more finely 
tailored intervals above the $200 price point. The proposed strike 
setting regime would permit strikes to be set to more closely reflect 
values in the underlying S&P 500 Index and allow investors and traders 
to roll open positions from a lower strike to a higher strike in 
conjunction with the price movement of the underlying.
    Pursuant to the strike price intervals established pursuant to Rule 
504(h), where the next higher available series would be $5 away above a 
$200 strike price, the ability to roll such positions is effectively 
negated. Accordingly, to move a position from a $200 strike to a $205 
strike pursuant to the current rule, an investor would need for the 
underlying product to move 2.5%, and would not be able to execute a 
roll up until such a large movement occurred. With the proposed rule 
change, however, the investor would be in a significantly safer 
position of being able to roll his open options position from a $200 to 
a $201 strike price, which is only a 0.5% move for the underlying.
    The proposed rule change will allow the Exchange to better respond 
to customer demand for IVV strike prices more precisely aligned with 
current S&P 500 Index values. The Exchange believes that the proposed 
rule change, like the other strike price programs currently offered by 
the Exchange, will benefit investors by providing investors the 
flexibility to more closely tailor their investment and hedging 
decisions using IVV options. By allowing series of IVV options to be 
listed in $1 intervals between strike prices over $200, the proposal 
will moderately augment the potential total number of options series 
available on the Exchange. However, the Exchange believes it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposed rule change. The Exchange also believes that members will 
not have a capacity issue due to the proposed rule change.
    In addition, the Exchange represents that it does not believe that 
this expansion will cause fragmentation of liquidity. In addition, the 
interval setting regime the Exchange proposes to apply to IVV options 
is currently applied to options on SPY, which is an ETF that is 
identical in all material respects to the IVV ETF.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\3\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\4\ in particular, the requirements of Section 6(b) 
of the Act.\5\ Specifically, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) \6\ requirements that the 
rules of an exchange be designed to prevent fraudulent and manipulative 
acts and practices, 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. Additionally, the Exchange believes the proposed rule change 
is consistent with

[[Page 39638]]

the Section 6(b)(5) \7\ requirement that the rules of an exchange not 
be designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    In particular, the proposed rule change will allow investors to 
more easily use IVV options. Moreover, the proposed rule change would 
allow investors to better trade and hedge positions in IVV options 
where the strike price is greater than $200, and ensure that IVV 
options investors are not at a disadvantage simply because of the 
strike price.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act, which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and the rules and regulations thereunder, and the rules of the 
Exchange. The rule change proposal allows the Exchange to respond to 
customer demand to allow IVV options to trade in $1 intervals above a 
$200 strike price. The Exchange does not believe that the proposed rule 
would create additional capacity issues or affect market functionality.
    As noted above, IVV options currently trade in wider $5 intervals 
above a $200 strike price, whereas these options at or below a $200 
strike price trade in $1 intervals. This creates a situation where 
contracts on IVV options effectively may not be able to execute certain 
strategies such as, for example, rolling to a higher strike price, 
simply because of the arbitrary $200 strike price above which IVV 
options intervals increase by 500%. This proposal remedies the 
situation by establishing an exception to the current interval regime 
for IVV options to allow such options to trade in $1 or greater 
intervals at all strike prices.
    The Exchange believes that the proposed rule change, like other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them increased flexibility to more closely tailor 
their investment and hedging decisions. Moreover, the proposed rule 
change is consistent with a prior rule change.\8\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 72998 (September 4, 
2014), 79 FR 53813 (September 10, 2014) (Notice of Filing of 
Proposed Rule Change, Regarding Strike Price Intervals for SPY and 
DIA Options) (SR-ISE-2014-42).
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, the 
Exchange believes it and OPRA have the necessary systems capacity to 
handle any potential additional traffic associated with this proposed 
rule change. The Exchange believes that its members will not have a 
capacity issue as a result of this proposal.
    In addition, the interval setting regime the Exchange proposes to 
apply to IVV options is currently applied to options on SPY,\9\ which 
is an ETF that is identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \9\ See Supplementary Material .14 to Rule 504.
---------------------------------------------------------------------------

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. Rather, the Exchange believes 
that the proposed rule change will result in additional investment 
options and opportunities to achieve the investment and trading 
objectives of market participants seeking efficient trading and hedging 
vehicles, to the benefit of investors, market participants, and the 
marketplace in general. Specifically, the Exchange believes that IVV 
options investors and traders will significantly benefit from the 
availability of finer strike price intervals above a $200 price point. 
In addition, the interval setting regime the Exchange proposes to apply 
to IVV options is currently applied to options on SPY,\10\ which is an 
ETF that is identical in all material respects to the IVV ETF. Thus, 
applying the same strike setting regime to SPY and IVV options will 
help level the playing field for options on similar, competing ETFs.
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

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 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 \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 \13\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ 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 asked the Commission to waive the 30-day operative delay because 
this proposal permits listing IVV options in a manner permitted by the 
Chicago Board Options Exchange, Incorporated,\15\ and will provide 
investors with an alternative venue for trading IVV options. The 
Commission also notes that the proposed rule change is consistent with 
the strike price intervals in IVV options that is permitted on other 
exchanges and thus raises no new novel or substantive issues.\16\ 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\17\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See Securities Exchange Act Release No. 80913 (June 13, 
2017), 82 FR 27907 (June 19, 2017) (SR-CBOE-2017-048).
    \16\ See NASDAQ PHLX LLC Rule 1012.05(a)(iv)(C); The Nasdaq 
Options Market LLC Rules, Chapter IV, Section 6, Supplementary 
Material .01(c); Miami International Securities Exchange, LLC Rule 
404, Interpretations and Policies .10.
    \17\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 (https://www.sec.gov/rules/sro.shtml); or

[[Page 39639]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2017-79 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-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 (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 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2017-79 and should be 
submitted on or before September 11, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17550 Filed 8-18-17; 8:45 am]
 BILLING CODE 8011-01-P
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