Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Amendment No. 2, Order Approving a Proposed Rule Change, as Modified by Amendment No. 1 and Granting Accelerated Approval of Amendment No. 2, of a Proposed Rule Change To Establish a Nonstandard Expirations Pilot Program, 60651-60654 [2017-27469]

Download as PDF Federal Register / Vol. 82, No. 244 / Thursday, December 21, 2017 / Notices filling of director vacancies and (iv) appointment of committees are being amended, the Exchanges represent that the substantive requirements of the Exchanges applicable to those items will remain the same.17 Finally, the Commission believes that the proposals to update the exchanges’ names in their Certificates are consistent with the Act as they may also serve to reduce potential confusion by ensuring the Exchanges’ corporate documents reflect their recent name changes. IV. Accelerated Approval of the Proposal The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,18 for approving the proposed rule changes, prior to the 30th day after publication of the Notices in the Federal Register.19 The Commission believes that the proposed rule changes do not raise novel regulatory issues and are substantively similar to the existing rules of other national securities exchanges.20 In particular, the Commission notes that the proposed rule changes do not substantively impact the provisions concerning the nomination and selection of fair representation directors that currently apply to the Exchanges. Members of the Exchanges should continue to have an opportunity to participate in the selection of Board representation and have input into the Exchanges’ exercise of self-regulatory authority. In addition, the Commission did not receive any comment on the proposed changes. Accordingly, the Commission finds that good cause exists to approve the proposed rule changes on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act 21 that the proposed rule changes (SR–CboeBYX– 2017–001; SR–CboeBZX–2017–001; SR– CboeEDGA–2017–001; SR–CboeEDGX– 2017–001), be, and hereby are, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–27466 Filed 12–20–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82341; File No. SR–Phlx– 2017–79] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Amendment No. 2, Order Approving a Proposed Rule Change, as Modified by Amendment No. 1 and Granting Accelerated Approval of Amendment No. 2, of a Proposed Rule Change To Establish a Nonstandard Expirations Pilot Program December 15, 2017. I. Introduction On October 12, 2017, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to establish a Nonstandard Expirations Pilot Program. On October 26, 2017, the Exchange filed Amendment No.1 to the proposal to amend and replace the original filing in its entirety. The proposed rule change was published for comment in the Federal Register on November 2, 2017.3 On December 6, 2017, the Exchange filed a partial amendment to the proposed rule change (‘‘Amendment No. 2’’).4 The Commission received no comments on the proposed rule change. This order provides notice of filing of Amendment No. 2, approves the proposal, as modified by Amendment No. 1, and approves Amendment No. 2 on an accelerated basis, for a pilot period of twelve months. 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 81975 (Oct. 27, 2017), 82 FR 50921. 4 In Amendment No. 2, the Exchange proposes to provide to the Commission, to the extent that data on other weekly or monthly p.m.-settled products from other exchanges is publicly available, a time series analysis of open interest in weekly expiration (‘‘Weekly Expiration’’) and end of month (‘‘EOM’’) series compared to open interest in weekly or monthly p.m.-settled products of other exchanges in order to determine whether users are shifting positions from other weekly or monthly p.m.-settled products to the Weekly Expiration and EOM series. 1 15 daltland on DSKBBV9HB2PROD with NOTICES 17 See Notices, supra note 4 at 56078; 56067; 56081 and 56074, respectively. 18 15 U.S.C. 78s(b)(2). 19 As noted above, the Notices were published for comment in the Federal Register on November 27, 2017 and the comment period closed on December 12, 2017. Accordingly, the 30th day after publication of the Notices is December 27, 2017. 20 See notes 15 and 17, supra. 21 15 U.S.C. 78s(b)(2). VerDate Sep<11>2014 20:57 Dec 20, 2017 Jkt 244001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 60651 II. Description of the Amended Proposal The Exchange proposes to permit the listing and trading, on a pilot basis, of p.m.-settled options on broad-based indexes with nonstandard expiration dates for a period of twelve months (the ‘‘Nonstandard Expirations Pilot Program’’ or ‘‘Pilot Program’’) from the date of approval of this proposed rule change. The Pilot Program would permit both Weekly Expirations and EOM expirations 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. The proposal is substantially similar to Chicago Board Options Exchange (‘‘CBOE’’) Rule 24.9(e), Nonstandard Expirations Pilot Program.5 A. 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-ofthe-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 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 5 See Securities Exchange Act Release Nos. 78531 (August 10, 2016), 81 FR 54643 (August 16, 2016) (SR–CBOE–2016–046) (Order approving expansion of CBOE’s Nonstandard Expirations Pilot Program to include Monday Expirations); 76909 (January 14, 2016), 81 FR 3512 (January 21, 2016) (SR–CBOE– 2015–106) (Order approving expansion of CBOE’s Nonstandard Expirations Pilot Program to include Wednesday Expirations); 62911 (September 14, 2010), 75 FR 57539 (September 21, 2010) (SR– CBOE–2009–075) (Order approving CBOE’s Nonstandard Expirations Pilot Program). E:\FR\FM\21DEN1.SGM 21DEN1 60652 Federal Register / Vol. 82, No. 244 / Thursday, December 21, 2017 / Notices Friday expirations as applicable. However, the expiration date of a nonconsecutive 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. daltland on DSKBBV9HB2PROD with NOTICES B. 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 the 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 nonconsecutive 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. VerDate Sep<11>2014 20:57 Dec 20, 2017 Jkt 244001 C. Contract Terms and Trading Rules The Exchange proposes that Weekly Expirations and EOMs would be subject to the same rules that currently govern the trading of standard monthly broadbased 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, except that the exercise settlement value will be based on the index value derived from the closing prices of component stocks. 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.6 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). The Exchange represents that it has analyzed its capacity and believes that it and the Options Price Reporting Authority have the necessary systems capacity to handle any additional traffic associated with the listing of the maximum number nonstandard expirations permitted under the Pilot Program. D. Pilot Program Annual Report As part of the Pilot Program, the Exchange proposes to submit a Pilot Program report to the Commission at least two months prior to the expiration date of the Pilot Program (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: 6 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 expire on the customary ‘‘third Friday’’. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 (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, a.m.-settled series, if applicable, for the period covered in the annual report as well as for the six-month period prior to the initiation of the Pilot Program. 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. 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 nearterm 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. In addition, to the extent that data on other weekly or monthly p.m. settled products from other exchanges is publicly available, the annual report will also compare open interest with these options in order to determine whether users are shifting positions from other weekly or monthly p.m.-settled products to the Weekly Expiration and EOM series. Declining open interest in standard series or the weekly or monthly p.m.settled products of other exchanges accompanied by rising open interest in Weekly Expiration and EOM series would suggest that users are shifting positions. E:\FR\FM\21DEN1.SGM 21DEN1 Federal Register / Vol. 82, No. 244 / Thursday, December 21, 2017 / Notices daltland on DSKBBV9HB2PROD with NOTICES 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. III. Discussion and Commission’s Findings After careful review of the proposed rule change, the Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange.7 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,8 which requires, among other things, that the rules of a national securities 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 7 In approving this rule change, the Commission has considered the rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:57 Dec 20, 2017 Jkt 244001 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 to protect investors and the public interest. While the Commission has had concerns about the adverse effects and impact of p.m.-settlement upon market volatility and the operation of fair and orderly markets on the underlying cash market at or near the close of trading, it has approved on a limited basis p.m.settlement for cash-settled options.9 More specifically, the Commission approved on a pilot basis CBOE’s nearly identical Nonstandard Expirations Pilot Program.10 Phlx’s proposal includes one additional data element in the annual report: An analysis of publically available data concerning trading patterns with respect to other p.m.settled products from other exchanges. In all other aspects, Phlx’s proposal conforms to CBOE’s Nonstandard Expirations Pilot Program. The Commission believes that the proposal strikes a reasonable balance between the Phlx’s desire to offer a wider array of investment opportunities and the need to avoid unnecessary proliferation of options series that may burden certain liquidity providers and further stress options quotation and transaction infrastructure. Phlx’s proposed twelve-month Pilot Program will allow for both the Exchange and the Commission to continue monitoring the potential for adverse market effects of p.m.-settlement on the market, including the underlying cash equities markets, at the expiration of these options. The Commission notes that Phlx will provide the Commission with the annual report analyzing volume and open interest of EOMs and Weekly Expirations that will also contain information and analysis of EOMs and Weekly Expirations trading patterns and index price volatility and share trading activity for series that exceed minimum parameters. This information should be 9 See, e.g., Securities Exchange Act Release Nos. 31800 (February 1, 1993), 58 FR 7274 (February 5, 1993) (SR–CBOE–92–13) (Order approving CBOE’s listing of p.m.-settled, cash-settled options on certain broad-based indexes); 61439 (January 28, 2010), 75 FR 5831 (February 4, 2010) (SR–CBOE– 2009–087) (Order approving CBOE’s listing of p.m.settled FLEX options on a pilot basis); 70087 (July 31, 2013), 78 FR 47809 (August 6, 2013) (SR– CBOE–2013–055) (Order approving the addition of p.m.-settled mini-SPX index options to the SPXPM Pilot for p.m.-settled SPX index options); 81293 (August 2, 2017), 82 FR 37138 (August 8, 2017) (SR–Phlx–2017–04) (Order approving Phlx to list and trade of p.m.-Settled NASDAQ–100 Index(R) Options on a Pilot Basis). 10 See supra note 5. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 60653 useful to the Commission as it evaluates whether allowing p.m.-settlement for EOMs and Weekly Expirations has resulted in increased market and price volatility in the underlying component stocks, particularly at expiration. The Pilot Program information should help the Commission and the Exchange assess the impact on the markets and determine whether changes to these programs are necessary or appropriate. Furthermore, the Exchange’s ongoing analysis of the Pilot Program should help it monitor any potential risks from large p.m.-settled positions and take appropriate action, if warranted. IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule Change 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 rule-comments@ sec.gov. Please include File Number SR– Phlx–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–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 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for E:\FR\FM\21DEN1.SGM 21DEN1 60654 Federal Register / Vol. 82, No. 244 / Thursday, December 21, 2017 / Notices 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 January 11, 2018. V. Accelerated Approval of Amendment No. 2 VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,12 that the proposed rule change (SR–Phlx–2017– 79), as modified by Amendment No. 1, be approved, and Amendment No. 2 thereto be approved on an accelerated basis, for a pilot period of twelve months. daltland on DSKBBV9HB2PROD with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–27469 Filed 12–20–17; 8:45 am] BILLING CODE 8011–01–P 11 15 U.S.C. 78s(b)(2). U.S.C. 78s(b)(2). 13 17 CFR 200.30–3(a)(12). 12 15 20:57 Dec 20, 2017 [Release No. 34–82336; File No. SR–CBOE– 2017–072; SR–C2–2017–030] Self-Regulatory Organizations; Cboe Exchange, Inc.; Cboe C2 Exchange, Inc.; Order Granting Accelerated Approval to a Proposed Rule Change Relating to Its Nominating and Governance Committee and Regulatory Oversight and Compliance Committee as Well as Its Director Nomination and Committee Appointment Process December 15, 2017. The Commission finds good cause to approve Amendment No. 2 prior to the thirtieth day after the date of publication of notice of Amendment No. 2 in the Federal Register. As described above, the Exchange proposes to establish a Nonstandard Expirations Pilot Program based upon, and substantially similar to, CBOE’s Rule 24.9(e), Nonstandard Expirations Pilot Program, previously approved by the Commission. Amendment No. 2 proposes to provide additional data to the Commission that was not applicable to CBOE’s Nonstandard Expirations Pilot Program specifically because it would provide data to the Commission on the effect of a subsequent pilot program on the CBOE’s existing pilot program. The Exchange’s proposed Amendment No. 2 does not otherwise change its proposal. The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,11 to approve Amendment No. 2 on an accelerated basis. VerDate Sep<11>2014 SECURITIES AND EXCHANGE COMMISSION Jkt 244001 I. Introduction On November 14, 2017, Cboe C2 Exchange, Inc. (‘‘C2’’) and on November 15, 2017, Cboe Exchange, Inc. (‘‘Cboe’’ and, together with C2, the ‘‘Exchanges’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 proposed rule changes to eliminate their Nominating and Governance Committees (‘‘N&G Committee’’); amend the process by which (i) directors are elected, (ii) committee appointments are made, and (iii) vacancies are filled; and rename their Regulatory Oversight and Compliance Committees (‘‘ROCC’’).3 The proposed rule changes were published for comment in the Federal Register on November 27, 2017.4 The Commission received no comments on the proposals. This order approves the proposed rule changes on an accelerated basis. II. Description of the Proposal First, the Exchanges propose to eliminate their N&G Committees and provide that the sole stockholder of the Exchanges (Cboe Global Markets, Inc.) shall nominate and elect directors at the annual meetings of the sole stockholder, except with respect to fairrepresentation directors (‘‘Representative Directors’’).5 As a consequence of the elimination of the N&G Committee, the Exchanges propose 1 15 U.S.C. 78s(b)(1). CFR 240.19b 4. 3 In addition, the Exchanges propose to make several formatting changes throughout their Bylaws as well as to change their names in the title and signature lines in their Certificates of Incorporation (‘‘Certificates’’) to reflect recent changes to their legal names. 4 See Securities Exchange Act Release No. 82119 (November 20, 2017), 82 FR 56085 (SR–CBOE– 2017–072); Securities Exchange Act Release No. 82120 (November 20, 2017), 82 FR 56069 (SR–C2– 2017–030) (‘‘Notices’’). 5 See id. at 56086 and 56069, respectively. 2 17 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 conforming changes to reallocate its responsibility. Specifically, the Exchanges propose to amend the definition of ‘‘Representative Director Nominating Body’’ to provide that if an Exchange’s Board of Directors (‘‘Board’’) has two or more Industry Directors, excluding directors that are Exchange employees, those Industry Directors shall act as the Representative Director Nominating Body. If there are fewer than two Industry Directors on the Board (excluding directors that are employees of the Exchange), then the Trading Permit Holder Subcommittee of the Advisory Board shall act as the Representative Director Nominating Body. The Exchanges further propose to amend their Bylaws and Certificates to provide that the sole stockholder is bound to nominate and elect the Representative Directors nominees recommended by the Representative Director Nominating Body or, in the event of a petition candidate, the Representative Director nominees who receive the most votes pursuant to a Run-off Election. Lastly, the Exchanges each propose to amend Section 3.1 of their Bylaws to provide that the Board is responsible for determining whether a director candidate satisfies the applicable qualifications for election as a director. Second, the Exchanges propose to transfer the N&G Committee’s current authority with respect to committee appointments to their Boards (or appropriate subcommittee of the Board).6 Specifically, the Exchanges propose to amend Section 4.2 and 6.1 of their Bylaws to state that members of the Executive Committee and Advisory Board will be appointed by the Board. The Exchanges also propose to amend Section 4.4 of their Bylaws to state that members of the ROCC will be appointed by the Board on the recommendation of the Non-Industry Directors of the Board. Lastly, Cboe proposes to amend its Rule 2.1 to provide that the Board shall appoint the Chairman, Vice Chairman (if any) and members to the Business Conduct Committee (‘‘BCC’’) as well as fill any vacancies on the BCC. Third, the Exchanges propose to amend their Bylaws to alter the process for filling director vacancies.7 Specifically, the Exchanges propose to amend Section 3.4 of their Bylaws to provide that in the event any Industry or Non-Industry Director fails to maintain the required qualifications and the director’s term is accordingly terminated, the sole stockholder, instead of the Board, shall be able to fill the 6 See 7 See E:\FR\FM\21DEN1.SGM id. at 56086 and 56070, respectively. id. at 56086 and 56070, respectively. 21DEN1

Agencies

[Federal Register Volume 82, Number 244 (Thursday, December 21, 2017)]
[Notices]
[Pages 60651-60654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27469]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82341; File No. SR-Phlx-2017-79]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Amendment No. 2, Order Approving a Proposed Rule Change, as Modified 
by Amendment No. 1 and Granting Accelerated Approval of Amendment No. 
2, of a Proposed Rule Change To Establish a Nonstandard Expirations 
Pilot Program

December 15, 2017.

I. Introduction

    On October 12, 2017, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC''), pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to establish a Nonstandard Expirations Pilot Program. On October 
26, 2017, the Exchange filed Amendment No.1 to the proposal to amend 
and replace the original filing in its entirety. The proposed rule 
change was published for comment in the Federal Register on November 2, 
2017.\3\ On December 6, 2017, the Exchange filed a partial amendment to 
the proposed rule change (``Amendment No. 2'').\4\ The Commission 
received no comments on the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81975 (Oct. 27, 
2017), 82 FR 50921.
    \4\ In Amendment No. 2, the Exchange proposes to provide to the 
Commission, to the extent that data on other weekly or monthly p.m.-
settled products from other exchanges is publicly available, a time 
series analysis of open interest in weekly expiration (``Weekly 
Expiration'') and end of month (``EOM'') series compared to open 
interest in weekly or monthly p.m.-settled products of other 
exchanges in order to determine whether users are shifting positions 
from other weekly or monthly p.m.-settled products to the Weekly 
Expiration and EOM series.
---------------------------------------------------------------------------

    This order provides notice of filing of Amendment No. 2, approves 
the proposal, as modified by Amendment No. 1, and approves Amendment 
No. 2 on an accelerated basis, for a pilot period of twelve months.

II. Description of the Amended Proposal

    The Exchange proposes to permit the listing and trading, on a pilot 
basis, of p.m.-settled options on broad-based indexes with nonstandard 
expiration dates for a period of twelve months (the ``Nonstandard 
Expirations Pilot Program'' or ``Pilot Program'') from the date of 
approval of this proposed rule change. The Pilot Program would permit 
both Weekly Expirations and EOM expirations 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. The proposal is substantially 
similar to Chicago Board Options Exchange (``CBOE'') Rule 24.9(e), 
Nonstandard Expirations Pilot Program.\5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 78531 (August 10, 
2016), 81 FR 54643 (August 16, 2016) (SR-CBOE-2016-046) (Order 
approving expansion of CBOE's Nonstandard Expirations Pilot Program 
to include Monday Expirations); 76909 (January 14, 2016), 81 FR 3512 
(January 21, 2016) (SR-CBOE-2015-106) (Order approving expansion of 
CBOE's Nonstandard Expirations Pilot Program to include Wednesday 
Expirations); 62911 (September 14, 2010), 75 FR 57539 (September 21, 
2010) (SR-CBOE-2009-075) (Order approving CBOE's Nonstandard 
Expirations Pilot Program).
---------------------------------------------------------------------------

A. 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 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

[[Page 60652]]

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.

B. 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 
the 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.

C. Contract Terms and Trading Rules

    The Exchange proposes that 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, except that the exercise settlement 
value will be based on the index value derived from the closing prices 
of component stocks. 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.\6\ 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).
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    \6\ 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 expire on the customary 
``third Friday''.
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    The Exchange represents that it has analyzed its capacity and 
believes that it and the Options Price Reporting Authority have the 
necessary systems capacity to handle any additional traffic associated 
with the listing of the maximum number nonstandard expirations 
permitted under the Pilot Program.

D. Pilot Program Annual Report

    As part of the Pilot Program, the Exchange proposes to submit a 
Pilot Program report to the Commission at least two months prior to the 
expiration date of the Pilot Program (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, a.m.-settled series, if 
applicable, for the period covered in the annual report as well as for 
the six-month period prior to the initiation of the Pilot Program.
    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.
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. In addition, to the extent that data on 
other weekly or monthly p.m. settled products from other exchanges is 
publicly available, the annual report will also compare open interest 
with these options in order to determine whether users are shifting 
positions from other weekly or monthly p.m.-settled products to the 
Weekly Expiration and EOM series. Declining open interest in standard 
series or the weekly or monthly p.m.-settled products of other 
exchanges accompanied by rising open interest in Weekly Expiration and 
EOM series would suggest that users are shifting positions.

[[Page 60653]]

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.

III. Discussion and Commission's Findings

    After careful review of the proposed rule change, the Commission 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder that are applicable to a 
national securities exchange.\7\ Specifically, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\8\ which requires, among other things, that the rules of a 
national securities 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 to protect 
investors and the public interest.
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    \7\ In approving this rule change, the Commission has considered 
the rule's impact on efficiency, competition, and capital formation. 
See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    While the Commission has had concerns about the adverse effects and 
impact of p.m.-settlement upon market volatility and the operation of 
fair and orderly markets on the underlying cash market at or near the 
close of trading, it has approved on a limited basis p.m.-settlement 
for cash-settled options.\9\ More specifically, the Commission approved 
on a pilot basis CBOE's nearly identical Nonstandard Expirations Pilot 
Program.\10\ Phlx's proposal includes one additional data element in 
the annual report: An analysis of publically available data concerning 
trading patterns with respect to other p.m.-settled products from other 
exchanges. In all other aspects, Phlx's proposal conforms to CBOE's 
Nonstandard Expirations Pilot Program.
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    \9\ See, e.g., Securities Exchange Act Release Nos. 31800 
(February 1, 1993), 58 FR 7274 (February 5, 1993) (SR-CBOE-92-13) 
(Order approving CBOE's listing of p.m.-settled, cash-settled 
options on certain broad-based indexes); 61439 (January 28, 2010), 
75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (Order approving 
CBOE's listing of p.m.-settled FLEX options on a pilot basis); 70087 
(July 31, 2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055) 
(Order approving the addition of p.m.-settled mini-SPX index options 
to the SPXPM Pilot for p.m.-settled SPX index options); 81293 
(August 2, 2017), 82 FR 37138 (August 8, 2017) (SR-Phlx-2017-04) 
(Order approving Phlx to list and trade of p.m.-Settled NASDAQ-100 
Index(R) Options on a Pilot Basis).
    \10\ See supra note 5.
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    The Commission believes that the proposal strikes a reasonable 
balance between the Phlx's desire to offer a wider array of investment 
opportunities and the need to avoid unnecessary proliferation of 
options series that may burden certain liquidity providers and further 
stress options quotation and transaction infrastructure. Phlx's 
proposed twelve-month Pilot Program will allow for both the Exchange 
and the Commission to continue monitoring the potential for adverse 
market effects of p.m.-settlement on the market, including the 
underlying cash equities markets, at the expiration of these options.
    The Commission notes that Phlx will provide the Commission with the 
annual report analyzing volume and open interest of EOMs and Weekly 
Expirations that will also contain information and analysis of EOMs and 
Weekly Expirations trading patterns and index price volatility and 
share trading activity for series that exceed minimum parameters. This 
information should be useful to the Commission as it evaluates whether 
allowing p.m.-settlement for EOMs and Weekly Expirations has resulted 
in increased market and price volatility in the underlying component 
stocks, particularly at expiration. The Pilot Program information 
should help the Commission and the Exchange assess the impact on the 
markets and determine whether changes to these programs are necessary 
or appropriate. Furthermore, the Exchange's ongoing analysis of the 
Pilot Program should help it monitor any potential risks from large 
p.m.-settled positions and take appropriate action, if warranted.

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    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-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-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 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for

[[Page 60654]]

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 January 11, 2018.

V. Accelerated Approval of Amendment No. 2

    The Commission finds good cause to approve Amendment No. 2 prior to 
the thirtieth day after the date of publication of notice of Amendment 
No. 2 in the Federal Register. As described above, the Exchange 
proposes to establish a Nonstandard Expirations Pilot Program based 
upon, and substantially similar to, CBOE's Rule 24.9(e), Nonstandard 
Expirations Pilot Program, previously approved by the Commission. 
Amendment No. 2 proposes to provide additional data to the Commission 
that was not applicable to CBOE's Nonstandard Expirations Pilot Program 
specifically because it would provide data to the Commission on the 
effect of a subsequent pilot program on the CBOE's existing pilot 
program. The Exchange's proposed Amendment No. 2 does not otherwise 
change its proposal. The Commission finds good cause, pursuant to 
Section 19(b)(2) of the Act,\11\ to approve Amendment No. 2 on an 
accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2017-79), as modified 
by Amendment No. 1, be approved, and Amendment No. 2 thereto be 
approved on an accelerated basis, for a pilot period of twelve months.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Robert W. Errett,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-27469 Filed 12-20-17; 8:45 am]
 BILLING CODE 8011-01-P
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