Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend ISE Rule 2008(g), Pricing When Primary Market Does Not Open, 56124-56127 [2018-24526]
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Federal Register / Vol. 83, No. 218 / Friday, November 9, 2018 / Notices
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$0.0000009 per dollar of assets under
management for large funds, the staff
estimates compliance with the record
storage requirements of rule 2a–7 costs
the fund industry approximately $35.31
million per year.5
Based on responses from individuals
in the money market fund industry, the
staff estimates that some of the largest
fund complexes have created computer
programs for maintaining and
preserving compliance records for rule
2a–7. Based on a cost of $0.0000132 per
dollar of assets under management for
large funds, the staff estimates that total
annualized capital/startup costs range
from $0 for small funds to $40.9 million
for all large funds.6 Commission staff
further estimates that, even absent the
requirements of rule 2a–7, money
market funds would spend at least half
of the amount for capital costs ($20.45
million) 7 and for record preservation
($17.65 million) 8 to establish and
maintain these records and the systems
for preserving them as a part of sound
business practices to ensure
diversification and minimal credit risk
in a portfolio for a fund that seeks to
maintain a stable price per share.
As a result, the estimated total annual
cost is being decreased from $92.9
million to $38.11 million.9 This net
decrease of $54.79 million 10 is
attributable to a reduction in the
number of money market mutual funds,
updated information from money
5 The staff estimated the annual cost of preserving
the required books and records by identifying the
annual costs incurred by several funds and then
relating this total cost to the average net assets of
these funds during the year. With a total of $403.6
million under management in small funds, $60.4
billion under management in medium funds and
$3.1 trillion under management in large funds, the
costs of preservation were estimated as follows:
((0.0051295 × $403.6 million) + (0.0005041 × $60.4
billion) + (0.0000009 × $3.1 trillion) = $35.31
million. For purposes of this PRA submission,
Commission staff used the following categories for
fund sizes: (i) Small—money market funds with $50
million or less in assets under management; (ii)
medium—money market funds with more than $50
million up to and including $1 billion in assets
under management; and (iii) large—money market
funds with more than $1 billion in assets under
management.
6 This estimate is based on the following
calculation: $0.0000132 × $3.1 trillion in assets
under management for large funds = $40.9 million.
7 This estimate is based on the following
calculation: $40.9 million in capital costs/2 =
$20.45 million.
8 This estimate is based on the following
calculation: $35.31 million in record preservation
costs/2 = $17.65 million
9 This estimate is based on the following
calculation: $35.31 million in record preservation
costs + $40.9 million in capital costs¥$17.65
million in record preservation costs absent rule 2a–
7 requirements¥$20.45 million in capital costs
absent rule 2a–7 requirements = $38.11 million.
10 This estimate is based on the following
calculation: $92.9 million¥$38.11 million = $54.79
million.
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market funds regarding assets under
management, as well as deducting the
$38.1 million 11 in capital and
preservation costs a money market fund
would incur absent the requirements of
rule 2a–7.
These estimates of burden hours and
costs are made solely for the purposes
of the Paperwork Reduction Act. The
estimates are not derived from a
comprehensive or even a representative
survey or study of Commission rules.
The collections of information
required by rule 2a–7 are necessary to
obtain the benefits described above.
Notices to the Commission will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid control number.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Candace
Kenner, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: November 6, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–24575 Filed 11–8–18; 8:45 am]
BILLING CODE 8011–01–P
Exchange Commission staff will hold a
public roundtable on Thursday,
November 15, 2018 at 9:30 a.m.
PLACE: The roundtable will be held in
the Auditorium at the Commission’s
headquarters, 100 F Street NE,
Washington, DC.
STATUS: The meeting will begin at 9:30
a.m. and will be open to the public.
Seating will be on a first-come, firstserved basis. Doors will open at 9:00
a.m. Visitors will be subject to security
checks. The meeting will be webcast on
the Commission’s website at
www.sec.gov.
MATTERS TO BE CONSIDERED: The
Commission staff will host a roundtable
on the proxy process. The roundtable is
open to the public and the public is
invited to submit written comments.
This Sunshine Act notice is being
issued because a majority of the
Commission may attend the roundtable.
The agenda for the roundtable will
focus on key aspects of the U.S. proxy
system, including proxy voting
mechanics and technology, the
shareholder proposal process, and the
role and regulation of proxy advisory
firms.
CONTACT PERSON FOR MORE INFORMATION:
For further information, please contact
Brent J. Fields from the Office of the
Secretary at (202) 551–5400.
Dated: November 6, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018–24632 Filed 11–7–18; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84539; File No. SR–ISE–
2018–88]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend ISE Rule
2008(g), Pricing When Primary Market
Does Not Open
November 5, 2018.
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, that the Securities and
TIME AND DATE:
11 This estimate is based on the following
calculation if rule 2a–7 compliance was not
required for a money market fund: $20.45 million
in capital costs + $17.65 million in record
preservation = $38.1 million.
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
23, 2018, Nasdaq ISE, LLC (‘‘ISE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 83, No. 218 / Friday, November 9, 2018 / Notices
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 amend ISE
Rule 2008, Trading Sessions, Section
(g), Pricing When Primary Market Does
Not Open.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend
Exchange Rule 2008(g) regarding
determination of the price of component
securities for purposes of calculating the
current index value at expiration of
Exchange listed index options on days
when the primary market for the
underlying security does not open.3 The
proposed amendment would apply to
both AM-settled and PM-settled index
options.4
3 Three of the Exchange’s affiliated options
exchanges, Nasdaq BX, Inc. (‘‘BX’’), The Nasdaq
Stock Market LLC (‘‘Nasdaq’’) and Nasdaq PHLX
LLC (‘‘Phlx’’), will also be proposing rule changes
relating to the manner of determining an underlying
index component security’s price for purposes of
calculating the current index value at expiration of
an index option under these circumstances. See
SR–NASDAQ–2018–081, SR–Phlx–2018–63, and
SR–BX–2018–049. The Exchange desires its rules to
be aligned with those of the affiliated exchanges.
4 Currently, traditional index options expiring on
the third Friday of the month are A.M.-settled,
meaning that the index option’s settlement value is
calculated based upon opening prices of the index’s
component securities on the last day of trading in
the component securities prior to expiration,
normally on Friday morning. By contrast, the
settlement of P.M.-settled index options is based
upon the closing index value, defined as the last
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Currently, Rule 2008(g) provides that
when the primary market for a security
underlying the current index value of an
index option does not open for trading
on a given day, the price of that security
shall be determined, for purposes of
calculating the current index value at
expiration, based on the opening price
of that security on the next day that its
primary market is open for trading.5
The Exchange now proposes to delete
from the rule the language providing for
determination of the price of the
component security, for purposes of
calculating the current index value at
expiration, based on the opening price
of that security on the next day that its
primary market is open for trading. The
Exchange proposes to amend Rule
2008(g) so that it provides that when the
primary market for a security
underlying the current index value of an
index option does not open for trading
on a given day, which is an expiration
day, for the purposes of calculating the
settlement price at expiration, the last
reported sale price of the security from
the previous trading day shall be used.6
The revised provision would permit
market participants the certainty of
knowing the settlement value on the day
on which the primary market fails to
open. Additionally, the amendment
would eliminate the potential
difficulties that could arise if the
reporting authority for the index were
unwilling or unable to calculate the
settlement value using prices for the
relevant security(ies) on the next day
that its primary market is open for
trading.7
The rule would continue to provide
that this procedure shall not be used if
the current index value at expiration is
fixed in accordance with OCC rules and
by-laws. This language recognizes that
OCC is authorized under its rules and
by-laws to take certain actions relating
to settlement in the event of the
unavailability or inaccuracy of the
current underlying interest value.8 The
index value reported on a business day, for the day
on which the index option is exercised. P.M.-settled
options expiring on the third Friday of the month
would therefore normally be settled on the basis of
Friday’s closing prices of component securities.
5 Rule 2008(g) provides however that this
procedure is not to be used if the current index
value at expiration is fixed in accordance with the
Rules and By-Laws of the Options Clearing
Corporation (‘‘OCC’’).
6 Rule 2008(g) would continue to apply to both
A.M.-settled and P.M.-settled index options.
7 The index calculator for the NDX, MNX and
BKX indexes, which are products traded on Nasdaq
affiliated exchanges, uses the previous day’s closing
price if components of the index do not open.
8 See OCC By-Laws Article XVII, Section 4(a),
which provides in relevant part that if OCC shall
determine that the primary market for one or more
index components did not open or remain open for
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Exchange proposes to retain this
language in recognition of OCC’s
authority to establish settlement prices
and procedures in certain circumstances
where normal settlement procedures
cannot be followed due unforeseen
events, such as the unanticipated
closure of a primary market for a
component security on a day on which
it would normally be open for trading.
The Exchange would thus retain the last
sentence of Rule 2008(g) which will
make clear that the new procedure
would not apply in the event that OCC
exercises its authority to determine
settlement prices. Rather, the proposed
new language would apply only when a
primary market does not open and OCC
elects not to exercise its authority to
intervene and take action to establish a
settlement price.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,9 in general, and furthers the
objectives of Section 6(b)(5) of the Act,10
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest. As
noted above, the amendment to Rule
2008(g) would establish clearly the
procedure for determination of an index
component security’s price in the event
that the primary market for the security
fails to open. By adopting the proposed
rule amendment, the Exchange would
provide certainty to the market
regarding the procedure it would follow
in the absence of action by OCC.
Additionally, it would provide market
participants with the certainty of
knowing the settlement value on the day
on which the primary market fails to
open, and eliminate the potential
difficulties that could arise if the
reporting authority for the index were
unwilling or unable to calculate the
trading (or that any such components did not open
or remain open for trading on such market(s)) on
a trading day at or before the time whenthe [sic]
current index value for that trading day would
ordinarily be determined, orthat [sic] a current
index value or other value or price to be used as,
or to determine,the [sic] exercise settlement amount
(a ‘‘required value’’) for a trading day is
otherwiseunreported [sic], inaccurate, unreliable,
unavailable or inappropriate for purposes
ofcalculating [sic] the exercise settlement amount,
then, in addition to any other actionsthat [sic] OCC
may be entitled to take under OCC’s bylaws and
rules, the, OCC is empowered to take any or all of
a range of permitted actions with respect to any
series of options on such index, including fixing the
exercise settlement amount.
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 83, No. 218 / Friday, November 9, 2018 / Notices
settlement value using prices for the
relevant security(ies) on the next day
that its primary market is open for
trading.
It would also acknowledge clearly,
however, that OCC may, under its rules
and by-laws, establish settlement prices
for expiring index options that may
differ from the settlement prices that
would otherwise be provided for in
Exchange rules, thereby protecting
investors and the public interest by
reducing potential for confusion in that
regard.
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. On the
contrary, the Exchange believes that the
proposed amendment will benefit
investors, market participants, and the
marketplace in general by setting forth
clearly the manner in which index
option settlement values will be
determined if the primary market for a
security underlying the current index
value of an index option does not open
for trading, allowing market participants
the certainty of knowing the settlement
price on the day on which the primary
market fails to open, eliminating the
potential difficulties that could arise if
the reporting authority for the index
were unwilling or unable to calculate
the settlement value using prices for the
relevant security(ies) on the next day
that its primary market is open for
trading, and retaining the existing
provision stating that the Exchange will
defer to OCC in the determination of
settlement prices when and if OCC
exercises its authority under its own
settlement price procedures in
accordance with its rules and by-laws.
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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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A) of the Act 11 and Rule 19b–
4(f)(6) thereunder.12 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
11 15
12 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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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) of the Act and Rule 19b–
4(f)(6) thereunder.13
A proposed rule change filed under
Rule 19b–4(f)(6) 14 normally does not
become operative for 30 days after the
date of the filing. However, pursuant to
Rule 19b–4(f)(6)(iii),15 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. In
its filing with the Commission, the
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing to provide
certainty regarding the determination of
settlement prices for index options
when the primary market for a security
underlying the current index value of an
index option does not does not open for
trading on an expiration day, including
in instances in which OCC exercises its
authority to determine the settlement
price. According to the Exchange, the
proposed rule change will allow
investors to know the settlement price
of an index option on the day on which
the primary market of an underlying
component fails to open and will avoid
potential difficulties that could arise if
the reporting authority for the index was
unwilling or unable to calculate the
settlement value using prices for the
relevant securities on the next day that
its primary market is open for trading.
As such, the Commission believes that
waiver of the 30-day operative delay is
consistent with the protection of
investors and the public interest and
designates the proposed rule change
operative upon filing.16
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
13 In addition, Rule 19b–4(f)(6)(iii) requires a selfregulatory organization to give the Commission
written notice of its intent to file 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.
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
16 For purposes only of waiving the operative
delay, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
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Commission shall institute proceedings
under Section 19(b)(2)(B) 17 of the Act to
determine whether the proposed rule
change 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
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2018–88 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISE–2018–88. 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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–ISE–2018–88, and should
17 15
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U.S.C. 78s(b)(2)(B).
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Federal Register / Vol. 83, No. 218 / Friday, November 9, 2018 / Notices
be submitted on or before November 30,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–24526 Filed 11–8–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84538; File No. SR–
NASDAQ–2018–081]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Chapter XIV, Index Rules, Section
10(g), Pricing When Primary Market
Does Not Open
November 5, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
23, 2018, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Chapter XIV, Index Rules, Section 10(g),
Pricing When Primary Market Does Not
Open.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.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
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 its
rules at Chapter XIV, Index Rules,
Section 10(g) of the Exchange’s rulebook
regarding determination of the price of
component securities for purposes of
calculating the current index value at
expiration of Exchange index options on
days when the primary market for the
underlying security does not open.3 The
proposed amendment would apply to
both AM-settled and PM-settled index
options.4
Currently, Chapter XIV, Section 10(g)
provides that when the primary market
for a security underlying the current
index value of an index option does not
open for trading on a given day, the
price of that security shall be
determined, for purposes of calculating
the current index value at expiration,
based on the opening price of that
security on the next day that its primary
market is open for trading.5
The Exchange now proposes to delete
from the rule the language providing for
determination of the price of the
component security, for purposes of
calculating the current index value at
expiration, based on the opening price
of that security on the next day that its
primary market is open for trading. The
3 Three of the Exchange’s affiliated options
exchanges, Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq BX
(‘‘BX’’) and Nasdaq PHLX LLC, will also be
proposing rule changes relating to the manner of
determining an underlying index component
security’s price for purposes of calculating the
current index value at expiration of an index option
under these circumstances. See SR–BX–2018–049,
SR–Phlx–2018–63, and SR–ISE–2018–88. The
Exchange desires its rules to be aligned with those
of the affiliated exchanges.
4 Currently, traditional index options expiring on
the third Friday of the month are A.M.-settled,
meaning that the index option’s settlement value is
calculated based upon opening prices of the index’s
component securities on the last day of trading in
the component securities prior to expiration,
normally on Friday morning. By contrast, the
settlement of P.M.-settled index options is based
upon the closing index value, defined as the last
index value reported on a business day, for the day
on which the index option is exercised. P.M.-settled
options expiring on the third Friday of the month
would therefore normally be settled on the basis of
Friday’s closing prices of component securities.
5 The rule provides, however, that this procedure
shall not be used if the current index value at
expiration is fixed in accordance with the Rules and
By-Laws of the options Clearing Corporation
(‘‘OCC’’).
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56127
Exchange proposes to amend Chapter
XIV, Section 10(g) so that it provides
that when the primary market for a
security underlying the current index
value of an index option does not open
for trading on a given day, which is an
expiration day, for purposes of
calculating the settlement price at
expiration, the last reported sale price of
the security from the previous trading
day shall be used.6 The revised
provision would permit market
participants the certainty of knowing
the settlement value on the day on
which the primary market fails to open.
Additionally, the amendment would
eliminate the potential difficulties that
could arise if the reporting authority for
the index were unwilling or unable to
calculate the settlement value using
prices for the relevant security(ies) on
the next day that its primary market is
open for trading.7
The rule would continue to provide
that this procedure shall not be used if
the current index value at expiration is
fixed in accordance with OCC rules and
by-laws. This language recognizes that
OCC is authorized under its rules and
by-laws to take certain actions relating
to settlement in the event of the
unavailability or inaccuracy of the
current underlying interest value.8 The
Exchange proposes to retain this
language in recognition of OCC’s
authority to establish settlement prices
and procedures in certain circumstances
where normal settlement procedures
cannot be followed due unforeseen
events, such as the unanticipated
closure of a primary market for a
component security on a day on which
it would normally be open for trading.
The Exchange would thus retain the last
sentence of Chapter XIV, Section 10(g)
which will make clear that the new
6 Chapter XIV, Section 10(g) would continue to
apply to both A.M.-settled and P.M.-settled index
options.
7 The index calculator for the NDX, MNX and
BKX indexes, which are products traded on Nasdaq
affiliated exchanges, uses the previous day’s closing
price if components of the index do not open.
8 See OCC By-Laws Article XVII, Section 4(a),
which provides in relevant part that if OCC shall
determine that the primary market for one or more
index components did not open or remain open for
trading (or that any such components did not open
or remain open for trading on such market(s)) on
a trading day at or before the time when the current
index value for that trading day would ordinarily
be determined, or that a current index value or
other value or price to be used as, or to determine,
the exercise settlement amount (a ‘‘required value’’)
for a trading day is otherwise unreported,
inaccurate, unreliable, unavailable or inappropriate
for purposes of calculating the exercise settlement
amount, then, in addition to any other actions that
OCC may be entitled to take under OCC’s bylaws
and rules, the, OCC is empowered to take any or
all of a range of permitted actions with respect to
any series of options on such index, including
fixing the exercise settlement amount.
E:\FR\FM\09NON1.SGM
09NON1
]]>Agencies
[Federal Register Volume 83, Number 218 (Friday, November 9, 2018)]
[Notices]
[Pages 56124-56127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24526]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84539; File No. SR-ISE-2018-88]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend ISE Rule
2008(g), Pricing When Primary Market Does Not Open
November 5, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 23, 2018, Nasdaq ISE, LLC (``ISE'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is
[[Page 56125]]
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend ISE Rule 2008, Trading Sessions,
Section (g), Pricing When Primary Market Does Not Open.
The text of the proposed rule change is available on the Exchange's
website at https://ise.cchwallstreet.com/, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 2008(g) regarding
determination of the price of component securities for purposes of
calculating the current index value at expiration of Exchange listed
index options on days when the primary market for the underlying
security does not open.\3\ The proposed amendment would apply to both
AM-settled and PM-settled index options.\4\
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\3\ Three of the Exchange's affiliated options exchanges, Nasdaq
BX, Inc. (``BX''), The Nasdaq Stock Market LLC (``Nasdaq'') and
Nasdaq PHLX LLC (``Phlx''), will also be proposing rule changes
relating to the manner of determining an underlying index component
security's price for purposes of calculating the current index value
at expiration of an index option under these circumstances. See SR-
NASDAQ-2018-081, SR-Phlx-2018-63, and SR-BX-2018-049. The Exchange
desires its rules to be aligned with those of the affiliated
exchanges.
\4\ Currently, traditional index options expiring on the third
Friday of the month are A.M.-settled, meaning that the index
option's settlement value is calculated based upon opening prices of
the index's component securities on the last day of trading in the
component securities prior to expiration, normally on Friday
morning. By contrast, the settlement of P.M.-settled index options
is based upon the closing index value, defined as the last index
value reported on a business day, for the day on which the index
option is exercised. P.M.-settled options expiring on the third
Friday of the month would therefore normally be settled on the basis
of Friday's closing prices of component securities.
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Currently, Rule 2008(g) provides that when the primary market for a
security underlying the current index value of an index option does not
open for trading on a given day, the price of that security shall be
determined, for purposes of calculating the current index value at
expiration, based on the opening price of that security on the next day
that its primary market is open for trading.\5\
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\5\ Rule 2008(g) provides however that this procedure is not to
be used if the current index value at expiration is fixed in
accordance with the Rules and By-Laws of the Options Clearing
Corporation (``OCC'').
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The Exchange now proposes to delete from the rule the language
providing for determination of the price of the component security, for
purposes of calculating the current index value at expiration, based on
the opening price of that security on the next day that its primary
market is open for trading. The Exchange proposes to amend Rule 2008(g)
so that it provides that when the primary market for a security
underlying the current index value of an index option does not open for
trading on a given day, which is an expiration day, for the purposes of
calculating the settlement price at expiration, the last reported sale
price of the security from the previous trading day shall be used.\6\
The revised provision would permit market participants the certainty of
knowing the settlement value on the day on which the primary market
fails to open. Additionally, the amendment would eliminate the
potential difficulties that could arise if the reporting authority for
the index were unwilling or unable to calculate the settlement value
using prices for the relevant security(ies) on the next day that its
primary market is open for trading.\7\
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\6\ Rule 2008(g) would continue to apply to both A.M.-settled
and P.M.-settled index options.
\7\ The index calculator for the NDX, MNX and BKX indexes, which
are products traded on Nasdaq affiliated exchanges, uses the
previous day's closing price if components of the index do not open.
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The rule would continue to provide that this procedure shall not be
used if the current index value at expiration is fixed in accordance
with OCC rules and by-laws. This language recognizes that OCC is
authorized under its rules and by-laws to take certain actions relating
to settlement in the event of the unavailability or inaccuracy of the
current underlying interest value.\8\ The Exchange proposes to retain
this language in recognition of OCC's authority to establish settlement
prices and procedures in certain circumstances where normal settlement
procedures cannot be followed due unforeseen events, such as the
unanticipated closure of a primary market for a component security on a
day on which it would normally be open for trading. The Exchange would
thus retain the last sentence of Rule 2008(g) which will make clear
that the new procedure would not apply in the event that OCC exercises
its authority to determine settlement prices. Rather, the proposed new
language would apply only when a primary market does not open and OCC
elects not to exercise its authority to intervene and take action to
establish a settlement price.
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\8\ See OCC By-Laws Article XVII, Section 4(a), which provides
in relevant part that if OCC shall determine that the primary market
for one or more index components did not open or remain open for
trading (or that any such components did not open or remain open for
trading on such market(s)) on a trading day at or before the time
whenthe [sic] current index value for that trading day would
ordinarily be determined, orthat [sic] a current index value or
other value or price to be used as, or to determine,the [sic]
exercise settlement amount (a ``required value'') for a trading day
is otherwiseunreported [sic], inaccurate, unreliable, unavailable or
inappropriate for purposes ofcalculating [sic] the exercise
settlement amount, then, in addition to any other actionsthat [sic]
OCC may be entitled to take under OCC's bylaws and rules, the, OCC
is empowered to take any or all of a range of permitted actions with
respect to any series of options on such index, including fixing the
exercise settlement amount.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. As noted above, the amendment to Rule 2008(g) would establish
clearly the procedure for determination of an index component
security's price in the event that the primary market for the security
fails to open. By adopting the proposed rule amendment, the Exchange
would provide certainty to the market regarding the procedure it would
follow in the absence of action by OCC. Additionally, it would provide
market participants with the certainty of knowing the settlement value
on the day on which the primary market fails to open, and eliminate the
potential difficulties that could arise if the reporting authority for
the index were unwilling or unable to calculate the
[[Page 56126]]
settlement value using prices for the relevant security(ies) on the
next day that its primary market is open for trading.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
It would also acknowledge clearly, however, that OCC may, under its
rules and by-laws, establish settlement prices for expiring index
options that may differ from the settlement prices that would otherwise
be provided for in Exchange rules, thereby protecting investors and the
public interest by reducing potential for confusion in that regard.
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. On the contrary, the Exchange
believes that the proposed amendment will benefit investors, market
participants, and the marketplace in general by setting forth clearly
the manner in which index option settlement values will be determined
if the primary market for a security underlying the current index value
of an index option does not open for trading, allowing market
participants the certainty of knowing the settlement price on the day
on which the primary market fails to open, eliminating the potential
difficulties that could arise if the reporting authority for the index
were unwilling or unable to calculate the settlement value using prices
for the relevant security(ies) on the next day that its primary market
is open for trading, and retaining the existing provision stating that
the Exchange will defer to OCC in the determination of settlement
prices when and if OCC exercises its authority under its own settlement
price procedures in accordance with its rules and by-laws.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6).
\13\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its
intent to file the proposed rule change at least five business days
prior to the date of filing of the proposed rule change, or such
shorter time as designated by the Commission. The Exchange has
satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative for 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. In its filing with the
Commission, the Exchange has asked the Commission to waive the 30-day
operative delay so that the proposal may become operative immediately
upon filing to provide certainty regarding the determination of
settlement prices for index options when the primary market for a
security underlying the current index value of an index option does not
does not open for trading on an expiration day, including in instances
in which OCC exercises its authority to determine the settlement price.
According to the Exchange, the proposed rule change will allow
investors to know the settlement price of an index option on the day on
which the primary market of an underlying component fails to open and
will avoid potential difficulties that could arise if the reporting
authority for the index was unwilling or unable to calculate the
settlement value using prices for the relevant securities on the next
day that its primary market is open for trading. As such, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest and
designates the proposed rule change operative upon filing.\16\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \17\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2018-88 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2018-88. 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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2018-88, and should
[[Page 56127]]
be submitted on or before November 30, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24526 Filed 11-8-18; 8:45 am]
BILLING CODE 8011-01-P
