Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Bid/Ask Differentials, 63955-63958 [2018-26826]
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amozie on DSK3GDR082PROD with NOTICES1
Federal Register / Vol. 83, No. 238 / Wednesday, December 12, 2018 / Notices
the Exchange. The Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposed rule change as
operative upon filing.10
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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
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–MIAX–2018–37 and should
be submitted on or before January 2,
2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Eduardo A. Aleman,
Assistant Secretary.
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–
MIAX–2018–37 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–MIAX–2018–37. 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
10 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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[FR Doc. 2018–26831 Filed 12–11–18; 8:45 am]
BILLING CODE 8011–01–P
63955
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
[Release No. 34–84729; File No. SR–ISE–
2018–96]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Bid/Ask
Differentials
December 6, 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 November
28, 2018, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend ISE
Rule 701, entitled ‘‘Opening,’’ ISE Rule
803, entitled ‘‘Obligations of Market
Makers’’ and ISE Rule 100, entitled
‘‘Definitions.’’
11 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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ISE proposes several amendments in
this rule change. First, the Exchange
proposes to amend ISE Rule 701,
entitled ‘‘Opening’’ and ISE Rule 803,
entitled ‘‘Obligations of Market Makers’’
to correct inconsistencies between the
Exchange’s rule text and the operation
of the System. Second, the Exchange
proposes to add definitions to ISE Rule
100 to define ‘‘in-the-money’’ and ‘‘outof-the-money’’ option series. Third, the
Exchange proposes to correct various
cross references to Rule 100. Each
amendment will be described in more
detail below.
Rule 701
Today, for the Opening Process, ISE
Rule 701(a)(8) defines a ‘‘Valid Width
Quote’’ as a two-sided electronic
quotation submitted by a Market Maker
that consists of a bid/ask differential
that is compliant with Rule 803(b)(4).3
3 ISE
Rule 803(b)(4) provides:
‘‘To price options contracts fairly by, among other
things, bidding and offering so as to create
differences of no more than $5 between the bid and
offer following the opening rotation in an equity or
index options contract. Prior to the opening
rotation, spread differentials shall be no more than
$.25 between the bid and offer for each options
contract for which the bid is less than $2, no more
than $.40 where the bid is at least $2 but does not
exceed $5, no more than $.50 where the bid is more
than $5 but does not exceed $10, no more than $.80
where the bid is more than $10 but does not exceed
$20, and no more than $1 where the bid is $20 or
greater, provided that the Exchange may establish
differences other than the above for one or more
options series.
Continued
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Federal Register / Vol. 83, No. 238 / Wednesday, December 12, 2018 / Notices
Specifically, for the Opening Process,
ISE Rule 803(b)(4) states that, for in-the
money option series, the bid/ask
differential may be as wide as the
spread between the national best bid
and offer in the underlying security. In
practice, however, the Exchange’s
System permits a Valid Width Quote in
the Opening Process to be as wide as the
quotation for the underlying security on
the primary (listing) market.4
Proposal
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The Exchange proposes to codify its
current practice and correctly reflect in
its Rules that the Valid Width Quote in
the Opening Process apply a primary
market analysis, not a national best bid
or offer (‘‘NBBO’’) analysis.5
Specifically, this proposal would
conform the current rule text to the
current System by amending the
definition of a Valid Width Quote in
Rule 701, ‘‘Opening,’’ so that, in the
case of in-the-money option series 6
where the market for the underlying
security is wider than the differentials
set forth within ISE Rule 803(b)(4), the
bid/ask differential may be as wide as
the quotation for the underlying security
on the primary 7 (listing) market, or its
decimal equivalent rounded down to
the nearest minimum increment.
The Exchange believes that utilizing
the primary market in the Opening
Process is reasonable given the close
connection between the primary market
and the Opening Process. For example,
ISE Rule 701(c)(2) provides, ‘‘For all
options, the underlying security,
including indexes, must be open on the
primary market for a certain time period
as determined by the Exchange for the
Opening Process to commence. The
time period shall be no less than 100
milliseconds and no more than 5
seconds.’’
Today, in order to open, the Exchange
requires either: (i) The Primary Market
Maker’s (‘‘PMM’’) Valid Width Quote;
(i) The bid/offer differentials stated in
subparagraph (b)(4) of this Rule shall not apply to
in-the-money options series where the underlying
securities market is wider than the differentials set
forth above. For these series, the bid/ask differential
may be as wide as the spread between the national
best bid and offer in the underlying security.’’
4 In connection with the ISE migration, the
primary market was utilized beginning on June 12,
2017 as each symbol migrated to the INET platform.
5 The Exchange notes that today ISE utilizes the
primary market in calculating the bid/ask
differential during the Opening Process. This rule
change would amend the rule to reflect ISE’s
current practice.
6 An at-the-money option series would also
qualify. An out-of-the-money series would not
qualify.
7 The term ‘‘primary market’’ means the principal
market in which an underlying security is traded.
See ISE Rule 100(a)(48).
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(ii) the Valid Width Quotes of at least
two Competitive Market Makers
(‘‘CMM’’); or (iii) if neither the PMM’s
Valid Width Quote nor the Valid Width
Quotes of two CMMs have been
submitted within such timeframe, one
CMM has submitted a Valid Width
Quote. The Exchange notes that it
requires Market Makers to submit Valid
Width Quotes during the Opening
Process to guarantee liquidity, unlike
other markets which may not require
market makers to quote during the
opening.8 Further, amending the rule
text to conform to its current practice
will avoid confusion and continue to
permit ISE to remain one of the
strongest openings in the industry.
Discretion
The Exchange proposes to codify its
current practice and amend ISE Rule
803(b)(4) to adopt rule text which
permits the Exchange intra-day
discretion for bid/ask differentials
similar to the discretion currently
permitted in the Opening Process. The
Exchange proposes to add a sentence to
the end of the paragraph in ISE Rule
803(b)(4) indicating the Exchange may
establish differences other than the
above for one or more series or classes
of options. The Exchange notes that it
utilizes this discretion today to grant
relief for individual options classes as
well as relief for all option classes based
upon specific criteria. Today, Market
Makers may request quote relief. When
determining whether to grant quote
relief the Exchange considers, among
other factors, the following: (i) Pending
corporate actions with undisclosed or
uncertain terms; (ii) company or
industry news with anticipated
significant market impact; (iii)
government news of a sensational
nature. The Exchange believes that it is
necessary to grant quote relief in certain
circumstances where a Market Maker
may not have enough information to
maintain fair and orderly markets. The
Exchange notes that other markets have
similar discretion for intra-day quotes
today.9
8 The
Nasdaq Options Market (‘‘NOM’’) does not
require NOM Market Makers to quote during the
opening, however if a NOM Market Maker decided
to quote during the opening, the Market Maker
would be permitted to submit a bid/ask differential
with a difference not to exceed $5 between the bid
and offer regardless of the price of the bid.
However, respecting in-the-money series where the
market for the underlying security is wider than $5,
the bid/ask differential may be as wide as the
spread between the national best bid and offer in
the underlying security. See NOM Rules at Chapter
VII, Section 6(d)(ii).
9 See Nasdaq Phlx LLC Rule 1014(c)(i)(A)(1)(a),
Miami International Securities Exchange LLC Rule
604b)(4), Cboe Exchange, Inc. Rule 8.7(d), NYSE
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Rule 100
ISE rules currently do not define an
‘‘in-the-money’’ or ‘‘out-of-the-money’’
option series. As part of this rule
change, the Exchange proposes to define
these above-referenced terms within ISE
Rule 100 to bring greater transparency to
its rules with respect to Market Maker
quoting. The Exchange proposes to
define the term ‘‘in-the-money’’ option
at Rule 100(a)(28), which is currently
reserved, as the following: For call
options, all strike prices at or below the
offer in the underlying security on the
primary listing market; for put options,
all strike prices at or above the bid in
the underlying security on the primary
listing market. The Exchange proposes
to define an ‘‘out-of-the-money’’ option
at Rule 100(a)(40), which is currently
reserved, to mean the following: For call
options, all strike prices above the offer
in the underlying security on the
primary listing market; for put options,
all strike prices below the bid in the
underlying security on the primary
listing market.10 Each of these
definitions would apply for purposes of
Market Maker quoting obligations in
Rules 701 and 803. The Exchange notes
that it specifically proposes to reference
the rules related to Market Maker
quoting obligations to avoid any
confusion with the manner in which
‘‘in-the-money’’ and ‘‘out-of-the-money’’
options series are defined for purposes
of other options rules.
The Exchange has added these
definitions into the existing rules in
alphabetical order. The Exchange
proposes to renumber the rules to
account for the addition of these two
new definitions and proposes to amend
cross-references to Rule 100 within the
Rulebook to reflect the proposed new
numbering within Rule 100.
Cross References
The Exchange proposes to amend
cross-references to Rule 100 in Rules
713, 720 and Rule 1901 to refer to the
current definitions.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,11 in general, and furthers the
American LLC Rule 925NY(b)(4), NYSE Arca, Inc.
6.37–O(b)(4).
10 The Exchange notes that it does not utilize a
last sale calculation. The Exchange believes that the
quotation for the underlying security on the
primary market provides an accurate reflection of
the market. A last sale calculation may not be an
accurate reflection of the market because the last
sale may not be representative of the primary
market in all cases, particularly if a halt were to
occur.
11 15 U.S.C. 78f(b).
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Federal Register / Vol. 83, No. 238 / Wednesday, December 12, 2018 / Notices
objectives of Section 6(b)(5) of the Act,12
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. The
Exchange notes that today ISE utilizes
the primary market in calculating the
bid/ask differential during the Opening
Process, although the current rule does
not reflect this practice. This rule
change would amend the rule to reflect
ISE’s current practice.
Rules 701 and 803
The Exchange’s proposal to amend
the Opening Process to conform to
current practice is consistent with the
Act because while the Exchange
believes that relying on the primary
market or the NBBO accurately reflect
the current trading environment and
take into consideration market
conditions, the Exchange’s current
Opening Process is designed to utilize
the primary standard during the
Opening Process.13
amozie on DSK3GDR082PROD with NOTICES1
U.S.C. 78f(b)(5).
Rule 701(c)(2) provides, ‘‘For all options,
the underlying security, including indexes, must be
open on the primary market for a certain time
period as determined by the Exchange for the
Opening Process to commence. The time period
shall be no less than 100 milliseconds and no more
than 5 seconds.’’.’’
14 See ISE Rules 803 and 804.
13 ISE
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Rule 100
The Exchange’s proposal to define the
terms ‘‘in-the-money’’ and ‘‘out-of-themoney’’ for purposes of Market Maker
quoting obligations in Rules 701 and
803 is consistent with the Act and
protects investors and the public
interest by bringing greater transparency
to the Rulebook. Each of these defined
terms would apply for purposes of
Market Maker quoting obligations in
Rules 701 and 803. The Exchange notes
that it specifically proposes to reference
the rules related to Market Maker
quoting obligations to avoid any
confusion with the manner in which
‘‘in-the-money’’ and ‘‘out-of-the-money’’
options series are defined for purposes
of other options rules.
Cross-References
Discretion
The Exchange’s proposal to amend its
rule to permit intra-day discretion to
conform to current practice is consistent
with the Act because such discretion is
necessary to permit the Exchange the
ability to attract liquidity from Market
Makers while also maintaining a fair
and orderly market. Market Makers
accept a certain amount of risk when
quoting on the Exchange. The Exchange
imposes quoting and other obligations
on Market Makers.14 The Exchange
notes that these risks which Market
Makers accept each trading day are
calculated risks. The Exchange notes
that it considers certain factors, which
are likely unforeseen, in determining
whether to grant relief either in
individual options classes or for all
option classes based upon specific
criteria. Specifically, the Exchange
considers, among other factors, the
following: (i) Pending corporate actions
with undisclosed or uncertain terms; (ii)
company or industry news with
anticipated significant market impact;
(iii) government news of a sensational
nature. The Exchange believes that it is
necessary to grant quote relief in certain
12 15
circumstances where a Market Maker
may not have enough information to
maintain fair and orderly markets. The
Exchange notes that other markets have
similar discretion for intra-day quotes
today.15
The Exchange’s proposal to amend
cross-references to Rule 100 within
Rules 713, 720 and Rule 1901 to refer
to the current definitions is consistent
with the Act because it will correct
references to definitions.
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.
Rules 701 and 803
The Exchange’s proposal to codify its
current practice of utilizing the primary
market in the Opening Process does not
unduly burden competition because the
current practice maintains a close
connection between the primary market
and the Opening Process. The primary
market reflects the current trading
environment. The Exchange notes that
the proposal does not create an undue
burden on intra-market competition
because Market Makers are the only
market participants subject to quoting
requirements and these participants
have valuable information with respect
to the underlying instrument under the
current process to make informed
decisions and take calculated risks in
the marketplace when providing
liquidity. Market Makers remain
responsible for maintaining fair and
orderly markets.
15 See
PO 00000
Discretion
The Exchange’s proposal to codify the
Exchange’s ability to permit intra-day
discretion similar to the discretion
currently permitted in the Opening
Process does not impose an undue
burden on competition because Market
Makers are the only market participants
subject to quoting requirements and the
proposal specifically considers the need
for Market Makers to have information
to make informed decisions to make
calculated risks in the marketplace so
that they may provide liquidity while
maintaining fair and orderly markets.
The proposed amendments do not
create undue burdens on inter-market
competition because other options
markets have the same intra-day
requirements.16
Rule 100
The Exchange’s proposal to define the
terms ‘‘in-the-money’’ or ‘‘out-of-themoney’’ for purposes of Market Maker
quoting obligations in Rules 701 and
803 does not unduly burden
competition, rather it adds greater
transparency to the Rulebook and makes
clear the applicability of the definitions
to avoid confusion with respect to the
remainder of the options rules.
Cross-References
The Exchange’s proposal to amend
cross-references to Rule 100 in Rules
713, 720 and Rule 1901 to refer to the
current definitions does not unduly
burden competition because it will
correct references to definitions.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 17 and
subparagraph (f)(6) of Rule 19b–4
thereunder.18
16 See
note 9 above.
U.S.C. 78s(b)(3)(A)(iii).
18 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
17 15
note 9 above.
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Federal Register / Vol. 83, No. 238 / Wednesday, December 12, 2018 / Notices
A proposed rule change filed under
Rule 19b–4(f)(6) 19 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii)20 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange states that
immediately codifying its current
practice within its rules to accurately
reflect the operation of the Exchange’s
System will avoid confusion. The
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposed rule change as operative upon
filing.21
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
amozie on DSK3GDR082PROD with NOTICES1
• 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–2018–96 on the subject line.
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
19 17 CFR 240.19b–4(f)(6).
20 17 CFR 240.19b–4(f)(6)(iii).
21 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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–2018–96. 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
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–2018–96 and should be
submitted on or before January 2, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–26826 Filed 12–11–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84735; File No. SR–
NYSEArca–2018–87]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend NYSE Arca
Rule 5.1–E(a)(2)
December 6, 2018.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 27, 2018, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Arca Rule 5.1–E(a)(2) to remove
the requirement that the Exchange file
with the Securities and Exchange
Commission (the ‘‘Commission’’) a
Form 19b–4(e) for each ‘‘new derivative
securities product’’ that will commence
trading on the Exchange pursuant to
unlisted trading privileges. The
proposed rule change is available on the
Exchange’s website at www.nyse.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
self-regulatory organization 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 those 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 parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
22 17
PO 00000
CFR 200.30–3(a)(12).
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Agencies
[Federal Register Volume 83, Number 238 (Wednesday, December 12, 2018)]
[Notices]
[Pages 63955-63958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26826]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84729; File No. SR-ISE-2018-96]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to Bid/Ask
Differentials
December 6, 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 November 28, 2018, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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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 701, entitled ``Opening,''
ISE Rule 803, entitled ``Obligations of Market Makers'' and ISE Rule
100, entitled ``Definitions.''
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
ISE proposes several amendments in this rule change. First, the
Exchange proposes to amend ISE Rule 701, entitled ``Opening'' and ISE
Rule 803, entitled ``Obligations of Market Makers'' to correct
inconsistencies between the Exchange's rule text and the operation of
the System. Second, the Exchange proposes to add definitions to ISE
Rule 100 to define ``in-the-money'' and ``out-of-the-money'' option
series. Third, the Exchange proposes to correct various cross
references to Rule 100. Each amendment will be described in more detail
below.
Rule 701
Today, for the Opening Process, ISE Rule 701(a)(8) defines a
``Valid Width Quote'' as a two-sided electronic quotation submitted by
a Market Maker that consists of a bid/ask differential that is
compliant with Rule 803(b)(4).\3\
[[Page 63956]]
Specifically, for the Opening Process, ISE Rule 803(b)(4) states that,
for in-the money option series, the bid/ask differential may be as wide
as the spread between the national best bid and offer in the underlying
security. In practice, however, the Exchange's System permits a Valid
Width Quote in the Opening Process to be as wide as the quotation for
the underlying security on the primary (listing) market.\4\
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\3\ ISE Rule 803(b)(4) provides:
``To price options contracts fairly by, among other things,
bidding and offering so as to create differences of no more than $5
between the bid and offer following the opening rotation in an
equity or index options contract. Prior to the opening rotation,
spread differentials shall be no more than $.25 between the bid and
offer for each options contract for which the bid is less than $2,
no more than $.40 where the bid is at least $2 but does not exceed
$5, no more than $.50 where the bid is more than $5 but does not
exceed $10, no more than $.80 where the bid is more than $10 but
does not exceed $20, and no more than $1 where the bid is $20 or
greater, provided that the Exchange may establish differences other
than the above for one or more options series.
(i) The bid/offer differentials stated in subparagraph (b)(4) of
this Rule shall not apply to in-the-money options series where the
underlying securities market is wider than the differentials set
forth above. For these series, the bid/ask differential may be as
wide as the spread between the national best bid and offer in the
underlying security.''
\4\ In connection with the ISE migration, the primary market was
utilized beginning on June 12, 2017 as each symbol migrated to the
INET platform.
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Proposal
The Exchange proposes to codify its current practice and correctly
reflect in its Rules that the Valid Width Quote in the Opening Process
apply a primary market analysis, not a national best bid or offer
(``NBBO'') analysis.\5\ Specifically, this proposal would conform the
current rule text to the current System by amending the definition of a
Valid Width Quote in Rule 701, ``Opening,'' so that, in the case of in-
the-money option series \6\ where the market for the underlying
security is wider than the differentials set forth within ISE Rule
803(b)(4), the bid/ask differential may be as wide as the quotation for
the underlying security on the primary \7\ (listing) market, or its
decimal equivalent rounded down to the nearest minimum increment.
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\5\ The Exchange notes that today ISE utilizes the primary
market in calculating the bid/ask differential during the Opening
Process. This rule change would amend the rule to reflect ISE's
current practice.
\6\ An at-the-money option series would also qualify. An out-of-
the-money series would not qualify.
\7\ The term ``primary market'' means the principal market in
which an underlying security is traded. See ISE Rule 100(a)(48).
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The Exchange believes that utilizing the primary market in the
Opening Process is reasonable given the close connection between the
primary market and the Opening Process. For example, ISE Rule 701(c)(2)
provides, ``For all options, the underlying security, including
indexes, must be open on the primary market for a certain time period
as determined by the Exchange for the Opening Process to commence. The
time period shall be no less than 100 milliseconds and no more than 5
seconds.''
Today, in order to open, the Exchange requires either: (i) The
Primary Market Maker's (``PMM'') Valid Width Quote; (ii) the Valid
Width Quotes of at least two Competitive Market Makers (``CMM''); or
(iii) if neither the PMM's Valid Width Quote nor the Valid Width Quotes
of two CMMs have been submitted within such timeframe, one CMM has
submitted a Valid Width Quote. The Exchange notes that it requires
Market Makers to submit Valid Width Quotes during the Opening Process
to guarantee liquidity, unlike other markets which may not require
market makers to quote during the opening.\8\ Further, amending the
rule text to conform to its current practice will avoid confusion and
continue to permit ISE to remain one of the strongest openings in the
industry.
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\8\ The Nasdaq Options Market (``NOM'') does not require NOM
Market Makers to quote during the opening, however if a NOM Market
Maker decided to quote during the opening, the Market Maker would be
permitted to submit a bid/ask differential with a difference not to
exceed $5 between the bid and offer regardless of the price of the
bid. However, respecting in-the-money series where the market for
the underlying security is wider than $5, the bid/ask differential
may be as wide as the spread between the national best bid and offer
in the underlying security. See NOM Rules at Chapter VII, Section
6(d)(ii).
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Discretion
The Exchange proposes to codify its current practice and amend ISE
Rule 803(b)(4) to adopt rule text which permits the Exchange intra-day
discretion for bid/ask differentials similar to the discretion
currently permitted in the Opening Process. The Exchange proposes to
add a sentence to the end of the paragraph in ISE Rule 803(b)(4)
indicating the Exchange may establish differences other than the above
for one or more series or classes of options. The Exchange notes that
it utilizes this discretion today to grant relief for individual
options classes as well as relief for all option classes based upon
specific criteria. Today, Market Makers may request quote relief. When
determining whether to grant quote relief the Exchange considers, among
other factors, the following: (i) Pending corporate actions with
undisclosed or uncertain terms; (ii) company or industry news with
anticipated significant market impact; (iii) government news of a
sensational nature. The Exchange believes that it is necessary to grant
quote relief in certain circumstances where a Market Maker may not have
enough information to maintain fair and orderly markets. The Exchange
notes that other markets have similar discretion for intra-day quotes
today.\9\
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\9\ See Nasdaq Phlx LLC Rule 1014(c)(i)(A)(1)(a), Miami
International Securities Exchange LLC Rule 604b)(4), Cboe Exchange,
Inc. Rule 8.7(d), NYSE American LLC Rule 925NY(b)(4), NYSE Arca,
Inc. 6.37-O(b)(4).
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Rule 100
ISE rules currently do not define an ``in-the-money'' or ``out-of-
the-money'' option series. As part of this rule change, the Exchange
proposes to define these above-referenced terms within ISE Rule 100 to
bring greater transparency to its rules with respect to Market Maker
quoting. The Exchange proposes to define the term ``in-the-money''
option at Rule 100(a)(28), which is currently reserved, as the
following: For call options, all strike prices at or below the offer in
the underlying security on the primary listing market; for put options,
all strike prices at or above the bid in the underlying security on the
primary listing market. The Exchange proposes to define an ``out-of-
the-money'' option at Rule 100(a)(40), which is currently reserved, to
mean the following: For call options, all strike prices above the offer
in the underlying security on the primary listing market; for put
options, all strike prices below the bid in the underlying security on
the primary listing market.\10\ Each of these definitions would apply
for purposes of Market Maker quoting obligations in Rules 701 and 803.
The Exchange notes that it specifically proposes to reference the rules
related to Market Maker quoting obligations to avoid any confusion with
the manner in which ``in-the-money'' and ``out-of-the-money'' options
series are defined for purposes of other options rules.
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\10\ The Exchange notes that it does not utilize a last sale
calculation. The Exchange believes that the quotation for the
underlying security on the primary market provides an accurate
reflection of the market. A last sale calculation may not be an
accurate reflection of the market because the last sale may not be
representative of the primary market in all cases, particularly if a
halt were to occur.
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The Exchange has added these definitions into the existing rules in
alphabetical order. The Exchange proposes to renumber the rules to
account for the addition of these two new definitions and proposes to
amend cross-references to Rule 100 within the Rulebook to reflect the
proposed new numbering within Rule 100.
Cross References
The Exchange proposes to amend cross-references to Rule 100 in
Rules 713, 720 and Rule 1901 to refer to the current definitions.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the
[[Page 63957]]
objectives of Section 6(b)(5) of the Act,\12\ 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. The Exchange notes that today ISE
utilizes the primary market in calculating the bid/ask differential
during the Opening Process, although the current rule does not reflect
this practice. This rule change would amend the rule to reflect ISE's
current practice.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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Rules 701 and 803
The Exchange's proposal to amend the Opening Process to conform to
current practice is consistent with the Act because while the Exchange
believes that relying on the primary market or the NBBO accurately
reflect the current trading environment and take into consideration
market conditions, the Exchange's current Opening Process is designed
to utilize the primary standard during the Opening Process.\13\
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\13\ ISE Rule 701(c)(2) provides, ``For all options, the
underlying security, including indexes, must be open on the primary
market for a certain time period as determined by the Exchange for
the Opening Process to commence. The time period shall be no less
than 100 milliseconds and no more than 5 seconds.''.''
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Discretion
The Exchange's proposal to amend its rule to permit intra-day
discretion to conform to current practice is consistent with the Act
because such discretion is necessary to permit the Exchange the ability
to attract liquidity from Market Makers while also maintaining a fair
and orderly market. Market Makers accept a certain amount of risk when
quoting on the Exchange. The Exchange imposes quoting and other
obligations on Market Makers.\14\ The Exchange notes that these risks
which Market Makers accept each trading day are calculated risks. The
Exchange notes that it considers certain factors, which are likely
unforeseen, in determining whether to grant relief either in individual
options classes or for all option classes based upon specific criteria.
Specifically, the Exchange considers, among other factors, the
following: (i) Pending corporate actions with undisclosed or uncertain
terms; (ii) company or industry news with anticipated significant
market impact; (iii) government news of a sensational nature. The
Exchange believes that it is necessary to grant quote relief in certain
circumstances where a Market Maker may not have enough information to
maintain fair and orderly markets. The Exchange notes that other
markets have similar discretion for intra-day quotes today.\15\
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\14\ See ISE Rules 803 and 804.
\15\ See note 9 above.
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Rule 100
The Exchange's proposal to define the terms ``in-the-money'' and
``out-of-the-money'' for purposes of Market Maker quoting obligations
in Rules 701 and 803 is consistent with the Act and protects investors
and the public interest by bringing greater transparency to the
Rulebook. Each of these defined terms would apply for purposes of
Market Maker quoting obligations in Rules 701 and 803. The Exchange
notes that it specifically proposes to reference the rules related to
Market Maker quoting obligations to avoid any confusion with the manner
in which ``in-the-money'' and ``out-of-the-money'' options series are
defined for purposes of other options rules.
Cross-References
The Exchange's proposal to amend cross-references to Rule 100
within Rules 713, 720 and Rule 1901 to refer to the current definitions
is consistent with the Act because it will correct references to
definitions.
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.
Rules 701 and 803
The Exchange's proposal to codify its current practice of utilizing
the primary market in the Opening Process does not unduly burden
competition because the current practice maintains a close connection
between the primary market and the Opening Process. The primary market
reflects the current trading environment. The Exchange notes that the
proposal does not create an undue burden on intra-market competition
because Market Makers are the only market participants subject to
quoting requirements and these participants have valuable information
with respect to the underlying instrument under the current process to
make informed decisions and take calculated risks in the marketplace
when providing liquidity. Market Makers remain responsible for
maintaining fair and orderly markets.
Discretion
The Exchange's proposal to codify the Exchange's ability to permit
intra-day discretion similar to the discretion currently permitted in
the Opening Process does not impose an undue burden on competition
because Market Makers are the only market participants subject to
quoting requirements and the proposal specifically considers the need
for Market Makers to have information to make informed decisions to
make calculated risks in the marketplace so that they may provide
liquidity while maintaining fair and orderly markets. The proposed
amendments do not create undue burdens on inter-market competition
because other options markets have the same intra-day requirements.\16\
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\16\ See note 9 above.
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Rule 100
The Exchange's proposal to define the terms ``in-the-money'' or
``out-of-the-money'' for purposes of Market Maker quoting obligations
in Rules 701 and 803 does not unduly burden competition, rather it adds
greater transparency to the Rulebook and makes clear the applicability
of the definitions to avoid confusion with respect to the remainder of
the options rules.
Cross-References
The Exchange's proposal to amend cross-references to Rule 100 in
Rules 713, 720 and Rule 1901 to refer to the current definitions does
not unduly burden competition because it will correct references to
definitions.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \17\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\18\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6). 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, along
with a brief description and the text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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[[Page 63958]]
A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii)\20\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
immediately codifying its current practice within its rules to
accurately reflect the operation of the Exchange's System will avoid
confusion. The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest. Accordingly, the Commission hereby waives the operative delay
and designates the proposed rule change as operative upon filing.\21\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-ISE-2018-96 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-2018-96. 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 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-2018-96 and should be submitted on
or before January 2, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26826 Filed 12-11-18; 8:45 am]
BILLING CODE 8011-01-P