Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 3, Section 3 To Conform the Rule to Section 3.1 of the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options, 39956-39959 [2020-14235]
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39956
Federal Register / Vol. 85, No. 128 / Thursday, July 2, 2020 / Notices
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–
NASDAQ–2020–036 on the subject line
khammond on DSKJM1Z7X2PROD with NOTICES
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–NASDAQ–2020–036. 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–NASDAQ–2020–036 and
should be submitted on or before July
23, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89168; File No. SR–Phlx–
2020–32]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 3,
Section 3 To Conform the Rule to
Section 3.1 of the Plan for the Purpose
of Developing and Implementing
Procedures Designed To Facilitate the
Listing and Trading of Standardized
Options
June 26, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 23,
2020, Nasdaq PHLX LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 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
Options 3, Section 3 to conform the rule
to Section 3.1 of the Plan for the
Purpose of Developing and
Implementing Procedures Designed to
Facilitate the Listing and Trading of
Standardized Options (the ‘‘OLPP’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.cchwallstreet.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
[FR Doc. 2020–14234 Filed 7–1–20; 8:45 am]
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
BILLING CODE 8011–01–P
20 17
2 17
CFR 200.30–3(a)(12).
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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 purpose of this rule change is to
amend Options 3, Section 3 (Minimum
Increments) to align the rule with the
recently approved amendment to the
OLPP.
Background
On January 23, 2007, the Commission
approved on a limited basis a Penny
Pilot in option classes in certain issues
(‘‘Penny Pilot’’). The Penny Pilot was
designed to determine whether
investors would benefit from options
being quoted in penny increments, and
in which classes the benefits were most
significant. The Penny Pilot was
expanded and extended numerous times
over the last 13 years.5 In each instance,
these approvals relied upon the
consideration of data periodically
provided by the Exchanges that
analyzed how quoting options in penny
increments affects spreads, liquidity,
quote traffic, and volume. Today, the
Penny Pilot includes 363 option classes,
which are among the most actively
traded, multiply listed option classes.
The Penny Pilot is scheduled to expire
by its own terms on June 30, 2020.6
In light of the imminent expiration of
the Penny Pilot on June 30, 2020, the
Exchange, together with other
participating exchanges, filed, on July
18, 2019 a proposal to amend the
OLPP.7 On April 1, 2020 the
Commission approved the amendment
to the OLPP to make permanent the
Pilot Program (the ‘‘OLPP Program’’).8
The OLPP Program replaces the
Penny Pilot by instituting a permanent
program that would permit quoting in
penny increments for certain option
classes. Under the terms of the OLPP
5 The Penny Pilot was established on the
Exchange in December 2006 and was last extended
in December 2019. See Securities Exchange Act
Release Nos. 54886 (December 6, 2006), 71 FR
74979 (December 13, 2006) (SR–Phlx–2006–74);
and 87748 (December 13, 2019), 84 FR 69803
(December 19, 2019) (SR–Phlx–2019–55).
6 See Securities Exchange Act Release No. 87748
(December 13, 2019), 84 FR 69803 (December 19,
2019) (SR–Phlx–2019–55).
7 See Securities Exchange Act Release No. 87681
(December 9, 2019), 84 FR 68960 (December 17,
2019) (‘‘Notice’’).
8 See Securities Exchange Act Release No. 88532
(April 1, 2020), 85 FR 19545 (April 7, 2020) (File
No. 4–443) (‘‘Approval Order’’).
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Program, designated option classes
would continue to be quoted in $0.01
and $0.05 increments according to the
same parameters for the Penny Pilot. In
addition, the OLPP Program would: (i)
Establish an annual review process to
add option classes to, or to remove
option classes from, the OLPP Program;
(ii) to allow an option class to be added
to the OLPP Program if it is a newly
listed option class and it meets certain
criteria; (iii) to allow an option class to
be added to the OLPP Program if it is
an option class that has seen a
significant growth in activity; (iv) to
provide that if a corporate action
involves one or more option classes in
the OLPP Program, all adjusted and
unadjusted series and classes emerging
as a result of the corporate action will
be included in the OLPP Program; and
(v) to provide that any series in an
option class participating in the OLPP
Program that have been delisted, or are
identified by OCC as ineligible for
opening Customer transactions, will
continue to trade pursuant to the OLPP
Program until they expire.
To conform its Rules to the OLPP
Program, the Exchange proposes to
delete the current rule text in
Supplementary Material.01 to Options
3, Section 3 (the ‘‘Penny Pilot Rule’’),
and replace it with the requirements for
the proposed Penny Interval Program
from the OLPP Program, which is
described below, and to replace
references to the ‘‘Penny Pilot’’ in
several Exchange rules with ‘‘Penny
Interval Program.’’
The Exchange also proposes to delete
obsolete and superfluous language in
Options 3, Section 3(a)(1) regarding
amendments to the minimum
increments that may be established by
the Board and designated as a stated
policy, practice or interpretation within
the meaning of the Act, and the process
for such amendments by rule filing.9
Today, the Exchange may determine to
establish a change to the minimum
increments within its Rules and must
submit proposed rule changes for such
amendments to the Commission.10 In
9 See Options 3, Section 3(a)(1), which
specifically provides: ‘‘However, the Board of
Directors may establish different minimum trading
increments. The Exchange will designate any such
change as a stated policy, practice or interpretation
with respect to the administration of this Rule,
within the meaning of Section 19(b)(3)(A) of the
Exchange Act and will file a proposed rule change
with the Securities and Exchange Commission to be
effective upon filing.’’
10 Decisions to change the minimum increments
relate to Exchange trading and operations, and thus
are made by Exchange management via delegated
authority from the Board, rather than the Board
itself, which is generally not involved in
determinations related to day-to-day operations of
the Exchange.
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connection with the foregoing change,
the Exchange also proposes to renumber
current subparagraphs (a)(2) and (3) in
Options 3, Section 3 as subparagraphs
(a)(1) and (2).
Penny Interval Program
The Exchange proposes to codify the
OLPP Program in Supplementary
Material .01 to Options 3, Section
(Requirements for Penny Interval
Program) (the ‘‘Penny Program’’), which
will replace the Penny Pilot Rule and
permanently permit the Exchange to
quote certain option classes in
minimum increments of one cents
($0.01) and five cents ($0.05) (‘‘penny
increments’’), as set forth in
Supplementary Material .01 to Options
3, Section 3. The penny increments that
currently apply under the Penny Pilot as
set forth in existing Supplementary
Material .01 to Options 3, Section 3 will
continue to apply for options classes
included in the Penny Program.
Specifically, new subparagraphs (a)(1)–
(3) in Supplementary Material .01 to
Options 3, Section 3 will state that for
options contracts traded pursuant to the
Penny Program as described within
Supplementary Material .01 to Options
3, Section 3, the following minimum
increments will apply: (1) One cent
($0.01) for all options contracts in QQQ,
SPY, and IWM; (2) one cent ($0.01) for
all other options contracts included in
the Penny Interval Program that are
trading at less than $3.00; and (3) five
cents ($0.05) for all other options
contracts included in the Penny Interval
Program that are trading at or above
$3.00.
The Penny Program would initially
apply to the 363 most actively traded
multiply listed option classes, based on
National Cleared Volume at The
Options Clearing Corporation (‘‘OCC’’)
in the six full calendar months ending
in the month of approval (i.e.,
November 2019–April 2020) that
currently quote in penny increments, or
overlie securities priced below $200, or
any index at an index level below $200.
Eligibility for inclusion in the Penny
Program will be determined at the close
of trading on the monthly Expiration
Friday of the second full month
following April 1, 2020 (i.e., June 19,
2020).
Once in the Penny Program, an option
class will remain included until it is no
longer among the 425 most actively
traded option classes at the time the
annual review is conducted (described
below), at which point it will be
removed from the Penny Program. As
described in more detail below, the
removed class will be replaced by the
next most actively traded multiply
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39957
listed option class overlying securities
priced below $200 per share, or any
index at an index level below $200, and
not yet in the Penny Program. Advanced
notice regarding the option classes
included, added, or removed from the
Penny Program will be provided to the
Exchange’s membership via Options
Trader Alert and published by the
Exchange on its website.
Annual Review
The Penny Program would include an
annual review process that applies
objective criteria to determine option
classes to be added to, or removed from,
the Penny Program. Specifically, on an
annual basis beginning in December
2020 and occurring every December
thereafter, the Exchange will review and
rank all multiply listed option classes
based on National Cleared Volume at
OCC for the six full calendar months
from June 1st through November 30th
for determination of the most actively
traded option classes. Any option
classes not yet in the Penny Program
may be added to the Penny Program if
the class is among the 300 most actively
traded multiply listed option classes
and priced below $200 per share or any
index at an index level below $200.
Following the annual review, option
classes to be added to the Penny
Program would begin quoting in penny
increments (i.e., $0.01 if trading at less
than $3; and $0.05 if trading at $3 and
above) on the first trading day of
January. In addition, following the
annual review, any option class in the
Penny Program that falls outside of the
425 most actively traded option classes
would be removed from the Penny
Program. After the annual review,
option classes that are removed from the
Penny Program will be subject to the
minimum trading increments set forth
in Options 3, Section 3, effective on the
first trading day of April.
Changes to the Composition of the
Penny Program Outside of the Annual
Review
Newly Listed Option Classes and
Option Classes With Significant Growth
in Activity
The Penny Program would specify a
process and parameters for including
option classes in the Penny Program
outside the annual review process in
two circumstances. These provisions are
designed to provide objective criteria to
add to the Penny Program new option
classes in issues with the most
demonstrated trading interest from
market participants and investors on an
expedited basis prior to the annual
review, with the benefit that market
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participants and investors will then be
able to trade these new option classes
based upon quotes expressed in finer
trading increments.
First, the Penny Program provides for
certain newly listed option classes to be
added to the Penny Program outside of
the annual review process, provided
that (i) the class is among the 300 most
actively traded, multiply listed option
classes, as ranked by National Cleared
Volume at OCC, in its first full calendar
month of trading; and (ii) the underlying
security is priced below $200 or the
underlying index is at an index level
below $200. Such newly listed option
classes added to the Penny Program
pursuant to this process would remain
in the Penny Program for one full
calendar year and then would be subject
to the annual review process.
Second, the Penny Program would
allow an option class to be added to the
Penny Program outside of the annual
review process if it is an option class
that meets certain specific criteria.
Specifically, new option classes may be
added to the Penny Program if: (i) the
option class is among the 75 most
actively traded multiply listed option
classes, as ranked by National Cleared
Volume at OCC, in the prior six full
calendar months of trading and (ii) the
underlying security is priced below
$200 or the underlying index is at an
index level below $200. Any option
class added under this provision will be
added on the first trading day of the
second full month after it qualifies and
will remain in the Penny Program for
the rest of the calendar year, after which
it will be subject to the annual review
process.
Corporate Actions
The Penny Program would also
specify a process to address option
classes in the Penny Program that
undergo a corporate action and is
designed to ensure continuous liquidity
in the affected option classes.
Specifically, if a corporate action
involves one or more option classes in
the Penny Program, all adjusted and
unadjusted series of an option class
would continue to be included in the
Penny Program.11 Furthermore, neither
the trading volume threshold, nor the
initial price test would apply to option
classes added to the Penny Program as
a result of the corporate action. Finally,
the newly added adjusted and
11 For example, if Company A acquires Company
B and Company A is not in the Penny Program but
Company B is in the Penny Program, once the
merger is consummated and an options contract
adjustment is effective, then Company A would be
added to the Penny Program and remain in the
Penny Program for one calendar year.
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unadjusted series of the option class
would remain in the Penny Program for
one full calendar year and then would
become subject to the annual review
process.
Delisted or Ineligible Option Classes
Finally, the Penny Program would
provide a mechanism to address option
classes that have been delisted or those
that are no longer eligible for listing.
Specifically, any series in an option
class participating in the Penny Program
in which the underlying has been
delisted, or is identified by OCC as
ineligible for opening customer
transactions, would continue to quote
pursuant to the terms of the Penny
Program until all options series have
expired.
Technical Changes
The Exchange proposes to replace
references to the Penny Pilot with
references to the Penny Interval Program
in Options 3, Section 8(a)(viii) and in
Options 8, Section 33(d)(2). The
Exchange also proposes to replace the
obsolete reference to ‘‘Commentary’’
with ‘‘Supplementary Material to
Options 3, Section 3’’ in Options 3,
Section 3. Further, the Exchange
proposes in Options 3, Section 3(a)(3) to
replace ‘‘minimum changes’’ with
‘‘minimum trading increments’’ for
greater consistency within the Rule.
Lastly, the Exchange proposes to remove
the stray punctuation at the end of the
Supplementary Material to Options 3,
Section 3 header.
The Exchange believes these technical
changes would add clarity,
transparency, and internal consistency
to the Exchange’s rules, making them
easier for market participants to
navigate.
Implementation
The Exchange proposes to implement
the Penny Program on July 1, 2020,
which is the first trading day of the
third month following the Approval
Order issued on April 1, 2020—i.e., July
1, 2020.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,12 in general, and furthers the
objectives of Section 6(b)(5) of the Act,13
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
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12 15
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00090
Fmt 4703
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and a national market system, and, in
general, to protect investors and the
public interest.
In particular, the proposed rule
change, which conforms the Exchange
rules to the recently adopted OLPP
Program, allows the Exchange to
provide market participants with a
permanent Penny Program for quoting
options in penny increments, which
maximizes the benefit of quoting in a
finer quoting increment to investors
while minimizing the burden that a
finer quoting increment places on quote
traffic.
Accordingly, the Exchange believes
that the proposal is consistent with the
Act because, in conforming the
Exchange rules to the OLPP Program,
the Penny Program would employ
processes, based upon objective criteria,
that would rebalance the composition of
the Penny Program, thereby helping to
ensure that the most actively traded
option classes are included in the Penny
Program, which helps facilitate the
maintenance of a fair and orderly
market.
The Exchange notes that the proposed
technical changes in Options 3, Section
3, Options 3, Section 8(a)(viii), and
Options 8, Section 33(d)(2) would
provide clarity and transparency to the
Exchange’s rules, would promote just
and equitable principles of trade, and
remove impediments to, and perfect the
mechanism of, a free and open market
and a national market system. The
proposed rule changes would also
provide internal consistency within
Exchange rules and operate to protect
investors and the investing public by
making the Exchange’s rules easier to
navigate and comprehend.
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. The
proposed Penny Program, which
modifies the Exchange’s rules to align
them with the Commission approved
OLPP Program, is not designed to be a
competitive filing nor does it impose an
undue burden on intermarket
competition as the Exchange anticipates
that the options exchanges will adopt
substantially identical rules. Moreover,
the Exchange believes that by
conforming Exchange rules to the OLPP
Program, the Exchange would promote
regulatory clarity and consistency,
thereby reducing burdens on the
marketplace and facilitating investor
protection. To the extent that there is a
competitive burden on those option
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Federal Register / Vol. 85, No. 128 / Thursday, July 2, 2020 / Notices
classes that do not qualify for the Penny
Program, the Exchange believes that it is
appropriate because the proposal should
benefit all market participants and
investors by maximizing the benefit of
a finer quoting increment in those
option classes with the most trading
interest while minimizing the burden of
greater quote traffic in option classes
with less trading interest. The Exchange
believes that adopting rules, which it
anticipates will likewise be adopted by
all option exchanges that are
participants in the OLPP, would allow
for continued competition between
Exchange market participants trading
similar products as their counterparts
on other exchanges, while at the same
time allowing the Exchange to continue
to compete for order flow with other
exchanges.
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
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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 after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 14 and Rule 19b–
4(f)(6) 15 thereunder. The Exchange has
proposed to implement the Penny
Program on July 1, 2020 and has asked
the Commission to waive the 30-day
operative delay for this filing.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because it will allow the Exchange to
modify its rules to conform to the OLPP
Program and implement the Penny
Program on July 1, 2020, consistent with
the Commission’s approval of the OLPP
Amendment. Accordingly, the
Commission designates the proposed
14 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change 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.
15 17
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rule change as operative on July 1,
2020.16
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 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
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 rule-comments@
sec.gov. Please include File Number SR–
Phlx–2020–32 on the subject line
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2020–32. 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
16 For purposes only of waiving the operative
delay for this proposal, 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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39959
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2020–32 and should
be submitted on or before July 23, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–14235 Filed 7–1–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89165; File No. SR–IEX–
2019–15]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Designation of Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Add a New Discretionary Limit
Order Type Called D-Limit
June 26, 2020.
On December 16, 2019, the Investors
Exchange LLC (‘‘IEX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–44 thereunder,2 a proposed rule
change to adopt a new order type, the
Discretionary Limit order (‘‘D-Limit’’).
The proposed rule change was
published for comment in the Federal
Register on December 30, 2019.3 On
February 12, 2020, the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–44.
3 See Securities Exchange Act Release No. 87814
(December 20, 2019), 84 FR 71997 (December 30,
2019) (‘‘Notice’’). Comments on the proposed rule
change can be found at https://www.sec.gov/
comments/sr-iex-2019-15/sriex201915.htm.
1 15
E:\FR\FM\02JYN1.SGM
02JYN1
]]>Agencies
[Federal Register Volume 85, Number 128 (Thursday, July 2, 2020)]
[Notices]
[Pages 39956-39959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14235]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89168; File No. SR-Phlx-2020-32]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 3,
Section 3 To Conform the Rule to Section 3.1 of the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options
June 26, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 23, 2020, Nasdaq PHLX LLC (the ``Exchange'') filed with
the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange filed the proposal as
a ``non-controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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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 Options 3, Section 3 to conform the
rule to Section 3.1 of the Plan for the Purpose of Developing and
Implementing Procedures Designed to Facilitate the Listing and Trading
of Standardized Options (the ``OLPP'').
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqphlx.cchwallstreet.com, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule change is to amend Options 3, Section 3
(Minimum Increments) to align the rule with the recently approved
amendment to the OLPP.
Background
On January 23, 2007, the Commission approved on a limited basis a
Penny Pilot in option classes in certain issues (``Penny Pilot''). The
Penny Pilot was designed to determine whether investors would benefit
from options being quoted in penny increments, and in which classes the
benefits were most significant. The Penny Pilot was expanded and
extended numerous times over the last 13 years.\5\ In each instance,
these approvals relied upon the consideration of data periodically
provided by the Exchanges that analyzed how quoting options in penny
increments affects spreads, liquidity, quote traffic, and volume.
Today, the Penny Pilot includes 363 option classes, which are among the
most actively traded, multiply listed option classes. The Penny Pilot
is scheduled to expire by its own terms on June 30, 2020.\6\
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\5\ The Penny Pilot was established on the Exchange in December
2006 and was last extended in December 2019. See Securities Exchange
Act Release Nos. 54886 (December 6, 2006), 71 FR 74979 (December 13,
2006) (SR-Phlx-2006-74); and 87748 (December 13, 2019), 84 FR 69803
(December 19, 2019) (SR-Phlx-2019-55).
\6\ See Securities Exchange Act Release No. 87748 (December 13,
2019), 84 FR 69803 (December 19, 2019) (SR-Phlx-2019-55).
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In light of the imminent expiration of the Penny Pilot on June 30,
2020, the Exchange, together with other participating exchanges, filed,
on July 18, 2019 a proposal to amend the OLPP.\7\ On April 1, 2020 the
Commission approved the amendment to the OLPP to make permanent the
Pilot Program (the ``OLPP Program'').\8\
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\7\ See Securities Exchange Act Release No. 87681 (December 9,
2019), 84 FR 68960 (December 17, 2019) (``Notice'').
\8\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval
Order'').
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The OLPP Program replaces the Penny Pilot by instituting a
permanent program that would permit quoting in penny increments for
certain option classes. Under the terms of the OLPP
[[Page 39957]]
Program, designated option classes would continue to be quoted in $0.01
and $0.05 increments according to the same parameters for the Penny
Pilot. In addition, the OLPP Program would: (i) Establish an annual
review process to add option classes to, or to remove option classes
from, the OLPP Program; (ii) to allow an option class to be added to
the OLPP Program if it is a newly listed option class and it meets
certain criteria; (iii) to allow an option class to be added to the
OLPP Program if it is an option class that has seen a significant
growth in activity; (iv) to provide that if a corporate action involves
one or more option classes in the OLPP Program, all adjusted and
unadjusted series and classes emerging as a result of the corporate
action will be included in the OLPP Program; and (v) to provide that
any series in an option class participating in the OLPP Program that
have been delisted, or are identified by OCC as ineligible for opening
Customer transactions, will continue to trade pursuant to the OLPP
Program until they expire.
To conform its Rules to the OLPP Program, the Exchange proposes to
delete the current rule text in Supplementary Material.01 to Options 3,
Section 3 (the ``Penny Pilot Rule''), and replace it with the
requirements for the proposed Penny Interval Program from the OLPP
Program, which is described below, and to replace references to the
``Penny Pilot'' in several Exchange rules with ``Penny Interval
Program.''
The Exchange also proposes to delete obsolete and superfluous
language in Options 3, Section 3(a)(1) regarding amendments to the
minimum increments that may be established by the Board and designated
as a stated policy, practice or interpretation within the meaning of
the Act, and the process for such amendments by rule filing.\9\ Today,
the Exchange may determine to establish a change to the minimum
increments within its Rules and must submit proposed rule changes for
such amendments to the Commission.\10\ In connection with the foregoing
change, the Exchange also proposes to renumber current subparagraphs
(a)(2) and (3) in Options 3, Section 3 as subparagraphs (a)(1) and (2).
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\9\ See Options 3, Section 3(a)(1), which specifically provides:
``However, the Board of Directors may establish different minimum
trading increments. The Exchange will designate any such change as a
stated policy, practice or interpretation with respect to the
administration of this Rule, within the meaning of Section
19(b)(3)(A) of the Exchange Act and will file a proposed rule change
with the Securities and Exchange Commission to be effective upon
filing.''
\10\ Decisions to change the minimum increments relate to
Exchange trading and operations, and thus are made by Exchange
management via delegated authority from the Board, rather than the
Board itself, which is generally not involved in determinations
related to day-to-day operations of the Exchange.
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Penny Interval Program
The Exchange proposes to codify the OLPP Program in Supplementary
Material .01 to Options 3, Section (Requirements for Penny Interval
Program) (the ``Penny Program''), which will replace the Penny Pilot
Rule and permanently permit the Exchange to quote certain option
classes in minimum increments of one cents ($0.01) and five cents
($0.05) (``penny increments''), as set forth in Supplementary Material
.01 to Options 3, Section 3. The penny increments that currently apply
under the Penny Pilot as set forth in existing Supplementary Material
.01 to Options 3, Section 3 will continue to apply for options classes
included in the Penny Program. Specifically, new subparagraphs (a)(1)-
(3) in Supplementary Material .01 to Options 3, Section 3 will state
that for options contracts traded pursuant to the Penny Program as
described within Supplementary Material .01 to Options 3, Section 3,
the following minimum increments will apply: (1) One cent ($0.01) for
all options contracts in QQQ, SPY, and IWM; (2) one cent ($0.01) for
all other options contracts included in the Penny Interval Program that
are trading at less than $3.00; and (3) five cents ($0.05) for all
other options contracts included in the Penny Interval Program that are
trading at or above $3.00.
The Penny Program would initially apply to the 363 most actively
traded multiply listed option classes, based on National Cleared Volume
at The Options Clearing Corporation (``OCC'') in the six full calendar
months ending in the month of approval (i.e., November 2019-April 2020)
that currently quote in penny increments, or overlie securities priced
below $200, or any index at an index level below $200. Eligibility for
inclusion in the Penny Program will be determined at the close of
trading on the monthly Expiration Friday of the second full month
following April 1, 2020 (i.e., June 19, 2020).
Once in the Penny Program, an option class will remain included
until it is no longer among the 425 most actively traded option classes
at the time the annual review is conducted (described below), at which
point it will be removed from the Penny Program. As described in more
detail below, the removed class will be replaced by the next most
actively traded multiply listed option class overlying securities
priced below $200 per share, or any index at an index level below $200,
and not yet in the Penny Program. Advanced notice regarding the option
classes included, added, or removed from the Penny Program will be
provided to the Exchange's membership via Options Trader Alert and
published by the Exchange on its website.
Annual Review
The Penny Program would include an annual review process that
applies objective criteria to determine option classes to be added to,
or removed from, the Penny Program. Specifically, on an annual basis
beginning in December 2020 and occurring every December thereafter, the
Exchange will review and rank all multiply listed option classes based
on National Cleared Volume at OCC for the six full calendar months from
June 1st through November 30th for determination of the most actively
traded option classes. Any option classes not yet in the Penny Program
may be added to the Penny Program if the class is among the 300 most
actively traded multiply listed option classes and priced below $200
per share or any index at an index level below $200.
Following the annual review, option classes to be added to the
Penny Program would begin quoting in penny increments (i.e., $0.01 if
trading at less than $3; and $0.05 if trading at $3 and above) on the
first trading day of January. In addition, following the annual review,
any option class in the Penny Program that falls outside of the 425
most actively traded option classes would be removed from the Penny
Program. After the annual review, option classes that are removed from
the Penny Program will be subject to the minimum trading increments set
forth in Options 3, Section 3, effective on the first trading day of
April.
Changes to the Composition of the Penny Program Outside of the Annual
Review
Newly Listed Option Classes and Option Classes With Significant Growth
in Activity
The Penny Program would specify a process and parameters for
including option classes in the Penny Program outside the annual review
process in two circumstances. These provisions are designed to provide
objective criteria to add to the Penny Program new option classes in
issues with the most demonstrated trading interest from market
participants and investors on an expedited basis prior to the annual
review, with the benefit that market
[[Page 39958]]
participants and investors will then be able to trade these new option
classes based upon quotes expressed in finer trading increments.
First, the Penny Program provides for certain newly listed option
classes to be added to the Penny Program outside of the annual review
process, provided that (i) the class is among the 300 most actively
traded, multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading; and (ii)
the underlying security is priced below $200 or the underlying index is
at an index level below $200. Such newly listed option classes added to
the Penny Program pursuant to this process would remain in the Penny
Program for one full calendar year and then would be subject to the
annual review process.
Second, the Penny Program would allow an option class to be added
to the Penny Program outside of the annual review process if it is an
option class that meets certain specific criteria. Specifically, new
option classes may be added to the Penny Program if: (i) the option
class is among the 75 most actively traded multiply listed option
classes, as ranked by National Cleared Volume at OCC, in the prior six
full calendar months of trading and (ii) the underlying security is
priced below $200 or the underlying index is at an index level below
$200. Any option class added under this provision will be added on the
first trading day of the second full month after it qualifies and will
remain in the Penny Program for the rest of the calendar year, after
which it will be subject to the annual review process.
Corporate Actions
The Penny Program would also specify a process to address option
classes in the Penny Program that undergo a corporate action and is
designed to ensure continuous liquidity in the affected option classes.
Specifically, if a corporate action involves one or more option classes
in the Penny Program, all adjusted and unadjusted series of an option
class would continue to be included in the Penny Program.\11\
Furthermore, neither the trading volume threshold, nor the initial
price test would apply to option classes added to the Penny Program as
a result of the corporate action. Finally, the newly added adjusted and
unadjusted series of the option class would remain in the Penny Program
for one full calendar year and then would become subject to the annual
review process.
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\11\ For example, if Company A acquires Company B and Company A
is not in the Penny Program but Company B is in the Penny Program,
once the merger is consummated and an options contract adjustment is
effective, then Company A would be added to the Penny Program and
remain in the Penny Program for one calendar year.
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Delisted or Ineligible Option Classes
Finally, the Penny Program would provide a mechanism to address
option classes that have been delisted or those that are no longer
eligible for listing. Specifically, any series in an option class
participating in the Penny Program in which the underlying has been
delisted, or is identified by OCC as ineligible for opening customer
transactions, would continue to quote pursuant to the terms of the
Penny Program until all options series have expired.
Technical Changes
The Exchange proposes to replace references to the Penny Pilot with
references to the Penny Interval Program in Options 3, Section
8(a)(viii) and in Options 8, Section 33(d)(2). The Exchange also
proposes to replace the obsolete reference to ``Commentary'' with
``Supplementary Material to Options 3, Section 3'' in Options 3,
Section 3. Further, the Exchange proposes in Options 3, Section 3(a)(3)
to replace ``minimum changes'' with ``minimum trading increments'' for
greater consistency within the Rule. Lastly, the Exchange proposes to
remove the stray punctuation at the end of the Supplementary Material
to Options 3, Section 3 header.
The Exchange believes these technical changes would add clarity,
transparency, and internal consistency to the Exchange's rules, making
them easier for market participants to navigate.
Implementation
The Exchange proposes to implement the Penny Program on July 1,
2020, which is the first trading day of the third month following the
Approval Order issued on April 1, 2020--i.e., July 1, 2020.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\13\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, 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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change, which conforms the
Exchange rules to the recently adopted OLPP Program, allows the
Exchange to provide market participants with a permanent Penny Program
for quoting options in penny increments, which maximizes the benefit of
quoting in a finer quoting increment to investors while minimizing the
burden that a finer quoting increment places on quote traffic.
Accordingly, the Exchange believes that the proposal is consistent
with the Act because, in conforming the Exchange rules to the OLPP
Program, the Penny Program would employ processes, based upon objective
criteria, that would rebalance the composition of the Penny Program,
thereby helping to ensure that the most actively traded option classes
are included in the Penny Program, which helps facilitate the
maintenance of a fair and orderly market.
The Exchange notes that the proposed technical changes in Options
3, Section 3, Options 3, Section 8(a)(viii), and Options 8, Section
33(d)(2) would provide clarity and transparency to the Exchange's
rules, would promote just and equitable principles of trade, and remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system. The proposed rule changes would also
provide internal consistency within Exchange rules and operate to
protect investors and the investing public by making the Exchange's
rules easier to navigate and comprehend.
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. The proposed Penny Program,
which modifies the Exchange's rules to align them with the Commission
approved OLPP Program, is not designed to be a competitive filing nor
does it impose an undue burden on intermarket competition as the
Exchange anticipates that the options exchanges will adopt
substantially identical rules. Moreover, the Exchange believes that by
conforming Exchange rules to the OLPP Program, the Exchange would
promote regulatory clarity and consistency, thereby reducing burdens on
the marketplace and facilitating investor protection. To the extent
that there is a competitive burden on those option
[[Page 39959]]
classes that do not qualify for the Penny Program, the Exchange
believes that it is appropriate because the proposal should benefit all
market participants and investors by maximizing the benefit of a finer
quoting increment in those option classes with the most trading
interest while minimizing the burden of greater quote traffic in option
classes with less trading interest. The Exchange believes that adopting
rules, which it anticipates will likewise be adopted by all option
exchanges that are participants in the OLPP, would allow for continued
competition between Exchange market participants trading similar
products as their counterparts on other exchanges, while at the same
time allowing the Exchange to continue to compete for order flow with
other exchanges.
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 after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6)
\15\ thereunder. The Exchange has proposed to implement the Penny
Program on July 1, 2020 and has asked the Commission to waive the 30-
day operative delay for this filing.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change 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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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because it will allow the Exchange to modify its rules to conform to
the OLPP Program and implement the Penny Program on July 1, 2020,
consistent with the Commission's approval of the OLPP Amendment.
Accordingly, the Commission designates the proposed rule change as
operative on July 1, 2020.\16\
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\16\ For purposes only of waiving the operative delay for this
proposal, 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 the 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 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-Phlx-2020-32 on the subject line
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2020-32. 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-Phlx-2020-32 and should be submitted on
or before July 23, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14235 Filed 7-1-20; 8:45 am]
BILLING CODE 8011-01-P
