Self-Regulatory Organizations; Nasdaq BX, Inc.; 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, 39949-39952 [2020-14236]
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Federal Register / Vol. 85, No. 128 / Thursday, July 2, 2020 / Notices
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 19 and Rule 19b–
4(f)(6) 20 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
rule change as operative on July 1,
2020.21
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 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:
19 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.
21 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).
khammond on DSKJM1Z7X2PROD with NOTICES
20 17
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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–
MRX–2020–13 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–MRX–2020–13. 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–MRX–2020–13 and should
be submitted on or before July 23, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–14230 Filed 7–1–20; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89169; File No. SR–BX–
2020–013]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; 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 BX, Inc. (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 ‘‘noncontroversial’’ 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://nasdaqbx.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
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).
2 17
22 17
CFR 200.30–3(a)(12).
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39949
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Federal Register / Vol. 85, No. 128 / Thursday, July 2, 2020 / Notices
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.
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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
initiated at the then existing option
exchanges in January 2007 5 and was
expanded and extended numerous times
over the last 13 years.6 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, 2020.7
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.8 On April 1, 2020 the
Commission approved the amendment
5 See Securities Exchange Act Release Nos. 55154
(January 23, 2007), 72 FR 4743 (February 1, 2007)
(SR–CBOE–2006–92); 55161 (January 24, 2007), 72
FR 4754 (February 1, 2007) (SR–ISE–2006–62);
54886 (December 6, 2006), 71 FR 74979 (December
13, 2006) (SR–Phlx–2006–74); 54590 (October 12,
2006), 71 FR 61525 (October 18, 2006) (SR–
NYSEArca–2006–73); and 54741 (November 9,
2006), 71 FR 67176 (November 20, 2006) (SR–
Amex–2006–106).
6 The Penny Pilot was established on the
Exchange in June 2012 and was last extended in
December 2019. See Securities Exchange Act
Release Nos. 67256 (June 26, 2012), 77 FR 39277
(July 2, 2012) (SR–BX–2012–030); and 87754
(December 16, 2019), 84 FR 70232 (December 20,
2019) (SR–BX–2019–046).
7 See Securities Exchange Act Release No. 87754
(December 16, 2019), 84 FR 70232 (December 20,
2019) (SR–BX–2019–046).
8 See Securities Exchange Act Release No. 87681
(December 9, 2019), 84 FR 68960 (December 17,
2019) (‘‘Notice’’).
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to the OLPP to make permanent the
Pilot Program (the ‘‘OLPP Program’’).9
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
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. The Exchange also
proposes to relocate the Exchange’s
rules regarding the minimum price
variations for options in the proposed
Penny Interval Program, which are
currently within Supplementary
Material .01 to Options 3, Section 3, into
new subparagraphs (a)(3)(A)–(C) of
Options 3, Section 3. Specifically, the
Exchange proposes to provide in new
subparagraphs (a)(3)(A)–(C) that for
options series traded pursuant to the
proposed Penny Interval Program as
described in Supplementary Material
.01 to Options 3, Section 3, the
following minimum quoting increments
will apply: (A) One cent ($0.01) for all
options series in QQQ, SPY, and IWM;
(B) one cent ($0.01) for all other options
series included in the Penny Interval
Program that are trading at less than
$3.00; and (C) five cents ($0.05) for all
9 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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other options series included in the
Penny Interval Program that are trading
at or above $3.00.
The Exchange also proposes to delete
obsolete and superfluous language in
Options 3, Section 3(a) 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.10
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.11
Accordingly, Options 3, Section 3(a), as
amended, will simply provide that the
following minimum quoting increments
(as enumerated within Options 3,
Section 3(a)) shall apply to options
contracts traded on the Exchange.
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 proposed
subparagraphs (a)(3)(A)–(C) of Options
3, Section 3. As discussed above, the
penny increments that currently apply
under the Penny Pilot 12 will continue to
apply for options classes included in the
Penny Program.13
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
10 See Options 3, Section 3(a), which specifically
provides: ‘‘The Board may establish minimum
quoting increments for options contracts traded on
BX Options. Such minimum increments established
by the Board will be designated as a stated policy,
practice, or interpretation with respect to the
administration of this Rule within the meaning of
Section 19 of the Exchange Act and will be filed
with the SEC as a rule change for effectiveness upon
filing.’’
11 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.
12 See Supplementary Material .01 to Options 3,
Section 3.
13 See proposed subparagraphs (a)(3)(A)–(C) of
Options 3, Section 3.
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Federal Register / Vol. 85, No. 128 / Thursday, July 2, 2020 / Notices
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.
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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.
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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
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
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
39951
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.14 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.
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.
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,15 in general, and furthers the
objectives of Section 6(b)(5) of the Act,16
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.
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
14 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.
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
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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.
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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
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.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 17 and Rule 19b–
4(f)(6) 18 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
rule change as operative on July 1,
2020.19
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,
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.
19 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).
PO 00000
17 15
18 17
Frm 00084
Fmt 4703
Sfmt 4703
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–
BX–2020–013 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–BX–2020–013. 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–BX–2020–013 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.
[FR Doc. 2020–14236 Filed 7–1–20; 8:45 am]
BILLING CODE 8011–01–P
20 17
E:\FR\FM\02JYN1.SGM
CFR 200.30–3(a)(12).
02JYN1
]]>Agencies
[Federal Register Volume 85, Number 128 (Thursday, July 2, 2020)]
[Notices]
[Pages 39949-39952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14236]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89169; File No. SR-BX-2020-013]
Self-Regulatory Organizations; Nasdaq BX, Inc.; 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 BX, Inc. (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://nasdaqbx.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
[[Page 39950]]
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 initiated at the
then existing option exchanges in January 2007 \5\ and was expanded and
extended numerous times over the last 13 years.\6\ 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.\7\
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\5\ See Securities Exchange Act Release Nos. 55154 (January 23,
2007), 72 FR 4743 (February 1, 2007) (SR-CBOE-2006-92); 55161
(January 24, 2007), 72 FR 4754 (February 1, 2007) (SR-ISE-2006-62);
54886 (December 6, 2006), 71 FR 74979 (December 13, 2006) (SR-Phlx-
2006-74); 54590 (October 12, 2006), 71 FR 61525 (October 18, 2006)
(SR-NYSEArca-2006-73); and 54741 (November 9, 2006), 71 FR 67176
(November 20, 2006) (SR-Amex-2006-106).
\6\ The Penny Pilot was established on the Exchange in June 2012
and was last extended in December 2019. See Securities Exchange Act
Release Nos. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (SR-
BX-2012-030); and 87754 (December 16, 2019), 84 FR 70232 (December
20, 2019) (SR-BX-2019-046).
\7\ See Securities Exchange Act Release No. 87754 (December 16,
2019), 84 FR 70232 (December 20, 2019) (SR-BX-2019-046).
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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.\8\ On April 1, 2020 the
Commission approved the amendment to the OLPP to make permanent the
Pilot Program (the ``OLPP Program'').\9\
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\8\ See Securities Exchange Act Release No. 87681 (December 9,
2019), 84 FR 68960 (December 17, 2019) (``Notice'').
\9\ 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 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. The Exchange also proposes to
relocate the Exchange's rules regarding the minimum price variations
for options in the proposed Penny Interval Program, which are currently
within Supplementary Material .01 to Options 3, Section 3, into new
subparagraphs (a)(3)(A)-(C) of Options 3, Section 3. Specifically, the
Exchange proposes to provide in new subparagraphs (a)(3)(A)-(C) that
for options series traded pursuant to the proposed Penny Interval
Program as described in Supplementary Material .01 to Options 3,
Section 3, the following minimum quoting increments will apply: (A) One
cent ($0.01) for all options series in QQQ, SPY, and IWM; (B) one cent
($0.01) for all other options series included in the Penny Interval
Program that are trading at less than $3.00; and (C) five cents ($0.05)
for all other options series included in the Penny Interval Program
that are trading at or above $3.00.
The Exchange also proposes to delete obsolete and superfluous
language in Options 3, Section 3(a) 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.\10\ 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.\11\ Accordingly, Options 3, Section 3(a),
as amended, will simply provide that the following minimum quoting
increments (as enumerated within Options 3, Section 3(a)) shall apply
to options contracts traded on the Exchange.
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\10\ See Options 3, Section 3(a), which specifically provides:
``The Board may establish minimum quoting increments for options
contracts traded on BX Options. Such minimum increments established
by the Board will be designated as a stated policy, practice, or
interpretation with respect to the administration of this Rule
within the meaning of Section 19 of the Exchange Act and will be
filed with the SEC as a rule change for effectiveness upon filing.''
\11\ 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 proposed subparagraphs
(a)(3)(A)-(C) of Options 3, Section 3. As discussed above, the penny
increments that currently apply under the Penny Pilot \12\ will
continue to apply for options classes included in the Penny
Program.\13\
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\12\ See Supplementary Material .01 to Options 3, Section 3.
\13\ See proposed subparagraphs (a)(3)(A)-(C) of Options 3,
Section 3.
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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
[[Page 39951]]
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 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.\14\
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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\14\ 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.
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,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ 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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\15\ 15 U.S.C. 78f(b).
\16\ 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
[[Page 39952]]
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.
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 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 \17\ and Rule 19b-4(f)(6)
\18\ 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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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.\19\
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\19\ 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-BX-2020-013 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-BX-2020-013. 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-BX-2020-013 and should be submitted on
or before July 23, 2020.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14236 Filed 7-1-20; 8:45 am]
BILLING CODE 8011-01-P
