Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Options 4, Section 5, “Series of Options Contracts Open for Trading” To Limit Short Term Options Series Intervals Between Strikes, 27907-27916 [2021-10844]
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
rules.24 The Exchange has explained
that its System, in certain instances,
may adjust the limit price of LLOC and
LLOO orders to a less aggressive price
pursuant to other Exchange Rules.25 The
Commission believes that the proposed
amendments to the definitions of LLOC
and LLOO would provide greater
transparency regarding the operation of
the Exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,26 that the
proposed rule change (SR–CboeBZX–
2021–023) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10842 Filed 5–21–21; 8:45 am]
BILLING CODE 8011–01–P
The subject matter of the closed
meeting will consist of the following
topics:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to examinations
and enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Dated: May 20, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–11013 Filed 5–20–21; 4:15 pm]
SECURITIES AND EXCHANGE
COMMISSION
BILLING CODE 8011–01–P
Sunshine Act Meetings
SECURITIES AND EXCHANGE
COMMISSION
2:00 p.m. on Thursday,
May 27, 2021.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
khammond on DSKJM1Z7X2PROD with NOTICES
TIME AND DATE:
24 See
proposed Exchange Rules 11.23(a)(11) and
(a)(12).
25 See supra note 15 and accompanying text.
26 15 U.S.C. 78s(b)(2).
27 17 CFR 200.300–3(a)(12).
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[Release No. 34–91930; File No. SR–ISE–
2021–09]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Options 4,
Section 5, ‘‘Series of Options Contracts
Open for Trading’’ To Limit Short Term
Options Series Intervals Between
Strikes
May 18, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 5,
2021, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Options 4, Section 5, ‘‘Series of Options
Contracts Open for Trading.’’ This
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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27907
proposal seeks to limit Short Term
Options Series intervals between strikes
which are available for quoting and
trading on ISE.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Options 4, Section 5, ‘‘Series of Options
Contracts Open for Trading.’’
Specifically, this proposal seeks to limit
the intervals between strikes for
multiply listed equity options classes
within the Short Term Options Series
program that have an expiration date
more than twenty-one days from the
listing date. This proposal is identical to
a proposal by Nasdaq BX, Inc.3
Background
Today, ISE’s listing rules within
Options 4, Section 5 permits the
Exchange, after a particular class of
options (call option contracts or put
option contracts relating to a specific
underlying stock, Exchange-Traded
3 See Securities Exchange Act Release No. 91125
(February 12, 2021), 86 FR 10375 (February 19,
2021) (SR–BX–2020–032) (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated
Approval of Proposed Rule Change, as Modified by
Amendment No. 1, To Amend Options 4, Section
5, To Limit Short Term Options Series Intervals
Between Strikes That Are Available for Quoting and
Trading on BX).
E:\FR\FM\24MYN1.SGM
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
Fund Share,4 or ETN 5) has been
approved for listing and trading on the
Exchange, to open for trading series of
options therein. The Exchange may list
series of options for trading on a
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4 Exchange-Traded
Fund Share shall include
shares or other securities that are traded on a
national securities exchange and are defined as an
‘‘NMS stock’’ under Rule 600 of Regulation NMS,
and that (i) represent interests in registered
investment companies (or series thereof) organized
as open-end management investment companies,
unit investment trusts or similar entities, that hold
portfolios of securities and/or financial instruments
including, but not limited to, stock index futures
contracts, options on futures, options on securities
and indexes, equity caps, collars and floors, swap
agreements, forward contracts, repurchase
agreements and reverse repurchase agreements
comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money
Market Instruments (the ‘‘Money Market
Instruments’’) (or that hold securities in one or
more other registered investment companies that
themselves hold such portfolios of securities and/
or Financial Instruments and Money Market
Instruments (ii) represent interests in a trust or
similar entity that holds a specified non-U.S.
currency or currencies deposited with the trust or
similar entity when aggregated in some specified
minimum number may be surrendered to the trust
by the beneficial owner to receive the specified
non-U.S. currency or currencies and pays the
beneficial owner interest and other distributions on
the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (‘‘Currency
Trust Shares’’), (iii) represent commodity pool
interests principally engaged, directly or indirectly,
in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward
contracts and/or options on physical commodities
and/or non-U.S. currency (‘‘Commodity Pool
ETFs’’), (iv) represent interests in the SPDR® Gold
Trust, the iShares COMEX Gold Trust, the iShares
Silver Trust, the ETFS Gold Trust, the ETFS Silver
Trust, the ETFS Palladium Trust, the ETFS
Platinum Trust or the Sprott Physical Gold Trust or
(v) represents an interest in a registered investment
company (‘‘Investment Company’’) organized as an
open-end management company or similar entity,
that invests in a portfolio of securities selected by
the Investment Company’s investment adviser
consistent with the Investment Company’s
investment objectives and policies, which is issued
in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities
and/or a cash amount with a value equal to the next
determined net asset value (‘‘NAV’’), and when
aggregated in the same specified minimum number,
may be redeemed at a holder’s request, which
holder will be paid a specified portfolio of
securities and/or cash with a value equal to the next
determined NAV (‘‘Managed Fund Share’’);
provided the conditions within Options 4, Section
3(i)(A) and (B) are met. See Options 4, Section 3(i).
5 Securities deemed appropriate for options
trading shall include shares or other securities
(‘‘Equity Index-Linked Securities,’’ ‘‘CommodityLinked Securities,’’ ‘‘Currency-Linked Securities,’’
‘‘Fixed Income Index-Linked Securities,’’ ‘‘FuturesLinked Securities,’’ and ‘‘Multifactor Index-Linked
Securities,’’ collectively known as ‘‘Index- Linked
Securities’’ or ‘‘ETNs’’) that are principally traded
on a national securities exchange and an ‘‘NMS
Stock’’ (as defined in Rule 600 of Regulation NMS
under the Securities Exchange Act of 1934), and
represent ownership of a security that provides for
the payment at maturity, as described within
Options 4, Section 3(l)(i)(1)–(6). See Options 4,
Section 3(l)(i).
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17:32 May 21, 2021
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weekly,6 monthly 7 or quarterly 8 basis.
Options 4, Section 5(d) sets forth the
intervals between strike prices of series
of options on individual stocks.9 In
6 The weekly listing program is known as the
Short Term Options Series Program and is
described within Supplementary Material .03 of
Options 4, Section 5.
7 The Exchange will open at least one expiration
month for each class of options open for trading on
the Exchange. See Options 4, Section 5(g). The
monthly expirations are subject to certain listing
criteria for underlying securities described within
Options 4, Section 3. Monthly listings expire the
third Friday of the month. The term ‘‘expiration
date’’ when used in respect of a series of binary
options other than event options means the last day
on which the options may be automatically
exercised. In the case of a series of event options
(other than credit default options or credit default
basket options) that are be automatically exercised
prior to their expiration date upon receipt by the
Corporation of an event confirmation, the
expiration date is the date specified by the listing
Exchange; provided, however, that when an event
confirmation is deemed to have been received by
the Corporation with respect to such series of
options, the expiration date will be accelerated to
the date on which such event confirmation is
deemed to have been received by the Corporation
or such later date as the Corporation may specify.
In the case of a series of credit default options or
credit default basket options, the expiration date is
the fourth business day after the last trading day for
such series as such trading day is specified by the
Exchange on which the series of options is listed;
provided, however, that when an event
confirmation is deemed to have been received by
the Corporation with respect to a series of credit
default options or single payout credit default
basket options prior to the last trading day for such
series, the expiration date for options of that series
will be accelerated to the second business day
following the day on which such event
confirmation is deemed to have been received by
the Corporation. ‘‘Expiration date’’ means, in
respect of a series of range options expiring prior
to February 1, 2015, the Saturday immediately
following the third Friday of the expiration month
of such series, and, in respect of a series of range
options expiring on or after February 1, 2015 means
the third Friday of the expiration month of such
series, or if such Friday is a day on which the
Exchange on which such series is listed is not open
for business, the preceding day on which such
Exchange is open for business. See The Options
Clearing Corporation (‘‘OCC’’) By-Laws at Section 1.
8 The quarterly listing program is known as the
Quarterly Options Series Program and is described
within Supplementary Material .04 of Options 4,
Section 5.
9 Except as otherwise provided in the
Supplementary Material of Options 4, Section 5, the
interval between strike prices of series of options
on individual stocks will be: (1) $2.50 or greater
where the strike price is $25.00 or less; (2) $5.00
or greater where the strike price is greater than
$25.00; and (3) $10.00 or greater where the strike
price is greater than $200.00.
The interval between strike prices of series of
options on Exchange-Traded Fund Shares approved
for options trading pursuant to Section 3(i) of this
Options 4 shall be fixed at a price per share which
is reasonably close to the price per share at which
the underlying security is traded in the primary
market at or about the same time such series of
options is first open for trading on the Exchange,
or at such intervals as may have been established
on another options exchange prior to the initiation
of trading on the Exchange.
Pursuant to Options 4, Section 5(e),
notwithstanding any other provision regarding the
interval of strike prices of series of options on
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Frm 00084
Fmt 4703
Sfmt 4703
addition to those intervals, the
Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,10 the $0.50 Strike Program,11
the $2.50 Strike Price Program,12 and
the $5 Strike Program.13
The Exchange’s proposal seeks to
amend the listing of weekly series of
options as proposed within new
Supplementary Material .03(f) of
Options 4, Section 5, by limiting the
intervals between strikes in multiply
listed equity options, excluding
Exchange-Traded Fund Shares and
ETNs, that have an expiration date more
than twenty-one days from the listing
date. This proposal does not amend
monthly or quarterly listing rules nor
does it amend the $1 Strike Price
Interval Program, the $0.50 Strike
Program, the $2.50 Strike Price Program,
or the $5 Strike Program.
Short Term Options Series Program
Today, Supplementary Material .03 of
Options 4, Section 5 permits ISE to open
for trading on any Thursday or Friday
that is a business day (‘‘Short Term
Option Opening Date’’) series of options
on an option class that expires at the
close of business on each of the next
five Fridays that are business days and
are not Fridays in which monthly
options series or Quarterly Options
Series expire (‘‘Short Term Option
Expiration Dates’’), provided an option
class has been approved for listing and
trading on the Exchange.14 Today, the
Exchange-Traded Fund Shares in this rule, the
interval of strike prices on SPDR® S&P 500® ETF
(‘‘SPY’’), iShares Core S&P 500 ETF (‘‘IVV’’),
PowerShares QQQ Trust (‘‘QQQ’’), iShares Russell
2000 Index Fund (‘‘IWM’’), and the SPDR® Dow
Jones® Industrial Average ETF (‘‘DIA’’) options will
be $1 or greater.
10 The $1 Strike Interval Program is described
within Supplementary Material .01 of Options 4,
Section 5.
11 The $0.50 Strike Interval Program is described
within Supplementary Material .05 of Options 4,
Section 5.
12 The $2.50 Strike Interval Program is described
within Supplementary Material .02 of Options 4,
Section 5.
13 The $5.00 Strike Interval Program is described
within Supplementary Material .06 of Options 4,
Section 5.
14 The Exchange may have no more than a total
of five Short Term Option Expiration Dates, not
including any Monday or Wednesday SPY
Expirations as provided below. If the Exchange is
not open for business on the respective Thursday
or Friday, the Short Term Option Opening Date will
be the first business day immediately prior to that
respective Thursday or Friday. Similarly, if the
Exchange is not open for business on a Friday, the
Short Term Option Expiration Date will be the first
business day immediately prior to that Friday. With
respect to Wednesday SPY Expirations, the
Exchange may open for trading on any Tuesday or
Wednesday that is a business day series of options
on the SPDR S&P 500 ETF Trust (SPY) to expire on
any Wednesday of the month that is a business day
and is not a Wednesday in which Quarterly Options
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
Exchange may open up to thirty initial
series for each option class that
participates in the Short Term Option
Series Program.15 Further, if the
Exchange opens less than thirty (30)
Short Term Option Series for a Short
Term Option Expiration Date, additional
series may be opened for trading on the
Exchange when the Exchange deems it
necessary to maintain an orderly
market, to meet customer demand or
when the market price of the underlying
security moves substantially from the
khammond on DSKJM1Z7X2PROD with NOTICES
Series expire (‘‘Wednesday SPY Expirations’’). With
respect to Monday SPY Expirations, the Exchange
may open for trading on any Friday or Monday that
is a business day series of options on the SPY to
expire on any Monday of the month that is a
business day and is not a Monday in which
Quarterly Options Series expire (‘‘Monday SPY
Expirations’’), provided that Monday SPY
Expirations that are listed on a Friday must be
listed at least one business week and one business
day prior to the expiration. The Exchange may list
up to five consecutive Wednesday SPY Expirations
and five consecutive Monday SPY Expirations at
one time; the Exchange may have no more than a
total of five Wednesday SPY Expirations and a total
of five Monday SPY Expirations. Monday and
Wednesday SPY Expirations will be subject to the
provisions of this Rule. See Supplementary Material
.03 of Options 4, Section 5.
15 See Supplementary Material .03 of Options 4,
Section 5(c).
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17:32 May 21, 2021
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exercise price or prices of the series
already opened.16
The Exchange may open for trading
Short Term Option Series on the Short
Term Option Opening Date that expire
on the Short Term Option Expiration
Date at strike price intervals of (i) $0.50
or greater where the strike price is less
than $100, and $1 or greater where the
strike price is between $100 and $150
for all option classes that participate in
the Short Term Options Series Program;
(ii) $0.50 for option classes that trade in
one dollar increments and are in the
Short Term Option Series Program; or
(iii) $2.50 or greater where the strike
price is above $150. During the month
prior to expiration of an option class
that is selected for the Short Term
Option Series Program (‘‘Short Term
Option’’), the strike price intervals for
the related non-Short Term Option
(‘‘Related non-Short Term Option’’)
shall be the same as the strike price
intervals for the Short Term Option.17
The Exchange may select up to fifty
currently listed option classes on which
Short Term Option Series may be
opened on any Short Term Option
Opening Date. In addition to the fifty
27909
option class restriction, the Exchange
may also list Short Term Option Series
on any option classes that are selected
by other securities exchanges that
employ a similar program under their
respective rules. For each option class
eligible for participation in the Short
Term Option Series Program, the
Exchange may open up to thirty Short
Term Option Series for each expiration
date in that class. The Exchange may
also open Short Term Option Series that
are opened by other securities
exchanges in option classes selected by
such exchanges under their respective
short term option rules.18
ISE notes that listings in the weekly
program comprise a significant part of
the standard listing in options markets.
The below diagrams demonstrate the
percentage of weekly listings as
compared to Long-Term Option Series
or LEAPs and quarterly listings in 2015
as compared to 2020. The weekly strikes
increased 8.9% compound annual
growth rate (‘‘CAGR’’) from 2015 as
compared to a 4.3% CAGR for standard
expirations using 3rd 2015 Friday
expirations.
BILLING CODE 8011–01–P
16 See
Supplementary Material .03 of Options 4,
Section 5(d).
17 See Options 4, Section 5(e).
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18 See Supplementary Material .03(a) of Options
4, Section 5.
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
2015:
WKL
STD
2020:
WKL
STD
Proposal
ISE proposes to limit the intervals
between strikes in options listed as part
of the Short Term Option Series
Program that have an expiration date
more than twenty-one days from the
listing date, by adopting proposed
Supplementary Material .03(f) of
Options 4, Section 5 as well as proposed
Supplementary Material .07 of Options
4, Section 5, with respect to listing
Short Term Option Series in equity
khammond on DSKJM1Z7X2PROD with NOTICES
19 Additional information comparing the current
listing program to this proposal is available at:
https://www.nasdaq.com/solutions/bx-optionsstrike-proliferation-proposal.
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Jkt 253001
options, excluding Exchange-Traded
Fund Shares and ETNs) (collectively
‘‘Strike Interval Proposal’’). ISE’s Strike
Interval Proposal would limit the
intervals between strikes by utilizing the
table proposed within Supplementary
Material .07 of Options 4, Section 5.
With the Strike Interval Proposal, ISE
would limit intervals between strikes for
expiration dates of option series beyond
twenty-one days utilizing the below
three-tiered table which considers both
the share price and average daily
volume for the option series.19 The
below table indicates the applicable
strike intervals and would supersede
Supplementary Material .03(d) which
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currently permits additional series to be
opened for trading on the Exchange
when the Exchange deems it necessary
to maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. As
a result, the Exchange would not be able
to utilize the rule text within
Supplementary Material .03(d) to permit
additional series to be opened for
trading on ISE which have an expiration
date more than twenty-one days from
the listing date despite the noted
circumstances when such additional
series could otherwise be added.
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BILLING CODE 8011–01–C
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
Share price
Tier
Average daily volume
1 .............
2 .............
3 .............
Greater than 5,000 ..........................................
Greater than 1,000 to 5,000 ............................
0 to 1,000 ........................................................
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The Share Price would be the closing
price on the primary market on the last
day of the calendar quarter. This value
would be used to derive the column
from which to apply strike intervals
throughout the next calendar quarter.
The Average Daily Volume would be the
total number of options contracts traded
in a given security for the applicable
calendar quarter divided by the number
of trading days in the applicable
calendar quarter. Beginning on the
second trading day in the first month of
each calendar quarter, the Average Daily
Volume shall be calculated by utilizing
data from the prior calendar quarter
based on Customer-cleared volume at
OCC. For options listed on the first
trading day of a given calendar quarter,
the Average Daily Volume shall be
calculated using the calendar quarter
prior to the last trading calendar
quarter.20 Under current rules, if the
Exchange is not open for business on
the respective Thursday or Friday, the
Short Term Option Opening Date will
be the first business day immediately
prior to that respective Thursday or
Friday, as is the case today for STOs as
specified within Supplementary .03 to
Options 4, Section 5.
The Exchange proposes that Short
Term Options Series that are newly
eligible for listing pursuant to Options
4, Section 3(a) will not be subject to this
proposed Supplementary .07 until after
the end of the first full calendar quarter
following the date the option class was
first listed for trading on any options
market.21 The Exchange would be
permitted to list options on newly
eligible listings, without any
curtailment in strike intervals, until the
end of the first full quarter after they
were listed. ISE’s proposal would
thereby permit ISE to add strikes to
meet customer demand in the options
class. By deferring the curtailment until
after the end of the first full calendar
quarter, additional information on the
20 For example, options listed as of January 4,
2021 would be calculated on January 5, 2021 using
the Average Daily Volume from July 1, 2020 to
September 30, 2020.
21 For example, if an options became newly
eligible for listing pursuant to Options 4, Section 3
on March 1, 2021, the first full quarterly lookback
would be available on July 1, 2021. This option
would become subject to the curtailment on July 2,
2021.
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Jkt 253001
Less than
$25
$25 to less
than $75
$0.50
1.00
2.50
$1.00
1.00
5.00
underlying security would be available
to market participants and public
investors. During this period of
deferment the price of the underlying
would have an opportunity to settle
based on the price discovery that has
occurred in the primary market. An
options class that represents a newly
listed primary security may fluctuate in
price after its initial listing; such
volatility reflects a natural uncertainty
about the security. Also, ISE would have
the ability to list as many strikes as are
permissible for the Short Term Options
Series once the expiry is within twentyone days. Short Term Options Series
which have an expiration date less than
twenty-one days from the listing date
are not subject to the curtailment,
thereby allowing ISE to list additional,
and potentially narrower, strikes in the
event of market volatility or other
market events.
ISE proposes to make publically
available a report on a quarterly basis
which indicates, for each Short Term
Options Series eligible to be listed
under proposed Supplementary
Material .07 of Options 4, Section 5, the
applicable tiering of the underlying,
which includes the closing price of the
underlying, and the average daily
customer volume of the option in that
underlying.22 The average daily
customer volume data will be sourced
from OCC. The closing price of the
underlying will be sourced from the
closing prices for Tape A, B and C
securities published by the UTP and
CTA/CQ Plans. ISE will produce the
report by the close of business on the
first trading day of the quarter.23 The
Exchange notes that the report will be
posted on ISE’s website on the first day
of a new quarter to support listing
decisions, pursuant to the Short Term
Options Series Program, for the most
recent listing within the Short Term
Options Program. The report will be
based on information that ISE will
obtain as described herein. This
information is available to other options
markets and is being made available by
ISE to provide consistency and relieve
22 ISE
will make this information available on
ISE’s website. This information will be freelyaccessible to the public.
23 OCC data becomes available for the end of a
quarter on the first trading day of a new quarter.
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$75 to less
than $150
$1.00
1.00
5.00
$150 to less
than $500
$5.00
5.00
5.00
$500 or
greater
$5.00
10.00
10.00
administrative burdens on other options
markets. Other exchanges may elect to
utilize ISE’s report to validate their own
information or they may otherwise elect
another method to consume similar
information as ISE is posting to its
website.
In the event of a corporate action, the
Share Price of the surviving company
would be utilized. These metrics are
intended to align expectations for
determining which strike intervals will
be utilized. Finally, notwithstanding the
limitations imposed by Options 4,
Section 5 at proposed Supplementary
Material .07, this Strike Interval
Proposal does not amend the range of
strikes that may be listed pursuant to
Options 4, Section 5 at Supplementary
Material .03, regarding the Short Term
Option Series Program.
By way of example, if the Share Price
for a symbol was $142 at the end of a
calendar quarter, with an Average Daily
Volume greater than 5,000, thereby,
requiring strike intervals to be listed
$1.00 apart, that strike interval would
apply for the calendar quarter,
regardless of whether the Share Price
changed to greater than $150 during that
calendar quarter.24
The proposed table within
Supplementary Material .07 of Options
4, Section 5 takes into account the
notional value of a security, as well as
Average Daily Volume in the underlying
stock, in order to limit the intervals
between strikes in the Short Term
Options listing program. ISE would
utilize OCC Customer-cleared volume,
as customer volume is an appropriate
proxy for demand. The OCC Customercleared volume represents the majority
of options volume executed on the
Exchange that, in turn, reflects the
demand in the marketplace. The options
series listed on ISE are intended to meet
customer demand by offering an
appropriate number of strikes. NonCustomer cleared OCC volume
represents the supply side. The strike
intervals for listing strikes in certain
options are intended to remove
24 The Exchange notes that any limits on intervals
imposed by the Exchange’s Rules will continue to
apply. In this example, the strikes would be in $1
intervals up to $150, which is the upper limit
imposed by Supplementary Material .03(e) of
Options 4, Section 5.
E:\FR\FM\24MYN1.SGM
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27912
Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
repetitive and unnecessary strike
listings across the weekly expiries. ISE’s
Strike Interval Proposal seeks to reduce
the number of strikes in the furthest
weeklies, where there exist wider
markets and therefore lower market
quality. Below are two tables which
focus on data for 10 of the most and
least actively traded symbols 25 and
demonstrate average spreads in weekly
options during the month of August
2020.
August 2020 Average Daily Spread by Expiration (aggregated by series}
1
s
2
4
s
Weeks to expiration
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17:32 May 21, 2021
Jkt 253001
when comparing the proposed spread
between strike intervals.26
Today, weeklies are available on 16%
of underlying products. The Exchange’s
Strike Interval Proposal curtails the
density of strike intervals listed in series
of options, without reducing the classes
of options available for trading on ISE.
Short Term Options Series with an
expiration date greater than twenty-one
25 The table represents stock in the following
securities: Apple, Tesla, Microsoft Corporation,
Advanced Micro Devices, Inc., Bank of America
Corp., NRG Energy Inc., Ferrari NV, Community
Health Systems Inc., Navistar International Corp,
and Jabil Inc.
26 The Exchange notes that is has discussed the
proposed strike intervals with various members.
The Exchange has gathered information regarding
where trading in weeklies generally occurs to arrive
at the proposed strike intervals.
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
days from the listing date equates to
7.5% of the total number of strikes in
the options market, which equals 81,000
strikes.27 This proposal would result in
the curtailment of approximately 20,000
strikes within the Short Term Options
Series which is 2% of the total strikes
in the options markets.28
BILLING CODE 8011–01–P
27 The Exchange notes that this proposal is an
initial attempt at reducing strikes and anticipates
filing additional proposals to continue reducing
strikes. The above-referenced data, specifically the
percentage of underlying products and percentage
of and total number of strikes, are approximations
and may vary slightly at the time of this filing.
28 This information was derived from information
from the time period from January 2020 through
May 2020.
E:\FR\FM\24MYN1.SGM
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The proposed table within
Supplementary Material .07 of Options
4, Section 5 is intended to distribute
strike intervals in multiply listed equity
options where there is less volume as
measured by the Average Daily Volume
tiers. Therefore, the lower the Average
Daily Volume, the greater the proposed
spread between strike intervals. Options
classes with higher volume contain the
most liquid symbols and strikes,
therefore the finer the proposed spread
between strike intervals. Additionally,
lower-priced shares have finer strike
intervals than higher-priced shares
27913
Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
# of distinct products '1Nith/without: wee~ly expirations
•
No1iiiemdy~
·•w~~
500···
0
t
33.51."j
1/:10/20 1/25/20 2/9/20 ·. '2Jt:4/20 ';J/.10/20 3/25/20 4/9/20·· 4/24/20 .S/9/20• 5/24/20
Date
VerDate Sep<11>2014
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Jkt 253001
ISE’s Strike Interval Proposal focuses
on strikes in multiply listed equity
options, and excludes Exchange-Traded
PO 00000
Frm 00089
Fmt 4703
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Fund Shares and ETNs, as the majority
of strikes reside within equity options.
E:\FR\FM\24MYN1.SGM
24MYN1
EN24MY21.002</GPH>
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The above table represents the
inconsistency of demand for series of
options beyond twenty-one calendar
days.
27914
Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
Ri
I
Sff(,•r
I
! I i I t i i i ! I i i ! t t l ! I I &i
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BILLING CODE 8011–01–C
While the current listing rules permit
ISE to list a number of weekly strikes on
its market, in an effort to encourage
Market Makers to deploy capital more
efficiently, as well as improve displayed
market quality, ISE’s Strike Interval
Proposal reduces the number of listed
weekly options. As ISE’s Strike Interval
Proposal seeks to reduce the number of
weekly options that would be listed on
its market in later weeks, Market Makers
would be required to quote in fewer
weekly strikes as a result of the Strike
Interval Proposal. Specifically, the
Strike Interval Proposal aims to reduce
the density of strike intervals that would
be listed in later weeks, by creating
limitations for intervals between strikes
which have an expiration date more
than twenty-one days from the listing
date. The table takes into account
customer demand for certain options
classes, by considering both the Share
Price and the Average Daily Volume, to
arrive at the manner which weekly
strike intervals may be listed. The
intervals for listing strikes in equity
options is intended to remove certain
strike intervals where there exist
clusters of strikes whose characteristics
closely resemble one another and,
therefore, do not serve different trading
needs,29 rendering these strikes less
useful.
This Strike Interval Proposal serves to
respond to comments received from
industry members with respect to the
increasing number of strikes that are
required to be quoted by market makers
in the options industry. ISE requires
Lead Market Makers and Market Makers
29 For example, two strikes that are densely
clustered may have the same risk properties and
may also be the same percentage out-of-the money.
VerDate Sep<11>2014
17:32 May 21, 2021
-11,.·--,~-
~111
Jkt 253001
to quote a certain amount of time in the
trading day in their assigned options
series to maintain liquidity in the
market.30 With an increasing number of
strikes being listed across options
exchanges, Market Makers must expend
their capital to ensure that they have the
appropriate infrastructure to meet their
quoting obligations on all options
markets in which they are assigned in
options series. The Exchange believes
that this Strike Interval Proposal would
limit the intervals between strikes,
reducing the number of strikes listed on
ISE, and thereby allow Lead Market
Makers and Market Makers to expend
their capital in the options market in a
more efficient manner. Due to this
increased efficiency, the Exchange
believes that this Strike Interval
Proposal would improve overall market
quality on ISE by limiting the intervals
between strikes in multiply listed equity
options that have an expiration date
more than twenty-one days, from the
listing date.
This Strike Interval Proposal is
intended to be the first in a series of
proposals to limit the number of listed
options series listed on ISE and other
Nasdaq affiliated markets. The Exchange
intends to decrease the overall number
of strikes listed on Nasdaq exchanges in
a methodical fashion, so that it may
monitor progress and feedback from its
membership. While limiting the
intervals between listed strikes is the
goal of this rule change, ISE’s Strike
Interval Proposal is intended to balance
that goal with the needs of market
participants. ISE believes that various
strike intervals continue to offer market
participants the ability to select the
appropriate strike interval to meet that
market participant’s investment
objective.
Implementation
The Exchange intends to begin
implementation of the proposed rule
change on July 1, 2021. The Exchange
will issue an Options Trader Alert to
Participants to provide notification of
the implementation date.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,31 in general, and furthers the
objectives of Section 6(b)(5) of the Act,32
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest. The
Strike Proposal seeks to limit the
intervals between strikes listed in the
Short Term Options Series program that
have an expiration date more than
twenty-one days. While the current
listing rules permit ISE to list a number
of weekly strikes on its market, the
Exchange’s Strike Interval Proposal
removes impediments to and perfects
the mechanism of a free and open
market and a national market system by
encouraging Market Makers to deploy
capital more efficiently and improving
market quality overall on ISE through
limiting the intervals between strikes
when applying the strike interval table
to multiply listed equity options that
have an expiration date more than
twenty-one days from the listing date.
31 15
30 See
PO 00000
Options 2, Sections 4(j) and 5.
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32 15
E:\FR\FM\24MYN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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EN24MY21.003</GPH>
i
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
Also, as ISE’s Strike Interval Proposal
seeks to reduce the number of weekly
options that would be listed on its
market in later weeks, Market Makers
would be required to quote in fewer
weekly strikes as a result of the Strike
Interval Proposal. Amending ISE’s
listing rules to limit the intervals
between strikes for multiply listed
equity options that have an expiration
date more than twenty-one days causes
less disruption in the market as the
majority of the volume traded in weekly
options exists in options series which
have an expiration date of twenty-one
days or less. The Exchange’s Strike
Interval Proposal curtails the number of
strike intervals listed in series of options
without reducing the number of classes
of options available for trading on ISE.
The Strike Interval Proposal takes into
account customer demand for certain
options classes by considering both the
Share Price and the Average Daily
Volume in the underlying security to
arrive at the manner in which weekly
strike intervals would be listed in the
later weeks for each multiply listed
equity options class. The Exchange
utilizes OCC Customer-cleared volume,
as customer volume is an appropriate
proxy for demand. The OCC Customercleared volume represents the majority
of options volume executed on the
Exchange that, in turn, reflects the
demands in the marketplace. The
options series listed on ISE is intended
to meet customer demand by offering an
appropriate number of strikes. NonCustomer cleared OCC volume
represents the supply side.
The Strike Interval Proposal for listing
strikes in certain multiply listed equity
options is intended to remove certain
strikes where there exist clusters of
strikes whose characteristics closely
resemble one another and, therefore, do
not serve different trading needs that
renders the strikes less useful and
thereby protects investors and the
general public by removing an
abundance of unnecessary choices for
an options series, while also improving
market quality. ISE’s Strike Interval
Proposal seeks to reduce the number of
strikes in the furthest weeklies, where
there exist wider markets, and,
therefore, lower market quality. The
implementation of the proposed table is
intended to spread strike intervals in
multiply listed equity options, where
there is less volume that is measured by
the average daily volume tiers.
Therefore, the lower the average daily
volume, the greater the proposed spread
between strike intervals. Options classes
with higher volume contain the most
liquid symbols and strikes, therefore the
finer the proposed spread between
VerDate Sep<11>2014
17:32 May 21, 2021
Jkt 253001
strike intervals. Additionally, lowerpriced shares have finer strike intervals
than higher-priced shares when
comparing the proposed spread between
strike intervals.33
Beginning on the second trading day
in the first month of each calendar
quarter, the Average Daily Volume shall
be calculated by utilizing data from the
prior calendar quarter based on OCC
Customer-cleared volume. Utilizing the
second trading day allows the Exchange
to accumulate data regarding OCC
Customer-cleared volume from the
entire prior quarter. Beginning on the
second trading day would allow trades
executed on the last day of the previous
calendar quarter to have settled 34 and
be accounted for in the calculation of
Average Daily Volume. Utilizing the
previous three months is appropriate
because this time period would help
reduce the impact of unusual trading
activity as a result of unique market
events, such as a corporate action (i.e.,
it would result in a more reliable
measure of average daily trading volume
than would a shorter period).
This Strike Interval Proposal serves to
respond to comments received from
industry members with respect to the
increasing number of strikes that are
required to be quoted by market makers
in the options industry. Today, ISE
requires Lead Market Makers and
Market Makers to quote a certain
amount of time in the trading day in
their assigned due options series to
maintain liquidity in the market.35 With
an increasing number of strikes due to
tighter intervals being listed across
options exchanges, Market Makers must
expend their capital to ensure that they
have the appropriate infrastructure to
meet their quoting obligations on all
options markets in which they are
assigned in options series. The
Exchange believes that this Strike
Interval Proposal would limit the
intervals between strikes listed on ISE
and thereby allow Lead Market Makers
and Market Makers to expend their
capital in the options market in a more
efficient manner that removes
impediments to and perfect the
mechanism of a free and open market
and a national market system. The
Exchange also believes that this Strike
Interval Proposal would improve overall
market quality on ISE for the protection
33 The Exchange notes that is has discussed the
proposed strike intervals with various members.
The Exchange has gathered information regarding
where trading in weeklies generally occurs to arrive
at the proposed strike intervals.
34 Options contracts settle one business day after
trade date. Strike listing determinations are made
the day prior to the start of trading in each series.
35 See Options 2, Sections 4(j) and 5.
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
27915
of investors and the general public by
limiting the intervals between strikes
when applying the strike interval table
to multiply listed equity options which
have an expiration date more than
twenty-one days from the listing date.
This Strike Interval Proposal is
intended to be the first in a series of
proposals to limit the number of listed
options series listed on ISE and other
Nasdaq affiliated markets. The Exchange
intends to decrease the overall number
of strikes listed on Nasdaq exchanges in
a methodical fashion in order that it
may monitor progress and feedback
from its membership. While limiting the
intervals between strikes listed is the
goal of this rule change, ISE’s Strike
Interval Proposal is intended to balance
that goal with the needs of market
participants. The Exchange believes that
varied strike intervals continue to offer
market participants the ability to select
the appropriate strike interval to meet
that market participant’s investment
objective.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. The Strike
Interval Proposal limits the number of
Short Term Options Series strike
intervals available for quoting and
trading on ISE for all ISE Participants.
While the current listing rules permit
ISE to list a number of weekly strikes on
its market, in an effort to encourage
Market Makers to deploy capital more
efficiently, as well as improve displayed
market quality, ISE’s Strike Interval
Proposal seeks to reduce the number of
weekly options that would be listed on
its market in later weeks, without
reducing the number of series or classes
of options available for trading on ISE.
As ISE’s Strike Interval Proposal seeks
to reduce the number of weekly options
that would be listed on its market in
later weeks, Market Makers would be
required to quote in fewer weekly
strikes as a result of the Strike Interval
Proposal.
The Exchange’s Strike Interval
Proposal, which is intended to decrease
the overall number of strikes listed on
ISE, does not impose an undue burden
on intra-market competition as all
Participants may only transact options
in the strike intervals listed for trading
on ISE. While limiting the intervals of
strikes listed on ISE is the goal of this
Strike Interval Proposal, the goal
continues to balance the needs of
market participants by continuing to
offer a number of strikes to meet a
E:\FR\FM\24MYN1.SGM
24MYN1
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Federal Register / Vol. 86, No. 98 / Monday, May 24, 2021 / Notices
market participant’s investment
objective.
The Exchange’s Strike Interval
Proposal does not impose an undue
burden on inter-market competition as
this Strike Interval Proposal does not
impact the listings available at another
self-regulatory organization. In fact, ISE
is proposing to list a smaller amount of
weekly equity options in an effort to
curtail the increasing number of strikes
that are required to be quoted by market
makers in the options industry. Other
options markets may choose to replicate
the Exchange’s Strike Interval Proposal
and, thereby, further decrease the
overall number of strikes within the
options industry.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
khammond on DSKJM1Z7X2PROD with NOTICES
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) 36 of the Act and Rule
19b–4(f)(6) thereunder.37 Because the
foregoing proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act and
subparagraph (f)(6) of Rule 19b–4
thereunder.38
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.
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
38 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange 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.
37 17
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17:32 May 21, 2021
Jkt 253001
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2021–09 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.
No written comments were either
solicited or received.
36 15
IV. Solicitation of Comments
All submissions should refer to File
Number SR–ISE–2021–09. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–ISE–2021–09, and should
be submitted on or before June 14, 2021.
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–10844 Filed 5–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91920; File No. SR–OCC–
2021–006]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Revise
The Options Clearing Corporation’s
Schedule of Fees
May 18, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on May 5, 2021, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared primarily by OCC.
OCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) 3 of
the Act and Rule 19b–4(f)(2) 4
thereunder so that the proposal was
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change by OCC
would revise OCC’s schedule of fees
effective June 1, 2021, to implement a
decrease in clearing fees. Proposed
changes to OCC’s schedule of fees are
attached as Exhibit 5 to File Number
SR–OCC–2021–006. Material proposed
to be added to OCC’s schedule of fees
as currently in effect is underlined and
material proposed to be deleted is
marked in strikethrough text. All
capitalized terms not defined herein
have the same meaning as set forth in
the OCC By-Laws and Rules.5
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 OCC’s By-Laws and Rules can be found on
OCC’s public website: https://www.theocc.com/
Company-Information/Documents-and-Archives/
By-Laws-and-Rules.
1 15
E:\FR\FM\24MYN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 98 (Monday, May 24, 2021)]
[Notices]
[Pages 27907-27916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10844]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91930; File No. SR-ISE-2021-09]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Options 4,
Section 5, ``Series of Options Contracts Open for Trading'' To Limit
Short Term Options Series Intervals Between Strikes
May 18, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 5, 2021, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II, below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 4, Section 5, ``Series of
Options Contracts Open for Trading.'' This proposal seeks to limit
Short Term Options Series intervals between strikes which are available
for quoting and trading on ISE.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 4, Section 5, ``Series of
Options Contracts Open for Trading.'' Specifically, this proposal seeks
to limit the intervals between strikes for multiply listed equity
options classes within the Short Term Options Series program that have
an expiration date more than twenty-one days from the listing date.
This proposal is identical to a proposal by Nasdaq BX, Inc.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
Proposed Rule Change, as Modified by Amendment No. 1, To Amend
Options 4, Section 5, To Limit Short Term Options Series Intervals
Between Strikes That Are Available for Quoting and Trading on BX).
---------------------------------------------------------------------------
Background
Today, ISE's listing rules within Options 4, Section 5 permits the
Exchange, after a particular class of options (call option contracts or
put option contracts relating to a specific underlying stock, Exchange-
Traded
[[Page 27908]]
Fund Share,\4\ or ETN \5\) has been approved for listing and trading on
the Exchange, to open for trading series of options therein. The
Exchange may list series of options for trading on a weekly,\6\ monthly
\7\ or quarterly \8\ basis. Options 4, Section 5(d) sets forth the
intervals between strike prices of series of options on individual
stocks.\9\ In addition to those intervals, the Exchange may list series
of options pursuant to the $1 Strike Price Interval Program,\10\ the
$0.50 Strike Program,\11\ the $2.50 Strike Price Program,\12\ and the
$5 Strike Program.\13\
---------------------------------------------------------------------------
\4\ Exchange-Traded Fund Share shall include shares or other
securities that are traded on a national securities exchange and are
defined as an ``NMS stock'' under Rule 600 of Regulation NMS, and
that (i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities, that hold
portfolios of securities and/or financial instruments including, but
not limited to, stock index futures contracts, options on futures,
options on securities and indexes, equity caps, collars and floors,
swap agreements, forward contracts, repurchase agreements and
reverse repurchase agreements comprising or otherwise based on or
representing investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money Market Instruments
(the ``Money Market Instruments'') (or that hold securities in one
or more other registered investment companies that themselves hold
such portfolios of securities and/or Financial Instruments and Money
Market Instruments (ii) represent interests in a trust or similar
entity that holds a specified non-U.S. currency or currencies
deposited with the trust or similar entity when aggregated in some
specified minimum number may be surrendered to the trust by the
beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''),
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs''), (iv) represent interests in the SPDR[supreg] Gold Trust,
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS
Gold Trust, the ETFS Silver Trust, the ETFS Palladium Trust, the
ETFS Platinum Trust or the Sprott Physical Gold Trust or (v)
represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management company
or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share''); provided the
conditions within Options 4, Section 3(i)(A) and (B) are met. See
Options 4, Section 3(i).
\5\ Securities deemed appropriate for options trading shall
include shares or other securities (``Equity Index-Linked
Securities,'' ``Commodity-Linked Securities,'' ``Currency-Linked
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,''
collectively known as ``Index- Linked Securities'' or ``ETNs'') that
are principally traded on a national securities exchange and an
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the
Securities Exchange Act of 1934), and represent ownership of a
security that provides for the payment at maturity, as described
within Options 4, Section 3(l)(i)(1)-(6). See Options 4, Section
3(l)(i).
\6\ The weekly listing program is known as the Short Term
Options Series Program and is described within Supplementary
Material .03 of Options 4, Section 5.
\7\ The Exchange will open at least one expiration month for
each class of options open for trading on the Exchange. See Options
4, Section 5(g). The monthly expirations are subject to certain
listing criteria for underlying securities described within Options
4, Section 3. Monthly listings expire the third Friday of the month.
The term ``expiration date'' when used in respect of a series of
binary options other than event options means the last day on which
the options may be automatically exercised. In the case of a series
of event options (other than credit default options or credit
default basket options) that are be automatically exercised prior to
their expiration date upon receipt by the Corporation of an event
confirmation, the expiration date is the date specified by the
listing Exchange; provided, however, that when an event confirmation
is deemed to have been received by the Corporation with respect to
such series of options, the expiration date will be accelerated to
the date on which such event confirmation is deemed to have been
received by the Corporation or such later date as the Corporation
may specify. In the case of a series of credit default options or
credit default basket options, the expiration date is the fourth
business day after the last trading day for such series as such
trading day is specified by the Exchange on which the series of
options is listed; provided, however, that when an event
confirmation is deemed to have been received by the Corporation with
respect to a series of credit default options or single payout
credit default basket options prior to the last trading day for such
series, the expiration date for options of that series will be
accelerated to the second business day following the day on which
such event confirmation is deemed to have been received by the
Corporation. ``Expiration date'' means, in respect of a series of
range options expiring prior to February 1, 2015, the Saturday
immediately following the third Friday of the expiration month of
such series, and, in respect of a series of range options expiring
on or after February 1, 2015 means the third Friday of the
expiration month of such series, or if such Friday is a day on which
the Exchange on which such series is listed is not open for
business, the preceding day on which such Exchange is open for
business. See The Options Clearing Corporation (``OCC'') By-Laws at
Section 1.
\8\ The quarterly listing program is known as the Quarterly
Options Series Program and is described within Supplementary
Material .04 of Options 4, Section 5.
\9\ Except as otherwise provided in the Supplementary Material
of Options 4, Section 5, the interval between strike prices of
series of options on individual stocks will be: (1) $2.50 or greater
where the strike price is $25.00 or less; (2) $5.00 or greater where
the strike price is greater than $25.00; and (3) $10.00 or greater
where the strike price is greater than $200.00.
The interval between strike prices of series of options on
Exchange-Traded Fund Shares approved for options trading pursuant to
Section 3(i) of this Options 4 shall be fixed at a price per share
which is reasonably close to the price per share at which the
underlying security is traded in the primary market at or about the
same time such series of options is first open for trading on the
Exchange, or at such intervals as may have been established on
another options exchange prior to the initiation of trading on the
Exchange.
Pursuant to Options 4, Section 5(e), notwithstanding any other
provision regarding the interval of strike prices of series of
options on Exchange-Traded Fund Shares in this rule, the interval of
strike prices on SPDR[supreg] S&P 500[supreg] ETF (``SPY''), iShares
Core S&P 500 ETF (``IVV''), PowerShares QQQ Trust (``QQQ''), iShares
Russell 2000 Index Fund (``IWM''), and the SPDR[supreg] Dow
Jones[supreg] Industrial Average ETF (``DIA'') options will be $1 or
greater.
\10\ The $1 Strike Interval Program is described within
Supplementary Material .01 of Options 4, Section 5.
\11\ The $0.50 Strike Interval Program is described within
Supplementary Material .05 of Options 4, Section 5.
\12\ The $2.50 Strike Interval Program is described within
Supplementary Material .02 of Options 4, Section 5.
\13\ The $5.00 Strike Interval Program is described within
Supplementary Material .06 of Options 4, Section 5.
---------------------------------------------------------------------------
The Exchange's proposal seeks to amend the listing of weekly series
of options as proposed within new Supplementary Material .03(f) of
Options 4, Section 5, by limiting the intervals between strikes in
multiply listed equity options, excluding Exchange-Traded Fund Shares
and ETNs, that have an expiration date more than twenty-one days from
the listing date. This proposal does not amend monthly or quarterly
listing rules nor does it amend the $1 Strike Price Interval Program,
the $0.50 Strike Program, the $2.50 Strike Price Program, or the $5
Strike Program.
Short Term Options Series Program
Today, Supplementary Material .03 of Options 4, Section 5 permits
ISE to open for trading on any Thursday or Friday that is a business
day (``Short Term Option Opening Date'') series of options on an option
class that expires at the close of business on each of the next five
Fridays that are business days and are not Fridays in which monthly
options series or Quarterly Options Series expire (``Short Term Option
Expiration Dates''), provided an option class has been approved for
listing and trading on the Exchange.\14\ Today, the
[[Page 27909]]
Exchange may open up to thirty initial series for each option class
that participates in the Short Term Option Series Program.\15\ Further,
if the Exchange opens less than thirty (30) Short Term Option Series
for a Short Term Option Expiration Date, additional series may be
opened for trading on the Exchange when the Exchange deems it necessary
to maintain an orderly market, to meet customer demand or when the
market price of the underlying security moves substantially from the
exercise price or prices of the series already opened.\16\
---------------------------------------------------------------------------
\14\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates, not including any Monday or Wednesday
SPY Expirations as provided below. If the Exchange is not open for
business on the respective Thursday or Friday, the Short Term Option
Opening Date will be the first business day immediately prior to
that respective Thursday or Friday. Similarly, if the Exchange is
not open for business on a Friday, the Short Term Option Expiration
Date will be the first business day immediately prior to that
Friday. With respect to Wednesday SPY Expirations, the Exchange may
open for trading on any Tuesday or Wednesday that is a business day
series of options on the SPDR S&P 500 ETF Trust (SPY) to expire on
any Wednesday of the month that is a business day and is not a
Wednesday in which Quarterly Options Series expire (``Wednesday SPY
Expirations''). With respect to Monday SPY Expirations, the Exchange
may open for trading on any Friday or Monday that is a business day
series of options on the SPY to expire on any Monday of the month
that is a business day and is not a Monday in which Quarterly
Options Series expire (``Monday SPY Expirations''), provided that
Monday SPY Expirations that are listed on a Friday must be listed at
least one business week and one business day prior to the
expiration. The Exchange may list up to five consecutive Wednesday
SPY Expirations and five consecutive Monday SPY Expirations at one
time; the Exchange may have no more than a total of five Wednesday
SPY Expirations and a total of five Monday SPY Expirations. Monday
and Wednesday SPY Expirations will be subject to the provisions of
this Rule. See Supplementary Material .03 of Options 4, Section 5.
\15\ See Supplementary Material .03 of Options 4, Section 5(c).
\16\ See Supplementary Material .03 of Options 4, Section 5(d).
---------------------------------------------------------------------------
The Exchange may open for trading Short Term Option Series on the
Short Term Option Opening Date that expire on the Short Term Option
Expiration Date at strike price intervals of (i) $0.50 or greater where
the strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150. During the month prior to expiration of an option class
that is selected for the Short Term Option Series Program (``Short Term
Option''), the strike price intervals for the related non-Short Term
Option (``Related non-Short Term Option'') shall be the same as the
strike price intervals for the Short Term Option.\17\
---------------------------------------------------------------------------
\17\ See Options 4, Section 5(e).
---------------------------------------------------------------------------
The Exchange may select up to fifty currently listed option classes
on which Short Term Option Series may be opened on any Short Term
Option Opening Date. In addition to the fifty option class restriction,
the Exchange may also list Short Term Option Series on any option
classes that are selected by other securities exchanges that employ a
similar program under their respective rules. For each option class
eligible for participation in the Short Term Option Series Program, the
Exchange may open up to thirty Short Term Option Series for each
expiration date in that class. The Exchange may also open Short Term
Option Series that are opened by other securities exchanges in option
classes selected by such exchanges under their respective short term
option rules.\18\
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\18\ See Supplementary Material .03(a) of Options 4, Section 5.
---------------------------------------------------------------------------
ISE notes that listings in the weekly program comprise a
significant part of the standard listing in options markets. The below
diagrams demonstrate the percentage of weekly listings as compared to
Long-Term Option Series or LEAPs and quarterly listings in 2015 as
compared to 2020. The weekly strikes increased 8.9% compound annual
growth rate (``CAGR'') from 2015 as compared to a 4.3% CAGR for
standard expirations using 3rd 2015 Friday expirations.
BILLING CODE 8011-01-P
[[Page 27910]]
[GRAPHIC] [TIFF OMITTED] TN24MY21.000
BILLING CODE 8011-01-C
Proposal
---------------------------------------------------------------------------
\19\ Additional information comparing the current listing
program to this proposal is available at: https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal.
---------------------------------------------------------------------------
ISE proposes to limit the intervals between strikes in options
listed as part of the Short Term Option Series Program that have an
expiration date more than twenty-one days from the listing date, by
adopting proposed Supplementary Material .03(f) of Options 4, Section 5
as well as proposed Supplementary Material .07 of Options 4, Section 5,
with respect to listing Short Term Option Series in equity options,
excluding Exchange-Traded Fund Shares and ETNs) (collectively ``Strike
Interval Proposal''). ISE's Strike Interval Proposal would limit the
intervals between strikes by utilizing the table proposed within
Supplementary Material .07 of Options 4, Section 5. With the Strike
Interval Proposal, ISE would limit intervals between strikes for
expiration dates of option series beyond twenty-one days utilizing the
below three-tiered table which considers both the share price and
average daily volume for the option series.\19\ The below table
indicates the applicable strike intervals and would supersede
Supplementary Material .03(d) which currently permits additional series
to be opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying security moves substantially
from the exercise price or prices of the series already opened. As a
result, the Exchange would not be able to utilize the rule text within
Supplementary Material .03(d) to permit additional series to be opened
for trading on ISE which have an expiration date more than twenty-one
days from the listing date despite the noted circumstances when such
additional series could otherwise be added.
[[Page 27911]]
----------------------------------------------------------------------------------------------------------------
Share price
Average daily -------------------------------------------------------------------------------
Tier volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
----------------------------------------------------------------------------------------------------------------
1............. Greater than $0.50 $1.00 $1.00 $5.00 $5.00
5,000.
2............. Greater than 1.00 1.00 1.00 5.00 10.00
1,000 to 5,000.
3............. 0 to 1,000...... 2.50 5.00 5.00 5.00 10.00
----------------------------------------------------------------------------------------------------------------
The Share Price would be the closing price on the primary market on
the last day of the calendar quarter. This value would be used to
derive the column from which to apply strike intervals throughout the
next calendar quarter. The Average Daily Volume would be the total
number of options contracts traded in a given security for the
applicable calendar quarter divided by the number of trading days in
the applicable calendar quarter. Beginning on the second trading day in
the first month of each calendar quarter, the Average Daily Volume
shall be calculated by utilizing data from the prior calendar quarter
based on Customer-cleared volume at OCC. For options listed on the
first trading day of a given calendar quarter, the Average Daily Volume
shall be calculated using the calendar quarter prior to the last
trading calendar quarter.\20\ Under current rules, if the Exchange is
not open for business on the respective Thursday or Friday, the Short
Term Option Opening Date will be the first business day immediately
prior to that respective Thursday or Friday, as is the case today for
STOs as specified within Supplementary .03 to Options 4, Section 5.
---------------------------------------------------------------------------
\20\ For example, options listed as of January 4, 2021 would be
calculated on January 5, 2021 using the Average Daily Volume from
July 1, 2020 to September 30, 2020.
---------------------------------------------------------------------------
The Exchange proposes that Short Term Options Series that are newly
eligible for listing pursuant to Options 4, Section 3(a) will not be
subject to this proposed Supplementary .07 until after the end of the
first full calendar quarter following the date the option class was
first listed for trading on any options market.\21\ The Exchange would
be permitted to list options on newly eligible listings, without any
curtailment in strike intervals, until the end of the first full
quarter after they were listed. ISE's proposal would thereby permit ISE
to add strikes to meet customer demand in the options class. By
deferring the curtailment until after the end of the first full
calendar quarter, additional information on the underlying security
would be available to market participants and public investors. During
this period of deferment the price of the underlying would have an
opportunity to settle based on the price discovery that has occurred in
the primary market. An options class that represents a newly listed
primary security may fluctuate in price after its initial listing; such
volatility reflects a natural uncertainty about the security. Also, ISE
would have the ability to list as many strikes as are permissible for
the Short Term Options Series once the expiry is within twenty-one
days. Short Term Options Series which have an expiration date less than
twenty-one days from the listing date are not subject to the
curtailment, thereby allowing ISE to list additional, and potentially
narrower, strikes in the event of market volatility or other market
events.
---------------------------------------------------------------------------
\21\ For example, if an options became newly eligible for
listing pursuant to Options 4, Section 3 on March 1, 2021, the first
full quarterly lookback would be available on July 1, 2021. This
option would become subject to the curtailment on July 2, 2021.
---------------------------------------------------------------------------
ISE proposes to make publically available a report on a quarterly
basis which indicates, for each Short Term Options Series eligible to
be listed under proposed Supplementary Material .07 of Options 4,
Section 5, the applicable tiering of the underlying, which includes the
closing price of the underlying, and the average daily customer volume
of the option in that underlying.\22\ The average daily customer volume
data will be sourced from OCC. The closing price of the underlying will
be sourced from the closing prices for Tape A, B and C securities
published by the UTP and CTA/CQ Plans. ISE will produce the report by
the close of business on the first trading day of the quarter.\23\ The
Exchange notes that the report will be posted on ISE's website on the
first day of a new quarter to support listing decisions, pursuant to
the Short Term Options Series Program, for the most recent listing
within the Short Term Options Program. The report will be based on
information that ISE will obtain as described herein. This information
is available to other options markets and is being made available by
ISE to provide consistency and relieve administrative burdens on other
options markets. Other exchanges may elect to utilize ISE's report to
validate their own information or they may otherwise elect another
method to consume similar information as ISE is posting to its website.
---------------------------------------------------------------------------
\22\ ISE will make this information available on ISE's website.
This information will be freely-accessible to the public.
\23\ OCC data becomes available for the end of a quarter on the
first trading day of a new quarter.
---------------------------------------------------------------------------
In the event of a corporate action, the Share Price of the
surviving company would be utilized. These metrics are intended to
align expectations for determining which strike intervals will be
utilized. Finally, notwithstanding the limitations imposed by Options
4, Section 5 at proposed Supplementary Material .07, this Strike
Interval Proposal does not amend the range of strikes that may be
listed pursuant to Options 4, Section 5 at Supplementary Material .03,
regarding the Short Term Option Series Program.
---------------------------------------------------------------------------
\24\ The Exchange notes that any limits on intervals imposed by
the Exchange's Rules will continue to apply. In this example, the
strikes would be in $1 intervals up to $150, which is the upper
limit imposed by Supplementary Material .03(e) of Options 4, Section
5.
---------------------------------------------------------------------------
By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to greater than $150 during that
calendar quarter.\24\
The proposed table within Supplementary Material .07 of Options 4,
Section 5 takes into account the notional value of a security, as well
as Average Daily Volume in the underlying stock, in order to limit the
intervals between strikes in the Short Term Options listing program.
ISE would utilize OCC Customer-cleared volume, as customer volume is an
appropriate proxy for demand. The OCC Customer-cleared volume
represents the majority of options volume executed on the Exchange
that, in turn, reflects the demand in the marketplace. The options
series listed on ISE are intended to meet customer demand by offering
an appropriate number of strikes. Non-Customer cleared OCC volume
represents the supply side. The strike intervals for listing strikes in
certain options are intended to remove
[[Page 27912]]
repetitive and unnecessary strike listings across the weekly expiries.
ISE's Strike Interval Proposal seeks to reduce the number of strikes in
the furthest weeklies, where there exist wider markets and therefore
lower market quality. Below are two tables which focus on data for 10
of the most and least actively traded symbols \25\ and demonstrate
average spreads in weekly options during the month of August 2020.
[GRAPHIC] [TIFF OMITTED] TN24MY21.001
The proposed table within Supplementary Material .07 of Options 4,
Section 5 is intended to distribute strike intervals in multiply listed
equity options where there is less volume as measured by the Average
Daily Volume tiers. Therefore, the lower the Average Daily Volume, the
greater the proposed spread between strike intervals. Options classes
with higher volume contain the most liquid symbols and strikes,
therefore the finer the proposed spread between strike intervals.
Additionally, lower-priced shares have finer strike intervals than
higher-priced shares when comparing the proposed spread between strike
intervals.\26\
---------------------------------------------------------------------------
\25\ The table represents stock in the following securities:
Apple, Tesla, Microsoft Corporation, Advanced Micro Devices, Inc.,
Bank of America Corp., NRG Energy Inc., Ferrari NV, Community Health
Systems Inc., Navistar International Corp, and Jabil Inc.
\26\ The Exchange notes that is has discussed the proposed
strike intervals with various members. The Exchange has gathered
information regarding where trading in weeklies generally occurs to
arrive at the proposed strike intervals.
---------------------------------------------------------------------------
Today, weeklies are available on 16% of underlying products. The
Exchange's Strike Interval Proposal curtails the density of strike
intervals listed in series of options, without reducing the classes of
options available for trading on ISE. Short Term Options Series with an
expiration date greater than twenty-one days from the listing date
equates to 7.5% of the total number of strikes in the options market,
which equals 81,000 strikes.\27\ This proposal would result in the
curtailment of approximately 20,000 strikes within the Short Term
Options Series which is 2% of the total strikes in the options
markets.\28\
---------------------------------------------------------------------------
\27\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The above-referenced data, specifically
the percentage of underlying products and percentage of and total
number of strikes, are approximations and may vary slightly at the
time of this filing.
\28\ This information was derived from information from the time
period from January 2020 through May 2020.
---------------------------------------------------------------------------
BILLING CODE 8011-01-P
[[Page 27913]]
[GRAPHIC] [TIFF OMITTED] TN24MY21.002
The above table represents the inconsistency of demand for series
of options beyond twenty-one calendar days.
ISE's Strike Interval Proposal focuses on strikes in multiply
listed equity options, and excludes Exchange-Traded Fund Shares and
ETNs, as the majority of strikes reside within equity options.
[[Page 27914]]
[GRAPHIC] [TIFF OMITTED] TN24MY21.003
BILLING CODE 8011-01-C
While the current listing rules permit ISE to list a number of
weekly strikes on its market, in an effort to encourage Market Makers
to deploy capital more efficiently, as well as improve displayed market
quality, ISE's Strike Interval Proposal reduces the number of listed
weekly options. As ISE's Strike Interval Proposal seeks to reduce the
number of weekly options that would be listed on its market in later
weeks, Market Makers would be required to quote in fewer weekly strikes
as a result of the Strike Interval Proposal. Specifically, the Strike
Interval Proposal aims to reduce the density of strike intervals that
would be listed in later weeks, by creating limitations for intervals
between strikes which have an expiration date more than twenty-one days
from the listing date. The table takes into account customer demand for
certain options classes, by considering both the Share Price and the
Average Daily Volume, to arrive at the manner which weekly strike
intervals may be listed. The intervals for listing strikes in equity
options is intended to remove certain strike intervals where there
exist clusters of strikes whose characteristics closely resemble one
another and, therefore, do not serve different trading needs,\29\
rendering these strikes less useful.
---------------------------------------------------------------------------
\29\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the money.
---------------------------------------------------------------------------
This Strike Interval Proposal serves to respond to comments
received from industry members with respect to the increasing number of
strikes that are required to be quoted by market makers in the options
industry. ISE requires Lead Market Makers and Market Makers to quote a
certain amount of time in the trading day in their assigned options
series to maintain liquidity in the market.\30\ With an increasing
number of strikes being listed across options exchanges, Market Makers
must expend their capital to ensure that they have the appropriate
infrastructure to meet their quoting obligations on all options markets
in which they are assigned in options series. The Exchange believes
that this Strike Interval Proposal would limit the intervals between
strikes, reducing the number of strikes listed on ISE, and thereby
allow Lead Market Makers and Market Makers to expend their capital in
the options market in a more efficient manner. Due to this increased
efficiency, the Exchange believes that this Strike Interval Proposal
would improve overall market quality on ISE by limiting the intervals
between strikes in multiply listed equity options that have an
expiration date more than twenty-one days, from the listing date.
---------------------------------------------------------------------------
\30\ See Options 2, Sections 4(j) and 5.
---------------------------------------------------------------------------
This Strike Interval Proposal is intended to be the first in a
series of proposals to limit the number of listed options series listed
on ISE and other Nasdaq affiliated markets. The Exchange intends to
decrease the overall number of strikes listed on Nasdaq exchanges in a
methodical fashion, so that it may monitor progress and feedback from
its membership. While limiting the intervals between listed strikes is
the goal of this rule change, ISE's Strike Interval Proposal is
intended to balance that goal with the needs of market participants.
ISE believes that various strike intervals continue to offer market
participants the ability to select the appropriate strike interval to
meet that market participant's investment objective.
Implementation
The Exchange intends to begin implementation of the proposed rule
change on July 1, 2021. The Exchange will issue an Options Trader Alert
to Participants to provide notification of the implementation date.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\31\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\32\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. The Strike Proposal seeks to limit the intervals between
strikes listed in the Short Term Options Series program that have an
expiration date more than twenty-one days. While the current listing
rules permit ISE to list a number of weekly strikes on its market, the
Exchange's Strike Interval Proposal removes impediments to and perfects
the mechanism of a free and open market and a national market system by
encouraging Market Makers to deploy capital more efficiently and
improving market quality overall on ISE through limiting the intervals
between strikes when applying the strike interval table to multiply
listed equity options that have an expiration date more than twenty-one
days from the listing date.
[[Page 27915]]
Also, as ISE's Strike Interval Proposal seeks to reduce the number of
weekly options that would be listed on its market in later weeks,
Market Makers would be required to quote in fewer weekly strikes as a
result of the Strike Interval Proposal. Amending ISE's listing rules to
limit the intervals between strikes for multiply listed equity options
that have an expiration date more than twenty-one days causes less
disruption in the market as the majority of the volume traded in weekly
options exists in options series which have an expiration date of
twenty-one days or less. The Exchange's Strike Interval Proposal
curtails the number of strike intervals listed in series of options
without reducing the number of classes of options available for trading
on ISE.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Strike Interval Proposal takes into account customer demand for
certain options classes by considering both the Share Price and the
Average Daily Volume in the underlying security to arrive at the manner
in which weekly strike intervals would be listed in the later weeks for
each multiply listed equity options class. The Exchange utilizes OCC
Customer-cleared volume, as customer volume is an appropriate proxy for
demand. The OCC Customer-cleared volume represents the majority of
options volume executed on the Exchange that, in turn, reflects the
demands in the marketplace. The options series listed on ISE is
intended to meet customer demand by offering an appropriate number of
strikes. Non-Customer cleared OCC volume represents the supply side.
The Strike Interval Proposal for listing strikes in certain
multiply listed equity options is intended to remove certain strikes
where there exist clusters of strikes whose characteristics closely
resemble one another and, therefore, do not serve different trading
needs that renders the strikes less useful and thereby protects
investors and the general public by removing an abundance of
unnecessary choices for an options series, while also improving market
quality. ISE's Strike Interval Proposal seeks to reduce the number of
strikes in the furthest weeklies, where there exist wider markets, and,
therefore, lower market quality. The implementation of the proposed
table is intended to spread strike intervals in multiply listed equity
options, where there is less volume that is measured by the average
daily volume tiers. Therefore, the lower the average daily volume, the
greater the proposed spread between strike intervals. Options classes
with higher volume contain the most liquid symbols and strikes,
therefore the finer the proposed spread between strike intervals.
Additionally, lower-priced shares have finer strike intervals than
higher-priced shares when comparing the proposed spread between strike
intervals.\33\
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\33\ The Exchange notes that is has discussed the proposed
strike intervals with various members. The Exchange has gathered
information regarding where trading in weeklies generally occurs to
arrive at the proposed strike intervals.
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Beginning on the second trading day in the first month of each
calendar quarter, the Average Daily Volume shall be calculated by
utilizing data from the prior calendar quarter based on OCC Customer-
cleared volume. Utilizing the second trading day allows the Exchange to
accumulate data regarding OCC Customer-cleared volume from the entire
prior quarter. Beginning on the second trading day would allow trades
executed on the last day of the previous calendar quarter to have
settled \34\ and be accounted for in the calculation of Average Daily
Volume. Utilizing the previous three months is appropriate because this
time period would help reduce the impact of unusual trading activity as
a result of unique market events, such as a corporate action (i.e., it
would result in a more reliable measure of average daily trading volume
than would a shorter period).
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\34\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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This Strike Interval Proposal serves to respond to comments
received from industry members with respect to the increasing number of
strikes that are required to be quoted by market makers in the options
industry. Today, ISE requires Lead Market Makers and Market Makers to
quote a certain amount of time in the trading day in their assigned due
options series to maintain liquidity in the market.\35\ With an
increasing number of strikes due to tighter intervals being listed
across options exchanges, Market Makers must expend their capital to
ensure that they have the appropriate infrastructure to meet their
quoting obligations on all options markets in which they are assigned
in options series. The Exchange believes that this Strike Interval
Proposal would limit the intervals between strikes listed on ISE and
thereby allow Lead Market Makers and Market Makers to expend their
capital in the options market in a more efficient manner that removes
impediments to and perfect the mechanism of a free and open market and
a national market system. The Exchange also believes that this Strike
Interval Proposal would improve overall market quality on ISE for the
protection of investors and the general public by limiting the
intervals between strikes when applying the strike interval table to
multiply listed equity options which have an expiration date more than
twenty-one days from the listing date.
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\35\ See Options 2, Sections 4(j) and 5.
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This Strike Interval Proposal is intended to be the first in a
series of proposals to limit the number of listed options series listed
on ISE and other Nasdaq affiliated markets. The Exchange intends to
decrease the overall number of strikes listed on Nasdaq exchanges in a
methodical fashion in order that it may monitor progress and feedback
from its membership. While limiting the intervals between strikes
listed is the goal of this rule change, ISE's Strike Interval Proposal
is intended to balance that goal with the needs of market participants.
The Exchange believes that varied strike intervals continue to offer
market participants the ability to select the appropriate strike
interval to meet that market participant's investment objective.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. The Strike Interval Proposal
limits the number of Short Term Options Series strike intervals
available for quoting and trading on ISE for all ISE Participants.
While the current listing rules permit ISE to list a number of weekly
strikes on its market, in an effort to encourage Market Makers to
deploy capital more efficiently, as well as improve displayed market
quality, ISE's Strike Interval Proposal seeks to reduce the number of
weekly options that would be listed on its market in later weeks,
without reducing the number of series or classes of options available
for trading on ISE. As ISE's Strike Interval Proposal seeks to reduce
the number of weekly options that would be listed on its market in
later weeks, Market Makers would be required to quote in fewer weekly
strikes as a result of the Strike Interval Proposal.
The Exchange's Strike Interval Proposal, which is intended to
decrease the overall number of strikes listed on ISE, does not impose
an undue burden on intra-market competition as all Participants may
only transact options in the strike intervals listed for trading on
ISE. While limiting the intervals of strikes listed on ISE is the goal
of this Strike Interval Proposal, the goal continues to balance the
needs of market participants by continuing to offer a number of strikes
to meet a
[[Page 27916]]
market participant's investment objective.
The Exchange's Strike Interval Proposal does not impose an undue
burden on inter-market competition as this Strike Interval Proposal
does not impact the listings available at another self-regulatory
organization. In fact, ISE is proposing to list a smaller amount of
weekly equity options in an effort to curtail the increasing number of
strikes that are required to be quoted by market makers in the options
industry. Other options markets may choose to replicate the Exchange's
Strike Interval Proposal and, thereby, further decrease the overall
number of strikes within the options industry.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) \36\ of the Act and Rule 19b-4(f)(6) thereunder.\37\
Because the foregoing proposed rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act and subparagraph (f)(6) of Rule
19b-4 thereunder.\38\
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\36\ 15 U.S.C. 78s(b)(3)(A)(iii).
\37\ 17 CFR 240.19b-4(f)(6).
\38\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange 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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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-ISE-2021-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2021-09. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2021-09, and should be submitted on
or before June 14, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10844 Filed 5-21-21; 8:45 am]
BILLING CODE 8011-01-P
