Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Permit the Listing and Trading of Options on the Nasdaq-100 ESG Index, 20582-20586 [2023-07141]
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Federal Register / Vol. 88, No. 66 / Thursday, April 6, 2023 / Notices
compliance with applicable securities
laws and regulations, and with
applicable FINRA rules. These
supervisory procedures would, at least
in effect, require the assessment and
mitigation of risks of non-compliance
posed by the types of business
conducted at Residential Supervisory
Locations. FINRA determined that
requiring a firm to conduct and
document a risk assessment for
designating an office or location as an
RSL would not provide an additional
benefit to members or investors.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The SEC published the 2022 RSL Rule
Filing for comment and as of the end of
the comment period on August 23,
2022, the SEC had received 20 unique
comment letters, then subsequently
received six more comment letters.123
On October 31, 2022, FINRA responded
to the comments and did not propose
changing the terms of the 2022 RSL Rule
Filing in response to the comments.124
On the same day, the Commission
instituted proceedings to determine
whether to approve or disapprove the
2022 RSL Rule Filing (‘‘Order’’),125 and
the SEC received five comments letters
in response to the Order.126 On
December 9, 2022, FINRA responded to
those comments and did not propose
changing the 2022 RSL Rule Filing in
response to them.127 Since then, the
SEC has received one supplemental
comment letter.128 March 30, 2023 was
the date by which the SEC was required
to either approve or disapprove the 2022
RSL Rule Filing. But on March 29, 2023,
FINRA withdrew the 2022 RSL Rule
Filing from the SEC to consider whether
modifications and clarifications to the
filing would be appropriate in response
to concerns raised by commenters.
While the proposed rule change retains
many of the terms of the 2022 RSL Rule
Filing, the proposed rule change makes
123 See
note 9, supra.
note 9, supra; see also Exhibit 2b.
125 See Securities Exchange Act Release No.
96191 (October 31, 2022), 87 FR 66767 (November
4, 2022) (Order Instituting Proceedings to
Determine Whether to Approve or Disapprove File
No. SR–FINRA–2022–019).
126 See note 9, supra.
127 See note 9, supra; see also Exhibit 2c.
128 See Letter from Bernard V. Canepa, Managing
Director & Associate General Counsel, Securities
Industry and Financial Markets Association, to
Vanessa A. Countryman, Secretary, SEC, dated
December 20, 2022, https://www.sec.gov/
comments/sr-finra-2022-019/srfinra202201920153234-320719.pdf.
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124 See
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some adjustments, which are discussed
in detail above under Item II.A.1.b.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2023–006 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–FINRA–2023–006. 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
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business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of
FINRA. 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–FINRA–2023–006 and
should be submitted on or before April
27, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.129
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–07145 Filed 4–5–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97232; File No. SR–Phlx–
2023–09]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing of
Proposed Rule Change To Permit the
Listing and Trading of Options on the
Nasdaq-100 ESG Index
March 31, 2023.
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 March 28,
2023, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to permit the
listing and trading of options on the
Nasdaq-100 ESG Index.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
129 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 88, No. 66 / Thursday, April 6, 2023 / Notices
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 permit the
listing and trading of options on the
Nasdaq-100 ESG Index or ‘‘NDXESG’’.3
The Nasdaq-100 ESG Index is a broad
based, modified ESG Risk Rating Scoreadjusted market-capitalization-weighted
index that is designed to measure the
performance of the companies in the
Nasdaq-100 Index (‘‘NDX’’) that meet
specific environmental, social and
governance (‘‘ESG’’) criteria.4 The
Nasdaq-100 ESG Index at all times
consists of a selection of securities in
NDX.5 In order to be selected for the
Nasdaq-100 ESG Index, a Nasdaq-100
Index company must: (1) not be
involved in specific business activities,
as defined in the methodology 6 and
determined by Sustainalytics; 7 (2) not
be deemed non-compliant with the
principles of the United Nations Global
Compact, as determined by
Sustainalytics; (3) not have a
controversy level higher than four (4), as
defined by Sustainalytics; and (4) have
a Sustainalytics ESG Risk Rating Score
lower than 40. There are various stages
in the constituent weighting process
which are outlined in the methodology.8
Initial and Maintenance Listing Criteria
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The Nasdaq-100 ESG Index meets the
definition of a broad-based index as set
3 These options would trade under the symbol
‘‘EXGN.’’
4 Companies are evaluated and weighted on the
basis of their business activities, controversies and
ESG Risk Ratings.
5 See https://indexes.nasdaqomx.com/docs/
methodology_NDXESG.pdf.
6 See supra note 5.
7 Sustainalytics is a company that rates the
sustainability of listed companies based on their
ESG performance.
8 See supra note 5.
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forth in Options 4A, Section 2(a)(13) 9
(i.e., an index designed to be
representative of a stock market as a
whole or of a range of companies in
unrelated industries). Additionally, the
Nasdaq-100 ESG Index satisfies the
initial listing criteria of a broad-based
index, as set forth in Options 4A,
Section 3(d):
(1) The index is broad-based, as defined in
Options 4A, Section 2(a)(13);
(2) Options on the index are designated as
A.M.-settled index options;
(3) The index is capitalization-weighted,
price-weighted, modified capitalizationweighted or equal dollar-weighted;
(4) The index consists of 50 or more
component securities;
(5) Component securities that account for
at least ninety-five percent (95%) of the
weight of the index have a market
capitalization of at least $ 75 million, except
that component securities that account for at
least sixty-five percent (65%) of the weight
of the index have a market capitalization of
at least $ 100 million;
(6) Component securities that account for
at least eighty percent (80%) of the weight of
the index satisfy the requirements of Options
4, Section 3 applicable to individual
underlying securities;
(7) Each component security that accounts
for at least one percent (1%) of the weight of
the index has an average daily trading
volume of at least 90,000 shares during the
last six month period;
(8) No single component security accounts
for more than ten percent (10%) of the weight
of the index, and the five highest weighted
component securities in the index do not, in
the aggregate, account for more than thirtythree percent (33%) of the weight of the
index;
(9) Each component security must be an
‘‘NMS Stock’’ as defined in rule 600 of
Regulation NMS under the Exchange Act;
(10) Non-U.S. component securities (stocks
or ADRs) that are not subject to
comprehensive surveillance agreements do
not, in the aggregate, represent more than
twenty percent (20%) of the weight of the
index;
(11) The current index value is widely
disseminated at least once every fifteen (15)
seconds by one or more major market data
vendors during the time options on the index
are traded on the Exchange;
(12) The Exchange reasonably believes it
has adequate System capacity to support the
trading of options on the index, based on a
calculation of the Exchange’s current
Independent System Capacity Advisor (ISCA)
allocation and the number of new messages
per second expected to be generated by
options on such index;
(13) An equal dollar-weighted index is
rebalanced at least once every calendar
quarter;
(14) If an index is maintained by a brokerdealer, the index is calculated by a third9 The Exchange proposes to amend Options 4A,
Section 3(d)(1) to correct a citation to the definition
of a broad-based index from Section 2(a)(11) to
Section 2(a)(13).
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party who is not a broker-dealer, and the
broker-dealer has erected an informational
barrier around its personnel who have access
to information concerning changes in, and
adjustments to, the index;
(15) The Exchange has written surveillance
procedures in place with respect to
surveillance of trading of options on the
index.
The Nasdaq-100 ESG Index will also
be subject to the maintenance listing
standards set forth in Options 4A,
Section 3(e):
(1) The conditions set forth in
subparagraphs (d)(1), (2), (3), (9), (10), (11),
(12), (13), (14) and (15) must continue to be
satisfied. The conditions set forth in
subparagraphs (d)(5), (6), (7) and (8) must be
satisfied only as of the first day of January
and July in each year;
(2) The total number of component
securities in the index may not increase or
decrease by more than ten percent (10%)
from the number of component securities in
the index at the time of its initial listing.10
Expiration Months, Settlement, and
Exercise Style
Consistent with existing rules for
certain index options, the Exchange will
allow up to twelve near-term expiration
months for the Nasdaq-100 ESG Index
options (‘‘NDXESG options’’) 11 as well
as LEAPS.12 Options on NDX may list
up to twelve near-term expiration
months pursuant to Phlx Options 4A,
Section 12(a)(4). The Nasdaq-100 ESG
Index consists of components that are
also included in NDX, as discussed
above. Because of the relationship
between the Nasdaq-100 ESG Index and
NDX, which will likely result in market
participants’ investment and hedging
strategies consisting of options over
both, the Exchange believes it is
appropriate to permit the same number
of monthly expirations for the Nasdaq100 ESG Index and NDX. Strike price
intervals would be at no less than $2.50
intervals.13
The NDXESG options will be a.m.settled 14 and cash-settled contracts with
European-style exercise.15 A.M.10 As is the case with other index options
authorized for listing and trading on Phlx, in the
event the Nasdaq-100 ESG Index fails to satisfy the
maintenance listing standards, the Exchange will
not open for trading any additional series of options
of that class unless such failure is determined by
the Exchange not to be significant and the
Commission concurs in that determination, or
unless the continued listing of that class of index
options has been approved by the Commission
under Section 19(b)(2) of the Act.
11 See Phlx Options 4A, Section 12(a)(4).
12 See Phlx Options 4A, Section 12(b)(2).
13 See proposed Phlx Options 4A, Section
12(a)(2).
14 See proposed Phlx Options 4A, Section
12(e)(II).
15 See proposed Phlx Options 4A, Section
12(a)(5).
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settlement is consistent with the generic
listing criteria for broad-based
indexes,16 and thus it is common for
index options to be a.m.-settled. The
Exchange proposes to amend Phlx
Options 4A, Section 12(e)(II) to add the
Nasdaq-100 ESG Index options to the
list of other a.m.-settled options.
European-style exercise is consistent
with many index options, as set forth in
Options 4A, Section 12(a)(5). The
Exchange proposes to amend Options
4A, Section 12(a)(5) to add the NDXESG
options to the list of European-style
index options. Standard third-Friday
NDX options are a.m.-settled with
European-style exercise. Because of the
relationship between the Nasdaq-100
ESG Index and the NDX, which will
likely result in market participants’
investment and hedging strategies
consisting of options over both, the
Exchange believes it is appropriate to
list the NDXESG options with the same
settlement and exercise style as the
other NDX options.
Minimum Trading Increment
The Exchange proposes the minimum
trading increment for NDXESG options
would be $0.05 for options trading
below $3.00 and $0.10 for all other
options.17
Reporting Authority
The Nasdaq Stock Market LLC would
be the Reporting Authority for the
Nasdaq-100 ESG Index.18
Position Limit and Exercise Limits
The position limits for options on the
Nasdaq-100 ESG Index would be 25,000
contracts on the same side of the market
in accordance with Phlx Options 4A,
Section 6(a). The exercise limits for
options on the Nasdaq-100 ESG Index
shall be equivalent to the position limits
pursuant to Options 4A, Section 10.
Each member or member organization
that maintains a position on the same
side of the market in excess of 100,000
contracts for its own account or for the
account of a customer in NDXESG
options must file a report with the
Exchange pursuant to proposed Phlx
Options 4A, Section 6(c).19 The
Exchange also proposes to make a
technical correction to Phlx Options 4A,
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16 See
Phlx Options 4A, Section 3(d).
Phlx Options 3, Section 3.
18 See proposed Phlx Supplementary Material .02
to Options 4A, Section 2.
19 The report would include, but would not be
limited to, data related to the option positions,
whether such positions are hedged and if
applicable, a description of the hedge and
information concerning collateral used to carry the
positions. Market Makers are exempt from this
reporting requirement. See proposed Phlx Options
4A, Section 6(c).
17 See
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Section 6(c) to add an ‘‘or’’ within that
paragraph.
Likewise, the position and exercise
limits for FLEX options on the Nasdaq100 ESG Index would be 25,000
contracts on the same side of the
market. In amending Phlx Options 8,
Section 34(e), regarding position limits
for FLEX options, the Exchange
proposes to align the position limits for
FLEX options within Phlx Options 8,
Section 34, with the position limits for
standard options within Phlx Options
4A, Section 6, which are specifically
related to index options. Today, FLEX
index options are subject to the same
position limits governing standard
index options as provided for within
Options 4A, Section 6, unless otherwise
noted within Options 8, Section 34. At
this time, Phlx proposes to amend
Options 8, Section 34(e) to add a
sentence that provides that the position
limits are the same for FLEX index
options as with standard index options,
unless otherwise noted. This
amendment is intended to be nonsubstantive and would not change any
position limits. Rather, the amendment
would simply cross-reference the
position limits in Options 4A, Section 6
as opposed to restating each position
limit.20 Today, the position limits for
standard index options are identical to
the FLEX index options on the same
index. With this proposal those position
limits would continue to be identical.
Trading Hours
NDXESG options will be available for
trading during the Exchange’s standard
trading hours for index options, i.e.,
from 9:30 a.m. to 4:15 p.m. New York
time.21
Margin and Sales Practice
The margin requirements for NDXESG
options would be subject to Phlx
Options 6C, Section 3, Proper and
Adequate Margin. Phlx General 9,
Section 10, Recommendations to
Customers (Suitability), and Phlx
Options 10, Section 8, Suitability,
would also apply to NDXESG options.
Surveillance and Capacity
Finally, the Exchange represents that
it has sufficient capacity to handle
additional quotations and message
traffic associated with the proposed
listing and trading of NDXESG options.
Further, the Exchange has analyzed its
capacity and represents that it believes
the Exchange and the Options Price
20 In light of this proposal, the Exchange proposes
to remove the remainder of the rule text related to
index options within Options 8, Section 34(e).
21 See proposed Phlx Supplementary .01 to
Options 4A, Section 12.
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Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
any additional traffic associated with
the listing of NDXESG options.
Index options are integrated into the
Exchange’s existing surveillance system
architecture and are thus subject to the
relevant surveillance processes. The
Exchange represents that it has adequate
surveillance procedures to monitor
trading in NDXESG options thereby
aiding in the maintenance of a fair and
orderly market.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,22 in general, and furthers the
objectives of Section 6(b)(5) of the Act,23
in particular, in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, 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; and is not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers,
or to regulate by virtue of any authority
conferred by the Act matters not related
to the purposes of the Act or the
administration of the Exchange. The
Exchange believes that the proposed
rule change is also consistent with
Section 6(b)(8) of the Act 24 in that it
does not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. Specifically, the
Exchange believes that the introduction
of NDXESG options will attract order
flow to the Exchange, increase the
variety of listed options to investors,
and provide a valuable hedge tool to
investors.
In particular, the Exchange believes
that the proposal to list and trade
options on the Nasdaq-100 ESG Index
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system,
because the Exchange believes that the
proposed rule change will further the
Exchange’s goal of introducing new and
innovative products to the marketplace.
Additionally, the Exchange believes that
the proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, as the
22 15
U.S.C. 78f(b)
U.S.C. 78f(b)(5).
24 15 U.S.C. 78(f)(b)(8).
23 15
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Exchange believes there is unmet
market demand for exchange-listed
security options listed on this new ESG
index. NDXESG options are designed to
provide different and additional
opportunities for investors who have a
desire to invest in companies that meet
certain environmental, social and
governance criteria to hedge on the
market risk associated with this index
by listing an option directly on this
index. Further, the Exchange believes
that this new product will provide
market participant with an additional
investment opportunity.
The Exchange believes that the
introduction of the Nasdaq-100 ESG
Index will likely result in market
participants’ investment and hedging
strategies consisting of options over
both the Nasdaq-100 ESG Index and
NDX. The Exchange notes that the
Nasdaq-100 ESG Index consists of
companies within NDX that meet
specific ESG criteria. Because of this
relationship between the Nasdaq-100
ESG Index and NDX, the Exchange
believes the proposed rule change will
benefit investors, as it will provide
market participants with additional
investment and hedging strategies
consisting of options over each of these
indexes.
The Exchange believes the proposed
rule change will remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, as well as protect investors and
the public interest, because the
proposed rule change is consistent with
current rules already applicable to the
listing and trading of options on Phlx,
which were previously filed with and
approved as consistent with the Act by
the Commission. Particularly, the
NDXESG options satisfy the initial
listing standards for a broad-based index
in Phlx’s rules, which the Commission
previously deemed consistent with the
Act.25
With this proposal NDXESG options
would be permitted to list up to twelve
near-term expiration months and
LEAPS. The Exchange believes that its
proposal is consistent with the Act and
promotes just and equitable principles
of trade because the listings of these
options is consistent with existing rules
for certain index options, including
options on NDX which may list up to
twelve near-term expiration months
pursuant to Phlx Options 4A, Section
12(a)(4), as well as LEAPs pursuant to
25 See Securities Exchange Act Release No. 54158
(July 17, 2006), 71 FR 41853 (July 24, 2006) (SR–
Phlx–2006–17) (Notice of Filing and Order Granting
Accelerated Approval of a Proposed Rule Change
and Amendment Nos. 1 and 2 Thereto Relating to
Listing Standards for Broad-Based Index Options).
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Options 4A, Section 12(b)(2). As noted
herein, the Nasdaq-100 ESG Index
consists of components that are also
included in NDX, as discussed above.
Because of the relationship between the
Nasdaq-100 ESG Index and NDX, the
Exchange believes it is appropriate to
permit the same number of monthly
expirations for the Nasdaq-100 ESG
Index and NDX. Further, the Exchange’s
proposal for strike price intervals to be
at no less than $2.50 intervals is
consistent with the Act and promotes
just and equitable principles of trade
because the proposed strike prices align
with NDX options strike price
intervals.26
The NDXESG options will be a.m.settled 27 and cash-settled contracts with
European-style exercise.28 The
Exchange believes that it is consistent
with the Act for NDXESG options to be
a.m.-settled as this is consistent with the
generic listing criteria for broad-based
indexes,29 and thus it is common for
index options to be a.m.-settled.
Additionally, standard third-Friday
NDX options are a.m.-settled. Further,
the Exchange believes that it is
consistent with the Act for NDXESG
options to be European-style as standard
third-Friday NDX options have
European-style exercises. Further,
European-style exercise is consistent
with many index options, as set forth in
Options 4A, Section 12(a)(5) including
NDX options. Because of the
relationship between the Nasdaq-100
ESG Index and the NDX, which will
likely result in market participants’
investment and hedging strategies
consisting of options over both, the
Exchange believes it is appropriate to
list the NDXESG options with the same
settlement and exercise style as the
other NDX options. Additionally, the
Reporting Authority shall be the same
for NDXESG as it is for NDX.
The Exchange’s proposal to utilize
$0.05 for options trading below $3.00
and $0.10 for all other options for the
minimum trading increment for
NDXESG options is consistent with the
Act as this is consistent with the
minimum trading increments for a
majority of index options including
NDX options.
Setting position and exercise limits
for options on the Nasdaq-100 ESG
Index at 25,000 contracts on the same
side of the market for both standard and
FLEX options will promote just and
26 See
27 See
Phlx Options 4A, Section 12(a)(2).
proposed Phlx Options 4A, Section
12(e)(II).
28 See proposed Phlx Options 4A, Section
12(a)(5).
29 See Phlx Options 4A, Section 3(d).
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20585
equitable principles of trade and protect
investors and the public interest
because these position limits should
serve to reduce potential manipulative
schemes and adverse market impacts
surrounding the use of options, such as
disrupting the market in the security
underlying the options.
The amendments to Phlx Options 8,
Section 34(e) to include a cross-cite to
the standard options within Phlx
Options 4A, Section 6 is consistent with
the Act because this amendment will
reflect that the position limits for
standard index options are identical to
the FLEX index options on the same
index. This amendment is nonsubstantive.
Proposing standard trading hours for
NDXESG options is consistent with the
Act and serves to remove impediments
to and perfects the mechanism of a free
and open market because these trading
hours align with trading hours in other
index options including NDX options.
Subjecting NDXESG options to the
same margin and suitability rules that
apply to other index options serves to
remove impediments to and perfects the
mechanism of a free and open market.
Finally, the Exchange represents that
it has the necessary systems capacity to
support the new option series given
these proposed specifications. The
Exchange believes that its existing
surveillance and reporting safeguards
are designed to deter and detect possible
manipulative behavior which might
arise from listing and trading options on
the Nasdaq-100 ESG Index. The
Exchange further notes that current
Exchange rules that apply to the trading
of other index options traded on the
Exchange, such as options on the NDX,
would also apply to the trading of
options on the Nasdaq-100 ESG Index,
such as, for example, Exchange Rules
governing customer accounts, margin
requirements and trading halt
procedures.
Finally, this proposal is not novel as
Cboe Exchange, Inc. (‘‘Cboe’’) lists
options on the S&P 500 ESG Index.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
This proposed rule change does not
impose any burden on intra-market
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. Any member or
member organization may transact
NDXESG options. Further, the Nasdaq100 ESG Index satisfies initial listing
standards set forth in the rules, and the
proposed number of expirations,
settlement, and exercise style are
consistent with current rules applicable
to index options, including standard
E:\FR\FM\06APN1.SGM
06APN1
20586
Federal Register / Vol. 88, No. 66 / Thursday, April 6, 2023 / Notices
third-Friday NDX options. Because of
the relationship between the Nasdaq100 ESG Index and the NDX, which will
likely result in market participants’
investment and hedging strategies
consisting of options over each of these
indexes, the Exchange believes it is
appropriate to have the same number of
expirations, settlement, and exercise
style for options on each index. The
NDXESG options will provide investors
with different and additional
opportunities to hedge or speculate on
the market associated with this index.
This proposed rule change does not
impose any burden on inter-market
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act because this
proposal will facilitate the listing and
trading of a new option product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. Today, Cboe lists
options on the S&P 500 ESG Index.
Also, other options exchanges may
develop similar products.
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
ddrumheller on DSK120RN23PROD with NOTICES1
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
shall: (a) by order approve or disapprove
such proposed rule change, or (b)
institute proceedings to determine
whether the proposed rule change
should be disapproved.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2023–09. 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–Phlx–2023–09 and should
be submitted on or before April 27,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Sherry R. Haywood,
Assistant Secretary.
IV. Solicitation of Comments
[FR Doc. 2023–07141 Filed 4–5–23; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
Submission for OMB Review;
Comment Request; Extension: Rule
102
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2023–09 on the subject line.
VerDate Sep<11>2014
21:13 Apr 05, 2023
Jkt 259001
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–409, OMB Control No.
3235–0467]
Upon Written Request, Copies Available
From: Securities and Exchange
30 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00121
Fmt 4703
Sfmt 4703
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Rule 102 of Regulation M (17 CFR
242.102), under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.).
Rule 102 prohibits distribution
participants, issuers, and selling
security holders from purchasing
activities at specified times during a
distribution of securities. Persons
otherwise covered by this rule may seek
to use several applicable exceptions
such as an exclusion for actively traded
reference securities and the
maintenance of policies regarding
information barriers between their
affiliates.
There are approximately 1,361
respondents per year that require an
aggregate total of 2,261 hours to comply
with this rule. Each respondent makes
an estimated 1 annual response. Each
response takes on average
approximately 1.661 hours to complete.
Thus, the total hour burden per year is
approximately 2,261 hours. The total
internal compliance cost for all
respondents is approximately
$183,141.00, resulting in an internal
cost of compliance per respondent of
approximately $134.56 (i.e.,
$183,141.00/1,361 respondents).
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
The public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent by
May 8, 2023 to (i) www.reginfo.gov/
public/do/PRAMain and (ii) David
Bottom, Director/Chief Information
Officer, Securities and Exchange
Commission, c/o John Pezzullo, 100 F
Street NE, Washington, DC 20549, or by
sending an email to: PRA_Mailbox@
sec.gov.
E:\FR\FM\06APN1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 66 (Thursday, April 6, 2023)]
[Notices]
[Pages 20582-20586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07141]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97232; File No. SR-Phlx-2023-09]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
of Proposed Rule Change To Permit the Listing and Trading of Options on
the Nasdaq-100 ESG Index
March 31, 2023.
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 March 28, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I and II below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\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 permit the listing and trading of options
on the Nasdaq-100 ESG Index.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
[[Page 20583]]
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 permit the listing and trading of options
on the Nasdaq-100 ESG Index or ``NDXESG''.\3\ The Nasdaq-100 ESG Index
is a broad based, modified ESG Risk Rating Score-adjusted market-
capitalization-weighted index that is designed to measure the
performance of the companies in the Nasdaq-100 Index (``NDX'') that
meet specific environmental, social and governance (``ESG'')
criteria.\4\ The Nasdaq-100 ESG Index at all times consists of a
selection of securities in NDX.\5\ In order to be selected for the
Nasdaq-100 ESG Index, a Nasdaq-100 Index company must: (1) not be
involved in specific business activities, as defined in the methodology
\6\ and determined by Sustainalytics; \7\ (2) not be deemed non-
compliant with the principles of the United Nations Global Compact, as
determined by Sustainalytics; (3) not have a controversy level higher
than four (4), as defined by Sustainalytics; and (4) have a
Sustainalytics ESG Risk Rating Score lower than 40. There are various
stages in the constituent weighting process which are outlined in the
methodology.\8\
---------------------------------------------------------------------------
\3\ These options would trade under the symbol ``EXGN.''
\4\ Companies are evaluated and weighted on the basis of their
business activities, controversies and ESG Risk Ratings.
\5\ See https://indexes.nasdaqomx.com/docs/methodology_NDXESG.pdf.
\6\ See supra note 5.
\7\ Sustainalytics is a company that rates the sustainability of
listed companies based on their ESG performance.
\8\ See supra note 5.
---------------------------------------------------------------------------
Initial and Maintenance Listing Criteria
The Nasdaq-100 ESG Index meets the definition of a broad-based
index as set forth in Options 4A, Section 2(a)(13) \9\ (i.e., an index
designed to be representative of a stock market as a whole or of a
range of companies in unrelated industries). Additionally, the Nasdaq-
100 ESG Index satisfies the initial listing criteria of a broad-based
index, as set forth in Options 4A, Section 3(d):
---------------------------------------------------------------------------
\9\ The Exchange proposes to amend Options 4A, Section 3(d)(1)
to correct a citation to the definition of a broad-based index from
Section 2(a)(11) to Section 2(a)(13).
(1) The index is broad-based, as defined in Options 4A, Section
2(a)(13);
(2) Options on the index are designated as A.M.-settled index
options;
(3) The index is capitalization-weighted, price-weighted,
modified capitalization-weighted or equal dollar-weighted;
(4) The index consists of 50 or more component securities;
(5) Component securities that account for at least ninety-five
percent (95%) of the weight of the index have a market
capitalization of at least $ 75 million, except that component
securities that account for at least sixty-five percent (65%) of the
weight of the index have a market capitalization of at least $ 100
million;
(6) Component securities that account for at least eighty
percent (80%) of the weight of the index satisfy the requirements of
Options 4, Section 3 applicable to individual underlying securities;
(7) Each component security that accounts for at least one
percent (1%) of the weight of the index has an average daily trading
volume of at least 90,000 shares during the last six month period;
(8) No single component security accounts for more than ten
percent (10%) of the weight of the index, and the five highest
weighted component securities in the index do not, in the aggregate,
account for more than thirty-three percent (33%) of the weight of
the index;
(9) Each component security must be an ``NMS Stock'' as defined
in rule 600 of Regulation NMS under the Exchange Act;
(10) Non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than twenty percent (20%) of the weight of
the index;
(11) The current index value is widely disseminated at least
once every fifteen (15) seconds by one or more major market data
vendors during the time options on the index are traded on the
Exchange;
(12) The Exchange reasonably believes it has adequate System
capacity to support the trading of options on the index, based on a
calculation of the Exchange's current Independent System Capacity
Advisor (ISCA) allocation and the number of new messages per second
expected to be generated by options on such index;
(13) An equal dollar-weighted index is rebalanced at least once
every calendar quarter;
(14) If an index is maintained by a broker-dealer, the index is
calculated by a third-party who is not a broker-dealer, and the
broker-dealer has erected an informational barrier around its
personnel who have access to information concerning changes in, and
adjustments to, the index;
(15) The Exchange has written surveillance procedures in place
with respect to surveillance of trading of options on the index.
The Nasdaq-100 ESG Index will also be subject to the maintenance
listing standards set forth in Options 4A, Section 3(e):
(1) The conditions set forth in subparagraphs (d)(1), (2), (3),
(9), (10), (11), (12), (13), (14) and (15) must continue to be
satisfied. The conditions set forth in subparagraphs (d)(5), (6),
(7) and (8) must be satisfied only as of the first day of January
and July in each year;
(2) The total number of component securities in the index may
not increase or decrease by more than ten percent (10%) from the
number of component securities in the index at the time of its
initial listing.\10\
---------------------------------------------------------------------------
\10\ As is the case with other index options authorized for
listing and trading on Phlx, in the event the Nasdaq-100 ESG Index
fails to satisfy the maintenance listing standards, the Exchange
will not open for trading any additional series of options of that
class unless such failure is determined by the Exchange not to be
significant and the Commission concurs in that determination, or
unless the continued listing of that class of index options has been
approved by the Commission under Section 19(b)(2) of the Act.
---------------------------------------------------------------------------
Expiration Months, Settlement, and Exercise Style
Consistent with existing rules for certain index options, the
Exchange will allow up to twelve near-term expiration months for the
Nasdaq-100 ESG Index options (``NDXESG options'') \11\ as well as
LEAPS.\12\ Options on NDX may list up to twelve near-term expiration
months pursuant to Phlx Options 4A, Section 12(a)(4). The Nasdaq-100
ESG Index consists of components that are also included in NDX, as
discussed above. Because of the relationship between the Nasdaq-100 ESG
Index and NDX, which will likely result in market participants'
investment and hedging strategies consisting of options over both, the
Exchange believes it is appropriate to permit the same number of
monthly expirations for the Nasdaq-100 ESG Index and NDX. Strike price
intervals would be at no less than $2.50 intervals.\13\
---------------------------------------------------------------------------
\11\ See Phlx Options 4A, Section 12(a)(4).
\12\ See Phlx Options 4A, Section 12(b)(2).
\13\ See proposed Phlx Options 4A, Section 12(a)(2).
---------------------------------------------------------------------------
The NDXESG options will be a.m.-settled \14\ and cash-settled
contracts with European-style exercise.\15\ A.M.-
[[Page 20584]]
settlement is consistent with the generic listing criteria for broad-
based indexes,\16\ and thus it is common for index options to be a.m.-
settled. The Exchange proposes to amend Phlx Options 4A, Section
12(e)(II) to add the Nasdaq-100 ESG Index options to the list of other
a.m.-settled options. European-style exercise is consistent with many
index options, as set forth in Options 4A, Section 12(a)(5). The
Exchange proposes to amend Options 4A, Section 12(a)(5) to add the
NDXESG options to the list of European-style index options. Standard
third-Friday NDX options are a.m.-settled with European-style exercise.
Because of the relationship between the Nasdaq-100 ESG Index and the
NDX, which will likely result in market participants' investment and
hedging strategies consisting of options over both, the Exchange
believes it is appropriate to list the NDXESG options with the same
settlement and exercise style as the other NDX options.
---------------------------------------------------------------------------
\14\ See proposed Phlx Options 4A, Section 12(e)(II).
\15\ See proposed Phlx Options 4A, Section 12(a)(5).
\16\ See Phlx Options 4A, Section 3(d).
---------------------------------------------------------------------------
Minimum Trading Increment
The Exchange proposes the minimum trading increment for NDXESG
options would be $0.05 for options trading below $3.00 and $0.10 for
all other options.\17\
---------------------------------------------------------------------------
\17\ See Phlx Options 3, Section 3.
---------------------------------------------------------------------------
Reporting Authority
The Nasdaq Stock Market LLC would be the Reporting Authority for
the Nasdaq-100 ESG Index.\18\
---------------------------------------------------------------------------
\18\ See proposed Phlx Supplementary Material .02 to Options 4A,
Section 2.
---------------------------------------------------------------------------
Position Limit and Exercise Limits
The position limits for options on the Nasdaq-100 ESG Index would
be 25,000 contracts on the same side of the market in accordance with
Phlx Options 4A, Section 6(a). The exercise limits for options on the
Nasdaq-100 ESG Index shall be equivalent to the position limits
pursuant to Options 4A, Section 10. Each member or member organization
that maintains a position on the same side of the market in excess of
100,000 contracts for its own account or for the account of a customer
in NDXESG options must file a report with the Exchange pursuant to
proposed Phlx Options 4A, Section 6(c).\19\ The Exchange also proposes
to make a technical correction to Phlx Options 4A, Section 6(c) to add
an ``or'' within that paragraph.
---------------------------------------------------------------------------
\19\ The report would include, but would not be limited to, data
related to the option positions, whether such positions are hedged
and if applicable, a description of the hedge and information
concerning collateral used to carry the positions. Market Makers are
exempt from this reporting requirement. See proposed Phlx Options
4A, Section 6(c).
---------------------------------------------------------------------------
Likewise, the position and exercise limits for FLEX options on the
Nasdaq-100 ESG Index would be 25,000 contracts on the same side of the
market. In amending Phlx Options 8, Section 34(e), regarding position
limits for FLEX options, the Exchange proposes to align the position
limits for FLEX options within Phlx Options 8, Section 34, with the
position limits for standard options within Phlx Options 4A, Section 6,
which are specifically related to index options. Today, FLEX index
options are subject to the same position limits governing standard
index options as provided for within Options 4A, Section 6, unless
otherwise noted within Options 8, Section 34. At this time, Phlx
proposes to amend Options 8, Section 34(e) to add a sentence that
provides that the position limits are the same for FLEX index options
as with standard index options, unless otherwise noted. This amendment
is intended to be non-substantive and would not change any position
limits. Rather, the amendment would simply cross-reference the position
limits in Options 4A, Section 6 as opposed to restating each position
limit.\20\ Today, the position limits for standard index options are
identical to the FLEX index options on the same index. With this
proposal those position limits would continue to be identical.
---------------------------------------------------------------------------
\20\ In light of this proposal, the Exchange proposes to remove
the remainder of the rule text related to index options within
Options 8, Section 34(e).
---------------------------------------------------------------------------
Trading Hours
NDXESG options will be available for trading during the Exchange's
standard trading hours for index options, i.e., from 9:30 a.m. to 4:15
p.m. New York time.\21\
---------------------------------------------------------------------------
\21\ See proposed Phlx Supplementary .01 to Options 4A, Section
12.
---------------------------------------------------------------------------
Margin and Sales Practice
The margin requirements for NDXESG options would be subject to Phlx
Options 6C, Section 3, Proper and Adequate Margin. Phlx General 9,
Section 10, Recommendations to Customers (Suitability), and Phlx
Options 10, Section 8, Suitability, would also apply to NDXESG options.
Surveillance and Capacity
Finally, the Exchange represents that it has sufficient capacity to
handle additional quotations and message traffic associated with the
proposed listing and trading of NDXESG options. Further, the Exchange
has analyzed its capacity and represents that it believes the Exchange
and the Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle any additional traffic associated with the
listing of NDXESG options.
Index options are integrated into the Exchange's existing
surveillance system architecture and are thus subject to the relevant
surveillance processes. The Exchange represents that it has adequate
surveillance procedures to monitor trading in NDXESG options thereby
aiding in the maintenance of a fair and orderly market.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\22\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\23\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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; and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers, or to regulate by virtue of any authority
conferred by the Act matters not related to the purposes of the Act or
the administration of the Exchange. The Exchange believes that the
proposed rule change is also consistent with Section 6(b)(8) of the Act
\24\ in that it does not impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. Specifically,
the Exchange believes that the introduction of NDXESG options will
attract order flow to the Exchange, increase the variety of listed
options to investors, and provide a valuable hedge tool to investors.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b)
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78(f)(b)(8).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Nasdaq-100 ESG Index will remove impediments to
and perfect the mechanism of a free and open market and a national
market system, because the Exchange believes that the proposed rule
change will further the Exchange's goal of introducing new and
innovative products to the marketplace. Additionally, the Exchange
believes that the proposed rule change will remove impediments to and
perfect the mechanism of a free and open market and a national market
system, as the
[[Page 20585]]
Exchange believes there is unmet market demand for exchange-listed
security options listed on this new ESG index. NDXESG options are
designed to provide different and additional opportunities for
investors who have a desire to invest in companies that meet certain
environmental, social and governance criteria to hedge on the market
risk associated with this index by listing an option directly on this
index. Further, the Exchange believes that this new product will
provide market participant with an additional investment opportunity.
The Exchange believes that the introduction of the Nasdaq-100 ESG
Index will likely result in market participants' investment and hedging
strategies consisting of options over both the Nasdaq-100 ESG Index and
NDX. The Exchange notes that the Nasdaq-100 ESG Index consists of
companies within NDX that meet specific ESG criteria. Because of this
relationship between the Nasdaq-100 ESG Index and NDX, the Exchange
believes the proposed rule change will benefit investors, as it will
provide market participants with additional investment and hedging
strategies consisting of options over each of these indexes.
The Exchange believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, as well as protect investors and the public
interest, because the proposed rule change is consistent with current
rules already applicable to the listing and trading of options on Phlx,
which were previously filed with and approved as consistent with the
Act by the Commission. Particularly, the NDXESG options satisfy the
initial listing standards for a broad-based index in Phlx's rules,
which the Commission previously deemed consistent with the Act.\25\
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release No. 54158 (July 17,
2006), 71 FR 41853 (July 24, 2006) (SR-Phlx-2006-17) (Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change and Amendment Nos. 1 and 2 Thereto Relating to Listing
Standards for Broad-Based Index Options).
---------------------------------------------------------------------------
With this proposal NDXESG options would be permitted to list up to
twelve near-term expiration months and LEAPS. The Exchange believes
that its proposal is consistent with the Act and promotes just and
equitable principles of trade because the listings of these options is
consistent with existing rules for certain index options, including
options on NDX which may list up to twelve near-term expiration months
pursuant to Phlx Options 4A, Section 12(a)(4), as well as LEAPs
pursuant to Options 4A, Section 12(b)(2). As noted herein, the Nasdaq-
100 ESG Index consists of components that are also included in NDX, as
discussed above. Because of the relationship between the Nasdaq-100 ESG
Index and NDX, the Exchange believes it is appropriate to permit the
same number of monthly expirations for the Nasdaq-100 ESG Index and
NDX. Further, the Exchange's proposal for strike price intervals to be
at no less than $2.50 intervals is consistent with the Act and promotes
just and equitable principles of trade because the proposed strike
prices align with NDX options strike price intervals.\26\
---------------------------------------------------------------------------
\26\ See Phlx Options 4A, Section 12(a)(2).
---------------------------------------------------------------------------
The NDXESG options will be a.m.-settled \27\ and cash-settled
contracts with European-style exercise.\28\ The Exchange believes that
it is consistent with the Act for NDXESG options to be a.m.-settled as
this is consistent with the generic listing criteria for broad-based
indexes,\29\ and thus it is common for index options to be a.m.-
settled. Additionally, standard third-Friday NDX options are a.m.-
settled. Further, the Exchange believes that it is consistent with the
Act for NDXESG options to be European-style as standard third-Friday
NDX options have European-style exercises. Further, European-style
exercise is consistent with many index options, as set forth in Options
4A, Section 12(a)(5) including NDX options. Because of the relationship
between the Nasdaq-100 ESG Index and the NDX, which will likely result
in market participants' investment and hedging strategies consisting of
options over both, the Exchange believes it is appropriate to list the
NDXESG options with the same settlement and exercise style as the other
NDX options. Additionally, the Reporting Authority shall be the same
for NDXESG as it is for NDX.
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\27\ See proposed Phlx Options 4A, Section 12(e)(II).
\28\ See proposed Phlx Options 4A, Section 12(a)(5).
\29\ See Phlx Options 4A, Section 3(d).
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The Exchange's proposal to utilize $0.05 for options trading below
$3.00 and $0.10 for all other options for the minimum trading increment
for NDXESG options is consistent with the Act as this is consistent
with the minimum trading increments for a majority of index options
including NDX options.
Setting position and exercise limits for options on the Nasdaq-100
ESG Index at 25,000 contracts on the same side of the market for both
standard and FLEX options will promote just and equitable principles of
trade and protect investors and the public interest because these
position limits should serve to reduce potential manipulative schemes
and adverse market impacts surrounding the use of options, such as
disrupting the market in the security underlying the options.
The amendments to Phlx Options 8, Section 34(e) to include a cross-
cite to the standard options within Phlx Options 4A, Section 6 is
consistent with the Act because this amendment will reflect that the
position limits for standard index options are identical to the FLEX
index options on the same index. This amendment is non-substantive.
Proposing standard trading hours for NDXESG options is consistent
with the Act and serves to remove impediments to and perfects the
mechanism of a free and open market because these trading hours align
with trading hours in other index options including NDX options.
Subjecting NDXESG options to the same margin and suitability rules
that apply to other index options serves to remove impediments to and
perfects the mechanism of a free and open market.
Finally, the Exchange represents that it has the necessary systems
capacity to support the new option series given these proposed
specifications. The Exchange believes that its existing surveillance
and reporting safeguards are designed to deter and detect possible
manipulative behavior which might arise from listing and trading
options on the Nasdaq-100 ESG Index. The Exchange further notes that
current Exchange rules that apply to the trading of other index options
traded on the Exchange, such as options on the NDX, would also apply to
the trading of options on the Nasdaq-100 ESG Index, such as, for
example, Exchange Rules governing customer accounts, margin
requirements and trading halt procedures.
Finally, this proposal is not novel as Cboe Exchange, Inc.
(``Cboe'') lists options on the S&P 500 ESG Index.
B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on intra-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act. Any member or member organization may
transact NDXESG options. Further, the Nasdaq-100 ESG Index satisfies
initial listing standards set forth in the rules, and the proposed
number of expirations, settlement, and exercise style are consistent
with current rules applicable to index options, including standard
[[Page 20586]]
third-Friday NDX options. Because of the relationship between the
Nasdaq-100 ESG Index and the NDX, which will likely result in market
participants' investment and hedging strategies consisting of options
over each of these indexes, the Exchange believes it is appropriate to
have the same number of expirations, settlement, and exercise style for
options on each index. The NDXESG options will provide investors with
different and additional opportunities to hedge or speculate on the
market associated with this index.
This proposed rule change does not impose any burden on inter-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act because this proposal will facilitate the
listing and trading of a new option product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. Today, Cboe lists options on the S&P 500 ESG Index.
Also, other options exchanges may develop similar products.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2023-09 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-Phlx-2023-09. 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-Phlx-2023-09 and should be
submitted on or before April 27, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-07141 Filed 4-5-23; 8:45 am]
BILLING CODE 8011-01-P
