Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permit the Listing and Trading of XND Options, 78417-78422 [2023-25108]
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Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices
19(b)(3)(A)(iii) of the Act 6 and Rule
19b–4(f)(6) thereunder.7 Because the
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
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6) 8
thereunder.
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
under Section 19(b)(2)(B) 9 of the Act 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–
NYSECHX–2023–19 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–NYSECHX–2023–19. This
file number should be included on the
subject line if email is used. To help the
ddrumheller on DSK120RN23PROD with NOTICES1
6 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
8 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
9 15 U.S.C. 78s(b)(2)(B).
7 17
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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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSECHX–2023–19 and should be
submitted on or before December 6,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–25205 Filed 11–14–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98886; File No. SR–ISE–
2023–24]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Permit the Listing and
Trading of XND Options
November 8, 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 October
27, 2023, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
10 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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78417
(‘‘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 based on
1/100 of the value of the Nasdaq-100
Index® (‘‘Nasdaq-100’’).
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 purpose of the proposed rule
change is to amend the Exchange’s rules
to permit the listing and trading of
index options on Nasdaq 100 Micro
Index Options (‘‘XND’’). The XND
options contract will be the same in all
respects as the current Nasdaq-100
Index options (‘‘NDX’’) 3 contract listed
on the Exchange, except that it will be
based on 1/100 of the value of the
Nasdaq-100 Index, and will be P.M.Settled with an exercise settlement
value based on the closing index value
of the Nasdaq-100 Index on the day of
expiration.4 The Exchange believes that
the proposed contract will be valuable
for retail and other investors that wish
to trade micro options on the Nasdaq100 Index. Finally, today, Nasdaq Phlx
3 See
Options 4A, Section 12(a)(5).
addition to the current Nasdaq-100 Index
value, Nasdaq will disseminate an Index value for
XND that is 1/100 of the value of the Nasdaq-100
Index.
4 In
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Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices
LLC (‘‘Phlx’’) has approval to list and
trade XND options. The rules to list and
trade NDX [sic] options on ISE are
identical to those of Phlx.5
Nasdaq-100 Index
The Nasdaq-100 Index is a modified
market capitalization-weighted index
that includes 100 of the largest nonfinancial companies listed on The
Nasdaq Stock Market LLC (‘‘Nasdaq’’),6
based on market capitalization.7 It does
not contain securities of financial
companies, including investment
companies. Security types generally
eligible for the Nasdaq-100 Index
include common stocks, ordinary
shares, American Depository Receipts,
and tracking stocks. Security or
company types not included in the
Nasdaq-100 Index are closed-end funds,
convertible debentures, exchange traded
funds, limited liability companies,
limited partnership interests, preferred
stocks, rights, shares or units of
beneficial interest, warrants, units and
other derivative securities.8
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XND Options Contract
Currently, the Exchange lists and
trades NDX options that are based on
the full value of the Nasdaq-100 Index.
In an effort to attract additional interest
in index options based on the Nasdaq100 Index, the Exchange now proposes
to list and trade a new micro option
contract based on this index. XND
options will trade independently of and
in addition to NDX options, and the
XND options will be subject to the same
rules that presently govern the trading
of index options based on the Nasdaq100 Index, including sales practice
rules, margin requirements, trading
rules, and position and exercise limits.
Similar to NDX, XND options will be
European-style and cash-settled, and
will have a contract multiplier of 100.
The contract specifications for XND
options will mirror in all respects those
of the NDX options contract already
listed on the Exchange, except that the
Exchange proposes that XND options
will be based on 1/100 of the value of
the Nasdaq-100 Index, and will be P.M.settled pursuant to proposed Options
4A, Section 12(a)(6). The ISE XND
5 See Securities Exchange Act Release No. 98451
(September 20, 2023), 88 FR 66088 (September 26,
2023) (SR-Phlx-2023–07) (Order Granting Approval
of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent Certain
P.M.-Settled Pilots).
6 Nasdaq is an affiliate of the Exchange.
7 The Nasdaq-100 Index is a broad-based index,
as defined in Options 4A, Section 3.
8 A description of the Nasdaq-100 Index is
available on Nasdaq’s website at https://
indexes.nasdaqomx.com/docs/methodology_
NDX.pdf.
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option contracts will trade identically to
Phlx XND options.9 Also, similar
features are available with other index
options contracts listed and/or approved
for trading on the Exchange such as
options on NQX (a reduced value index
based on 1⁄5 of the value of the Nasdaq100 Index).10 The Exchange also
proposes to amend Options 4A, Section
12(a)(5)(ii) to permit options on the
Nasdaq 100 Micro Index to trade a.m.settled.11
The value of the Nasdaq-100 Index
has increased significantly in recent
years such that the value of the index
stood at 14,717.90, as of the opening of
trading on October 22,023. As a result
of the increase in the value of the
underlying Nasdaq-100 Index, the
premium for NDX options has also
increased. The Exchange believes that
this has caused NDX options to trade at
a level that may be uncomfortably high
for certain retail and other investors.
The Exchange believes that listing
options at a micro value will attract a
greater source of retail customer
business. Further, listing options on a
micro index will provide an opportunity
for investors to trade and hedge the
market risk associated with the Nasdaq100 Index.
With an exercise settlement value
based on 1/100 of the Nasdaq-100 Index,
the Exchange believes that retail and
other investors would be able to use this
trading vehicle while extending a
smaller outlay of capital. Furthermore,
the proposed micro index will have a
notional value at a level that is
comparable to similar products that
have been successful in the market,
including the S&P 500 Mini SPX
Options Index (XSP), which had an
index value of (428.45) as of the opening
of trading on October 2, 2023. Of note,
Phlx XND options have traded at this
level since 2021. The Exchange
therefore believes that basing the
proposed XND options contract on 1/
100 of the value of the Nasdaq-100
Index should attract additional
investors, and, in turn, create a more
active and liquid trading environment.
XND options will also be P.M.-settled
as the Exchange believes that market
participants, and in particular, retail
investors, who are the target audience
for this product, prefer P.M.-settled
index options. P.M.-settlement is
preferred by retail investors as it allows
9 See supra note 5. See also Phlx Options 4A,
Section 12(a)(6).
10 See ISE Options 4A, Section 12(a)(6). NQX is
P.M.-settled and a European-style and cash-settled,
with a contract multiplier of 100.
11 The Exchage also proposes to re-letter the
internal list in Options 4A, Section 12(a)(5)(ii) as A
through E.
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market participants to hedge their
exposure for the full week. A.M.-settled
options by contrast are based on
opening prices on the day of expiration
and therefore stop trading on the day
prior, leaving residual risk on the day of
expiration. Feedback from Members that
handle retail order flow has indicated
that P.M.-settlement is needed to garner
retail investor support for this product.
In this regard, the Exchange notes that
XND options on Phlx are P.M.-settled
and recently received approval for
permanency.12
Pursuant to Supplementary Material
.07 to ISE Options 4A, Section 12,
Phlx’s proposal to list XND would
permit XND, as a broad-based index and
part of the Nonstandard Expirations
Program, to open for trading Weekly
Expirations on XND to expire on any
Monday, Wednesday, or Friday (other
than the third Friday-of-the-month or
days that coincide with an EOM
expiration). Additionally, the Exchange
proposes to amend Supplementary
Material .07 to ISE Options 4A, Section
12 to permit the listing and trading of
XND options that expire on any
Tuesday or Thursday similar to Nasdaq100 Index options which today expire
on each business day of the week. With
this proposal, XND would be permitted
to open for trading Weekly Expirations
to expire on any Monday, Tuesday,
Wednesday, Thursday or Friday. Today,
Phlx’s rules permit XND to expire on
any Monday, Tuesday, Wednesday,
Thursday or Friday pursuant to Options
4A, Section 12(b)(5).
Weekly Expirations in XND would be
subject to all provisions of this Rule and
treated the same as options on the same
underlying index that expire on the
third Friday of the expiration month;
provided, however, that Weekly
Expirations shall be P.M.-settled and
new series in Weekly Expirations may
be added up to and including on the
expiration date for an expiring Weekly
Expiration. Further, the Exchange may
open for trading EOMs on any broadbased index eligible for standard
options trading to expire on last trading
day of the month. EOMs shall be subject
to all provisions of this Rule and treated
the same as options on the same
underlying index that expire on the
third Friday of the expiration month;
provided, however, that EOMs shall be
P.M.-settled and new series in EOMs
may be added up to and including on
the expiration date for an expiring
12 See Securities Exchange Act Release No. 98451
(September 20, 2023), 88 FR 66088 (September 26,
2023) (SR-Phlx-2023–07) (Order Granting Approval
of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent Certain
P.M.-Settled Pilots).
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Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices
EOM.13 Today, XND options on Phlx are
part of the Nonstandard Program.14
The Exchange does not believe that
the introduction of a new P.M.-settled
Nasdaq-100 Index contract will cause
any market disruptions, as noted herein,
Phlx XND options recently received
approval for permanency.15 The
Exchange will monitor for any
disruptions caused by P.M.-settlement
of the proposed XND options contract or
the development of any factors that
could cause such disruptions. P.M.settled options predominate in the overthe-counter (‘‘OTC’’) market, and the
Exchange is not aware of any adverse
effects in the OTC market attributable to
the P.M.-settlement feature. The
Exchange is merely proposing to offer a
P.M.-settled product in an exchange
environment, which offers the
additional benefits of added
transparency, price discovery, and
stability.
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Trading Hours, Minimum Increments,
Expirations and Strike Prices
XND 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. (Eastern
time), except that that on the last trading
day, transactions in expiring p.m.settled broad-based index options may
be effected on the Exchange between the
hours of 9:30 a.m. (Eastern time) and
4:00 p.m. (Eastern time).16 The trading
hours for XND options will be the same
as the trading hours for options on
Nasdaq-100 Index.
XND options will trade with a
minimum trading increment of $0.01 for
all options series 17 similar to Phlx XND
options.18 ISE proposes to adopt a new
Supplementary Material .04 to Options
3, Section 3 to state that for so long as
Invesco QQQ Trust Series 1 (‘‘QQQ’’)
options participate in the Penny Interval
Program, the minimum increments for
XND options shall be the same as QQQ
for all options series (including LEAPS),
which shall be $0.01 for options for all
other series.
The Exchange proposes that XND
options will have monthly expiration
dates on the third Friday of each month
(i.e., Expiration Friday), and the
Exchange proposes to list XND options
in expiration months consistent with
those of other index option products
13 XND
is a broad-based index.
Phlx Options 4A, Section 12(b)(5).
15 See supra note 12.
16 See Supplementary Material .07(c) to Options
4A, Section 12.
17 This is the case as long as QQQ options
(‘‘QQQ’’) participate in the Penny Interval Program.
18 See Phlx Supplementary Material .03 to
Options 3, Section 3.
14 See
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available on the Exchange.19 In
addition, the Exchange may list long
term index options series (‘‘LEAPS’’)
that expire from twelve (12) to sixty (60)
months from the date of issuance.20
With the addition of XND, the Exchange
proposes to amend the first sentence of
Options 4A, Section 12(b)(1)(i) to
provide that ‘‘Index long term options
series may be based on either the full
value, reduced value or micro index
value of the underlying index.’’ There
may be up to ten (10) expiration
months, none further out than sixty (60)
months. Strike price intervals and
continuity Rules shall not apply to such
options series until the time to
expiration is less than twelve (12)
months. Bid/ask differentials for longterm options contracts are specified
within Options 2, Section 4(b)(4)(i)(A).
Further, the Exchange proposes to add
rule text at Options 4A, Section
12(b)(3)(ii) that provides, ‘‘Micro index
long term options series may expire at
six-month intervals. When a new
expiration month is listed, series may be
near or bracketing the current index
value. Additional series may be added
when the value of the underlying index
increases or decreases by ten (10) to
fifteen (15) percent.’’ XND options
would also be eligible to be added to the
Short Term Option Series Program
(‘‘Weeklies’’) and/or Quarterly Options
Series Program (‘‘Quarterlies’’) if
designated by the Exchange
Supplementary Material .01 and .02 to
Options 4A, Section 12, respectively.21
Further, as noted herein, the
Exchange proposes to permit XND
options to be listed and traded in
accordance with the Nonstandard
Expirations Program, which permits
broad-based indexes to list standard
options trading to expire on any
Monday, Wednesday, or Friday (other
than the third Friday-of-the-month or
days that coincide with an End of
Month (‘‘EOM’’) expiration), and permit
XND options to separately expire on
Tuesdays and Thursdays, similar to
options on the Nasdaq-100 Index.
Weekly Expirations would be subject to
all provisions of Options 4A, Section 12
and would be treated the same as
options on the same underlying index
19 Options 4A, Section 12(a)(3) currently provides
that the Exchange may list: (i) up to six (6) standard
monthly expirations at any one time in a class, but
will not list index options that expire more than
twelve (12) months out; (ii) up to 12 standard
monthly expirations at any one time for any class
that the Exchange (as the Reporting Authority) uses
to calculate a volatility index; and (iii) up to 12
standard (monthly) expirations in NDX options and
NQX options.
20 See Options 4A, Section 12(b)(3).
21 The Exchange expects that it will add XND
options to the Weeklies program.
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that expire on the third Friday of the
expiration month. New series in Weekly
Expirations could be added up to and
including on the expiration date for an
expiring Weekly Expiration. The
maximum number of expirations that
could be listed for each Weekly
Expiration (i.e., a Monday expiration,
Wednesday expiration, or Friday
expiration, as applicable) in a given
class would be the same as the
maximum number of expirations
permitted for standard options on the
same broad-based index.22 Further, the
Exchange could open for trading EOMs
on any broad-based index eligible for
standard options trading to expire on
last trading day of the month. EOMs
would be subject to all provisions of
Options 4A, Section 12 and treated the
same as options on the same underlying
index that expire on the third Friday of
the expiration month. However, the
EOMs would be P.M.-settled and new
series in EOMs could be added up to
and including on the expiration date for
an expiring EOM.23 Today, Phlx XND
options trade in the Nonstandards
Program.24
Generally, pursuant to Options 4A,
Section 12(c)(1), except as provided in
22 Weekly Expirations would not need to be for
consecutive Monday, Wednesday, or Friday
expirations as applicable. However, the expiration
date of a non-consecutive expiration would not be
permitted beyond what would be considered the
last expiration date if the maximum number of
expirations were listed consecutively. Weekly
Expirations that are first listed in a given class
could expire up to four weeks from the actual
listing date. If the last trading day of a month were
a Monday, Wednesday, or Friday and the Exchange
were to list EOMs and Weekly Expirations as
applicable in a given class, the Exchange would list
an EOM instead of a Weekly Expiration in the given
class. Other expirations in the same class would not
be counted as part of the maximum number of
Weekly Expirations for a broad-based index class.
If the Exchange were not open for business on a
respective Monday, the normally Monday expiring
Weekly Expirations would expire on the following
business day. If the Exchange were not open for
business on a respective Wednesday or Friday, the
normally Wednesday or Friday expiring Weekly
Expirations would expire on the previous business
day. See Supplementary Material .07(a) to Options
4A, Section 12.
23 The maximum number of expirations that
could be listed for EOMs in a given class would be
the same as the maximum number of expirations
permitted for standard options on the same broadbased index. EOM expirations would not need to
be for consecutive end of month expirations.
However, the expiration date of a non-consecutive
expiration may not be beyond what would be
considered the last expiration date if the maximum
number of expirations were listed consecutively.
EOMs that are first listed in a given class could
expire up to four weeks from the actual listing date.
Other expirations would not be counted as part of
the maximum numbers of EOM expirations for a
broad-based index class. See Supplementary
Material .07(a) to Options 4A, Section 12.
24 See Phlx Options 4A, Section 12(b)(5).
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Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices
Options 4A, Section 12(c)(5),25 the
exercise (strike) price intervals will be
no less than $5, provided that the
Exchange may determine to list strike
prices at no less than $2.50 intervals for
options on the following indexes (which
may also be known as sector indexes).
The Exchange proposes to amend
Options 4A, Section 12(c)(1) to add
XND options to the list of classes where
strike price intervals of no less than
$2.50 are generally permitted and note,
‘‘if the strike price is less than $200.’’
The Exchange proposes to adopt the
same strike price intervals for XND
options as are listed for XND options on
Phlx 26 and currently approved for
Reduced Value Nasdaq 100 Options
within Options 4A, Section 12(c)(5).
Thus, notwithstanding Options 4A,
Section 12(c)(1), the interval between
strike prices of series of XND options
will be $1 or greater, subject to the
conditions described in Options 4A,
Section 12(c)(5).27 The Exchange will
not list LEAPS on XND options at
intervals less than $5. If the Exchange
determines to add XND options to the
Weeklies or Quarterlies programs such
options will be listed with expirations
and strike prices described in Options
4A, Section 12(c)(5).
Position and Exercise Limits; Margin
As with NDX, in determining
compliance with Options 4A, Section 6,
Position Limits, there will be no
position limits for broad-based index
option contracts in the XND class.28
Although there will be no position
limits for XND options, the Exchange
proposes to amend Options 4A, Section
6 to include XND. Options 4A, Section
6(c) provides,
Positions in reduced-value index options
shall be aggregated with positions in fullvalue indices. For such purposes, reducedvalue contracts will be counted consistent
with their value (e.g., 5 NQX reduced-value
contracts equal 1 NDX full-value contract).
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Since the Exchange is proposing to list
a micro index contract that is based on
1/100 of the value of the Nasdaq-100
Index, Options 4A, Section 6(c) would
apply. In addition, as with NDX, there
would be no exercise limits for XND.29
25 Proposed Options 4A, Section 12(c)(1) provides
that the interval between strike prices of series of
Mini-Nasdaq-100 Index (‘‘MNX’’ or ‘‘Mini-NDX’’),
Nasdaq 100 Reduced Value Index (‘‘NQX’’) or
Nasdaq 100 Micro Index Options (‘‘XND’’) options
will be $1 or greater, subject to certain conditions.
26 See Phlx Options 4A, Section 12(a)(2).
27 See also Phlx Supplementary Material .02 to
Options 4A, Section 12 describing XND options.
28 The Exchange is amending Options 4A, Section
6(a) to reflect this proposed change.
29 See Options 4A, Section 10 which provides
that exercise limits for index options contracts shall
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The same rules for position and exercise
limits to XND options on Phlx.30
Finally, the Exchange proposes to apply
broad-based index margin requirements
for the purchase and sale of XND
options that are the same as margin
requirements currently in place for NDX
options.
Surveillance and Capacity
The Exchange represents that it has
sufficient capacity to handle additional
quotations and message traffic
associated with the proposed listing and
trading of XND 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 the maximum number
nonstandard expirations permitted
pursuant to Supplementary Material .07
to Options 4A, Section 12.
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 XND options thereby aiding
in the maintenance of a fair and orderly
market.
The Exchange notes that it is
amending Options 4A, Section 12 to
include the Nasdaq 100 Micro Index
Options within the Rule to conform to
the amendments proposes herein.
2. Statutory Basis
The Exchange believes that the
proposed rule change 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. Specifically, the
Exchange believes that the listing and
trading of a micro index P.M.-settled
index option contract based on the
Nasdaq-100 Index will attract order flow
to the Exchange, increase the variety of
listed options, and provide a valuable
hedge tool to retail and other investors.
be equivalent to the position limits described in
Options 4A, Section 6.
30 See Phlx Options 4A, Section 6, Phlx Options
4A, Section 10.
31 15 U.S.C. 78f(b).
32 15 U.S.C. 78f(b)(5) and compete with similar
products that are offered on Cboe such as SPXW
and OEX.
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
The Exchange believes that the
proposed rule change will further the
Exchange’s goal of introducing new and
innovative products to the marketplace.
Specifically, the Exchange believes that
XND options would provide additional
opportunities for market participants to
trade and hedge exposure to the Nasdaq100 Index as it does today on Phlx. The
proposed XND options product is
identical to XND options on Phlx.33
Additionally, the proposed XND options
product is similar to NDX options that
are currently listed and traded on the
Exchange with two important
differences: (1) XND options will be
based on 1/100 the value of the Nasdaq100 Index, and (2) XND options will be
P.M.-settled. These differences are based
on the Exchanges experience listing
NDX options, and are designed to attract
additional participation from retail and
other investors.
Based on the trading of XND options
on Phlx, the Exchange believes that the
proposed contract specifications will be
attractive to market participants, and
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system.
The nonstandard expirations would
expand the ability of investors to hedge
risks against market movements
stemming from economic releases or
market events that occur during the
month and at the end of the month.
Accordingly, the Exchange believes that
weekly expirations and EOMs should
create greater trading and hedging
opportunities and flexibility, and
provide customers with the ability to
tailor their investment objectives more
closely.
Currently, the Exchange believes that
there continues to be unmet market
demand for exchange-listed index
options on the Nasdaq-100 Index. This
unmet demand stems in part from the
high value of the Nasdaq-100 Index and
the consequently higher cost of
purchasing NDX options. The high
value of the Nasdaq-100 Index has made
it more difficult for retail and other
investors to comfortably purchase
options on the index. The Exchange
believes that a micro index option
would allow additional participation
from these investors. Specifically, the
Exchange believes that basing the
contract on a micro value of the Nasdaq100 Index will encourage additional
participation by retail and other
investors due to the reduced capital
outlay needed to trade these options.
While the NQX product has attracted
retail trading volume to a certain point
given that the NQX product represents
33 See
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15NON1
ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices
1⁄5 the value of the Nasdaq-100 Index,
the Exchange believes that XND options,
which represent 1⁄100 of the Nasdaq-100
Index, may strike a more appropriate
balance for other retail investors with its
reduced size. This value is more similar
to other competitive index option
products, such as Cboe’s Mini-S&P 500
Index (‘‘XSP’’).
Furthermore, based on experience
with XND options on Phlx, the
Exchange believes that providing P.M.settlement will make this product more
attractive to market participants and
help garner additional support for this
new index options product.
Specifically, the Exchange believes that
P.M.-settlement will be attractive to
retail and other investors that want to
use these options to hedge an entire
week of risk without leaving residual
risk on the day of expiration, and
without having to actively manage these
positions, for example, by rolling their
hedge into the next expiration. Finally,
the Exchange proposes to offer such a
product so that it can compete
effectively with similar index option
products offered by options markets
such as Cboe which offers SPXW and
OEX. Recently, the Commission
approved the permanency of XND as a
P.M.-settled product.34 Additionally,
the Exchange notes that Nasdaq has an
automated closing cross that facilitates
orderly closings by aggregating a large
pool of liquidity, across a variety of
order types, in a single venue. The
Exchange believes that Nasdaq’s closing
procedures are well-equipped to
mitigate imbalance pressure at the close.
Also, the Exchange believes that the
proposal will provide additional trading
and hedging opportunities for investors.
XND options will be subject to the
same rules that presently govern the
trading of index options based on the
Nasdaq-100 Index, including sales
practice rules, margin requirements,
trading rules, and position and exercise
limits. The Exchange therefore believes
that the rules applicable to trading in
XND options are consistent with the
protection of investors and the public
interest. Furthermore, the Exchange
represents that it has sufficient systems
capacity and adequate surveillance
procedures to handle trading in XND
options.
With respect to the Exchange’s
proposal to adopt new Supplementary
Material .04 to Options 3, Section 3 to
provide that minimum increments for
bids and offers for XND options be the
same as those for QQQ, regardless of the
value at which the option series is
quoted, may promote competition and
benefit investors. This proposal aligns
the minimum increments for XND
options with those for QQQ options in
order to allow market participants to
quote in minimum increments of $0.01
is consistent with the Act because
allowing participants to quote in smaller
increments may provide the opportunity
for reduced spreads, thereby lowering
costs to investors. In addition, because
both XND and QQQ are based on the
Nasdaq-100 Index it would be
reasonable for the minimum increments
of bids and offers to be the same for both
types of options.
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. XND options
would be available for trading to all
market participants. The proposed rule
change 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. The listing of XND
will enhance competition by providing
investors with an additional investment
vehicle, in a fully-electronic trading
environment, through which investors
can gain and hedge exposure to the
Nasdaq-100 Index. Furthermore, this
product could offer a competitive
alternative to other existing investment
products that seek to allow investors to
gain broad market exposure. Finally, it
is possible for other exchanges to
develop or license the use of a new or
different index to compete with the
Nasdaq-100 Index and seek Commission
approval to list and trade options on
such an index.
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) of the Act 35 and Rule
19b–4(f)(6) thereunder.36 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
35 15
34 See
supra note 12.
VerDate Sep<11>2014
17:49 Nov 14, 2023
36 17
Jkt 262001
PO 00000
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
Frm 00139
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Sfmt 4703
78421
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 37 and
subparagraph (f)(6) of Rule 19b–4
thereunder.38
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 39 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 40
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that it may
immediately list and trade XND options
on the Exchange, which are currently
listed on Phlx. Further, according to the
Exchange, the rules to list and trade
XND options on ISE are identical to
those of Phlx.41 The Exchange has stated
that waiver of the operative delay would
deepen the liquidity pool for XND
options and allow ISE to compete with
similar products that are offered on
other exchanges. The Commission
believes that the proposed rule change
presents no novel issues and that waiver
of the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.42
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.
37 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
39 17 CFR 240.19b–4(f)(6).
40 17 CFR 240.19b–4(f)(6)(iii).
41 See Phlx Options 4A, Section 12.
42 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
38 17
E:\FR\FM\15NON1.SGM
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Federal Register / Vol. 88, No. 219 / Wednesday, November 15, 2023 / Notices
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:
• 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–2023–24 on the subject line.
Paper Comments
ddrumheller on DSK120RN23PROD with NOTICES1
All submissions should refer to file
number SR–ISE–2023–24. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–ISE–2023–24 and should be
submitted on or before December 6,
2023.
Jkt 262001
[Release No. 34–98901; File No. SR–
NYSECHX–2023–21]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 7.31
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on October
31, 2023, the NYSE Chicago, Inc.
(‘‘NYSE Chicago’’ or the ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 7.31 to provide for the use of ALO
Reserve Orders. The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
43 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00140
Fmt 4703
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 7.31 to provide for the use of ALO
Reserve Orders.
BILLING CODE 8011–01–P
November 9, 2023.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
17:49 Nov 14, 2023
[FR Doc. 2023–25108 Filed 11–14–23; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
VerDate Sep<11>2014
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Sherry R. Haywood,
Assistant Secretary.
Sfmt 4703
ALO Orders
Rule 7.31(e)(2) defines an ALO Order
as a Non-Routable Limit Order that,
unless it receives price improvement,
will not remove liquidity from the
Exchange Book. An ALO Order can be
designated to be cancelled if it would be
displayed at a price other than its limit
price for any reason. An ALO Order can
be designated as non-displayed.
As described in Rule 7.31(e)(2)(A), an
Aggressing ALO Order to buy (sell) will
trade if its limit price crosses the
working price of any displayed or nondisplayed orders to sell (buy) on the
Exchange Book priced equal to or below
(above) the PBO (PBB) of an Away
Market, in which case it will trade as
the liquidity taker with such orders.
As noted above, Rule 7.31(e)(2)
provides that an ALO Order may be
designated to cancel if it would be
displayed at a price other than its limit
price. If an ALO Order is not so
designated, any untraded quantity of
such order to buy (sell) is processed as
follows (Rules 7.31(e)(2)(B)(i) and (ii)):
• If the limit price of the ALO Order
locks the display price of any order to
sell (buy) ranked Priority 2—Display
Orders on the Exchange Book, it will
have a working price and display price
(if designated to display) one MPV
below (above) the price of the displayed
order on the Exchange Book.
• If the limit price of the ALO Order
locks or crosses the PBO (PBB) of an
Away Market, it will have a working
price equal to the PBO (PBB) of the
Away Market and a display price (if
designated to display) one MPV below
(above) the PBO (PBB) of the Away
Market.
Rule 7.31(e)(2)(C) provides that any
untraded quantity of an ALO Order to
buy (sell) will have a working price and
display price (if designated to display)
equal to its limit price if it locks nondisplayed orders to sell (buy) on the
Exchange Book. Rule 7.31(e)(2)(D)
provides that an ALO Order to buy (sell)
will not be assigned a working price or
display price above (below) the limit
price of such order.
Once resting on the Exchange Book,
ALO Orders may be re-priced or trade,
or both, as described in Rule
7.31(e)(2)(E):
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]]>Agencies
[Federal Register Volume 88, Number 219 (Wednesday, November 15, 2023)]
[Notices]
[Pages 78417-78422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25108]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98886; File No. SR-ISE-2023-24]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Permit the
Listing and Trading of XND Options
November 8, 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 October 27, 2023, 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 permit the listing and trading of options
based on 1/100 of the value of the Nasdaq-100 Index[supreg] (``Nasdaq-
100'').
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 purpose of the proposed rule change is to amend the Exchange's
rules to permit the listing and trading of index options on Nasdaq 100
Micro Index Options (``XND''). The XND options contract will be the
same in all respects as the current Nasdaq-100 Index options (``NDX'')
\3\ contract listed on the Exchange, except that it will be based on 1/
100 of the value of the Nasdaq-100 Index, and will be P.M.-Settled with
an exercise settlement value based on the closing index value of the
Nasdaq-100 Index on the day of expiration.\4\ The Exchange believes
that the proposed contract will be valuable for retail and other
investors that wish to trade micro options on the Nasdaq-100 Index.
Finally, today, Nasdaq Phlx
[[Page 78418]]
LLC (``Phlx'') has approval to list and trade XND options. The rules to
list and trade NDX [sic] options on ISE are identical to those of
Phlx.\5\
---------------------------------------------------------------------------
\3\ See Options 4A, Section 12(a)(5).
\4\ In addition to the current Nasdaq-100 Index value, Nasdaq
will disseminate an Index value for XND that is 1/100 of the value
of the Nasdaq-100 Index.
\5\ See Securities Exchange Act Release No. 98451 (September 20,
2023), 88 FR 66088 (September 26, 2023) (SR-Phlx-2023-07) (Order
Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent Certain P.M.-Settled Pilots).
---------------------------------------------------------------------------
Nasdaq-100 Index
The Nasdaq-100 Index is a modified market capitalization-weighted
index that includes 100 of the largest non-financial companies listed
on The Nasdaq Stock Market LLC (``Nasdaq''),\6\ based on market
capitalization.\7\ It does not contain securities of financial
companies, including investment companies. Security types generally
eligible for the Nasdaq-100 Index include common stocks, ordinary
shares, American Depository Receipts, and tracking stocks. Security or
company types not included in the Nasdaq-100 Index are closed-end
funds, convertible debentures, exchange traded funds, limited liability
companies, limited partnership interests, preferred stocks, rights,
shares or units of beneficial interest, warrants, units and other
derivative securities.\8\
---------------------------------------------------------------------------
\6\ Nasdaq is an affiliate of the Exchange.
\7\ The Nasdaq-100 Index is a broad-based index, as defined in
Options 4A, Section 3.
\8\ A description of the Nasdaq-100 Index is available on
Nasdaq's website at https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf.
---------------------------------------------------------------------------
XND Options Contract
Currently, the Exchange lists and trades NDX options that are based
on the full value of the Nasdaq-100 Index. In an effort to attract
additional interest in index options based on the Nasdaq-100 Index, the
Exchange now proposes to list and trade a new micro option contract
based on this index. XND options will trade independently of and in
addition to NDX options, and the XND options will be subject to the
same rules that presently govern the trading of index options based on
the Nasdaq-100 Index, including sales practice rules, margin
requirements, trading rules, and position and exercise limits. Similar
to NDX, XND options will be European-style and cash-settled, and will
have a contract multiplier of 100. The contract specifications for XND
options will mirror in all respects those of the NDX options contract
already listed on the Exchange, except that the Exchange proposes that
XND options will be based on 1/100 of the value of the Nasdaq-100
Index, and will be P.M.-settled pursuant to proposed Options 4A,
Section 12(a)(6). The ISE XND option contracts will trade identically
to Phlx XND options.\9\ Also, similar features are available with other
index options contracts listed and/or approved for trading on the
Exchange such as options on NQX (a reduced value index based on \1/5\
of the value of the Nasdaq-100 Index).\10\ The Exchange also proposes
to amend Options 4A, Section 12(a)(5)(ii) to permit options on the
Nasdaq 100 Micro Index to trade a.m.-settled.\11\
---------------------------------------------------------------------------
\9\ See supra note 5. See also Phlx Options 4A, Section
12(a)(6).
\10\ See ISE Options 4A, Section 12(a)(6). NQX is P.M.-settled
and a European-style and cash-settled, with a contract multiplier of
100.
\11\ The Exchage also proposes to re-letter the internal list in
Options 4A, Section 12(a)(5)(ii) as A through E.
---------------------------------------------------------------------------
The value of the Nasdaq-100 Index has increased significantly in
recent years such that the value of the index stood at 14,717.90, as of
the opening of trading on October 22,023. As a result of the increase
in the value of the underlying Nasdaq-100 Index, the premium for NDX
options has also increased. The Exchange believes that this has caused
NDX options to trade at a level that may be uncomfortably high for
certain retail and other investors. The Exchange believes that listing
options at a micro value will attract a greater source of retail
customer business. Further, listing options on a micro index will
provide an opportunity for investors to trade and hedge the market risk
associated with the Nasdaq-100 Index.
With an exercise settlement value based on 1/100 of the Nasdaq-100
Index, the Exchange believes that retail and other investors would be
able to use this trading vehicle while extending a smaller outlay of
capital. Furthermore, the proposed micro index will have a notional
value at a level that is comparable to similar products that have been
successful in the market, including the S&P 500 Mini SPX Options Index
(XSP), which had an index value of (428.45) as of the opening of
trading on October 2, 2023. Of note, Phlx XND options have traded at
this level since 2021. The Exchange therefore believes that basing the
proposed XND options contract on 1/100 of the value of the Nasdaq-100
Index should attract additional investors, and, in turn, create a more
active and liquid trading environment.
XND options will also be P.M.-settled as the Exchange believes that
market participants, and in particular, retail investors, who are the
target audience for this product, prefer P.M.-settled index options.
P.M.-settlement is preferred by retail investors as it allows market
participants to hedge their exposure for the full week. A.M.-settled
options by contrast are based on opening prices on the day of
expiration and therefore stop trading on the day prior, leaving
residual risk on the day of expiration. Feedback from Members that
handle retail order flow has indicated that P.M.-settlement is needed
to garner retail investor support for this product. In this regard, the
Exchange notes that XND options on Phlx are P.M.-settled and recently
received approval for permanency.\12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 98451 (September
20, 2023), 88 FR 66088 (September 26, 2023) (SR-Phlx-2023-07) (Order
Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent Certain P.M.-Settled Pilots).
---------------------------------------------------------------------------
Pursuant to Supplementary Material .07 to ISE Options 4A, Section
12, Phlx's proposal to list XND would permit XND, as a broad-based
index and part of the Nonstandard Expirations Program, to open for
trading Weekly Expirations on XND to expire on any Monday, Wednesday,
or Friday (other than the third Friday-of-the-month or days that
coincide with an EOM expiration). Additionally, the Exchange proposes
to amend Supplementary Material .07 to ISE Options 4A, Section 12 to
permit the listing and trading of XND options that expire on any
Tuesday or Thursday similar to Nasdaq-100 Index options which today
expire on each business day of the week. With this proposal, XND would
be permitted to open for trading Weekly Expirations to expire on any
Monday, Tuesday, Wednesday, Thursday or Friday. Today, Phlx's rules
permit XND to expire on any Monday, Tuesday, Wednesday, Thursday or
Friday pursuant to Options 4A, Section 12(b)(5).
Weekly Expirations in XND would be subject to all provisions of
this Rule and treated the same as options on the same underlying index
that expire on the third Friday of the expiration month; provided,
however, that Weekly Expirations shall be P.M.-settled and new series
in Weekly Expirations may be added up to and including on the
expiration date for an expiring Weekly Expiration. Further, the
Exchange may open for trading EOMs on any broad-based index eligible
for standard options trading to expire on last trading day of the
month. EOMs shall be subject to all provisions of this Rule and treated
the same as options on the same underlying index that expire on the
third Friday of the expiration month; provided, however, that EOMs
shall be P.M.-settled and new series in EOMs may be added up to and
including on the expiration date for an expiring
[[Page 78419]]
EOM.\13\ Today, XND options on Phlx are part of the Nonstandard
Program.\14\
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\13\ XND is a broad-based index.
\14\ See Phlx Options 4A, Section 12(b)(5).
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The Exchange does not believe that the introduction of a new P.M.-
settled Nasdaq-100 Index contract will cause any market disruptions, as
noted herein, Phlx XND options recently received approval for
permanency.\15\ The Exchange will monitor for any disruptions caused by
P.M.-settlement of the proposed XND options contract or the development
of any factors that could cause such disruptions. P.M.-settled options
predominate in the over-the-counter (``OTC'') market, and the Exchange
is not aware of any adverse effects in the OTC market attributable to
the P.M.-settlement feature. The Exchange is merely proposing to offer
a P.M.-settled product in an exchange environment, which offers the
additional benefits of added transparency, price discovery, and
stability.
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\15\ See supra note 12.
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Trading Hours, Minimum Increments, Expirations and Strike Prices
XND 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. (Eastern time), except that that on the last trading day,
transactions in expiring p.m.-settled broad-based index options may be
effected on the Exchange between the hours of 9:30 a.m. (Eastern time)
and 4:00 p.m. (Eastern time).\16\ The trading hours for XND options
will be the same as the trading hours for options on Nasdaq-100 Index.
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\16\ See Supplementary Material .07(c) to Options 4A, Section
12.
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XND options will trade with a minimum trading increment of $0.01
for all options series \17\ similar to Phlx XND options.\18\ ISE
proposes to adopt a new Supplementary Material .04 to Options 3,
Section 3 to state that for so long as Invesco QQQ Trust Series 1
(``QQQ'') options participate in the Penny Interval Program, the
minimum increments for XND options shall be the same as QQQ for all
options series (including LEAPS), which shall be $0.01 for options for
all other series.
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\17\ This is the case as long as QQQ options (``QQQ'')
participate in the Penny Interval Program.
\18\ See Phlx Supplementary Material .03 to Options 3, Section
3.
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The Exchange proposes that XND options will have monthly expiration
dates on the third Friday of each month (i.e., Expiration Friday), and
the Exchange proposes to list XND options in expiration months
consistent with those of other index option products available on the
Exchange.\19\ In addition, the Exchange may list long term index
options series (``LEAPS'') that expire from twelve (12) to sixty (60)
months from the date of issuance.\20\ With the addition of XND, the
Exchange proposes to amend the first sentence of Options 4A, Section
12(b)(1)(i) to provide that ``Index long term options series may be
based on either the full value, reduced value or micro index value of
the underlying index.'' There may be up to ten (10) expiration months,
none further out than sixty (60) months. Strike price intervals and
continuity Rules shall not apply to such options series until the time
to expiration is less than twelve (12) months. Bid/ask differentials
for long-term options contracts are specified within Options 2, Section
4(b)(4)(i)(A). Further, the Exchange proposes to add rule text at
Options 4A, Section 12(b)(3)(ii) that provides, ``Micro index long term
options series may expire at six-month intervals. When a new expiration
month is listed, series may be near or bracketing the current index
value. Additional series may be added when the value of the underlying
index increases or decreases by ten (10) to fifteen (15) percent.'' XND
options would also be eligible to be added to the Short Term Option
Series Program (``Weeklies'') and/or Quarterly Options Series Program
(``Quarterlies'') if designated by the Exchange Supplementary Material
.01 and .02 to Options 4A, Section 12, respectively.\21\
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\19\ Options 4A, Section 12(a)(3) currently provides that the
Exchange may list: (i) up to six (6) standard monthly expirations at
any one time in a class, but will not list index options that expire
more than twelve (12) months out; (ii) up to 12 standard monthly
expirations at any one time for any class that the Exchange (as the
Reporting Authority) uses to calculate a volatility index; and (iii)
up to 12 standard (monthly) expirations in NDX options and NQX
options.
\20\ See Options 4A, Section 12(b)(3).
\21\ The Exchange expects that it will add XND options to the
Weeklies program.
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Further, as noted herein, the Exchange proposes to permit XND
options to be listed and traded in accordance with the Nonstandard
Expirations Program, which permits broad-based indexes to list standard
options trading to expire on any Monday, Wednesday, or Friday (other
than the third Friday-of-the-month or days that coincide with an End of
Month (``EOM'') expiration), and permit XND options to separately
expire on Tuesdays and Thursdays, similar to options on the Nasdaq-100
Index. Weekly Expirations would be subject to all provisions of Options
4A, Section 12 and would be treated the same as options on the same
underlying index that expire on the third Friday of the expiration
month. New series in Weekly Expirations could be added up to and
including on the expiration date for an expiring Weekly Expiration. The
maximum number of expirations that could be listed for each Weekly
Expiration (i.e., a Monday expiration, Wednesday expiration, or Friday
expiration, as applicable) in a given class would be the same as the
maximum number of expirations permitted for standard options on the
same broad-based index.\22\ Further, the Exchange could open for
trading EOMs on any broad-based index eligible for standard options
trading to expire on last trading day of the month. EOMs would be
subject to all provisions of Options 4A, Section 12 and treated the
same as options on the same underlying index that expire on the third
Friday of the expiration month. However, the EOMs would be P.M.-settled
and new series in EOMs could be added up to and including on the
expiration date for an expiring EOM.\23\ Today, Phlx XND options trade
in the Nonstandards Program.\24\
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\22\ Weekly Expirations would not need to be for consecutive
Monday, Wednesday, or Friday expirations as applicable. However, the
expiration date of a non-consecutive expiration would not be
permitted beyond what would be considered the last expiration date
if the maximum number of expirations were listed consecutively.
Weekly Expirations that are first listed in a given class could
expire up to four weeks from the actual listing date. If the last
trading day of a month were a Monday, Wednesday, or Friday and the
Exchange were to list EOMs and Weekly Expirations as applicable in a
given class, the Exchange would list an EOM instead of a Weekly
Expiration in the given class. Other expirations in the same class
would not be counted as part of the maximum number of Weekly
Expirations for a broad-based index class. If the Exchange were not
open for business on a respective Monday, the normally Monday
expiring Weekly Expirations would expire on the following business
day. If the Exchange were not open for business on a respective
Wednesday or Friday, the normally Wednesday or Friday expiring
Weekly Expirations would expire on the previous business day. See
Supplementary Material .07(a) to Options 4A, Section 12.
\23\ The maximum number of expirations that could be listed for
EOMs in a given class would be the same as the maximum number of
expirations permitted for standard options on the same broad-based
index. EOM expirations would not need to be for consecutive end of
month expirations. However, the expiration date of a non-consecutive
expiration may not be beyond what would be considered the last
expiration date if the maximum number of expirations were listed
consecutively. EOMs that are first listed in a given class could
expire up to four weeks from the actual listing date. Other
expirations would not be counted as part of the maximum numbers of
EOM expirations for a broad-based index class. See Supplementary
Material .07(a) to Options 4A, Section 12.
\24\ See Phlx Options 4A, Section 12(b)(5).
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Generally, pursuant to Options 4A, Section 12(c)(1), except as
provided in
[[Page 78420]]
Options 4A, Section 12(c)(5),\25\ the exercise (strike) price intervals
will be no less than $5, provided that the Exchange may determine to
list strike prices at no less than $2.50 intervals for options on the
following indexes (which may also be known as sector indexes). The
Exchange proposes to amend Options 4A, Section 12(c)(1) to add XND
options to the list of classes where strike price intervals of no less
than $2.50 are generally permitted and note, ``if the strike price is
less than $200.'' The Exchange proposes to adopt the same strike price
intervals for XND options as are listed for XND options on Phlx \26\
and currently approved for Reduced Value Nasdaq 100 Options within
Options 4A, Section 12(c)(5). Thus, notwithstanding Options 4A, Section
12(c)(1), the interval between strike prices of series of XND options
will be $1 or greater, subject to the conditions described in Options
4A, Section 12(c)(5).\27\ The Exchange will not list LEAPS on XND
options at intervals less than $5. If the Exchange determines to add
XND options to the Weeklies or Quarterlies programs such options will
be listed with expirations and strike prices described in Options 4A,
Section 12(c)(5).
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\25\ Proposed Options 4A, Section 12(c)(1) provides that the
interval between strike prices of series of Mini-Nasdaq-100 Index
(``MNX'' or ``Mini-NDX''), Nasdaq 100 Reduced Value Index (``NQX'')
or Nasdaq 100 Micro Index Options (``XND'') options will be $1 or
greater, subject to certain conditions.
\26\ See Phlx Options 4A, Section 12(a)(2).
\27\ See also Phlx Supplementary Material .02 to Options 4A,
Section 12 describing XND options.
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Position and Exercise Limits; Margin
As with NDX, in determining compliance with Options 4A, Section 6,
Position Limits, there will be no position limits for broad-based index
option contracts in the XND class.\28\ Although there will be no
position limits for XND options, the Exchange proposes to amend Options
4A, Section 6 to include XND. Options 4A, Section 6(c) provides,
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\28\ The Exchange is amending Options 4A, Section 6(a) to
reflect this proposed change.
Positions in reduced-value index options shall be aggregated with
positions in full-value indices. For such purposes, reduced-value
contracts will be counted consistent with their value (e.g., 5 NQX
---------------------------------------------------------------------------
reduced-value contracts equal 1 NDX full-value contract).
Since the Exchange is proposing to list a micro index contract that is
based on 1/100 of the value of the Nasdaq-100 Index, Options 4A,
Section 6(c) would apply. In addition, as with NDX, there would be no
exercise limits for XND.\29\ The same rules for position and exercise
limits to XND options on Phlx.\30\ Finally, the Exchange proposes to
apply broad-based index margin requirements for the purchase and sale
of XND options that are the same as margin requirements currently in
place for NDX options.
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\29\ See Options 4A, Section 10 which provides that exercise
limits for index options contracts shall be equivalent to the
position limits described in Options 4A, Section 6.
\30\ See Phlx Options 4A, Section 6, Phlx Options 4A, Section
10.
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Surveillance and Capacity
The Exchange represents that it has sufficient capacity to handle
additional quotations and message traffic associated with the proposed
listing and trading of XND 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 the maximum number nonstandard expirations permitted pursuant to
Supplementary Material .07 to Options 4A, Section 12.
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 XND options thereby
aiding in the maintenance of a fair and orderly market.
The Exchange notes that it is amending Options 4A, Section 12 to
include the Nasdaq 100 Micro Index Options within the Rule to conform
to the amendments proposes herein.
2. Statutory Basis
The Exchange believes that the proposed rule change 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. Specifically, the Exchange believes
that the listing and trading of a micro index P.M.-settled index option
contract based on the Nasdaq-100 Index will attract order flow to the
Exchange, increase the variety of listed options, and provide a
valuable hedge tool to retail and other investors.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5) and compete with similar products that
are offered on Cboe such as SPXW and OEX.
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The Exchange believes that the proposed rule change will further
the Exchange's goal of introducing new and innovative products to the
marketplace. Specifically, the Exchange believes that XND options would
provide additional opportunities for market participants to trade and
hedge exposure to the Nasdaq-100 Index as it does today on Phlx. The
proposed XND options product is identical to XND options on Phlx.\33\
Additionally, the proposed XND options product is similar to NDX
options that are currently listed and traded on the Exchange with two
important differences: (1) XND options will be based on 1/100 the value
of the Nasdaq-100 Index, and (2) XND options will be P.M.-settled.
These differences are based on the Exchanges experience listing NDX
options, and are designed to attract additional participation from
retail and other investors.
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\33\ See Phlx Options 4A, Section 12.
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Based on the trading of XND options on Phlx, the Exchange believes
that the proposed contract specifications will be attractive to market
participants, and will remove impediments to and perfect the mechanism
of a free and open market and a national market system. The nonstandard
expirations would expand the ability of investors to hedge risks
against market movements stemming from economic releases or market
events that occur during the month and at the end of the month.
Accordingly, the Exchange believes that weekly expirations and EOMs
should create greater trading and hedging opportunities and
flexibility, and provide customers with the ability to tailor their
investment objectives more closely.
Currently, the Exchange believes that there continues to be unmet
market demand for exchange-listed index options on the Nasdaq-100
Index. This unmet demand stems in part from the high value of the
Nasdaq-100 Index and the consequently higher cost of purchasing NDX
options. The high value of the Nasdaq-100 Index has made it more
difficult for retail and other investors to comfortably purchase
options on the index. The Exchange believes that a micro index option
would allow additional participation from these investors.
Specifically, the Exchange believes that basing the contract on a micro
value of the Nasdaq-100 Index will encourage additional participation
by retail and other investors due to the reduced capital outlay needed
to trade these options. While the NQX product has attracted retail
trading volume to a certain point given that the NQX product represents
[[Page 78421]]
\1/5\ the value of the Nasdaq-100 Index, the Exchange believes that XND
options, which represent \1/100\ of the Nasdaq-100 Index, may strike a
more appropriate balance for other retail investors with its reduced
size. This value is more similar to other competitive index option
products, such as Cboe's Mini-S&P 500 Index (``XSP'').
Furthermore, based on experience with XND options on Phlx, the
Exchange believes that providing P.M.-settlement will make this product
more attractive to market participants and help garner additional
support for this new index options product. Specifically, the Exchange
believes that P.M.-settlement will be attractive to retail and other
investors that want to use these options to hedge an entire week of
risk without leaving residual risk on the day of expiration, and
without having to actively manage these positions, for example, by
rolling their hedge into the next expiration. Finally, the Exchange
proposes to offer such a product so that it can compete effectively
with similar index option products offered by options markets such as
Cboe which offers SPXW and OEX. Recently, the Commission approved the
permanency of XND as a P.M.-settled product.\34\ Additionally, the
Exchange notes that Nasdaq has an automated closing cross that
facilitates orderly closings by aggregating a large pool of liquidity,
across a variety of order types, in a single venue. The Exchange
believes that Nasdaq's closing procedures are well-equipped to mitigate
imbalance pressure at the close. Also, the Exchange believes that the
proposal will provide additional trading and hedging opportunities for
investors.
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\34\ See supra note 12.
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XND options will be subject to the same rules that presently govern
the trading of index options based on the Nasdaq-100 Index, including
sales practice rules, margin requirements, trading rules, and position
and exercise limits. The Exchange therefore believes that the rules
applicable to trading in XND options are consistent with the protection
of investors and the public interest. Furthermore, the Exchange
represents that it has sufficient systems capacity and adequate
surveillance procedures to handle trading in XND options.
With respect to the Exchange's proposal to adopt new Supplementary
Material .04 to Options 3, Section 3 to provide that minimum increments
for bids and offers for XND options be the same as those for QQQ,
regardless of the value at which the option series is quoted, may
promote competition and benefit investors. This proposal aligns the
minimum increments for XND options with those for QQQ options in order
to allow market participants to quote in minimum increments of $0.01 is
consistent with the Act because allowing participants to quote in
smaller increments may provide the opportunity for reduced spreads,
thereby lowering costs to investors. In addition, because both XND and
QQQ are based on the Nasdaq-100 Index it would be reasonable for the
minimum increments of bids and offers to be the same for both types of
options.
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. XND options would be
available for trading to all market participants. The proposed rule
change 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. The listing of XND will enhance
competition by providing investors with an additional investment
vehicle, in a fully-electronic trading environment, through which
investors can gain and hedge exposure to the Nasdaq-100 Index.
Furthermore, this product could offer a competitive alternative to
other existing investment products that seek to allow investors to gain
broad market exposure. Finally, it is possible for other exchanges to
develop or license the use of a new or different index to compete with
the Nasdaq-100 Index and seek Commission approval to list and trade
options on such an index.
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) of the Act \35\ and Rule 19b-4(f)(6) thereunder.\36\
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 \37\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\38\
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\35\ 15 U.S.C. 78s(b)(3)(A)(iii).
\36\ 17 CFR 240.19b-4(f)(6).
\37\ 15 U.S.C. 78s(b)(3)(A)(iii).
\38\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \39\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \40\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that it may immediately list and trade XND options on the Exchange,
which are currently listed on Phlx. Further, according to the Exchange,
the rules to list and trade XND options on ISE are identical to those
of Phlx.\41\ The Exchange has stated that waiver of the operative delay
would deepen the liquidity pool for XND options and allow ISE to
compete with similar products that are offered on other exchanges. The
Commission believes that the proposed rule change presents no novel
issues and that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the operative delay and designates the
proposed rule change operative upon filing.\42\
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\39\ 17 CFR 240.19b-4(f)(6).
\40\ 17 CFR 240.19b-4(f)(6)(iii).
\41\ See Phlx Options 4A, Section 12.
\42\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is 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.
[[Page 78422]]
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-2023-24 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-2023-24. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2023-24 and should be
submitted on or before December 6, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25108 Filed 11-14-23; 8:45 am]
BILLING CODE 8011-01-P
