[Federal Register Volume 83, Number 218 (Friday, November 9, 2018)]
[Notices]
[Pages 56127-56129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24525]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84538; File No. SR-NASDAQ-2018-081]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Chapter XIV, Index Rules, Section 10(g), Pricing When Primary 
Market Does Not Open

November 5, 2018.
    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 23, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XIV, Index Rules, Section 
10(g), Pricing When Primary Market Does Not Open.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its rules at Chapter XIV, Index 
Rules, Section 10(g) of the Exchange's rulebook regarding determination 
of the price of component securities for purposes of calculating the 
current index value at expiration of Exchange index options on days 
when the primary market for the underlying security does not open.\3\ 
The proposed amendment would apply to both AM-settled and PM-settled 
index options.\4\
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    \3\ Three of the Exchange's affiliated options exchanges, Nasdaq 
ISE, LLC (``ISE''), Nasdaq BX (``BX'') and Nasdaq PHLX LLC, will 
also be proposing rule changes relating to the manner of determining 
an underlying index component security's price for purposes of 
calculating the current index value at expiration of an index option 
under these circumstances. See SR-BX-2018-049, SR-Phlx-2018-63, and 
SR-ISE-2018-88. The Exchange desires its rules to be aligned with 
those of the affiliated exchanges.
    \4\ Currently, traditional index options expiring on the third 
Friday of the month are A.M.-settled, meaning that the index 
option's settlement value is calculated based upon opening prices of 
the index's component securities on the last day of trading in the 
component securities prior to expiration, normally on Friday 
morning. By contrast, the settlement of P.M.-settled index options 
is based upon the closing index value, defined as the last index 
value reported on a business day, for the day on which the index 
option is exercised. P.M.-settled options expiring on the third 
Friday of the month would therefore normally be settled on the basis 
of Friday's closing prices of component securities.
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    Currently, Chapter XIV, Section 10(g) provides that when the 
primary market for a security underlying the current index value of an 
index option does not open for trading on a given day, the price of 
that security shall be determined, for purposes of calculating the 
current index value at expiration, based on the opening price of that 
security on the next day that its primary market is open for 
trading.\5\
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    \5\ The rule provides, however, that this procedure shall not be 
used if the current index value at expiration is fixed in accordance 
with the Rules and By-Laws of the options Clearing Corporation 
(``OCC'').
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    The Exchange now proposes to delete from the rule the language 
providing for determination of the price of the component security, for 
purposes of calculating the current index value at expiration, based on 
the opening price of that security on the next day that its primary 
market is open for trading. The Exchange proposes to amend Chapter XIV, 
Section 10(g) so that it provides that when the primary market for a 
security underlying the current index value of an index option does not 
open for trading on a given day, which is an expiration day, for 
purposes of calculating the settlement price at expiration, the last 
reported sale price of the security from the previous trading day shall 
be used.\6\ The revised provision would permit market participants the 
certainty of knowing the settlement value on the day on which the 
primary market fails to open. Additionally, the amendment would 
eliminate the potential difficulties that could arise if the reporting 
authority for the index were unwilling or unable to calculate the 
settlement value using prices for the relevant security(ies) on the 
next day that its primary market is open for trading.\7\
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    \6\ Chapter XIV, Section 10(g) would continue to apply to both 
A.M.-settled and P.M.-settled index options.
    \7\ The index calculator for the NDX, MNX and BKX indexes, which 
are products traded on Nasdaq affiliated exchanges, uses the 
previous day's closing price if components of the index do not open.
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    The rule would continue to provide that this procedure shall not be 
used if the current index value at expiration is fixed in accordance 
with OCC rules and by-laws. This language recognizes that OCC is 
authorized under its rules and by-laws to take certain actions relating 
to settlement in the event of the unavailability or inaccuracy of the 
current underlying interest value.\8\ The Exchange proposes to retain 
this language in recognition of OCC's authority to establish settlement 
prices and procedures in certain circumstances where normal settlement 
procedures cannot be followed due unforeseen events, such as the 
unanticipated closure of a primary market for a component security on a 
day on which it would normally be open for trading. The Exchange would 
thus retain the last sentence of Chapter XIV, Section 10(g) which will 
make clear that the new

[[Page 56128]]

procedure would not apply in the event that OCC exercises its authority 
to determine settlement prices. Rather, the proposed new language would 
apply only when a primary market does not open and OCC elects not to 
exercise its authority to intervene and take action to establish a 
settlement price.
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    \8\ See OCC By-Laws Article XVII, Section 4(a), which provides 
in relevant part that if OCC shall determine that the primary market 
for one or more index components did not open or remain open for 
trading (or that any such components did not open or remain open for 
trading on such market(s)) on a trading day at or before the time 
when the current index value for that trading day would ordinarily 
be determined, or that a current index value or other value or price 
to be used as, or to determine, the exercise settlement amount (a 
``required value'') for a trading day is otherwise unreported, 
inaccurate, unreliable, unavailable or inappropriate for purposes of 
calculating the exercise settlement amount, then, in addition to any 
other actions that OCC may be entitled to take under OCC's bylaws 
and rules, the, OCC is empowered to take any or all of a range of 
permitted actions with respect to any series of options on such 
index, including fixing the exercise settlement amount.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ 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. As noted above, the amendment to Chapter XIV, Section 10(g) 
would establish clearly the procedure for determination of an index 
component security's price in the event that the primary market for the 
security fails to open. By adopting the proposed rule amendment, the 
Exchange would provide certainty to the market regarding the procedure 
it would follow in the absence of action by OCC. Additionally, it would 
provide market participants with the certainty of knowing the 
settlement value on the day on which the primary market fails to open, 
and eliminate the potential difficulties that could arise if the 
reporting authority for the index were unwilling or unable to calculate 
the settlement value using prices for the relevant security(ies) on the 
next day that its primary market is open for trading.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    It would also acknowledge clearly, however, that OCC may, under its 
rules and by-laws, establish settlement prices for expiring index 
options that may differ from the settlement prices that would otherwise 
be provided for in Exchange rules, thereby protecting investors and the 
public interest by reducing potential for confusion in that regard.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. On the contrary, the Exchange 
believes that the proposed amendment will benefit investors, market 
participants, and the marketplace in general by setting forth clearly 
the manner in which index option settlement values will be determined 
if the primary market for a security underlying the current index value 
of an index option does not open for trading, allowing market 
participants the certainty of knowing the settlement price on the day 
on which the primary market fails to open, eliminating the potential 
difficulties that could arise if the reporting authority for the index 
were unwilling or unable to calculate the settlement value using prices 
for the relevant security(ies) on the next day that its primary market 
is open for trading, and retaining the existing provision stating that 
the Exchange will defer to OCC in the determination of settlement 
prices when and if OCC exercises its authority under its own settlement 
price procedures in accordance with its rules and by-laws.

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) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\ 
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 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) of the Act and Rule 19b-4(f)(6) thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 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 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 under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. In its filing with the 
Commission, the Exchange has asked the Commission to waive the 30-day 
operative delay so that the proposal may become operative immediately 
upon filing to provide certainty regarding the determination of 
settlement prices for index options when the primary market for a 
security underlying the current index value of an index option does not 
does not open for trading on an expiration day, including in instances 
in which OCC exercises its authority to determine the settlement price. 
According to the Exchange, the proposed rule change will allow 
investors to know the settlement price of an index option on the day on 
which the primary market of an underlying component fails to open and 
will avoid potential difficulties that could arise if the reporting 
authority for the index was unwilling or unable to calculate the 
settlement value using prices for the relevant securities on the next 
day that its primary market is open for trading. As such, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest and 
designates the proposed rule change operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such 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) \17\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-081 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 56129]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2018-081. 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 (http://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 such filing also will be available for inspection and copying 
at the principal office of the Exchange. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2018-081, and should be submitted on or before November 30, 
2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-24525 Filed 11-8-18; 8:45 am]
 BILLING CODE 8011-01-P