[Federal Register Volume 83, Number 218 (Friday, November 9, 2018)]
[Notices]
[Pages 56124-56127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24526]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84539; File No. SR-ISE-2018-88]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend ISE Rule
2008(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, Nasdaq ISE, LLC (``ISE'' 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
[[Page 56125]]
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 ISE Rule 2008, Trading Sessions,
Section (g), Pricing When Primary Market Does Not Open.
The text of the proposed rule change is available on the Exchange's
website at http://ise.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 Exchange Rule 2008(g) regarding
determination of the price of component securities for purposes of
calculating the current index value at expiration of Exchange listed
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
BX, Inc. (``BX''), The Nasdaq Stock Market LLC (``Nasdaq'') and
Nasdaq PHLX LLC (``Phlx''), 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-
NASDAQ-2018-081, SR-Phlx-2018-63, and SR-BX-2018-049. 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, Rule 2008(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\ Rule 2008(g) provides however that this procedure is not to
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 Rule 2008(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 the 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\ Rule 2008(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 Rule 2008(g) which will make clear
that the new 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
whenthe [sic] current index value for that trading day would
ordinarily be determined, orthat [sic] a current index value or
other value or price to be used as, or to determine,the [sic]
exercise settlement amount (a ``required value'') for a trading day
is otherwiseunreported [sic], inaccurate, unreliable, unavailable or
inappropriate for purposes ofcalculating [sic] the exercise
settlement amount, then, in addition to any other actionsthat [sic]
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 Rule 2008(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
[[Page 56126]]
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-ISE-2018-88 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-2018-88. 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 10:00 a.m. and
3:00 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-ISE-2018-88, and should
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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. 2018-24526 Filed 11-8-18; 8:45 am]
BILLING CODE 8011-01-P