[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80348-80349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25378]
[[Page 80348]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98905; File No. SR-ISE-2023-11]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a
Proposed Rule Change To Amend the Short Term Option Series Program To
Permit the Listing of Two Wednesday Expirations for Options on Certain
Exchange Traded Products
November 13, 2023.
I. Introduction
On May 31, 2023, Nasdaq ISE, LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the
Exchange's short term option series program (``Short Term Option Series
Program'') in Supplementary Material .03 of Options 4, Section 5
(Series of Options Contracts Open for Trading). The proposed rule
change was published for comment in the Federal Register on June 20,
2023.\3\ On August 2, 2023, the Commission designated a longer period
within which to act on the proposed rule change.\4\ On September 15,
2023, the Commission instituted proceedings to determine whether to
approve or disapprove the proposed rule change.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 97719 (June 13,
2023), 88 FR 39876 (``Notice'').
\4\ See Securities Exchange Act Release No. 98040, 88 FR 53569
(August 8, 2023) (designating September 18, 2023, as the date by
which the Commission shall either approve, disapprove, or institute
proceedings to determine whether the proposed rule change should be
disapproved).
\5\ See Securities Exchange Act Release No. 98409, 88 FR 65208
(September 21, 2023). Comments on the proposed rule change are
available at: https://www.sec.gov/comments/sr-ise-2023-11/srise202311.htm.
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This order approves the proposed rule change.
II. Description of the Proposal 6
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\6\ For a full description of the proposal, refer to the Notice,
supra note 3.
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Currently, the Exchange may open for trading series of options on
certain symbols that expire at the close of business on each of the
next two Mondays, Tuesdays, Wednesdays, and Thursdays, respectively,
that are business days and are not business days in which monthly
options series or Quarterly Options Series expire (``Short Term Option
Daily Expirations'').\7\ The Exchange proposes to expand the Short Term
Option Series Program \8\ to permit the listing of two Wednesday
expirations for options on the United States Oil Fund, LP, United
States Natural Gas Fund, LP, SPDR Gold Shares, iShares Silver Trust,
and iShares 20+ Year Treasury Bond ETF (collectively, ``Wednesday ETP
Expirations'').\9\
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\7\ See Supplementary Material .03 to Options 4, Section 5.
Currently, the Exchange may list no more than a total of two Monday
and Wednesday expirations on the iShares Russell 2000 ETF (``IWM'')
and no more than a total of two Monday, Tuesday, Wednesday, and
Thursday expirations on the SPDR S&P 500 ETF Trust (``SPY'') and the
Invesco QQQ Trust (``QQQ''). See Table 1, Supplementary Material .03
to Options 4, Section 5.
\8\ Options 1, Section 1(a)(49) provides that a Short Term
Option Series means a series in an option class that is approved for
listing and trading on the Exchange in which the series is opened
for trading on any Monday, Tuesday, Wednesday, Thursday or Friday
that is a business day and that expires on the Monday, Tuesday,
Wednesday, Thursday, or Friday of the following business week that
is a business day, or, in the case of a series that is listed on a
Friday and expires on a Monday, is listed one business week and one
business day prior to that expiration. If a Tuesday, Wednesday,
Thursday or Friday is not a business day, the series may be opened
(or shall expire) on the first business day immediately prior to
that Tuesday, Wednesday, Thursday or Friday. For a series listed
pursuant to this section for Monday expiration, if a Monday is not a
business day, the series shall expire on the first business day
immediately following that Monday.
\9\ The United States Oil Fund, LP, United States Natural Gas
Fund, LP, SPDR Gold Shares, iShares Silver Trust, and iShares 20+
Year Treasury Bond ETF are referred to collectively as the ``ETPs.''
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According to the Exchange, the Wednesday ETP Expirations would be
similar to the existing Short Term Option Daily Expirations in that the
Exchange may open for trading on any Tuesday or Wednesday that is a
business day (beyond the current week) \10\ series of options on the
ETPs that expire on any Wednesday of the month that is a business day
and is not a Wednesday in which Quarterly Options Series expire.\11\
And like Short Term Option Daily Expirations, in the event that
Wednesday ETP Expirations would expire on a Wednesday, and that
Wednesday is the same day that a Quarterly Options Series expires, the
Exchange would skip that week's listing and instead list the following
week; the two weeks would therefore not be consecutive. Options on each
of the ETPs with Friday expirations would continue to have a total of
five Short Term Option Expiration Dates, provided those Friday
expirations are not Fridays in which monthly options series or
Quarterly Options Series expire. The interval between strike prices for
the proposed Wednesday ETP Expirations would be the same as those for
the current Short Term Option Series for Friday expirations applicable
to the Short Term Option Series Program.\12\ As is the case with other
equity options series listed pursuant to the Short Term Option Series
Program, the Wednesday ETP Expirations series would be P.M.-settled.
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\10\ The Exchange proposes to clarify the rule text in
Supplementary Material .03 to Options 4, Section 5 to specify that
it can list two Short Term Option Expiration Dates beyond the
current week for each Monday, Tuesday, Wednesday, and Thursday
expiration. Consistent with the current operation of the rule, the
Exchange states that if it adds a Wednesday expiration (``Wednesday
Expiration'') on a Tuesday, there would be three outstanding
Wednesday Expirations at one time. See Notice, supra note 3, 88 FR
at 39877, n.4.
\11\ See id. at 39877.
\12\ The Wednesday ETP Expirations would have a strike interval
of $0.50 or greater for strike prices below $100, $1 or greater for
strike prices between $100 and $150, and $2.50 or greater for strike
prices above $150.
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In support of its proposal, the Exchange represents that it has an
adequate surveillance program in place to detect manipulative trading
in the proposed option expirations, in the same way that it monitors
trading in the current Short Term Option Daily Expirations.\13\ The
Exchange also represents that it has the necessary system capacity to
support and properly monitor trading in the proposed new
expirations.\14\ Additionally, the Exchange states that it does not
believe that any market disruptions will be encountered with the
introduction of these proposed option expirations.\15\ The Exchange
currently trades Short Term Option Daily Expirations on SPY, QQQ, and
IWM, including Wednesday Expirations, and states that it has not
experienced any market disruptions nor issues with capacity.\16\
Further, the Exchange provides data comparing the ETPs to SPY, QQQ, and
IWM, which have Wednesday Expirations today.\17\ According to the
Exchange, the occurrence of the ETPs moving through at least one strike
price after the close of trading has been less frequent than for SPY,
QQQ, and IWM. In addition, the average annualized closing volatility in
the last thirty minutes of trading for the ETPs has historically been
lower than that of SPY, QQQ, and IWM.\18\ Finally, the Exchange states
that the ETPs trade within ``complexes'' where, in addition to the
underlying security, there are multiple highly-correlated instruments
available for hedging.\19\ Therefore, the Exchange believes the
[[Page 80349]]
proposal would not be a strain on liquidity providers.\20\
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\13\ See id. at 39884.
\14\ See id.
\15\ See id.
\16\ See id. at 39878.
\17\ See id. at 39882-83.
\18\ See id. at 39883.
\19\ See id. at 39884.
\20\ See id.
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III. Discussion and Commission Findings
The Commission received one supportive comment on the proposed rule
change from a market maker. The commenter states that there is a great
amount of liquidity in the Short Term Option Daily Expirations, and
they do not cause market disruption and may be used to hedge more
narrowly defined risks.\21\ The commenter expects that the proposed
Wednesday ETP Expirations to exhibit the same characteristics and
provide the same benefits.\22\
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\21\ See letter from Richard J. McDonald, Susquehanna
International Group, LLP (October 20, 2023).
\22\ See id.
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After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, with Section 6(b) of the Act.\23\ The Commission
finds that the proposed rule change is consistent with Section 6(b)(5)
of the Act,\24\ which requires, among other things, that a national
securities exchange have rules designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\23\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\24\ 15 U.S.C. 78f(b)(5).
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As noted above, the Exchange currently has Wednesday Expirations
for SPY, QQQ, and IWM. The Exchange proposes to limit the listing of
additional Wednesday Expirations to the five ETPs, which generally have
similar or lower volatility in terms of post-closing and end of day
volatility as SPY, QQQ, and IWM. And, like SPY, QQQ, and IWM, the ETPs
have multiple highly-correlated instruments available for hedging. In
addition, the Wednesday ETP Expirations will be subject to the same
rules for Wednesday Expirations in SPY, QQQ, and IWM. Further, as noted
above, the commenter expects that the proposed Wednesday ETP
Expirations to exhibit the same characteristics and provide the same
benefits as existing Short Term Option Daily Expirations in SPY, QQQ,
and IWM.\25\ The Exchange's proposal is reasonably designed as a
limited expansion of Wednesday Expirations and may provide the
investing public and other market participants more flexibility to
closely tailor their investment and hedging decisions using options on
these ETPs, thus allowing them to better manage their risk exposure.
Further, the Exchange has represented that it has an adequate
surveillance program in place to detect manipulative trading in the
Wednesday ETP Expirations and has the necessary systems capacity to
support the new options series.\26\ The proposal, which would overall
add a small number of Wednesday ETP Expirations by limiting the
additional Wednesday Expirations to five ETPs and to two weeks beyond
the current week, reasonably balances the Exchange's desire to offer a
wider array of investment opportunitieswith the need to avoid
unnecessary proliferation of options series.
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\25\ See supra note 22 and accompanying text.
\26\ See supra notes 13 and 14, and accompanying text.
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Therefore, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act \27\ and the rules and
regulations thereunder applicable to a national securities exchange.
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\27\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-ISE-2023-11), be, and hereby
is, approved.
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\28\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25378 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P