84 FR 26912 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Relocate the Options Rules Under Chapter IV, Securities Traded on NOM

[Federal Register Volume 84, Number 111 (Monday, June 10, 2019)]
[Notices]
[Pages 26912-26916]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2019-12093]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86022; File No. SR-NASDAQ-2019-047]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Relocate the Options Rules Under Chapter IV, Securities Traded on NOM

June 4, 2019.
    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 May 28, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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 relocate The Nasdaq Options Market LLC 
(``NOM'') Rules at Chapter IV (Securities Traded on NOM) under the 
Options 4 title in the Exchange's rulebook's (``Rulebook'') shell 
structure.\3\
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    \3\ In 2017, the Exchange added a shell structure to its 
Rulebook with the purpose of improving efficiency and readability 
and to align its rules closer to those of its five sister exchanges, 
Nasdaq BX, Inc.; Nasdaq PHLX LLC; Nasdaq ISE, LLC; Nasdaq GEMX, LLC; 
and Nasdaq MRX, LLC (``Affiliated Exchanges''). See Securities 
Exchange Act Release No. 82175 (November 29, 2017), 82 FR 57494 
(December 5, 2017) (SR-NASDAQ-2017-125).
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    The proposal also amends the rules as relocated to conform 
primarily to the equivalent options rules in the Nasdaq ISE, LLC 
(``ISE'') rulebook, as well as in one instance to the equivalent 
options rule in the Nasdaq PHLX LLC (``Phlx'') rulebook.
    The proposal also amends Section1 of Chapter I of the NOM Rules to 
add several definitions. Finally, as a clean-up item, the proposal 
deletes Nasdaq Rule 5712 Alpha Index-Linked Securities because it is 
obsolete and the Exchange has never listed a product under this rule.
    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.

[[Page 26913]]

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

1. Purpose
    The Exchange proposes to relocate the rule text in Chapter IV 
(Securities Traded on NOM) to the Options 4 title in the Rulebook's 
shell structure. For ease of reference and the purposes of this filing, 
the relocated rules are herein described as the ``Options Listing 
Rules.''
    The relocation of the Options Listing Rules is part of the 
Exchange's continued effort to promote efficiency and the conformity of 
its processes with those of the Affiliated Exchanges,\4\ and its goal 
of harmonizing and uniformizing its rules.
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    \4\ Id.
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    This proposed change is of a non-substantive nature. Moreover, the 
relocation of the Options Listing Rules will facilitate the use of the 
Rulebook by Members \5\ of the Exchange, who are members of other 
Affiliated Exchanges; other market participants; and the public in 
general. The relocated rules will be amended to reflect the equivalent 
options rules in the ISE rulebook, but the changes are of a non-
substantive nature.
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    \5\ As defined by Exchange Rule 0120(i).
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    The overarching goal is to align the NOM rules with those of the 
ISE. The Exchange is proposing to amend the rules for NOM, most notably 
the rule text in the Options Listing Rules concerning securities traded 
on NOM, but also adding several definitions to Section 1 of Chapter I.
    The vast majority of the changes are technical changes and made 
throughout the Options Listing Rules. These minor changes are designed 
to conform the NOM rules to the equivalent ISE rules, as well as to 
increase the clarity of the rules. This includes some reorganization 
and renumbering within the Options Listing Rules' subsections to ensure 
they remain consistent.
    The proposed changes that do not fit within the description above 
are listed below, beginning with changes to Chapter I General 
Provisions and followed by global changes to the Options Listing Rules. 
The changes are then broken down by section within the Options Listing 
Rules.
Proposed Changes to Chapter I
    The Exchange is proposing to add definitions to ``Section 1 
Definitions''. Specifically, the terms ``class'' ``series'' and 
``underlying security'' will be added to Section 1(a) as (72), (73), 
and (74), respectively.\6\ The Exchange believes that using the 
definitions for these terms as defined in the By-Laws of The Options 
Clearing Corporation (``OCC'') uniformly across Nasdaq, Inc.'s 
exchanges will help to align them. Providing uniform, clear and precise 
definitions for these terms will provide consistency, lessen potential 
confusion and add clarity for market participants.
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    \6\ See OCC By-Laws Article I--Definitions C.(11); S.(12); and 
U.(3), respectively.
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    Section 1 of Chapter I also will be amended to change ``NOM'' to 
``the Exchange''.
Proposed Changes to the Options Listing Rules
Global Changes
    As described above, the current Options Listing Rules will be 
amended throughout to change ``NOM'' to ``the Exchange''. This proposed 
change will add consistency throughout the chapter. ``Nasdaq 
Regulation'' also will be changed to ``the Exchange'' throughout the 
Options Listing Rules to update the appropriate references. 
Additionally, there are a number of minor changes made throughout the 
chapter to increase the clarity of the language, as well as renumbering 
within the section to ensure it remains consistent.
Proposed Changes to Section 1 Designation of Securities
    This section will be amended to clarify that the options contracts 
that are designated by reference to the issuer of the underlying 
security can also be designated by reference to the name of the 
underlying foreign currency. Additionally, it can be referenced by not 
only the expiration month, but also by the expiration date.
Proposed Changes to Section 2 Rights and Obligations of Holders and 
Writers
    This section will be amended to clarify that option contracts of 
any class of options dealt in on the Exchange are subject to the 
provisions of Options 4 and as set forth in the rules of the Clearing 
Corporation. This change clarifies the rights and obligations of 
holders and writers of option contracts.
Proposed Changes to Section 3 Criteria for Underlying Securities
    Section 3(i) of the Options Listing Rules is being replaced and 
updated by incorporating the ISE version of the Exchange-Traded Fund 
(``ETF'') option listing rule.\7\ Most of the changes in Section 3 of 
the Options Listing Rules simply result from reorganization within the 
section done to mirror the ISE rule and for greater clarity.
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    \7\ See ISE Rule 502(h).
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    Section 3(k)(ii) of the Options Listing Rules will be amended to 
delete the language stating that Nasdaq will ``employ the same 
procedures to qualify underlying securities pursuant to this subsection 
(k) as it employs in qualifying underlying securities pursuant to other 
subsections of this Section 3.'' This deleted language is unnecessary 
since it is redundant given that each of the other subsections in 
Section 3 have procedures to qualify underlying securities plus it is 
also not reflected in the ISE rule version being adopted for this 
section.
    Section 3(m) will be deleted since the definition of ``Partnership 
Unit'' is a remnant from the legacy Nasdaq ETF listing rule and is 
unnecessary since it has never been used. It also is not reflected in 
the ISE rule version being adopted for this section.
Proposed Changes to Section 4 Withdrawal of Approval of Underlying 
Securities
    Section 4(a) of the Options Listing Rules will be amended to add 
flexibility for the Exchange to choose whether to decline new 
additional series of options on the underlying security previously 
approved.\8\ Currently, this section restricts this, but flexibility is 
being added to give greater discretion about adding series and an 
exception also will be added that opening transactions by market makers 
executed to accommodate closing transactions of other market 
participants may be permitted. This will provide the public with 
greater protection since it will allow the Exchange to now decline new 
additional series of options on the underlying security previously 
approved that may not be in the best interests of the public.
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    \8\ See ISE Rule 503(a).
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    Section 4(h)(ii) of the Options Listing Rules will be amended to 
change for options covering Exchange-Traded Fund Shares approved 
pursuant to Section 3(i)(iv)(2) of Options 4, following the initial 
twelve-month period beginning upon the commencement of trading in the 
Exchange-Traded Fund Shares on a national securities exchange and are 
defined as NMS stock under Rule 600 of Regulation NMS, that there were 
fewer than 50 record and/or beneficial holders of such Exchange-Traded 
Fund Shares for 30 or more consecutive trading days rather than as it 
is currently stated for 30 consecutive days. It is only on trading days 
that the information regarding 50 record and/or beneficial

[[Page 26914]]

holders can be ascertained. Also, the change is consistent with the ISE 
rule.\9\
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    \9\ See ISE Rule 503(h)(2).
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Proposed Changes to Section 6 Series of Options Contracts Open for 
Trading
    Section 6(a) of the Options Listing Rules will be amended to add to 
note that exercise-price setting parameters adopted as part of the 
Options Listing Procedures Plan will be included in Supplementary 
Material .02 Select Provisions of Options Listing Procedures Plan.
    In order to mirror the equivalent ISE rules,\10\ Section 6(d)iv of 
the Options Listing Rules will be amended to incorporate, in large 
part, former Supplementary Material .03 within Section 6 itself. Also, 
Section 6(d)v of the Options Listing Rules will be relocated to .10 of 
the Supplementary Material to Section 6 of the Options Listing 
Rules.\11\
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    \10\ See ISE Rule 504(g).
    \11\ See ISE Supplementary Material .09 to Rule 504.
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    Supplementary Material .01(a) and (b) to Section 6 will detail the 
$1 Strike Price Interval Program and will replace .01 and .02 of the 
Supplementary Material to Section 6. Select Provisions of Options 
Listing Procedures Plan (``OLPP'') will be added as Supplementary 
Material .02 to Section 6.
    Supplementary Material. 03 and .04 will detail the Short Term 
Option Series Program \12\ and the Quarterly Options Series 
Program,\13\ respectively, and each will be consistent with the 
equivalent ISE rule.
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    \12\ See ISE Supplementary Material .02 to Rule 504.
    \13\ See ISE Supplementary Material .03 to Rule 504.
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    .05 of the Supplementary Material to Section 6 will be amended to 
cover the intervals between strike prices for Mini-Nasdaq 100 Index 
options series and will be consistent with the equivalent ISE rule.\14\
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    \14\ See ISE Supplementary Material .04 to Rule 504.
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    The first sentence of .06 Range Limitations for New Option Series 
of the Options Listing Rules has been deleted since it is covered in 
.02 of the Supplementary Material to Section 6, but the definition of 
OLPP has been moved to Section 6(a).
    The introductory paragraph to .02 of the Supplementary Material to 
Section 6 of the Options Listing Rules details that the quote 
mitigation strategy and is codified in the OLPP. Subsection (a) states 
that the exercise price of each options series listed by the Exchange 
is fixed at a price per share that is reasonably close to the price of 
the underlying equity security, ETF or Trust Issued Receipt at or about 
the time the Exchange determines to list such series. Subsection 
(a)(ii) says that for new expiration months, the daily high and low of 
all prices reported by all national securities exchanges on the day the 
Exchange determines its preliminary notification of a new series. The 
amended language will say that the price of the underlying security is 
measured by, for new expiration months, the daily high and low of all 
prices reported by all national securities exchanges on the day the 
Exchange determines its preliminary notification of a new series rather 
than on the day the Exchange determines to list a new series. This 
change also mirrors the language in the ISE rules.\15\
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    \15\ See ISE Rule 504A(b)(i)(2).
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    Subsection (c) will be added to the Supplementary Material to 
Section 6 of the Options Listing Rules to make clear that subsection 
(a) of the Supplementary Material to Section 6 of the Options Listing 
Rules will not permit the listing of series that are otherwise 
prohibited by the rules of the Exchange or the OLPP. Additionally, to 
the extent the rules of the Exchange permit the listing of new series 
that are otherwise prohibited by the provisions of the OLPP, the 
provisions of the OLPP will govern. These changes are consistent with 
the ISE rules.\16\
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    \16\ See ISE Rule 504A(b)(v) and (vi).
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    Supplementary Material .16 U.S. Dollar-Settled Foreign Currency 
Options (formerly Supplementary Material .09) will be amended to 
reflect the language of the equivalent Phlx Rule since ISE does not 
have U.S. Dollar-Settled Foreign Currency Options.\17\ Also, the 
references to the continuity rules here (formerly Supplementary 
Material .09(C)) and in Section 8. Long-Term Options Contracts have 
been deleted since quoting obligations for long term options has 
recently been updated and addressed in Phlx Rule 1081 and in NOM 
Chapter VII Section 6.
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    \17\ See Phlx Rule 1012(a)(iii).
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    The Exchange is also proposing to delete Nasdaq Rule 5712. Alpha 
Index-Linked Securities.\18\ This rule was adopted in 2012, but no 
product has ever been listed under it and the Exchange now considers it 
obsolete. The Exchange proposes to remove Nasdaq Rule 5712 from its 
rulebook and lessen any potential confusion for market participants.
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    \18\ See Securities Exchange Act Release No. 67617 (August 8, 
2012), 82 FR 57494 (August 14, 2012) (SR-NASDAQ-2012-068).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\20\ 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.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the relocation of its Options Listing 
Rules is a non-substantive change and is consistent with similar 
filings by the Exchange for the relocation of its rules.\21\ As noted 
above, the relocation of the Options Listing Rules is part of the 
Exchange's continued effort to promote efficiency and the structural 
conformity of its processes with those of the Affiliated Exchanges,\22\ 
and its goal of harmonizing and uniformizing its rules. Additionally, 
the relocation of the Options Listing Rules will facilitate the use of 
the Rulebook by Members \23\ of the Exchange, who are members of other 
Affiliated Exchanges; other market participants; and the public in 
general.
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    \21\ See footnote 3.
    \22\ Id.
    \23\ As defined by Exchange Rule 0120(i).
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    The majority of the changes are also consistent with the ISE 
rulebook and the overarching goal is to align the NOM rules with those 
of the ISE. These changes include the change to subsection (a)(ii) of 
the Supplementary Material to Section 6 to say that the price of the 
underlying security is measured by, for new expiration months, the 
daily high and low of all prices reported by all national securities 
exchanges on the day the Exchange determines its preliminary 
notification of a new series rather than on the day the Exchange 
determines to list a new series.
    Another such change is amending the Options Listing Rules to change 
for options covering Exchange-Traded Fund Shares approved pursuant to 
Section 3(i)(iv)(2) of Options 4, following the initial twelve-month 
period beginning upon the commencement of trading in the Exchange-
Traded Fund Shares on a national securities exchange and are defined as 
NMS stock under Rule 600 of Regulation NMS, that there were fewer than 
50 record and/or beneficial holders of such Exchange-Traded Fund Shares 
for 30 or more consecutive trading days rather than as it is currently 
stated for 30 consecutive days. It is only on trading days that the 
information

[[Page 26915]]

regarding 50 record and/or beneficial holders can be ascertained. This 
change serves 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.
    The Exchange believes that amending Section 4(a) of the Options 
Listing Rules to add flexibility for the Exchange to choose whether to 
decline new additional series of options on the underlying security 
previously approved will serve 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 since it will 
allow the Exchange to now decline new additional series of options on 
the underlying security previously approved that may not be in the best 
interests of the public.
    The Exchange believe that adding definitions for the terms 
``class'', ``series'', and ``underlying security'' to the NOM rulebook 
from the OCC By-Laws will help 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 through 
providing uniform, clear and precise definitions for these terms and 
increase consistency, lessen potential confusion and add clarity for 
market participants.\24\
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    \24\ See footnote 6.
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    The Exchange also believes that the elimination of Nasdaq Rule 5712 
Alpha Index-Linked Securities is not a material change because it is 
obsolete and the Exchange has never listed a product under this rule.
    As a result, the Exchange believes that the changes included in 
this filing serve 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 since the changes are 
intended to organize the Rulebook in a way that it will ease the 
Members', market participants', and the general public's navigation and 
reading of the rules.
    With respect to the proposed technical corrections to the rules, 
the Exchange believes that these changes are consistent with the Act 
because they will prevent investor confusion that may be caused by 
including in the Rules incorrect rule citations and defunct rule text.

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. The proposed change does not 
impose a burden on competition because, as previously stated, it (i) is 
of a non-substantive nature, (ii) is intended to harmonize the 
structure of the Exchange's rules with those of its Affiliated 
Exchanges, and (iii) is intended to organize the Rulebook in a way that 
it will ease the Members', market participants', and the general 
public's navigation and reading of the rules.
    Consequently, the Exchange does not believe that the proposed 
changes implicate competition at all.

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

    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 \25\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 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 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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    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.

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-2019-047 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-NASDAQ-2019-047. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-047, and should be submitted 
on or before July 1, 2019.


[[Page 26916]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Eduardo A. Aleman,
Deputy Secretary.
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    \27\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2019-12093 Filed 6-7-19; 8:45 am]
 BILLING CODE 8011-01-P