82 FR 61090 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To Permit the Listing and Trading of NQX Index Options

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 246 (December 26, 2017)

Page Range		61090-61094
FR Document		2017-27699
Federal Register, Volume 82 Issue 246 (Tuesday, December 26, 2017)
[Federal Register Volume 82, Number 246 (Tuesday, December 26, 2017)]
[Notices]
[Pages 61090-61094]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-27699]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82362; File No. SR-ISE-2017-106]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
of Proposed Rule Change To Permit the Listing and Trading of NQX Index 
Options

December 19, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 6, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``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 permit the listing and trading of options 
based on \1/5\ the value of the Nasdaq-100 Index (``Nasdaq-100'') on a 
twelve month pilot basis.
    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

[[Page 61091]]

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 the Nasdaq 
100 Reduced Value Index (``NQX'') on a twelve month pilot basis. The 
NQX options contract will be the same in all respects as the current 
Nasdaq-100 (``NDX'') options contract listed on the Exchange,\3\ except 
that it will be based on \1/5\ of the value of the Nasdaq-100, and will 
be P.M.-settled with an exercise settlement value based on the closing 
index value of the Nasdaq-100 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 reduce value options on the Nasdaq-
100, or who wish to hedge positions in the related E-mini Nasdaq 100 
(``NQ'') futures contract, which is also based on \1/5\ the value of 
the Nasdaq-100.
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    \3\ See Securities Exchange Act Release No. 51121 (February 1, 
2005), 70 FR 6476 (February 7, 2005) (SR-ISE-2005-01) (Approval 
Order).
    \4\ In addition to the current Nasdaq-100 index value, Nasdaq 
will disseminate an index value for NQX that is \1/5\ of the value 
of the Nasdaq-100.
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I. Nasdaq-100 Index
    The Nasdaq-100 is a modified market capitalization-weighted index 
that includes 100 of the largest non-financial companies listed on The 
Nasdaq Stock Market (``Nasdaq''),\5\ based on market capitalization.\6\ 
It does not contain securities of financial companies, including 
investment companies. Security types generally eligible for the Nasdaq-
100 include common stocks, ordinary shares, American Depository 
Receipts, and tracking stocks. Security or company types not included 
in the Nasdaq-100 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.\7\
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    \5\ Nasdaq is an affiliate of the Exchange.
    \6\ The Nasdaq-100 is a broad-based index, as defined in Rule 
2001(k).
    \7\ A description of the Nasdaq-100 is available on Nasdaq's 
website at https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf.
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II. NQX Options Contract
    Currently, the Exchange lists and trades NDX options that are based 
on the full value of the Nasdaq-100. In an effort to attract additional 
interest in index options based on the Nasdaq-100, the Exchange now 
proposes to list and trade a new reduced value option contract based on 
this index on a twelve month pilot basis. NQX options will trade 
independently of and in addition to NDX options, and the NQX options 
will be subject to the same rules that presently govern the trading of 
index options based on the Nasdaq-100, including sales practice rules, 
margin requirements, trading rules, and position and exercise limits. 
Similar to NDX, NQX options will be European-style and cash-settled, 
and will have a contract multiplier of 100. The contract specifications 
for NQX options will mirror in all respects those of the NDX options 
contract already listed on the Exchange, except that the Exchange 
proposes that NQX options will be based on \1/5\ of the value of the 
Nasdaq-100, and will be P.M.-settled pursuant to proposed Rule 
2009(a)(6). Similar features are available with other index options 
contracts listed and/or approved for trading on the Exchange and other 
options exchanges, including the Exchange's affiliate, Nasdaq Phlx 
(``Phlx''). Specifically, options contracts based on 1/10 the value of 
the Nasdaq-100, i.e., ``MNX'' options, are listed on the Exchange with 
limited strikes, and are also currently listed on Phlx and the Chicago 
Board Options Exchange (``CBOE''). In addition, Phlx recently received 
approval to trade P.M.-settled options on the full value of the Nasdaq-
100 (``NDXPM'').\8\
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    \8\ See Securities Exchange Act Release No. 81293 (August 2, 
2017), 82 FR 37138 (August 8, 2017) (SR-Phlx-2017-04) (Approval 
Order).
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    The value of the Nasdaq-100 has increased significantly in recent 
years such that the value of the index stood at 6,242.47, as of the 
opening of trading on December 5, 2017. 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 on reduced values will attract a greater source of retail 
customer business. The Exchange further believes that listing options 
on reduced values will provide an opportunity for investors to trade 
and hedge the market risk associated with the Nasdaq-100.
    With an exercise settlement value based on \1/5\ of the Nasdaq-100, 
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 reduced value 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, which had an index 
value of 2,639.78 as of the opening of trading on December 5, 2017, and 
the Russell 2000, which had an index value of 1,532.72 as of the 
opening of trading on that date. Finally, options based on \1/5\ of the 
value of the Nasdaq-100 will be a particularly useful hedge, as NQ 
futures are similarly based on the value of \1/5\ of the value of the 
Nasdaq-100. The Exchange therefore believes that basing the proposed 
NQX options contract on \1/5\ of the value of the Nasdaq-100 should 
attract additional investors, and, in turn, create a more active and 
liquid trading environment.
    NQX 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 there is ample precedent for P.M.-settlement of 
broad-based index options. As described above, the Exchange's 
affiliate, Phlx, recently received approval to list NDXPM options. In 
addition, CBOE offers P.M.-settled index options based on both the 
Standard & Poor's 500 index (``SPXW''),\9\ and the Standard & Poor's 
100 index (``OEX'').\10\
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    \9\ See Securities Exchange Act Release No. 80060 (February 17, 
2017), 82 FR 11673 (February 24, 2017) (SR-CBOE-2016-091) (Approval 
Order).
    \10\ OEX has been P.M. settled since 1983.
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    The Exchange does not believe that the introduction of a new P.M.-
settled Nasdaq-100 contract will cause any market disruptions. Similar 
to other P.M.-settled index option products, the Exchange is proposing 
to list and trade NQX options contracts pursuant to a pilot, and will 
provide data to the Commission during the pilot period as described in 
Section VI below. The

[[Page 61092]]

Exchange will monitor for any disruptions caused by P.M.-settlement of 
the proposed NQX 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.
III. Trading Hours, Minimum Increments, Expirations and Strike Prices
    NQX 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. New York time,\11\ with a minimum trading increment of $0.05 for 
options trading below $3.00 and $0.10 for all other series.\12\ NQX 
options will have monthly expiration dates on the third Friday of each 
month (i.e., Expiration Friday), and the Exchange proposes to list NQX 
options in expiration months consistent with those of other index 
option products available on the Exchange.\13\ 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.\14\ NQX 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 
pursuant to Supplementary Material .01 or .02 to Rule 2009, 
respectively.\15\
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    \11\ See Rule 2008(a).
    \12\ See Rule 710(a).
    \13\ See Rule 2009(a)(3). Rule 2009(a)(3) currently provides 
that the Exchange may list up to six expiration months in index 
option contracts at any one time that may expire at three-month 
intervals or in consecutive months. The Exchange intends to file 
separately to modify the expiration months permitted for index 
option contracts consistent with Phlx Rule 1101A(b).
    \14\ See Rule 2009(b).
    \15\ The Exchange expects that it will add NQX options to the 
Weeklies program.
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    Generally, pursuant to Rule 2009(c)(1), index options listed on the 
Exchange are subject to strike price intervals of no less than $5, 
provided that certain classes of index options (including NDX and MNX) 
have strike price intervals of no less than $2.50 if the strike price 
is less than $200. The Exchange proposes to amend Rule 2009(c)(1) to 
add NQX options to the list of classes where strike price intervals of 
no less than $2.50 are generally permitted if the strike price is less 
than $200. In addition, Rule 2009(c)(5) provides finer strike price 
intervals for MNX options as these contracts are based on a reduced 
value of the Nasdaq-100. Specifically, Rule 2009(c)(5) provides that 
notwithstanding Rule 2009(c)(1) discussed above, the interval between 
strike prices of series of MNX options will be $1 or greater, subject 
to certain conditions. The Exchange proposes to adopt the same strike 
price intervals for NQX options as currently approved for MNX options. 
Thus, notwithstanding Rule 2009(c)(1), the interval between strike 
prices of series of NQX options will be $1 or greater, subject to the 
conditions described in Rule 2009(c)(5), which currently apply to the 
listing of strikes in reduced value MNX contracts. The Exchange will 
not list LEAPS on NQX options at intervals less than $5. If the 
Exchange determines to add NQX options to the Weeklies or Quarterlies 
programs such options will be listed with expirations and strike prices 
described in Supplementary Material .01 or .02 to Rule 2009.
IV. Position and Exercise Limits; Margin
    As with NDX, in determining compliance with Rule 2004--i.e., 
Position Limits for Broad-Based Index Options--there will be no 
position limits for broad-based index option contracts in the NQX 
class. Although there will be no position limits for NQX options, the 
Exchange proposes to amend Rule 2004(c) to correctly describe how 
positions in reduced-value options would be aggregated with full-value 
options. Rule 2004(c) provides that positions in reduced-value index 
options shall be aggregated with positions in full-value indices. In 
addition, the rule currently states that for such purposes, ten 
reduced-value contracts shall equal one contract, as this was 
consistent with other reduced-value contracts offered on the Exchange--
i.e., MNX, which is based on \1/10\ of the value of the Nasdaq-100. 
Since the Exchange is proposing to list a reduced-value NQX contract 
that is based on \1/5\ of the value of the Nasdaq-100, the Exchange 
proposes to amend this language to state instead that reduced-value 
contracts will be counted consistent with their value (e.g., 5 NQX 
reduced-value contracts equal 1 NDX full-value contract). With this 
change, the rule will more accurately reflect how the Exchange would 
aggregate reduced-value and full-value positions for NQX. In addition, 
as with NDX, there would be no exercise limits for NQX.\16\ Finally, 
the Exchange proposes to apply broad-based index margin requirements 
for the purchase and sale of NQX options that are the same as margin 
requirements currently in place for NDX options.
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    \16\ See Rule 2007(a), which provides that exercise limits for 
index options products are equivalent to the position limits in 
place for those products.
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V. 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 NQX options. In addition, 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 NQX options thereby aiding in the 
maintenance of a fair and orderly market.
VI. Pilot Program Reports
    The Exchange proposes to list and trade NQX options on a pilot 
basis for period of twelve months (``Pilot Program''). If the Exchange 
were to propose an extension of the program or should the Exchange 
propose to make the program permanent, then the Exchange would submit a 
filing proposing such amendments to the program. The Exchange notes 
that any positions established under the pilot would not be impacted by 
the expiration of the pilot. For example, a position in an NQX options 
series that expires beyond the conclusion of the pilot period could be 
established during the pilot. If the Pilot Program were not extended, 
then the position could continue to exist. However, the Exchange notes 
that any further trading in the series would be restricted to 
transactions where at least one side of the trade is a closing 
transaction.
    The Exchange proposes to submit a Pilot Program report to the 
Commission at least two months prior to the expiration date of the 
Pilot Program (the ``annual report''). The annual report would contain 
an analysis of volume, open interest, and trading patterns. The 
analysis would examine trading in the proposed option product as well 
as trading in the securities that comprise the Nasdaq-100. In addition, 
for series that exceed certain minimum open interest parameters, the 
annual report would provide analysis of index price volatility and 
share trading activity. In addition to the annual report, the Exchange 
would provide the Commission with periodic interim

[[Page 61093]]

reports while the pilot is in effect that would contain some, but not 
all, of the information contained in the annual report. The annual 
report would be provided to the Commission on a confidential basis. The 
annual report would contain the following volume and open interest 
data:\17\
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    \17\ Based on the data elements to be provided to the Commission 
for the NDXPM pilot. See supra note 7.
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    (1) Monthly volume aggregated for all trades;
    (2) monthly volume aggregated by expiration date;
    (3) monthly volume for each individual series;
    (4) month-end open interest aggregated for all series;
    (5) month-end open interest for all series aggregated by expiration 
date; and
    (6) month-end open interest for each individual series.
    In addition to the annual report, the Exchange would provide the 
Commission with interim reports of the information listed in Items (1) 
through (6) above periodically as required by the Commission while the 
pilot is in effect. These interim reports would also be provided on a 
confidential basis.
    Finally, the annual report would contain the following analysis of 
trading patterns in Expiration Friday, P.M.-settled NQX option series 
in the pilot: (1) A time series analysis of open interest; and (2) an 
analysis of the distribution of trade sizes. Also, for series that 
exceed certain minimum parameters, the annual report would contain the 
following analysis related to index price changes and underlying share 
trading volume at the close on Expiration Fridays: A comparison of 
index price changes at the close of trading on a given Expiration 
Friday with comparable price changes from a control sample. The data 
would include a calculation of percentage price changes for various 
time intervals and compare that information to the respective control 
sample. The Exchange would provide a calculation of share volume for a 
sample set of the component securities representing an upper limit on 
share trading that could be attributable to expiring in-the-money 
series. The data would include a comparison of the calculated share 
volume for securities in the sample set to the average daily trading 
volumes of those securities over a sample period. The minimum open 
interest parameters, control sample, time intervals, method for 
randomly selecting the component securities, and sample periods would 
be determined by the Exchange and the Commission.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\18\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\19\ 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 reduced value P.M.-settled index 
option contract based on the Nasdaq-100 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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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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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 NQX options would 
provide additional opportunities for market participants to trade and 
hedge exposure to the Nasdaq-100. The proposed NQ [sic] options product 
is similar to NDX options that are currently listed and traded on the 
Exchange with two important differences: (1) NQX options will be based 
on \1/5\ the value of the Nasdaq-100, and (2) NQX 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 feedback 
received from members, 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.
    Currently, the Exchange believes that there is unmet market demand 
for exchange-listed index options on the Nasdaq-100. This unmet demand 
stems in part from the high value of the Nasdaq-100 and the 
consequently higher cost of purchasing NDX options. The value of the 
Nasdaq-100 was 6,242.47, as of the opening of trading on December 5, 
2017, and this high value has made it more difficult for retail and 
other investors to comfortably purchase options on the index. The 
Exchange believes that a reduced value index option would allow 
additional participation from these investors. Specifically, the 
Exchange believes that basing the contract on a reduced value of the 
Nasdaq-100 will encourage additional participation by retail and other 
investors due to the reduced capital outlay needed to trade these 
options. While the Exchange previously listed a reduced value MNX 
contract that product never attracted significant trading volume. The 
Exchange believes that basing NQX options on \1/5\ the value of the 
Nasdaq-100 strikes a more appropriate balance than the MNX product that 
is based on \1/10\ the value of this index, as this value is more 
similar to other competitive index option products and is also helpful 
for market participants that want to hedge exposure to NQ futures that 
are similarly based on \1/5\ the value of the Nasdaq-100.
    Furthermore, based on member feedback, 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. For this reason, other popular index option products 
have been transitioning to P.M.-settlement. For example, due to market 
demand for P.M.-settlement, CBOE recently transitioned its heavily 
traded SPX index options to P.M.-settlement, and removed related A.M.-
settled products.\20\ The Exchange believes that market participants 
similarly desire P.M.-settlement for index options on the Nasdaq-100, 
and proposes to offer such a product so that it can compete effectively 
with similar index option products offered by CBOE.
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    \20\ See CBOE Regulatory Circular RG10-112.
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    When cash-settled index options were first introduced in the 1980s, 
they generally utilized closing-price settlement procedures (i.e., 
P.M.-settlement). Due to concerns raised by the Commission on the 
impact of P.M.-settlement on market volatility and the operation of 
fair and orderly markets on the underlying cash market at or near the 
close of trading on expiration day, however, exchanges moved to A.M.-
settlement for these products. As discussed in the recent approval of 
the NDXPM product,\21\ however, the Commission has recognized that 
these risks may be mitigated today by the enhanced closing procedures 
that are now employed by the primary equity

[[Page 61094]]

markets. The Exchange believes that the concerns that led to the 
transition to A.M.-settlement for index derivatives have been largely 
mitigated today. Opening procedures in the 1990s were deemed acceptable 
to mitigate one-sided order flow driven by index option expiration. 
Nasdaq now has an automated closing cross that 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. Furthermore, the Exchange believes that the proposed Pilot 
Program is designed to mitigate any potential concerns regarding P.M. 
settlement. Specifically, the Exchange believes that the Pilot Program 
will provide additional trading and hedging opportunities for investors 
while providing the Commission with data to monitor for and assess any 
potential for adverse market effects of allowing P.M.-settlement for 
NQX options, including on the underlying component stocks.
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    \21\ See supra note 7.
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    Finally, NQX options will be subject to the same rules that 
presently govern the trading of index options based on the Nasdaq-100, 
including sales practice rules, margin requirements, trading rules, and 
position and exercise limits. The Exchange therefore believes that the 
rules applicable to trading in NQX 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 NQX 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. NQX 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 NQX 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. 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 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-ISE-2017-106 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2017-106. 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-ISE-2017-106 and should be submitted on 
or before January 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27699 Filed 12-22-17; 8:45 am]
 BILLING CODE 8011-01-P
61090 Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices

19b 4(f)(6) thereunder.8 Because the under Section 19(b)(2)(B) 13 of the Act to should be submitted on or before
proposed rule change does not: (i) determine whether the proposed rule January 16, 2018.
Significantly affect the protection of change should be approved or For the Commission, by the Division of
investors or the public interest; (ii) disapproved. Trading and Markets, pursuant to delegated
impose any significant burden on authority.14
IV. Solicitation of Comments
competition; and (iii) become operative Eduardo A. Aleman,
prior to 30 days from the date on which Interested persons are invited to Assistant Secretary.
it was filed, or such shorter time as the submit written data, views, and [FR Doc. 2017–27696 Filed 12–22–17; 8:45 am]
Commission may designate, if arguments concerning the foregoing, BILLING CODE 8011–01–P
consistent with the protection of including whether the proposed rule
investors and the public interest, the change is consistent with the Act.
proposed rule change has become Comments may be submitted by any of SECURITIES AND EXCHANGE
effective pursuant to Section 19(b)(3)(A) the following methods: COMMISSION
of the Act and Rule 19b–4(f)(6)(iii)
thereunder. Electronic Comments [Release No. 34–82362; File No. SR–ISE–
A proposed rule change filed under • Use the Commission’s internet 2017–106]
Rule 19b–4(f)(6) 9 normally does not comment form (http://www.sec.gov/ Self-Regulatory Organizations; Nasdaq
become operative prior to 30 days after rules/sro.shtml); or ISE, LLC; Notice of Filing of Proposed
the date of the filing.10 However, • Send an email to rule-comments@ Rule Change To Permit the Listing and
pursuant to Rule 19b–4(f)(6)(iii),11 the sec.gov. Please include File Number SR–
Commission may designate a shorter Trading of NQX Index Options
GEMX–2017–57 on the subject line.
time if such action is consistent with the December 19, 2017.
protection of investors and the public Paper Comments
Pursuant to Section 19(b)(1) of the
interest. The Exchange has asked the • Send paper comments in triplicate Securities Exchange Act of 1934 (the
Commission to waive the 30-day to Secretary, Securities and Exchange ‘‘Act’’),1 and Rule 19b–4 thereunder,2
operative delay so that the proposal may Commission, 100 F Street NE, notice is hereby given that on December
become operative immediately upon Washington, DC 20549–1090. 6, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or
filing. The Commission believes that All submissions should refer to File ‘‘Exchange’’) filed with the Securities
waiving the 30-day operative delay is Number SR–GEMX–2017–57. This file and Exchange Commission (‘‘SEC’’ or
consistent with the protection of number should be included on the ‘‘Commission’’) the proposed rule
investors and the public interest subject line if email is used. To help the change as described in Items I, II, and
because doing so will allow the Pilot Commission process and review your III below, which Items have been
Program to continue without prepared by the Exchange. The
comments more efficiently, please use
interruption in a manner that is Commission is publishing this notice to
only one method. The Commission will
consistent with the Commission’s prior solicit comments on the proposed rule
post all comments on the Commission’s
approval of the extension and expansion change from interested persons.
internet website (http://www.sec.gov/
of the Pilot Program and will allow the
rules/sro.shtml). I. Self-Regulatory Organization’s
Exchange and the Commission
Copies of the submission, all Statement of the Terms of Substance of
additional time to analyze the impact of
the Pilot Program. Accordingly, the subsequent amendments, all written the Proposed Rule Change
Commission designates the proposed statements with respect to the proposed
rule change that are filed with the The Exchange proposes to permit the
rule change as operative upon filing listing and trading of options based on
with the Commission.12 Commission, and all written 1⁄5 the value of the Nasdaq-100 Index
At any time within 60 days of the communications relating to the
proposed rule change between the (‘‘Nasdaq-100’’) on a twelve month pilot
filing of such proposed rule change, the basis.
Commission summarily may Commission and any person, other than
The text of the proposed rule change
temporarily suspend such rule change if those that may be withheld from the
is available on the Exchange’s website at
it appears to the Commission that such public in accordance with the
http://ise.cchwallstreet.com/, at the
action is necessary or appropriate in the provisions of 5 U.S.C. 552, will be
principal office of the Exchange, and at
public interest, for the protection of available for website viewing and
the Commission’s Public Reference
investors, or otherwise in furtherance of printing in the Commission’s Public
Room.
the purposes of the Act. If the Reference Room, 100 F Street NE,
Commission takes such action, the Washington, DC 20549, on official II. Self-Regulatory Organization’s
Commission shall institute proceedings business days between the hours of Statement of the Purpose of, and
10:00 a.m. and 3:00 p.m. Copies of the Statutory Basis for, the Proposed Rule
8 17 CFR 240.19b–4(f)(6). filing also will be available for Change
9 17 CFR 240.19b–4(f)(6). inspection and copying at the principal In its filing with the Commission, the
10 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
office of the Exchange. All comments Exchange included statements
4(f)(6)(iii) requires the Exchange to give the received will be posted without change.
Commission written notice of the Exchange’s intent concerning the purpose of and basis for
to file the proposed rule change along with a brief Persons submitting comments are the proposed rule change and discussed
description and the text of the proposed rule cautioned that we do not redact or edit any comments it received on the
change, at least five business days prior to the date personal identifying information from proposed rule change. The text of these
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of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
comment submissions. You should statements may be examined at the
Exchange has satisfied this pre-filing requirement. submit only information that you wish places specified in Item IV below. The
11 17 CFR 240.19b–4(f)(6)(iii). to make available publicly. All Exchange has prepared summaries, set
12 For purposes only of waiving the operative
submissions should refer to File
delay for this proposal, the Commission has Number SR–GEMX–2017–57 and 14 17 CFR 200.30–3(a)(12).
considered the proposed rule’s impact on
1 15 U.S.C. 78s(b)(1).
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f). 13 15 U.S.C. 78s(b)(2)(B). 2 17 CFR 240.19b–4.

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Federal Register / Vol. 82, No. 246 / Tuesday, December 26, 2017 / Notices 61091

forth in sections A, B, and C below, of II. NQX Options Contract With an exercise settlement value
the most significant aspects of such based on 1⁄5 of the Nasdaq-100, the
Currently, the Exchange lists and
statements. Exchange believes that retail and other
trades NDX options that are based on
investors would be able to use this
A. Self-Regulatory Organization’s the full value of the Nasdaq-100. In an
trading vehicle while extending a
Statement of the Purpose of, and effort to attract additional interest in
smaller outlay of capital. Furthermore,
Statutory Basis for, the Proposed Rule index options based on the Nasdaq-100,
the proposed reduced value index will
Change the Exchange now proposes to list and
have a notional value at a level that is
trade a new reduced value option
1. Purpose comparable to similar products that
contract based on this index on a twelve
have been successful in the market,
month pilot basis. NQX options will
The purpose of the proposed rule including the S&P 500, which had an
trade independently of and in addition
change is to amend the Exchange’s rules index value of 2,639.78 as of the
to NDX options, and the NQX options
to permit the listing and trading of opening of trading on December 5, 2017,
will be subject to the same rules that
index options on the Nasdaq 100 and the Russell 2000, which had an
presently govern the trading of index
Reduced Value Index (‘‘NQX’’) on a index value of 1,532.72 as of the
options based on the Nasdaq-100,
twelve month pilot basis. The NQX opening of trading on that date. Finally,
including sales practice rules, margin
options contract will be the same in all options based on 1⁄5 of the value of the
requirements, trading rules, and
respects as the current Nasdaq-100 Nasdaq-100 will be a particularly useful
position and exercise limits. Similar to
(‘‘NDX’’) options contract listed on the hedge, as NQ futures are similarly based
NDX, NQX options will be European-
Exchange,3 except that it will be based on the value of 1⁄5 of the value of the
style and cash-settled, and will have a
on 1⁄5 of the value of the Nasdaq-100, Nasdaq-100. The Exchange therefore
contract multiplier of 100. The contract
and will be P.M.-settled with an believes that basing the proposed NQX
specifications for NQX options will
exercise settlement value based on the options contract on 1⁄5 of the value of
mirror in all respects those of the NDX
closing index value of the Nasdaq-100 the Nasdaq-100 should attract
options contract already listed on the
on the day of expiration.4 The Exchange additional investors, and, in turn, create
Exchange, except that the Exchange
believes that the proposed contract will a more active and liquid trading
proposes that NQX options will be
be valuable for retail and other investors environment.
based on 1⁄5 of the value of the Nasdaq- NQX options will also be P.M.-settled
that wish to trade reduce value options 100, and will be P.M.-settled pursuant as the Exchange believes that market
on the Nasdaq-100, or who wish to to proposed Rule 2009(a)(6). Similar participants, and in particular, retail
hedge positions in the related E-mini features are available with other index investors, who are the target audience
Nasdaq 100 (‘‘NQ’’) futures contract, options contracts listed and/or approved for this product, prefer P.M.-settled
which is also based on 1⁄5 the value of for trading on the Exchange and other index options. P.M.-settlement is
the Nasdaq-100. options exchanges, including the preferred by retail investors as it allows
Exchange’s affiliate, Nasdaq Phlx market participants to hedge their
I. Nasdaq-100 Index (‘‘Phlx’’). Specifically, options contracts exposure for the full week. A.M.-settled
The Nasdaq-100 is a modified market based on 1/10 the value of the Nasdaq- options by contrast are based on
capitalization-weighted index that 100, i.e., ‘‘MNX’’ options, are listed on opening prices on the day of expiration
includes 100 of the largest non-financial the Exchange with limited strikes, and and therefore stop trading on the day
companies listed on The Nasdaq Stock are also currently listed on Phlx and the prior, leaving residual risk on the day of
Market (‘‘Nasdaq’’),5 based on market Chicago Board Options Exchange expiration. Feedback from members that
capitalization.6 It does not contain (‘‘CBOE’’). In addition, Phlx recently handle retail order flow has indicated
securities of financial companies, received approval to trade P.M.-settled that P.M.-settlement is needed to garner
including investment companies. options on the full value of the Nasdaq- retail investor support for this product.
Security types generally eligible for the 100 (‘‘NDXPM’’).8 In this regard, the Exchange notes that
Nasdaq-100 include common stocks, The value of the Nasdaq-100 has there is ample precedent for P.M.-
ordinary shares, American Depository increased significantly in recent years settlement of broad-based index options.
Receipts, and tracking stocks. Security such that the value of the index stood As described above, the Exchange’s
at 6,242.47, as of the opening of trading affiliate, Phlx, recently received
or company types not included in the
on December 5, 2017. As a result of the approval to list NDXPM options. In
Nasdaq-100 are closed-end funds,
increase in the value of the underlying addition, CBOE offers P.M.-settled index
convertible debentures, exchange traded
Nasdaq-100 index, the premium for options based on both the Standard &
funds, limited liability companies,
NDX options has also increased. The Poor’s 500 index (‘‘SPXW’’),9 and the
limited partnership interests, preferred
Exchange believes that this has caused Standard & Poor’s 100 index (‘‘OEX’’).10
stocks, rights, shares or units of NDX options to trade at a level that may
beneficial interest, warrants, units and The Exchange does not believe that
be uncomfortably high for certain retail the introduction of a new P.M.-settled
other derivative securities.7 and other investors. The Exchange Nasdaq-100 contract will cause any
believes that listing options on reduced market disruptions. Similar to other
3 See Securities Exchange Act Release No. 51121
values will attract a greater source of P.M.-settled index option products, the
(February 1, 2005), 70 FR 6476 (February 7, 2005)
(SR–ISE–2005–01) (Approval Order). retail customer business. The Exchange Exchange is proposing to list and trade
4 In addition to the current Nasdaq-100 index further believes that listing options on NQX options contracts pursuant to a
value, Nasdaq will disseminate an index value for reduced values will provide an
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pilot, and will provide data to the
NQX that is 1⁄5 of the value of the Nasdaq-100. opportunity for investors to trade and
5 Nasdaq is an affiliate of the Exchange.
Commission during the pilot period as
6 The Nasdaq-100 is a broad-based index, as
hedge the market risk associated with described in Section VI below. The
defined in Rule 2001(k).
the Nasdaq-100.
7 A description of the Nasdaq-100 is available on 9 See Securities Exchange Act Release No. 80060

Nasdaq’s website at https:// 8 SeeSecurities Exchange Act Release No. 81293 (February 17, 2017), 82 FR 11673 (February 24,
indexes.nasdaqomx.com/docs/methodology_ (August 2, 2017), 82 FR 37138 (August 8, 2017) 2017) (SR–CBOE–2016–091) (Approval Order).
NDX.pdf. (SR–Phlx–2017–04) (Approval Order). 10 OEX has been P.M. settled since 1983.

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Document Created: 2017-12-23 03:08:42
Document Modified: 2017-12-23 03:08:42
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		82 FR 61090