83 FR 29148 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 1101A, Terms of Option Contracts

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 121 (June 22, 2018)

[Federal Register Volume 83, Number 121 (Friday, June 22, 2018)]
[Notices]
[Pages 29148-29150]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-13380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83458; File No. SR-Phlx-2018-47]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Exchange 
Rule 1101A, Terms of Option Contracts

June 18, 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 June 11, 2018, Nasdaq PHLX LLC (``Phlx'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 1101A, Terms of Option 
Contracts.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to adopt new Commentary 
.06 to Exchange Rules 1101A, to codify that the Exchange will defer to 
The Options Clearing Corporation (``OCC'') in determining settlement 
prices for index options when OCC elects to do so in accordance with 
its own rules and bylaws. Such OCC-determined settlement prices may be 
determined in a manner that differs from the settlement price 
procedures under the Exchange's own rules.
    Exchange Rule 1101A(d) currently states that the Rules of the 
Options Clearing Corporation specify that, unless the Rules of the 
Exchange provide otherwise, the current index

[[Page 29149]]

value used to settle the exercise of an index options contract shall be 
the closing index value for the day on which the index options contract 
is exercised in accordance with the Rules of the Options Clearing 
Corporation or, if such day is not a business day, for the most recent 
business day. Exchange Rule 1101A(e) currently states that the current 
index value at the expiration of an A.M.-settled index option shall be 
determined, for all purposes under Exchange rules and OCC rules, on the 
last day of trading in the underlying securities prior to expiration, 
by reference to the reported level of such index as derived from first 
reported sale (opening) prices of the underlying securities on such 
day, except that in the event that the primary market for an underlying 
security is open for trading on that day, but that particular security 
does not open for trading on that day, the price of that security, for 
the purposes of calculating the current index value at expiration, 
shall be the last reported sale price of the security.
    The Exchange proposes to add new Commentary .06 to Rule 1101A to 
make clear that the Exchange's settlement price procedures 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.\3\ An option holder's contract with 
OCC is governed by OCC rules and by-laws. The proposed language makes 
clear that Exchange rules concerning settlement value calculation would 
not apply in the event that OCC exercises its authority to determine 
settlement prices under OCC rules and by-laws. In that case, the 
Exchange would defer to OCC.
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    \3\ See OCC By-Laws Article XVII, Section 4(a), which provides 
in relevant part that if OCC shall determine that the primary market 
for one or more index components did not open or remain open for 
trading (or that any such components did not open or remain open for 
trading on such market(s)) on a trading day at or before the time 
when the current index value for that trading day would ordinarily 
be determined, or that a current index value or other value or price 
to be used as, or to determine, the exercise settlement amount (a 
``required value'') for a trading day is otherwise unreported, 
inaccurate, unreliable, unavailable or inappropriate for purposes of 
calculating the exercise settlement amount, then, in addition to any 
other actions that OCC may be entitled to take under OCC's bylaws 
and rules, the OCC is empowered to take any or all of a range of 
permitted actions with respect to any series of options on such 
index, including fixing the exercise settlement amount.
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    Proposed Rule 1101A Commentary .06 is based in part upon Chapter 
XIV, Section 10(g) of the Nasdaq rulebook, Chapter XIV, Section 10(g) 
of the BX rulebook, and ISE Rule 2008(g).\4\
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    \4\ These rules generally provide that the exchanges' settlement 
price rules will not apply when the settlement price is determined 
in accordance with OCC rules and bylaws.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ 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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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    OCC may elect to use various procedures in the event it exercises 
its authority to set settlement prices.\7\ By adopting the proposed 
rule, the Exchange would acknowledge clearly 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.
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    \7\ OCC By-Laws Article XVII, Section 4(a)(2) provides in 
relevant part that if OCC elects to exercise its authority under 
Section 4(a), it may, among other actions, fix the exercise 
settlement amount using the reported price or value for the relevant 
security(ies), at the close of regular trading hours on the last 
preceding trading day for which such a price or value was reported 
by the reporting authority. Section 4(a)(2) provides that OCC may 
elect instead to fix the exercise settlement amount using other 
prices, such as the reported price or value for the relevant 
security(ies) at the opening of regular trading hours on the next 
trading day for which such an opening price or value is reported by 
the reporting authority.
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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 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 \8\ and Rule 19b-4(f)(6) thereunder.\9\ 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.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 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) \11\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\12\ 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 immediately eliminate any perceived conflict between the 
Exchange's settlement price rules and OCC's rules and by-laws regarding 
the establishment of settlement prices. The Exchange noted that the 
proliferation of expiration dates resulting from new index option 
weekly listings has increased the possibility that unforeseen events 
may occur on an expiration date, thereby necessitating that OCC 
determine settlement prices. 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.\13\
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    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ 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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[[Page 29150]]

    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) of the Act \14\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 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-Phlx-2018-47 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-Phlx-2018-47. 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-Phlx-2018-47, and should be submitted on 
or before July 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13380 Filed 6-21-18; 8:45 am]
 BILLING CODE 8011-01-P