83 FR 7248 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand the Short Term Option Series Program

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 34 (February 20, 2018)

[Federal Register Volume 83, Number 34 (Tuesday, February 20, 2018)]
[Notices]
[Pages 7248-7251]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-03309]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82700; File No. SR-ISE-2018-13]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Expand the Short 
Term Option Series Program

February 13, 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 February 7, 2018, Nasdaq ISE, LLC (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in

[[Page 7249]]

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 expand the Short Term Option Series 
Program to allow Monday expirations for options listed pursuant to the 
Short Term Option Series Program, including options on the SPDR S&P 500 
ETF Trust.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Rule 100(a)(51) and Rule 504, 
Supplementary Material .02 to expand the Short Term Option Series 
program (``Program'') to permit the listing and trading of options 
series with Monday expirations that are listed pursuant to the Program, 
including options on the SPDR S&P 500 ETF Trust (``SPY'').
    The Exchange notes that having Monday expirations is not a novel 
proposal. Specifically, Nasdaq PHLX LLC (``Phlx'') recently received 
approval to list Monday expirations for SPY options pursuant to its 
Short Terms Options Series program.\3\
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    \3\ See Securities Exchange Act Release No. 82611 (February 1, 
2018), 83 FR 5473 (February 7, 2018) (SR-Phlx-2017-103).
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    As set forth in Rule 100(a)(51), a Short Term Option Series is 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 Tuesday, 
Wednesday, Thursday or Friday that is a business day and that expires 
on the Wednesday or Friday of the next business week that is a business 
day. The Exchange is now proposing to amend Rule 100(a)(51) to permit 
the listing of options series that expire on Mondays. Specifically, the 
Exchange is proposing that it may open for trading series of options on 
any Monday that is a business day and that expires on the Monday of the 
next business week that is a business day. The Exchange is also 
proposing to list Monday expirations series on Fridays that precede the 
expiration Monday by one business week plus one business day. Since 
Rule 100(a)(51) already provides for the listing of short term option 
series on Fridays, the Exchange is not modifying this provision to 
allow for Friday listing of Monday expiration series. However, the 
Exchange is amending Rule 100(a)(51) to clarify that, in the case of a 
series that is listed on a Friday and expires on a Monday, that series 
must be listed one business week and one business day prior to that 
expiration (i.e., two Fridays prior to expiration).
    As part of this proposal, the Exchange is also amending Rule 
100(a)(51) to address the expiration of Monday expiration series when 
the Monday is not a business day. In that case, the rule will provide 
that the series shall expire on the first business day immediately 
following that Monday. This procedure differs from the expiration date 
of Wednesday expiration series that are scheduled to expire on a 
holiday. In that case, the Wednesday expiration series shall expire on 
the first business day immediately prior to that Wednesday, e.g., 
Tuesday of that week.\4\ However, the Exchange believes that it is 
preferable to require Monday expiration series in this scenario to 
expire on the Tuesday of that week rather than the previous business 
day, e.g., the previous Friday, since the Tuesday is closer in time to 
the scheduled expiration date of the series than the previous Friday, 
and therefore may be more representative of anticipated market 
conditions. The Exchange notes that this provision is identical to the 
corresponding provision recently adopted by Phlx in its proposal to 
list options series with Monday expirations pursuant to its Short Term 
Option Series program. The Exchange also notes that Cboe Exchange, Inc. 
(``Cboe'') uses the same procedure for options on the S&P 500 index 
(``SPX'') with Monday expirations that listed pursuant to its 
Nonstandard Expirations Pilot Program and that are scheduled to expire 
on a holiday.\5\
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    \4\ See Rule 100(a)(51).
    \5\ See CBOE Rule 24.9(e)(1) (``If the Exchange is not open for 
business on a respective Monday, the normally Monday expiring Weekly 
Expirations will expire on the following business day. If the 
Exchange is not open for business on a respective Wednesday or 
Friday, the normally Wednesday or Friday expiring Weekly Expirations 
will expire on the previous business day.'').
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    The Exchange also proposes to make corresponding changes to 
Supplementary Material .02 to Rule 504, which sets forth the 
requirements for SPY options that are listed pursuant to the Program, 
to permit Monday SPY expirations (``Monday SPY Expirations''). 
Accordingly, the Exchange proposes to amend Supplementary Material .02 
to state that, with respect to Monday SPY Expirations, the Exchange may 
open for trading on any Friday or Monday that is a business day series 
of options on the SPY to expire on any Monday of the month that is a 
business day and is not a Monday in which Quarterly Options Series 
expire, provided that Monday SPY Expirations that are listed on a 
Friday must be listed at least one business week and one business day 
prior to the expiration. As with the current rules for Wednesday SPY 
Expirations, the Exchange will also amend Supplementary Material .02 to 
state that Monday SPY Expirations will not be included in the total of 
the Short Term Option Expiration Dates. Relatedly, the Exchange 
proposes to amend Supplementary Material .02 to provide that it may 
list up to five consecutive Monday SPY Expirations at one time, and may 
have no more than a total of five Monday SPY Expirations (in addition 
to a maximum of five Short Term Option Series expirations for SPY 
expiring on Friday and five Wednesday SPY Expirations). The Exchange 
will also clarify that, as with Wednesday SPY Expirations, Monday SPY 
Expirations will be subject to the provisions of this Rule.
    The interval between strike prices for the proposed Monday SPY 
Expirations will be the same as those for the current Short Term Option 
Series for Wednesday and Friday SPY Expirations. Specifically, the 
Monday SPY Expirations will have a $0.50 strike interval minimum. As is 
the case with other options series listed pursuant to the Short Term 
Option Series, the Monday SPY Expiration series will be P.M.-settled.
    Currently, for each option class eligible for participation in the 
Program, the Exchange is limited to opening thirty (30) series for each 
expiration date for the specific class. The thirty (30)

[[Page 7250]]

series restriction does not include series that are open by other 
securities exchanges under their respective short term option rules; 
the Exchange may list these additional series that are listed by other 
exchanges.\6\ This thirty (30) series restriction shall apply to Monday 
SPY Expiration series as well. In addition, the Exchange will be able 
to list series that are listed by other exchanges, assuming they file 
similar rules with the Commission to list SPY options expiring on 
Mondays.
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    \6\ See Supplementary Material .02(a) to Rule 504.
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    Finally, the Exchange is amending Commentary .02(b) to Rule 504 
which addresses the listing of Short Term Options Series that expire in 
the same week as monthly or quarterly options series. Currently, that 
rule states that no Short Term Option Series may expire in the same 
week in which monthly option series on the same class expire (with the 
exception of Wednesday SPY Expirations) or, in the case of Quarterly 
Options Series, on an expiration that coincides with an expiration of 
Quarterly Option Series on the same class. The Exchange is proposing to 
extend this exemption to Monday SPY Expirations. As with Wednesday SPY 
Expirations, the Exchange believes that it is reasonable to extend this 
exemption to Monday SPY Expirations because Monday SPY Expirations and 
standard monthly options will not expire on the same trading day, as 
standard monthly options expire on Fridays. Additionally, the Exchange 
believes that not listing Monday SPY Expirations for one week every 
month because there was a monthly SPY expiration on the Friday of that 
week would create investor confusion. For this reason, the Exchange is 
amending Commentary .02(b) to Rule 504 to clarify that Monday and 
Wednesday SPY Expirations may expire in the same week as monthly option 
series in the same class expire, but that no Short Term Option Series 
may expire on the same day as an expiration of Quarterly Option Series 
on the same class.
    The Exchange does not believe that any market disruptions will be 
encountered with the introduction of P.M.-settled Monday expirations. 
The Exchange has the necessary capacity and surveillance programs in 
place to support and properly monitor trading in the proposed Monday 
expiration series, including Monday SPY Expirations. The Exchange 
currently trades P.M.-settled Short Term Option Series that expire 
almost every Wednesday and Friday, which provide market participants a 
tool to hedge special events and to reduce the premium cost of buying 
protection. The Exchange notes that it has been listing Wednesday 
expirations pursuant to Rule 100 and Rule 504 since 2016.\7\ With the 
exception of Monday expiration series that are scheduled to expire on a 
holiday, the Exchange does not believe that there are any material 
differences between Monday expirations and Wednesday or Friday 
expirations for Short Term Option Series.
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    \7\ See Securities Exchange Act Release No. 78715 (August 29, 
2016), 81 FR 60765 (September 2, 2016) (SR-ISE-2016-18).
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    The Exchange seeks to introduce Monday expirations to, among other 
things, expand hedging tools available to market participants and to 
continue the reduction of the premium cost of buying protection. The 
Exchange believes that Monday expirations, similar to Wednesday and 
Friday expirations, will allow market participants to purchase an 
option based on their timing as needed and allow them to tailor their 
investment and hedging needs more effectively.
    As noted above, Phlx recently received approval to list Monday 
expirations for SPY options pursuant to its Short Terms Options 
program. In addition, other exchanges currently permit Monday 
expirations for other options. For example, Cboe lists options on the 
SPX with a Monday expiration as part of its Nonstandard Expirations 
Pilot Program.\8\
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    \8\ See CBOE Rule 24.9(e)(1) (``The Exchange may open for 
trading Weekly Expirations on any broad-based index eligible for 
standard options trading to expire on any Monday, Wednesday, or 
Friday (other than the third Friday-of-the-month or days that 
coincide with an EOM expiration).'').
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes the Short Term Option Series 
Program has been successful to date and that Monday expirations, 
including Monday SPY Expirations, simply expand the ability of 
investors to hedge risk against market movements stemming from economic 
releases or market events that occur throughout the month in the same 
way that the Short Term Option Series Program has expanded the 
landscape of hedging. Similarly, the Exchange believes Monday 
expirations, including Monday SPY Expirations, should create greater 
trading and hedging opportunities and flexibility, and will provide 
customers with the ability to tailor their investment objectives more 
effectively. As noted above, Phlx recently received approval to list 
Monday expirations for SPY options pursuant to its Short Terms Options 
program. In addition, Cboe currently permits Monday expirations for 
other options with a weekly expiration, such as options on the SPX.
    With the exception of Monday expiration series that are scheduled 
to expire on a holiday, the Exchange does not believe that there are 
any material differences between Monday expirations, including Monday 
SPY expirations, and Wednesday or Friday expirations, including 
Wednesday and Friday SPY Expirations, for Short Term Option Series. The 
Exchange notes that it has been listing Wednesday expirations pursuant 
to Rule 100 and Rule 504 since 2016. The Exchange believes that it is 
consistent with the Act to treat Monday expiration series that expire 
on a holiday differently than Wednesday or Friday expiration series, 
since the proposed treatment for Monday expiration series will result 
in an expiration date that is closer in time to the scheduled 
expiration date of the series, and therefore may be more representative 
of anticipated market conditions. The Exchange also notes that Cboe 
uses the same procedure for SPX options with Monday expirations that 
are listed pursuant to its Nonstandard Expirations Pilot Program and 
that are scheduled to expire on a holiday.
    Given the similarities between Monday SPY Expiration series and 
Wednesday and Friday SPY Expiration series, the Exchange believes that 
applying the provisions in Commentary .02 to Rule 504 that currently 
apply to Wednesday SPY Expirations to Monday SPY Expirations is 
justified. For example, the Exchange believes that allowing Monday SPY 
Expirations and monthly SPY expirations in the same week will benefit 
investors and minimize investor confusion by providing Monday SPY 
Expirations in a continuous and uniform manner. The Exchange also 
believes that is appropriate to amend Commentary .02(b) to Rule 504 to 
clarify that no Short Term Option Series may expire on the same day as 
an expiration of Quarterly Option Series on the same class. This change 
will make that provision more consistent with the existing language in 
Commentary .02 that prohibits Wednesday SPY Expirations from expiring 
on a

[[Page 7251]]

Wednesday in which Quarterly Options Series expire.
    Finally, the Exchange represents that it has an adequate 
surveillance program in place to detect manipulative trading in Monday 
expirations, including Monday SPY Expirations, in the same way that it 
monitors trading in the current Short Term Option Series. The Exchange 
also represents that it has the necessary systems capacity to support 
the new options series.

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 Exchange notes that having 
Monday expirations is not a novel proposal, as Phlx has received 
approval to list Monday expirations for SPY options, and Cboe currently 
lists and trades short-term SPX options with a Monday expiration. The 
Exchange does not believe the proposal will impose any burden on intra-
market competition, as all market participants will be treated in the 
same manner under this proposal. Additionally, the Exchange does not 
believe the proposal will impose any burden on inter-market 
competition, as nothing prevents the other options exchanges from 
proposing similar rules to list and trade short-term options series 
with Monday expirations.

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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 intention 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) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \13\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that the proposal may become operative 
immediately upon filing. The Commission notes that it recently approved 
Phlx's substantially similar proposal to list and trade Monday SPY 
Expirations.\14\ The Exchange has stated that waiver of the operative 
delay will allow the Exchange to list and trade Monday SPY Expirations 
as soon as possible, and therefore, promote competition among the 
option exchanges. For these reasons, the Commission believes that the 
proposed rule change presents no novel issues and that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest, and will allow the Exchange to remain 
competitive with other exchanges. Therefore, the Commission hereby 
waives the 30-day operative delay and designates the proposal effective 
upon filing.\15\ 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.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See supra note 3.
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2018-13 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-2018-13. 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-2018-13 and should be submitted on 
or before March 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03309 Filed 2-16-18; 8:45 am]
 BILLING CODE 8011-01-P