83 FR 7513 - Self-Regulatory Organizations; The Nasdaq Stock Market 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 35 (February 21, 2018)

[Federal Register Volume 83, Number 35 (Wednesday, February 21, 2018)]
[Notices]
[Pages 7513-7516]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-03449]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82709; File No. SR-NASDAQ-2018-011]


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

February 14, 2018.

[[Page 7514]]

    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 8, 2018, 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 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 (``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://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.

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 the rules of the Nasdaq Options 
Market LLC (``NOM'') at Chapter I, Section 1 and Chapter IV, Section 6 
at Commentary .07 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 Chapter I, Section 1(a)(59), 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. The 
Exchange is now proposing to amend Chapter I, Section 1(a)(59) 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. 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 
Chapter I, Section 1(a)(59) 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 Chapter I, Section 1(a)(59) 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 Chapter I, 
Section 1(a)(59) 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 Chapter I, Section 1(a)(59).
    \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 
Commentary .07 to Chapter IV, Section 6, which sets forth the 
requirements for SPY options that are listed pursuant to the Short Term 
Options Series Program, to permit Monday SPY expirations (``Monday SPY 
Expirations''). Accordingly, the Exchange proposes to amend Commentary 
.07 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 Commentary .07 to state 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

[[Page 7515]]

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) 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 Chapter IV, Section 6 at Commentary .07(a).
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    Finally, the Exchange is amending Commentary .07(b) to Chapter IV, 
Section 6, 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. As part of this proposal, the Exchange is amending 
Commentary .07(b) to Chapter IV, Section 6 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 Chapter I, Section 1 and Chapter IV, Section 6 
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. 78695 (August 26, 
2016), 81 FR 60072 (August 31, 2016) (SR-NASDAQ-2016-122).
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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 Chapter I, Section 1 and Chapter IV, Section 6 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 .07 to Chapter IV, Section 6 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

[[Page 7516]]

uniform manner. The Exchange also believes that is appropriate to amend 
Commentary .07(b) to Chapter IV, Section 6 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 .07 
that prohibits Wednesday SPY Expirations from expiring on a 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, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) 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)(iii).
    \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\
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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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    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-2018-011 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-2018-011. 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-2018-011 and should be submitted 
on or before March 14, 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. 2018-03449 Filed 2-20-18; 8:45 am]
 BILLING CODE 8011-01-P