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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
forth in sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Phlx Rules at Options 8, Section 34, FLEX Index, Equity, and Currency Options. Today, Phlx permits members and member organizations to transact FLEX options on its Trading Floor.
FLEX options provide investors with the ability to customize basic option features including expiration date, exercise style, and certain exercise prices. FLEX options may be FLEX
index, equity, or currency options. The Exchange proposes to amend the expiration term for FLEX index and equity options to remain competitive with other options exchanges as described below in greater detail.
Currently, the expiration date for a FLEX index option is any month, business day and year within 5 years.
The expiration date for FLEX equity and currency options is any month, business day and year within 3 years.3 Further, with respect to FLEX equity options, a member or member organization may request a longer term up to a maximum of five years, and upon the assessment of the Regulatory staff that sufficient liquidity exists among FLEX equity participants, such a request may be granted. Regulatory staff are Exchange employees responsible for, among other things, assessing that sufficient liquidity exists among FLEX equity participants requesting a term exceeding three years to a maximum of five years.4
The Exchange proposes to increase the maximum term for FLEX index and equity options to 15 years similar to Cboe Exchange, Inc. Cboe, NYSE
Arca, Inc. NYSE Arca, and NYSE
American LLC NYSE American.
Today, Cboe, NYSE Arca, and NYSE
American permit a maximum term of fifteen years for FLEX equity and index options.5 With this amendment, the Exchange would eliminate the requirement applicable to equity 3 See
Options 8, Section 34b6A.
Exchange may also designate other qualified Exchange employees to assist the Regulatory staff as the need arises. See Options 8, Section 34b6B.
5 See Cboe Rule 4.21b4. See Securities Exchange Act Release No. 58890 October 30, 2008, 73 FR 66085 November 6, 2008 SRCBOE2008
98 Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Increase the Maximum Term for FLEX Options. See also NYSE Arca 5.32
O and NYSE American Rule 903G.

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options that Regulatory staff make a liquidity assessment. The expiration date for FLEX currency options will remain within 3 years. The amendment is proposed for the below reasons.
First, the proposal is intended to simplify the process and permit Phlx members and member organizations to transact FLEX index and equity options with the same expiration terms as Cboe, NYSE Arca, and NYSE American members. This amendment would permit all FLEX equity and index options to have the same maximum 15
year term as other options markets that offer FLEX.6
Second, expanding the maximum expiration terms to 15 years uniformly for FLEX index and equity options will permit transactions which currently trade over-the-counter OTC to be conducted within an exchange environment. Phlx believes that expanding the eligible term for FLEX
equity and index options, as proposed, is important and necessary to the Exchanges efforts to create products and markets that provide members, member organizations, and investors interested in FLEX-type options with an improved but comparable alternative to the OTC market in customized options, which can take on contract characteristics similar to FLEX options, but are not subject to the same maximum term restriction. By expanding the eligible term for FLEX
index and equity options, market participants will now have greater flexibility in determining whether to execute their customized options in an exchange environment or in the OTC
market, similar to Cboe, NYSE Arca, and NYSE American. The Exchange believes market participants benefit from being able to trade these customized options in an exchange environment in several ways, including, but not limited to the following: 1 Enhanced efficiency in initiating and closing out positions; 2
increased market transparency; and 3
heightened contra-party creditworthiness due to the role of The Options Clearing Corporation OCC
as issuer and guarantor of FLEX options.
Third, the Exchange believes that the proposed rule change will allow investors to use longer expiration FLEX
equity and index options to hedge longer-term issuances of structured products linked to returns of an individual stock. Specifically, the proposal will allow institutions to use longer-term FLEX index options to protect portfolios from long-term market moves with a known and limited cost.
6 See Cboes Rule 4.21b4, NYSE Arca 5.32O
and NYSE American Rule 903G.

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The proposal will better serve the longterm hedging needs of institutional investors and provide those investors with an alternative to hedging their portfolios with off-exchange customized options and warrants.
Fourth, the Exchange proposes to eliminate rule text that describes Regulatory staffs discretionary authority to extend the maximum term of FLEX options that expire within three years pursuant to Options 8, Section 34b6B after having performed a liquidity assessment, and also renumber current Options 8, Section 34b6C to new B because the process by which FLEX options are transacted already requires floor members to seek liquidity in open outcry. Today, FLEX options transactions are exposed in open outcry on the Trading Floor similar to other options. Specifically, today, a Requesting Member 7 initiates a Request-For-Quote RFQ 8 by announcing certain contracts terms 9 in open outcry and submitting an RFQ
ticket, which includes the open outcry BBO as identified in accordance with the price and time priority principles set forth by the Exchange, to the Market Operations post on the Trading Floor.
On receipt of an RFQ in proper form, Market Operations disseminates the terms of the RFQ along with the open outcry BBO as an administrative message through the Options Price Reporting Authority OPRA.10 At the expiration of the Request Response Time, the Requesting Member may reenter the trading crowd and proceed with announcing his FLEX order and negotiating the terms of the execution in open outcry. Once the FLEX order is executed in open outcry, the FLEX trade is disseminated to OPRA by the Exchange.11 Requesting Members may 7 A Requesting Member is a member of the Exchange qualified to trade FLEX options pursuant to Options 3, Section 34d who initiates an RFQ
for a FLEX option. See Options 3, Section 34b11.
8 The term Request for Quotes means the initial request supplied by a Requesting Member to initiate FLEX bidding and offering. See Options 3, Section 34b10.
9 A Request Member must announce: 1
Underlying index, security or foreign currency; 2
type, size, and crossing intention; 3 in the case of FLEX index options and FLEX equity options, exercise style; 4 expiration date; 5 exercise price;
and 6 respecting index options, the settlement value. See Options 8, Section 34c1. See Options 3, Section 34c1.
10 FLEX Quotes must be entered during the Request Response Time of 15 seconds. All FLEX
Quotes may be entered, modified or withdrawn at any point during the request response time. See Options 8, Section 34c2.
11 If the Requesting Member has not indicated an intention to cross or act as principal with respect to any part of the FLEX trade, the member shall promptly accept or reject the displayed BBO:
Provided, however, that if such a Requesting
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