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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
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. Specifically, 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 OCC
as issuer and guarantor of FLEX options.
The proposal 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 is consistent with the Act because it will allow institutions to use longer-term FLEX
index options to protect portfolios from long-term market moves with a known and limited cost, thereby better serving the long-term hedging needs of institutional investors and provide those investors with an alternative to hedging their portfolios with off-exchange customized options and warrants.
The Exchanges proposal 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 is consistent with the Act because the process by which the FLEX options are transacted already require floor members to seek liquidity in open outcry. The Exchange details its process above for seeking liquidity in open outcry when transacting FLEX options today on the Trading Floor. As the above-referenced process demonstrates, Phlx seeks to maintain a competitive Trading Floor through the administration of its rules which contain processes to ensure that options transactions are exposed in such a way as to permit other floor members an opportunity to participate in price discovery by requiring floor members to seek liquidity in open outcry. For example, the Options 8 rules require one Floor Market Maker to be present in
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the trading crowd prior to representing an order for execution as a means to expose orders to potential liquidity. As such, separate liquidity assessments by Regulatory staff are not needed.
Similar to Cboe, the proposed rule change incorporates the concept that the expiration date is the date on which an executed FLEX option is submitted to the System, which, on Phlx, is the date the FLEX option is reported to OPRA
and disseminated as an administrative message through the System by Market Operations staff. A FLEX option series is available for trading only when exposed in open outcry and, after completion of the RFQ process, thereafter, Exchange staff manually submits the executed FLEX option to the System through which it is promptly reported to OPRA and disseminated as an administrative message. For purposes of the definition of the System pursuant to Phlx Rules, the date of submission to the Phlx System is the date on which the executed FLEX option is reported to OPRA.
Technical Amendments The Exchanges proposal to amend the rule text utilized to describe the maximum expiration for a FLEX
currency option is consistent with the Act because it conforms that language to the terminology proposed herein to describe maximum expirations for FLEX
index and equity options. The proposal to delete the rule text which states, within three years for FLEX currency options, and replace that rule text with the phrase no more than 3 years from the date on which a FLEX currency option is submitted to the System is non-substantive.
The Exchanges proposals to add a , after the word Equity in the title of Options 8, Section 34, amend the term FLEX Order within Options 8, Section 34b6B to FLEX option order, and remove ; or within Options 8, Section 34b6A are nonsubstantive rule changes. Finally, the proposals to update the name of the post and identify the message sent by the Exchange are also non-substantive rule changes. These proposed amendments do not represent substantive changes to the current FLEX option process, rather these changes are merely wording changes which continue to reflect the current process without substantive change.
B. Self-Regulatory Organizations 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
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of the purposes of the Act. All floor participants are able to transact FLEX
options. As noted herein, this amendment will provide Phlx with a comparable alternative to the OTC
market in customized options. Finally, Cboe, NYSE Arca, and NYSE American permit expirations of up to 15 years for FLEX index and equity options.19
Technical Amendments The Exchanges proposal to amend the rule text utilized to describe the maximum expiration for a FLEX
currency option does not impose an undue burden on competition because it conforms that language to the terminology proposed herein to describe maximum expirations for FLEX index and equity options. The proposal to delete the rule text which states, within three years for FLEX currency options, and replace that rule text with the phrase no more than 3 years from the date on which a FLEX currency option is submitted to the System is non-substantive.
The Exchanges proposals to add a , after the word Equity in the title of Options 8, Section 34, amend the term FLEX Order within Options 8, Section 34b6B to FLEX option order, and remove ; or within Options 8, Section 34b6A are nonsubstantive rule changes. Finally, the proposals to update the name of the post and identify the message sent by the Exchange are also non-substantive rule changes. These proposed amendments do not represent substantive changes to the current FLEX option process, rather these changes are merely wording changes which continue to reflect the current process without substantive change.
C. Self-Regulatory Organizations 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 See Cboes Rule 4.21b4, NYSE Arca 5.32O
and NYSE American Rule 903G.

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