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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

intended to serve as a guidepost and clarify that 1 subparagraph h2 does not apply to an Exchange-Traded Fund Shares based on a U.S. domestic index or portfolio, and 2 subparagraph h2
includes Exchange-Traded Fund Shares that track a portfolio and do not track an index.
The Exchange proposes to amend Options 4, Section 3h2A to remove the phrase for series of portfolio depositary receipts and index fund shares based on international or global indexes,. Today, Options 4, Section 3h, subparagraphs h1 16 and hv 17
permit the Exchange to list options on Exchange-Traded Fund Shares based on generic listing standards for portfolio depositary receipts and index fund shares without applying component based requirements in subparagraphs h2BD. By removing the proposed rule text, the Exchange would make clear that subparagraph h2A applies to Exchange-Traded Fund Shares based on international or global indexes, or portfolios that include non-U.S.
securities, that are listed pursuant to generic listing standards and comply with Options 4, Section 3h and subparagraph h1.
The Exchange also proposes to amend the term comprehensive surveillance agreement within Options 4, Section 16 Subsection hi concerns passive ExchangeTraded Fund Shares. Subsection h1 provides, represent interests in registered investment companies or series thereof organized as open-end management investment companies, unit investment trusts or similar entities that hold portfolios of securities and/or financial instruments, including, but not limited to, stock index futures contracts, options on futures, options on securities and indices, equity caps, collars and floors, swap agreements, forward contracts, repurchase agreements and reverse repurchase agreements the Financial Instruments, and money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements the Money Market Instruments comprising or otherwise based on or representing investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments or that hold securities in one or more other registered investment companies that themselves hold such portfolios of securities and/
or Financial Instruments and Money Market Instruments.
17 Subsection hv concerns active ExchangeTraded Fund Shares. Subsection hv Provides, represents an interest in a registered investment company Investment Company organized as an open-end management company or similar entity, that invests in a portfolio of securities selected by the Investment Companys investment adviser consistent with the Investment Companys investment objectives and policies, which is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value NAV, and when aggregated in the same specified minimum number, may be redeemed at a holders request, which holder will be paid a specified portfolio of securities and/or cash with a value equal to the next determined NAV Managed Fund Share.

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3h2AD to instead provide comprehensive surveillance sharing agreement. This amendment will bring greater clarity to the term.
Further, the Exchange proposes to add the phrase if not available or applicable, the Exchange-Traded Funds within Options 4, Section 3h2B, C, and D to clarify that when component securities are not available, the portfolio of securities upon which the Exchange-Traded Fund Share is based can be used instead. The Exchange notes that not available is intended for cases where the Exchange does not have access to the index components, in those cases the Exchange would look to the portfolio components. The term not applicable is intended if the fund is active and does not track an index and only the portfolio is available. As noted above, this rule text currently exists within Phlx Options 4, Section 3h.
The Exchange also proposes to wordsmith Options 4, Section 3h2B
to amend the phrase to provide, any non-U.S. component securities of an index on which the Exchange-Traded Fund Shares are based or if not available or applicable, the Exchange-Traded Funds portfolio of securities that are not subject to comprehensive surveillance sharing agreements do not in the aggregate represent more than 50% of the weight of the index or portfolio;. The Exchange believes that the revised wording will bring greater clarity to the rule text.
Similarly, the Exchange proposes to wordsmith Options 4, Section 3h2C
and D to relocate the phrase on which the Exchange-Traded Fund Shares are based and add or portfolio to bring greater clarity to the rule text by conforming the rule text of C and D
to the language within B.
Technical Amendments The Exchange proposes a nonsubstantive technical amendment to Options 4, Section 3C2Aii to correct a typographical error by changing a than to a that. The Exchange proposes a non-substantive technical amendment to Options 4, Section 3g2 to capitalize section.
The Exchange proposes a nonsubstantive technical amendment to Options 4, Section 3h1 to change In to in.
Finally, the Exchange proposes to add new Options 4C and mark it as reserved.
Phlx added a 4C to its Rulebook and this rule change will harmonize ISEs
PO 00000

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Rulebook structure to Phlxs Rulebook Structure.18
2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6b of the Act,19 in general, and furthers the objectives of Section 6b5 of the Act,20
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.
Options 2, Section 4a The Exchanges proposal to remove certain rule text from Options 2, Section 4a that refrains Market Makers from purchasing a call option or a put option at a price more than $0.25 below parity is consistent with the Act. The Exchange desires to remove this restriction on Market Makers which does not exist on Cboe or other Nasdaq affiliated markets.21 The proposed rule text is currently waived on ISE pursuant to Options 2, Section 4a2. The Exchange believes that this market maker provision is no longer necessary.
Today, ISE incentivizes Market Makers through pricing 22 and allocation 23 to quote tightly in their assigned options series. Primary Market Makers and Competitive Market Makers also have other obligations with respect to market making 24 in addition to other quoting obligations 25 that they must abide by when quoting on ISE. Also, since the adoption of the rule, the Exchange has adopted the obvious error rule 26 which permits the Exchange to review a transaction as potentially erroneous based on a theoretical price. Also, ISE
orders are subject to trade-through compliance, thereby limiting the prices at which orders may execute.27 Market Makers are relied upon to provide liquidity on ISE, which benefits other Members who have an opportunity to interact with the order flow. The Exchange believes that the obligation to refrain from purchasing a call option or 18 See Securities Exchange Act Release No. 91488
April 6, 2021, 86 FR 19037 April 12, 2021 SR
Phlx202114 Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Phlx Options Rules at Options 4 Under the Options 4 Title in the Exchanges Rulebooks Shell Structure.
19 15 U.S.C. 78fb.
20 15 U.S.C. 78fb5.
21 See supra note 5.
22 See supra note 7.
23 See supra note 8.
24 See supra note 9.
25 See supra note 10.
26 See supra note 11.
27 See supra note 12.

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