80 FR 34175 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BOX Rule 5020

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 114 (June 15, 2015)

[Federal Register Volume 80, Number 114 (Monday, June 15, 2015)]
[Notices]
[Pages 34175-34177]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-14481]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75132; File No. SR-BOX-2015-21]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
BOX Rule 5020

June 9, 2015.
    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 June 1, 2015, BOX Options Exchange LLC (``Exchange'' or ``BOX'') 
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 self-regulatory organization. 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 amend BOX Rule 5020 (Criteria for 
Underlying Securities) to permit the listing of options overlying ETFs 
that are listed pursuant to generic listing standards on equities 
exchanges for series of portfolio depositary receipts and index fund 
shares based on international or global indexes under which a 
comprehensive surveillance sharing agreement is not required. The text 
of the proposed rule change is available from the principal office of 
the Exchange, at the Commission's Public Reference Room and also on the 
Exchange's Internet Web site at http://boxexchange.com.

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 self-regulatory organization 
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 self-regulatory organization 
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 BOX Rule 5020 (Criteria for 
Underlying Securities) to permit the listing of options overlying ETFs 
that are listed pursuant to generic listing standards on equities 
exchanges for series of portfolio depositary receipts and index fund 
shares based on international or global indexes under which a 
comprehensive surveillance sharing agreement (``comprehensive 
surveillance agreement'' or ``CSSA'') is not required.\3\ This proposal 
will enable the Exchange to list and trade options on ETFs without a 
CSSA provided that the ETF is listed on an equities exchange pursuant 
to the generic listings standards that do not require a CSSA pursuant 
to Rule 19b-4(e) \4\ of the Exchange Act. Rule 19b-4(e) provides that 
the listing and trading of a new derivative securities product by a 
self-regulatory organization (``SRO'') shall not be deemed a proposed 
rule change, pursuant to paragraph (c)(1) of Rule 19b-4, if the 
Commission has approved, pursuant to Section 19(b) of the Exchange Act, 
the SRO's trading rules, procedures and listing standards for the 
product class that would include the new derivatives securities 
product, and the SRO has a surveillance program for the product 
class.\5\ In other words, the proposal will amend the listing standards 
to allow the Exchange to list and trade options on ETFs based on 
international or global indexes to a similar degree that they are 
allowed to be listed on several equities exchanges.\6\
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    \3\ See e.g., NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 
Equities Rule 5.2(j)(3) Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(e).
    \5\ When relying on Rule 19b-4(e), the SRO must submit Form 19b-
4(e) to the Commission within five business days after the SRO 
begins trading the new derivative securities products. See 
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952 (December 22, 1998).
    \6\ See NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 
Equities Rule 5.2(j)(3) Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii). See also 
Securities Exchange Act Release Nos. 54739 (November 9, 2006), 71 FR 
66993 (SR-Amex-2006-78); 55269 (February 9, 2007), 72 FR 7490 
(February 15, 2007) (SR-NASDAQ-2006-050); 55621 (April 12, 2007), 72 
FR 19571 (April 18, 2007) (SR-NYSEArca-2006-86).
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Exchange-Traded Funds
    The Exchange allows for the listing and trading of options on ETFs. 
Rule 5020(h)(2)(A)-(C) provide the listings standards for options on 
ETFs with non-U.S. component securities, such as ETFs based on 
international or global indexes. Rule 5020(h)(2)(A) requires that any 
non-U.S. component securities of an index or portfolio of securities on 
which the Exchange-Traded Fund Shares are based that are not subject to 
comprehensive surveillance agreements do not in the aggregate represent 
more than 50% of the weight of the index or portfolio.\7\ Rule 
5020(h)(2)(B) requires that component securities of an index or 
portfolio of securities on which the Exchange-Traded Fund Shares are 
based for which the primary market is in any one country that is not 
subject to a comprehensive surveillance agreement do not represent 20% 
or more of the weight of the index.\8\ Rule 5020(h)(2)(C) requires that 
component securities of an index or portfolio of securities on which 
the Exchange-Traded Fund Shares are based for which the primary market 
is in any two countries that are not subject to comprehensive 
surveillance agreements do not represent 33% or more of the weight of 
the index.\9\
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    \7\ See Rule 5020(h)(2)(A).
    \8\ See Rule 5020(h)(2)(B).
    \9\ See Rule 5020(h)(2)(C).
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Generic Listing Standards for Exchange-Traded Funds
    The Exchange notes that the Commission has previously approved 
generic listing standards pursuant to Rule 19b-4(e) \10\ of the 
Exchange Act for ETFs based on indexes that consist of stocks listed on 
U.S. exchanges.\11\ In

[[Page 34176]]

general, the criteria for the underlying component securities in the 
international and global indexes are similar to those for the domestic 
indexes, but with modifications as appropriate for the issues and risks 
associated with non-U.S. securities.
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    \10\ 17 CFR 240.19b-4(e).
    \11\ See Commentary .03 to Amex Rule 1000 and Commentary .02 to 
Amex Rule 1000A. See also Securities Exchange Act Release No. 42787 
(May 15, 2000), 65 FR 33598 (May 24, 2000).
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    In addition, the Commission has previously approved the listing and 
trading of ETFs based on international indexes--those based on non-U.S. 
component stocks--as well as global indexes--those based on non-U.S. 
and U.S. component stocks.\12\
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    \12\ See, e.g., Securities Exchange Act Release Nos. 50189 
(August 12, 2004), 69 FR 51723 (August 20, 2004) (approving the 
listing and trading of certain Vanguard International Equity Index 
Funds); 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001) 
(approving the listing and trading of series of the iShares Trust 
based on certain S&P global indexes).
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    In approving ETFs for equities exchange trading, the Commission 
thoroughly considered the structure of the ETFs, their usefulness to 
investors and to the markets, and SRO rules that govern their trading. 
The Exchange believes that allowing the listing of options overlying 
ETFs that are listed pursuant to the generic listing standards on 
equities exchanges for ETFs based on international and global indexes 
and applying Rule 19b-4(e) \13\ should fulfill the intended objective 
of that Rule by allowing options on those ETFs that have satisfied the 
generic listing standards to commence trading, without the need for the 
public comment period and Commission approval. The proposed rule has 
the potential to reduce the time frame for bringing options on ETFs to 
market, thereby reducing the burdens on issuers and other market 
participants. The failure of a particular ETF to comply with the 
generic listing standards under Rule 19b-4(e) \14\ would not, however, 
preclude the Exchange from submitting a separate filing pursuant to 
Section 19(b)(2),\15\ requesting Commission approval to list and trade 
options on a particular ETF.
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    \13\ 17 CFR 240.19b-4(e).
    \14\ Id.
    \15\ 15 U.S.C. 78s(b)(2).
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Requirements for Listing and Trading Options Overlying ETFs Based on 
International and Global Indexes
    Options on ETFs listed pursuant to these generic standards for 
international and global indexes would be traded, in all other 
respects, under the Exchange's existing trading rules and procedures 
that apply to options on ETFs and would be covered under the Exchange's 
surveillance program for options on ETFs.
    Pursuant to the proposed rule, the Exchange may list and trade 
options on an ETF without a CSSA provided that the ETF is listed 
pursuant to generic listing standards for series of portfolio 
depositary receipts and index fund shares based on international or 
global indexes under which a comprehensive surveillance agreement is 
not required. The Exchange believes that these generic listing 
standards are intended to ensure that stocks with substantial market 
capitalization and trading volume account for a substantial portion of 
the weight of an index or portfolio.
    The Exchange believes that this proposed listing standard for 
options on ETFs is reasonable for international and global indexes, 
and, when applied in conjunction with the other listing 
requirements,\16\ will result in options overlying ETFs that are 
sufficiently broad-based in scope and not readily susceptible to 
manipulation. The Exchange also believes that allowing the Exchange to 
list options overlying ETFs that are listed on equities exchanges 
pursuant to generic standards for series of portfolio depositary 
receipts and index fund shares based on international or global indexes 
under which a CSSA is not required, will result in options overlying 
ETFs that are adequately diversified in weighting for any single 
security or small group of securities to significantly reduce concerns 
that trading in options overlying ETFs based on international or global 
indexes could become a surrogate for trading in unregistered 
securities.
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    \16\ All of the other listing criteria under the Exchange's 
rules will continue to apply to any options listed pursuant to the 
proposed rule change.
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    The Exchange believes that ETFs based on international and global 
indexes that have been listed pursuant to the generic standards are 
sufficiently broad-based enough as to make options overlying such ETFs 
not susceptible instruments for manipulation. The Exchange believes 
that the threat of manipulation is sufficiently mitigated for 
underlying ETFs that have been listed on equities exchanges pursuant to 
generic listing standards for series of portfolio depositary receipts 
and index fund shares based on international or global indexes under 
which a comprehensive surveillance agreement is not required and for 
the overlying options, that the Exchange does not see the need for CSSA 
to be in place before listing and trading options on such ETFs. The 
Exchange notes that its proposal does not replace the need for a CSSA 
as provided in the current rule. The provisions of the current rule, 
including the need for a CSSA, remain materially unchanged in the 
proposed rule and will continue to apply to options on ETFs that are 
not listed on an equities exchange pursuant to generic listing 
standards for series of portfolio depositary receipts and index fund 
shares based on international or global indexes under which a 
comprehensive surveillance agreement is not required. Instead, the 
proposed rule adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\17\ in general, and Section 6(b)(5) of the Act,\18\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 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. In particular, the proposed rules have the potential 
to reduce the time frame for bringing options on ETFs to market, 
thereby reducing the burdens on issuers and other market participants. 
The Exchange also believes enabling the listing and trading of options 
on ETFs pursuant to this new listing standard will benefit investors by 
providing them with valuable risk management tools. The Exchange notes 
that its proposal does not replace the need for a CSSA as provided in 
the current rule. The provisions of the current rule, including the 
need for a comprehensive surveillance sharing agreement, remain 
materially unchanged in the proposed rule and will continue to apply to 
options on ETFs that are not listed on an equities exchange pursuant to 
generic listing standards for series of portfolio depositary receipts 
and index fund shares based on international or global indexes under 
which a comprehensive surveillance agreement is not required. Instead, 
the proposed rule adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange in a manner 
that is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and

[[Page 34177]]

equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanisms 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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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. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to recent rule changes filed by the MIAX Options 
Exchange (``MIAX''), NASDAQ OMX PHLX, LLC (``Phlx'') and International 
Securities Exchange, LLC (``ISE'').\19\ Furthermore, the Exchange 
believes this proposed rule change will benefit investors by providing 
additional methods to trade options on ETFs, and by providing them with 
valuable risk management tools. Specifically, the Exchange believes 
that market participants on the Exchange would benefit from the 
introduction and availability of options on ETFs in a manner that is 
similar to equities exchanges and will provide investors with a venue 
on which to trade options on these products. For all the reasons stated 
above, 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, and believes the proposed 
change will enhance competition.
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    \19\ See Securities Exchange Act Release Nos. 74509 (March 13, 
2015), 80 FR 14425 (March 19, 2015) (SR-MIAX-2015-04); 74553 (March 
20, 2015), 80 FR 16072 (March 26, 2015) (SR-Phlx-2015-27); 74832 
(April 29, 2015), 80 FR 25738 (May 5, 2015) (SR-ISE-2015-16).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the 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) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \22\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ 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 Exchange 
stated that waiver of the operative delay will permit the Exchange to 
list and trade certain ETF options on the same basis as other options 
markets.\24\ The Commission believes the waiver of the operative delay 
is consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\25\
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ See supra note 19.
    \25\ 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 change 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-BOX-2015-21 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-BOX-2015-21. 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 Web site (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 Web site 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BOX-2015-21, and should be 
submitted on or before July 6, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-14481 Filed 6-12-15; 8:45 am]
 BILLING CODE 8011-01-P