80 FR 77399 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change To Make Permanent the Pilot Program Eliminating Minimum Value Sizes for Opening Transactions in New Series of FLEX Options
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 239 (December 14, 2015)
Federal Register Volume 80, Issue 239 (December 14, 2015)
| Page Range | 77399-77402 | |
| FR Document | 2015-31333 |
[Federal Register Volume 80, Number 239 (Monday, December 14, 2015)] [Notices] [Pages 77399-77402] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-31333] [[Page 77399]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76593; File No. SR-Phlx-2015-94] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change To Make Permanent the Pilot Program Eliminating Minimum Value Sizes for Opening Transactions in New Series of FLEX Options December 8, 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 November 25, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal amend [sic] Phlx Rule 1079 (FLEX Index, Equity and Currency Options) to make permanent a pilot program that eliminates minimum value sizes for opening transactions in new series of FLEX index options and FLEX equity options (together known as ``FLEX Options'').\3\ --------------------------------------------------------------------------- \3\ In addition to FLEX Options, FLEX currency options are also traded on the Exchange. These flexible index, equity, and currency options provide investors the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices; and may have expiration dates within five years. See Rule 1079. FLEX currency options traded on the Exchange are also known as FLEX FX Options. The pilot program discussed herein does not encompass FLEX currency options. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqomxphlx.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 purpose of this proposed rule change is to amend Phlx Rule 1079 (FLEX Index, Equity and Currency Options) to make permanent a pilot program that eliminates minimum value sizes for opening transactions in new series of FLEX Options (the ``Pilot Program'' or ``Pilot''), and to indicate that the minimum size of a request for quote (``RFQ'') is one contract. The Exchange is requesting the Commission to permanently approve the Pilot Program. The Exchange believes that the Pilot Program has been successful and well received by its membership and the investing public for the period that it has been in operation as a pilot program.\4\ --------------------------------------------------------------------------- \4\ The Pilot Program was instituted in 2010 and last extended in 2015. See Securities Exchange Act Release Nos. 62900 (September 13, 2010), 75 FR 57098 (September 17, 2010) (SR-Phlx-2010-123) (notice of filing and immediate effectiveness of proposal instituting Pilot Program); and 75794 (August 31, 2015), 80 FR 53606 (September 4, 2015) (SR-Phlx-2015-74) (notice of filing and immediate effectiveness extending Pilot Program through January 31, 2016). --------------------------------------------------------------------------- Rule 1079 deals with the process of listing and trading FLEX equity, index, and currency options on the Exchange. Rule 1079(a)(8)(A) currently sets the minimum opening transaction value size in the case of a FLEX Option in a newly established (opening) series if there is no open interest in the particular series when a RFQ is submitted (except as provided in Commentary .01 to Rule 1079): (i) $10 million underlying equivalent value, respecting FLEX market index options, and $5 million underlying equivalent value respecting FLEX industry index options; \5\ (ii) the lesser of 250 contracts or the number of contracts overlying $1 million in the underlying securities, with respect to FLEX equity options (together the ``minimum value size'').\6\ --------------------------------------------------------------------------- \5\ Market index options and industry index options are broad- based index options and narrow-based index options, respectively. See Rule 1000A(b)(11) and (12). \6\ Subsection (a)(8)(A) also provides a third alternative: (iii) 50 contracts in the case of FLEX currency options. However, this alternative is not part of the Pilot Program and therefore is not changed by this proposal. --------------------------------------------------------------------------- Presently, Commentary .01 to Rule 1079 states that by virtue of the Pilot Program ending January 31, 2016, or the date on which the pilot is approved on a permanent basis, there shall be no minimum value size requirements for FLEX Options as noted in subsections (a)(8)(A)(i) and (a)(8)(A)(ii) of Rule 1079. The Exchange now proposes to make the Pilot Program permanent.\7\ To accomplish this change, the Exchange is proposing to eliminate the rule text describing the Pilot Program, which is contained in Commentary .01 to Rule 1079. The Exchange is proposing to indicate that the minimum value size requirements for a RFQ for FLEX Options as noted in subsections (a)(8)(A)(i) and (a)(8)(A)(ii) of Rule 1079 is one contract for all FLEX Options. Thus, as a result of the proposed change to make the Pilot Program permanent, subsections (a)(8)(A)(i) and (a)(8)(A)(ii) of Rule 1079 would state, in pertinent part, that if there is no open interest when an RFQ is submitted then the minimum size of an RFQ is: (i) One contract in the case of FLEX market index options, and one contract in the case of FLEX industry index options; and (ii) One contract in the case of FLEX equity options.\8\ --------------------------------------------------------------------------- \7\ The Exchange notes that any positions established under this Pilot would not be impacted by the expiration of the Pilot. For example, a 10-contract FLEX equity option opening position that overlies less than $1 million in the underlying security and expires in January 2016 could be established during the Pilot. If the Pilot Program were not made permanent or extended, the position would continue to exist and any further trading in the series would be subject to the minimum value size requirements for continued trading in that series. \8\ In proposing to make the Pilot Program permanent, the Exchange is simply indicating that if there is no open interest when an RFQ is submitted then the minimum size of an RFQ will be one contract for FLEX market index options, FLEX industry index options, and FLEX equity options. --------------------------------------------------------------------------- In support of approving the Pilot Program on a permanent basis, and as required by the Pilot Program's approval order, the Exchange is submitting to the Commission a Pilot Program report (``Report''), which is a public report detailing the Exchange's experience with the Pilot.\9\ The Report covers only opening transactions in new series, as per the Pilot. Specifically, the Exchange is providing the Commission with a Report that includes: (i) Data and analysis on the open interest and trading volume in (a) FLEX equity options that have an opening transaction with a minimum size of 0 to 249 contracts and less than $1 million in underlying value; (b) FLEX index options that have an opening [[Page 77400]] transaction with a minimum opening size of less than $10 million in underlying equivalent value; and (ii) analysis of the types of investors that initiated opening FLEX Options transactions (i.e., institutional, high net worth, or retail).\10\ --------------------------------------------------------------------------- \9\ A copy of the Report is attached as Exhibit 3. \10\ The Report thus discusses only those FLEX option transactions that happened because the Pilot was in place. --------------------------------------------------------------------------- The Exchange believes that there is sufficient investor interest and demand in the Pilot Program to warrant its permanent approval and indicate one contract as the minimum size of an RFQ for all opening transactions in new series of FLEX equity Options and FLEX index Options. The Exchange believes that, for the period that the Pilot Program has been in operation, it has provided investors with additional means of managing their risk exposures and carrying out their investment objectives. Furthermore, the Exchange has not experienced any adverse market effects with respect to the Pilot Program. The Exchange believes that eliminating the minimum value size requirements for opening transactions in new FLEX series on a permanent basis is important and necessary to the Exchange's efforts to create a product and market that provide its membership and investors interested in FLEX-type options with an improved but comparable alternative to the over-the-counter (``OTC'') market in customized options, which can take on contract characteristics similar to FLEX Options but are not subject to the same restrictions. By making the Pilot Program permanent, market participants would continue to have greater flexibility in determining whether to execute their customized options in an exchange environment or in the OTC market. The Exchange believes that market participants would benefit from being able to trade these customized options in an exchange environment in several ways, including, but not limited to, the following: (i) Enhanced efficiency in initiating and closing out positions; (ii) increased market transparency; and (iii) heightened contra-party creditworthiness due to the role of The Options Clearing Corporation (``OCC'') as issuer and guarantor of FLEX Options. The Exchange also believes that the Pilot Program is wholly consistent with comments by then Secretary of the Treasury Timothy F. Geithner, to the U.S. Senate. In particular, Secretary Geithner has stated that: Market efficiency and price transparency should be improved in derivatives markets by requiring the clearing of standardized contracts through regulated [central counterparties] and by moving the standardized part of these markets onto regulated exchanges and regulated transparent electronic trade execution systems for OTC derivatives and by requiring development of a system for timely reporting of trades and prompt dissemination of prices and other trade information. Furthermore, regulated financial institutions should be encouraged to make greater use of regulated exchange- traded derivatives. Competition between appropriately regulated OTC derivatives markets and regulated exchanges will make both sets of markets more efficient and thereby better serve end-users of derivatives.\11\ --------------------------------------------------------------------------- \11\ See letter from Secretary Geithner to the Honorable Harry Reid, United States Senate (May 13, 2009), located at http://www.financialstability.gov/docs/OTCletter.pdf. The Exchange believes that the elimination of the minimum value size requirements for opening FLEX transactions in new FLEX series on a permanent basis would provide FLEX-participating members with greater flexibility in structuring the terms of FLEX Options that best comports with their and their customers' particular needs. In this regard, the Exchange notes that the minimum value size requirements for opening FLEX transactions in new FLEX series were originally put in place to limit participation in FLEX Options to sophisticated, high net worth investors rather than retail investors. However, the Exchange believes that the restriction is no longer necessary and is overly restrictive. The Exchange has also not experienced any adverse market effects with respect to the Pilot Program eliminating the minimum value size requirements for opening FLEX transactions in new FLEX series. Again, based on the Exchange's experience to date and throughout the Pilot Program period, the minimum value size requirements are at times too large to accommodate the needs of members and their customers--who may be institutional, high net worth, or retail--that currently participate in the OTC market. In this regard, the Exchange notes that, prior to establishing the Pilot Program, exchanges that allow FLEX options have received numerous requests from broker-dealers representing institutional, high net worth and retail investors indicating that the minimum value size requirements for opening transactions in new FLEX series prevented them from bringing transactions that are already taking place in the OTC market to an exchange environment. The Exchange believes that eliminating the minimum value size requirements for opening transactions in new FLEX series on a permanent basis would further broaden the base of investors that use FLEX Options to manage their trading and investment risk, including investors that currently trade in the OTC market for customized options, where similar size restrictions do not apply. The Exchange also believes that this may open up FLEX Options to more retail investors. The Exchange does not believe that this raises any unique regulatory concerns because existing safeguards--such as certain position limit, exercise limit, and reporting requirements--continue to apply.\12\ In addition, the Exchange notes that FLEX Options are subject to the options disclosure document (``ODD'') requirements of Rule 9b-1 under the Act.\13\ No broker or dealer can accept an order from a customer to purchase or sell an option contract relating to an options class that is the subject of a definitive ODD (including FLEX Options), or approve the customer's account for the trading of such an option, unless the broker or dealer furnishes or has furnished to the customer a copy of the definitive ODD. The ODD contains a description, special features, and special risks of FLEX Options. Lastly, similar to any other options, FLEX Options are subject to supervision and suitability requirements, such are in Rule 1025 (Supervision of Accounts) and Rule 1026 (Suitability). --------------------------------------------------------------------------- \12\ Certain position limit, aggregation and exercise limit requirements continue to apply to FLEX Options in accordance with Rule 1001 (Position Limits) and Rule 1002 (Exercise Limits). \13\ 17 CFR 240.9b-1. --------------------------------------------------------------------------- In proposing the Pilot Program itself and in now proposing to make it permanent, the Exchange is cognizant of the need for market participants to have substantial options transaction capacity and flexibility to hedge their substantial investment portfolios, on the one hand, and the potential for adverse effects that the minimum value size restrictions were originally designed to address, on the other. However, the Exchange has not experienced any adverse market effects with respect to the Pilot Program. The Exchange is also cognizant of the OTC market, in which similar restrictions on minimum value size do not apply. In light of these considerations and Secretary Geithner's comments on moving the standardized parts of OTC contracts onto regulated exchanges, the Exchange believes that making the Pilot Program permanent is appropriate and reasonable and will provide market participants with additional flexibility in determining whether to execute their customized [[Page 77401]] options in an exchange environment or in the OTC market. The Exchange believes that market participants benefit from being able to trade these customized options in an exchange environment in several ways, including, but not limited to, enhanced efficiency in initiating and closing out positions, increased market transparency, and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of FLEX Options. Pursuant to this filing, the Exchange is proposing to adopt the existing Pilot Program on a permanent basis. Specifically, the Exchange proposes to eliminate in subsections (a)(8)(A)(i) and (a)(8)(A)(ii) of Rule 1079 references to different minimum sizes applicable to opening FLEX transactions in FLEX market index Options, FLEX industry index Options, and FLEX equity Options, and to indicate that the minimum size for all three such options will be one contract; and to eliminate the Pilot Program set forth in Commentary .01 to Rule 1079.\14\ The proposal to make the Pilot Program permanent and thereby eliminate the minimum value size applicable to opening transactions in new FLEX series on the Exchange is similar to a rule change by the NYSE Arca and CBOE when adopting a similar pilot program on a permanent basis.\15\ --------------------------------------------------------------------------- \14\ As noted, in the case of FLEX currency options, however, which are not in the Pilot Program, the minimum value would be 50 contracts. Subsection (a)(8)(A)(ii) to Rule 1079. \15\ See Exchange Act Release No. 72537 (July 3, 2014), 79 FR 39442 (July 10, 2014) (SR-NYSEArca-2014-25) (order approving proposal to make permanent NYSE Arca's FLEX no minimum value pilot). See also Exchange Act Release No. 67624 (August 8, 2012), 77 FR 48580 (August 14, 2012) (SR-CBOE-2012-040) (order approving proposal to make permanent CBOE's FLEX no minimum value pilot). --------------------------------------------------------------------------- For the foregoing reasons, the Exchange believes that the proposed changes to the minimum value size for opening transactions in new series of FLEX equity and index Options are reasonable and appropriate, promote just and equitable principles of trade, and facilitate transactions in securities while continuing to foster the public interest and investor protection, and therefore should be adopted on a permanent basis. The Exchange will continue to monitor the usage of FLEX Options and review whether changes need to be made to its Rules or the ODD to address any changes in retail FLEX Option participation or any other issues that may occur as a result of the elimination of the minimum value sizes on a permanent basis. 2. Statutory Basis The Exchange's proposal is consistent with Section 6(b) of the Act \16\ in general, and furthers the objectives of Section 6(b)(5) of the Act \17\ 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, and to remove impediments to and perfect the mechanisms of a free and open market and a national market system. Specifically, the Exchange believes that the permanent approval of the Pilot Program, which eliminates minimum value size requirements for opening FLEX transactions in new FLEX series, would provide greater opportunities for investors to manage risk through the use of FLEX Options. Further, the Exchange notes that it has not experienced any adverse effects from the operation of the Pilot Program. The Exchange believes that making the Pilot Program permanent does not raise any unique regulatory concerns. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b). \17\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange also believes that eliminating the minimum value size requirements for opening FLEX transactions in new FLEX series, thus affording all market participants with an equal opportunity to tailor opening FLEX transactions to meet their own investment objectives without being encumbered by a minimum contract size, will help to remove impediments to and perfect the mechanism of a free and open market and a national market system. In addition, affording market participants who trade FLEX Options the same investment tools available to their counterparts on the NYSE Arca and CBOE will foster cooperation and coordination with persons engaged in facilitating transactions in securities and will help to remove impediments to a free and open market and a national market system. The Exchange believes that adopting rules similar to those approved for and in use at NYSE Arca and CBOE, as discussed, does not raise any unique regulatory concerns. Lastly, the Exchange also believes that the proposed rule change, which provides all market participants, including public investors, with additional opportunities to trade customized options in an exchange environment and subject to exchange based rules, is appropriate in the public interest and for the protection of investors. 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. To the contrary, the proposal would give traders and investors the opportunity to more effectively tailor their trading, investing and hedging through FLEX options traded on the Exchange. Specifically, the proposal is structured to offer the same enhancement to all market participants, regardless of account type, and will not impose a competitive burden on any participant. The Exchange believes that adopting similar FLEX rules to those of NYSE Arca and CBOE will allow the Exchange to more efficiently compete for FLEX Options orders. In addition, the Exchange believes that adopting the Pilot Program on a permanent basis will enable the Exchange to compete with the OTC market, in which similar restrictions on minimum value size do not apply. 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 Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or [[Page 77402]] Send an email to [email protected]. Please include File Number SR-Phlx-2015-94 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-Phlx-2015-94. 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 offices 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-Phlx-2015-94, and should be submitted on or before January 4, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\18\ --------------------------------------------------------------------------- \18\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2015-31333 Filed 12-11-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 239 / Monday, December 14, 2015 / Notices 77399
SECURITIES AND EXCHANGE proposed rule change. The text of these Presently, Commentary .01 to Rule
COMMISSION statements may be examined at the 1079 states that by virtue of the Pilot
places specified in Item IV below. The Program ending January 31, 2016, or the
[Release No. 34–76593; File No. SR–Phlx–
Exchange has prepared summaries, set date on which the pilot is approved on
2015–94]
forth in sections A, B, and C below, of a permanent basis, there shall be no
Self-Regulatory Organizations; the most significant aspects of such minimum value size requirements for
NASDAQ OMX PHLX LLC; Notice of statements. FLEX Options as noted in subsections
Filing of Proposed Rule Change To (a)(8)(A)(i) and (a)(8)(A)(ii) of Rule 1079.
A. Self-Regulatory Organization’s The Exchange now proposes to make
Make Permanent the Pilot Program Statement of the Purpose of, and
Eliminating Minimum Value Sizes for the Pilot Program permanent.7 To
Statutory Basis for, the Proposed Rule accomplish this change, the Exchange is
Opening Transactions in New Series of Change
FLEX Options proposing to eliminate the rule text
1. Purpose describing the Pilot Program, which is
December 8, 2015. contained in Commentary .01 to Rule
Pursuant to Section 19(b)(1) of the The purpose of this proposed rule
1079. The Exchange is proposing to
Securities Exchange Act of 1934 change is to amend Phlx Rule 1079
indicate that the minimum value size
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 (FLEX Index, Equity and Currency
requirements for a RFQ for FLEX
notice is hereby given that on November Options) to make permanent a pilot
Options as noted in subsections
25, 2015, NASDAQ OMX PHLX LLC program that eliminates minimum value
(a)(8)(A)(i) and (a)(8)(A)(ii) of Rule 1079
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the sizes for opening transactions in new
is one contract for all FLEX Options.
Securities and Exchange Commission series of FLEX Options (the ‘‘Pilot
Thus, as a result of the proposed change
(‘‘SEC’’ or ‘‘Commission’’) the proposed Program’’ or ‘‘Pilot’’), and to indicate
to make the Pilot Program permanent,
rule change as described in Items I, II, that the minimum size of a request for
subsections (a)(8)(A)(i) and (a)(8)(A)(ii)
and III, below, which Items have been quote (‘‘RFQ’’) is one contract. The
of Rule 1079 would state, in pertinent
prepared by the Exchange. The Exchange is requesting the Commission
part, that if there is no open interest
Commission is publishing this notice to to permanently approve the Pilot
when an RFQ is submitted then the
solicit comments on the proposed rule Program. The Exchange believes that the
minimum size of an RFQ is: (i) One
change from interested persons. Pilot Program has been successful and
contract in the case of FLEX market
well received by its membership and the
I. Self-Regulatory Organization’s index options, and one contract in the
investing public for the period that it
Statement of the Terms of Substance of case of FLEX industry index options;
has been in operation as a pilot
the Proposed Rule Change and (ii) One contract in the case of FLEX
program.4
equity options.8
The Exchange is filing with the Rule 1079 deals with the process of In support of approving the Pilot
Commission a proposal amend [sic] listing and trading FLEX equity, index, Program on a permanent basis, and as
Phlx Rule 1079 (FLEX Index, Equity and and currency options on the Exchange. required by the Pilot Program’s approval
Currency Options) to make permanent a Rule 1079(a)(8)(A) currently sets the order, the Exchange is submitting to the
pilot program that eliminates minimum minimum opening transaction value Commission a Pilot Program report
value sizes for opening transactions in size in the case of a FLEX Option in a (‘‘Report’’), which is a public report
new series of FLEX index options and newly established (opening) series if detailing the Exchange’s experience
FLEX equity options (together known as there is no open interest in the with the Pilot.9 The Report covers only
‘‘FLEX Options’’).3 particular series when a RFQ is opening transactions in new series, as
The text of the proposed rule change submitted (except as provided in per the Pilot. Specifically, the Exchange
is available on the Exchange’s Web site Commentary .01 to Rule 1079): (i) $10 is providing the Commission with a
at http://nasdaqomxphlx.cchwall million underlying equivalent value, Report that includes: (i) Data and
street.com, at the principal office of the respecting FLEX market index options, analysis on the open interest and
Exchange, and at the Commission’s and $5 million underlying equivalent trading volume in (a) FLEX equity
Public Reference Room. value respecting FLEX industry index options that have an opening
options; 5 (ii) the lesser of 250 contracts transaction with a minimum size of 0 to
II. Self-Regulatory Organization’s or the number of contracts overlying $1
Statement of the Purpose of, and 249 contracts and less than $1 million
million in the underlying securities, in underlying value; (b) FLEX index
Statutory Basis for, the Proposed Rule with respect to FLEX equity options
Change options that have an opening
(together the ‘‘minimum value size’’).6
In its filing with the Commission, the 7 The Exchange notes that any positions
Exchange included statements 4 The Pilot Program was instituted in 2010 and established under this Pilot would not be impacted
concerning the purpose of and basis for last extended in 2015. See Securities Exchange Act by the expiration of the Pilot. For example, a 10-
the proposed rule change and discussed Release Nos. 62900 (September 13, 2010), 75 FR contract FLEX equity option opening position that
57098 (September 17, 2010) (SR–Phlx–2010–123) overlies less than $1 million in the underlying
any comments it received on the (notice of filing and immediate effectiveness of security and expires in January 2016 could be
proposal instituting Pilot Program); and 75794 established during the Pilot. If the Pilot Program
1 15 U.S.C. 78s(b)(1). (August 31, 2015), 80 FR 53606 (September 4, 2015) were not made permanent or extended, the position
2 17 CFR 240.19b–4. (SR–Phlx–2015–74) (notice of filing and immediate would continue to exist and any further trading in
3 In addition to FLEX Options, FLEX currency effectiveness extending Pilot Program through the series would be subject to the minimum value
options are also traded on the Exchange. These January 31, 2016). size requirements for continued trading in that
mstockstill on DSK4VPTVN1PROD with NOTICES
flexible index, equity, and currency options provide 5 Market index options and industry index series.
investors the ability to customize basic option options are broad-based index options and narrow- 8 In proposing to make the Pilot Program
features including size, expiration date, exercise based index options, respectively. See Rule permanent, the Exchange is simply indicating that
style, and certain exercise prices; and may have 1000A(b)(11) and (12). if there is no open interest when an RFQ is
expiration dates within five years. See Rule 1079. 6 Subsection (a)(8)(A) also provides a third submitted then the minimum size of an RFQ will
FLEX currency options traded on the Exchange are alternative: (iii) 50 contracts in the case of FLEX be one contract for FLEX market index options,
also known as FLEX FX Options. The pilot program currency options. However, this alternative is not FLEX industry index options, and FLEX equity
discussed herein does not encompass FLEX part of the Pilot Program and therefore is not options.
currency options. changed by this proposal. 9 A copy of the Report is attached as Exhibit 3.
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![77400 Federal Register / Vol. 80, No. 239 / Monday, December 14, 2015 / Notices
transaction with a minimum opening contracts through regulated [central new FLEX series on a permanent basis
size of less than $10 million in counterparties] and by moving the would further broaden the base of
underlying equivalent value; and (ii) standardized part of these markets onto investors that use FLEX Options to
regulated exchanges and regulated
analysis of the types of investors that transparent electronic trade execution
manage their trading and investment
initiated opening FLEX Options systems for OTC derivatives and by requiring risk, including investors that currently
transactions (i.e., institutional, high net development of a system for timely reporting trade in the OTC market for customized
worth, or retail).10 of trades and prompt dissemination of prices options, where similar size restrictions
The Exchange believes that there is and other trade information. Furthermore, do not apply. The Exchange also
sufficient investor interest and demand regulated financial institutions should be believes that this may open up FLEX
in the Pilot Program to warrant its encouraged to make greater use of regulated Options to more retail investors. The
permanent approval and indicate one exchange-traded derivatives. Competition
Exchange does not believe that this
contract as the minimum size of an RFQ between appropriately regulated OTC
derivatives markets and regulated exchanges raises any unique regulatory concerns
for all opening transactions in new will make both sets of markets more efficient because existing safeguards—such as
series of FLEX equity Options and FLEX and thereby better serve end-users of certain position limit, exercise limit,
index Options. The Exchange believes derivatives.11 and reporting requirements—continue
that, for the period that the Pilot to apply.12 In addition, the Exchange
The Exchange believes that the
Program has been in operation, it has notes that FLEX Options are subject to
elimination of the minimum value size
provided investors with additional the options disclosure document
requirements for opening FLEX
means of managing their risk exposures (‘‘ODD’’) requirements of Rule 9b–1
transactions in new FLEX series on a
and carrying out their investment under the Act.13 No broker or dealer can
permanent basis would provide FLEX-
objectives. Furthermore, the Exchange accept an order from a customer to
participating members with greater
has not experienced any adverse market purchase or sell an option contract
flexibility in structuring the terms of
effects with respect to the Pilot Program. relating to an options class that is the
The Exchange believes that FLEX Options that best comports with
their and their customers’ particular subject of a definitive ODD (including
eliminating the minimum value size FLEX Options), or approve the
requirements for opening transactions in needs. In this regard, the Exchange
notes that the minimum value size customer’s account for the trading of
new FLEX series on a permanent basis such an option, unless the broker or
is important and necessary to the requirements for opening FLEX
transactions in new FLEX series were dealer furnishes or has furnished to the
Exchange’s efforts to create a product customer a copy of the definitive ODD.
and market that provide its membership originally put in place to limit
participation in FLEX Options to The ODD contains a description, special
and investors interested in FLEX-type features, and special risks of FLEX
sophisticated, high net worth investors
options with an improved but Options. Lastly, similar to any other
rather than retail investors. However,
comparable alternative to the over-the- options, FLEX Options are subject to
the Exchange believes that the
counter (‘‘OTC’’) market in customized supervision and suitability
restriction is no longer necessary and is
options, which can take on contract requirements, such are in Rule 1025
overly restrictive. The Exchange has
characteristics similar to FLEX Options (Supervision of Accounts) and Rule
also not experienced any adverse market
but are not subject to the same 1026 (Suitability).
effects with respect to the Pilot Program
restrictions. By making the Pilot In proposing the Pilot Program itself
eliminating the minimum value size
Program permanent, market participants and in now proposing to make it
requirements for opening FLEX
would continue to have greater permanent, the Exchange is cognizant of
transactions in new FLEX series. Again,
flexibility in determining whether to based on the Exchange’s experience to the need for market participants to have
execute their customized options in an date and throughout the Pilot Program substantial options transaction capacity
exchange environment or in the OTC period, the minimum value size and flexibility to hedge their substantial
market. The Exchange believes that requirements are at times too large to investment portfolios, on the one hand,
market participants would benefit from accommodate the needs of members and and the potential for adverse effects that
being able to trade these customized their customers—who may be the minimum value size restrictions
options in an exchange environment in institutional, high net worth, or retail— were originally designed to address, on
several ways, including, but not limited that currently participate in the OTC the other. However, the Exchange has
to, the following: (i) Enhanced market. In this regard, the Exchange not experienced any adverse market
efficiency in initiating and closing out notes that, prior to establishing the Pilot effects with respect to the Pilot Program.
positions; (ii) increased market Program, exchanges that allow FLEX The Exchange is also cognizant of the
transparency; and (iii) heightened options have received numerous OTC market, in which similar
contra-party creditworthiness due to the requests from broker-dealers restrictions on minimum value size do
role of The Options Clearing representing institutional, high net not apply. In light of these
Corporation (‘‘OCC’’) as issuer and worth and retail investors indicating considerations and Secretary Geithner’s
guarantor of FLEX Options. The that the minimum value size comments on moving the standardized
Exchange also believes that the Pilot requirements for opening transactions in parts of OTC contracts onto regulated
Program is wholly consistent with new FLEX series prevented them from exchanges, the Exchange believes that
comments by then Secretary of the bringing transactions that are already making the Pilot Program permanent is
Treasury Timothy F. Geithner, to the taking place in the OTC market to an appropriate and reasonable and will
U.S. Senate. In particular, Secretary exchange environment. provide market participants with
mstockstill on DSK4VPTVN1PROD with NOTICES
Geithner has stated that: The Exchange believes that additional flexibility in determining
Market efficiency and price transparency eliminating the minimum value size whether to execute their customized
should be improved in derivatives markets requirements for opening transactions in
by requiring the clearing of standardized 12 Certain position limit, aggregation and exercise
11 Seeletter from Secretary Geithner to the limit requirements continue to apply to FLEX
10 The Report thus discusses only those FLEX Honorable Harry Reid, United States Senate (May Options in accordance with Rule 1001 (Position
option transactions that happened because the Pilot 13, 2009), located at http://www.financialstability. Limits) and Rule 1002 (Exercise Limits).
was in place. gov/docs/OTCletter.pdf. 13 17 CFR 240.9b–1.
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![77402 Federal Register / Vol. 80, No. 239 / Monday, December 14, 2015 / Notices
• Send an email to rule-comments@ SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
sec.gov. Please include File Number SR– COMMISSION Statement of the Purpose of, and
Phlx–2015–94 on the subject line. Statutory Basis for, the Proposed Rule
[Release No. 34–76589; File No. SR–CBOE– Change
Paper Comments
2015–110] 1. Purpose
• Send paper comments in triplicate
to Secretary, Securities and Exchange Self-Regulatory Organizations; On May 21, 2015, CBOE Holdings’
Commission, 100 F Street NE., Chicago Board Options Exchange, stockholders approved proposed
Washington, DC 20549–1090. Incorporated; Notice of Filing and amendments to the Certificate. On
Immediate Effectiveness of a Proposed October 22 [sic], 2015, in accordance
All submissions should refer to File Rule Change To Amend the Certificate with Article Eleventh of the Certificate,
Number SR–Phlx–2015–94. This file of Incorporation of Its Parent Company the Exchange submitted a rule filing
number should be included on the proposing to make the approved
subject line if email is used. To help the December 8, 2015. amendments to the Certificate.3 The
Commission process and review your Pursuant to Section 19(b)(1) of the Exchange notes however, that it
comments more efficiently, please use Securities Exchange Act of 1934 inadvertently omitted in its rule filing
only one method. The Commission will (‘‘Act’’),1 and Rule 19b–4 thereunder,2 two changes to the Certificate in the
post all comments on the Commission’s notice is hereby given that, on Exhibit 5 that had been approved by
Internet Web site (http://www.sec.gov/ November 25, 2015, Chicago Board CBOE Holdings’ shareholders. In order
rules/sro.shtml). Copies of the to conform the current Certificate to the
Options Exchange, Incorporated (the
submission, all subsequent Certificate approved by CBOE Holdings’
‘‘Exchange’’ or ‘‘CBOE’’) filed with the
amendments, all written statements shareholders in May 2015, CBOE
Securities and Exchange Commission
with respect to the proposed rule Holdings proposes to correct the
(‘‘Commission’’) the proposed rule omitted changes. First, in Article Third,
change that are filed with the change as described in Items I and II
Commission, and all written the Exchange had omitted to eliminate
below, which Items have been prepared the word ‘‘other’’ from the following
communications relating to the by the Exchange. The Commission is
proposed rule change between the language ‘‘The nature of the business or
publishing this notice to solicit purposes to be conducted or promoted
Commission and any person, other than comments on the proposed rule change by the Corporation is to engage in any
those that may be withheld from the from interested persons. other lawful act or activity for which
public in accordance with the
I. Self-Regulatory Organization’s corporations may be organized under
provisions of 5 U.S.C. 552, will be the GCL.’’ The Exchange believes that
available for Web site viewing and Statement of the Terms of Substance of
the reference to ‘‘other’’ in this section
printing in the Commission’s Public the Proposed Rule Change
is unnecessary and that the change is
Reference Room, 100 F Street NE., non-substantive and clarifying in
The Exchange proposes to amend the
Washington, DC 20549 on official nature. The Exchange notes that the
certificate of incorporation of its parent
business days between the hours of proposed change does not affect the
Company, CBOE Holdings, Inc. (‘‘CBOE
10:00 a.m. and 3:00 p.m. Copies of such rights of shareholders.
Holdings’’). The text of the proposed
filing also will be available for
rule change is available on the Next, CBOE Holdings proposes to
inspection and copying at the principal correct an error related to the ownership
Exchange’s Web site (http://
offices of the Exchange. All comments concentration limitation. Particularly,
www.cboe.com/AboutCBOE/
received will be posted without change; CBOE Holdings had proposed to remove
CBOELegalRegulatoryHome.aspx), at
the Commission does not edit personal references to the 10% ownership
the Exchange’s Office of the Secretary,
identifying information from concentration limitation applicable
and at the Commission’s Public
submissions. You should submit only before CBOE Holdings’ initial public
Reference Room.
information that you wish to make offering (‘‘IPO’’) in 2010, as discussed in
available publicly. All submissions II. Self-Regulatory Organization’s SR–CBOE–2015–092.4 This change did
should refer to File Number SR–Phlx– Statement of the Purpose of, and not change the current ownership
2015–94, and should be submitted on or Statutory Basis for, the Proposed Rule concentration limitation, which is 20%.
before January 4, 2016. Change In Article Sixth, subparagraph (b)(iii),
For the Commission, by the Division of the Exchange inadvertently omitted
In its filing with the Commission, the references to both 10% and 20%.
Trading and Markets, pursuant to delegated
Exchange included statements Specifically, the language ‘‘10% or 20%
authority.18
concerning the purpose of and basis for (as applicable at such time)’’ was
Brent J. Fields, the proposed rule change and discussed eliminated in its entirety. CBOE
Secretary. any comments it received on the Holdings notes that only ‘‘10% or’’ and
[FR Doc. 2015–31333 Filed 12–11–15; 8:45 am] proposed rule change. The text of these ‘‘(as applicable at such time)’’ should
BILLING CODE 8011–01–P statements may be examined at the have been eliminated (i.e., reference to
places specified in Item IV below. The 20% should have remained).
Exchange has prepared summaries, set Accordingly, CBOE Holdings proposes
mstockstill on DSK4VPTVN1PROD with NOTICES
forth in sections A, B, and C below, of to add ‘‘20%’’, the current ownership
the most significant aspects of such concentration limitation, back into
statements. Article Sixth, Subparagraph (b)(iii).
3 See Securities Exchange Act Release No. 76282
(October 27, 2015), 80 FR 211 [sic] (November 2,
1 15 U.S.C. 78s(b)(1). 2015) (SR–CBOE–2015–092).
18 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. 4 Id.
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Document Created: 2015-12-14 13:47:43
Document Modified: 2015-12-14 13:47:43
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 77399 |
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