81 FR 14160 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, 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 81, Issue 51 (March 16, 2016)
Federal Register Volume 81, Issue 51 (March 16, 2016)
| Page Range | 14160-14163 | |
| FR Document | 2016-05856 |
[Federal Register Volume 81, Number 51 (Wednesday, March 16, 2016)] [Notices] [Pages 14160-14163] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-05856] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77341; File No. SR-Phlx-2015-94] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, to Make Permanent the Pilot Program Eliminating Minimum Value Sizes for Opening Transactions in New Series of FLEX Options March 10, 2016. I. Introduction On November 25, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to make permanent its pilot program (``Pilot Program'') eliminating minimum value sizes for requests for quotes (``RFQs'') for opening transactions in new series of flexible exchange options (``FLEX Options'' or ``FLEX''). The proposed rule change was published for comment in the Federal Register on December 14, 2015.\3\ The Commission received no comments on the proposal. On January 28, 2016, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.\4\ The Exchange filed Amendment No. 1 to the proposed rule change on February 22, 2016, in order to transmit an updated pilot report that supplements Exhibit 3 to the filing, and to provide additional information regarding transactions covered by the Pilot Program and FLEX Option trading on the Exchange.\5\ The Commission is publishing this notice to solicit comments on Amendment No. 1 from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 76593 (December 8, 2015), 80 FR 77399 (``Notice''). \4\ See Securities Exchange Act Release No. 76989, 81 FR 5811 (February 3, 2016). The Commission designated March 13, 2016, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. \5\ The Exchange attached an Exhibit 3 to its proposed rule change that contains an initial report summarizing pilot data collected for the period December 1, 2014 through July 31, 2015. Specifically, the report summarizes the trading volume and underlying value of opening transactions in new series of FLEX Options with a size below the minimum value thresholds in force before the pilot, as well as the types of customers initiating such transactions. In Amendment No. 1, the Exchange submitted an updated report as an amendment to Exhibit 3 that supplements the original Exhibit 3 with summary pilot data for the period August 1, 2015 through December 31, 2015 (together with the initial report, ``Pilot Report''). In addition, in Amendment No. 1 the Exchange compares the total volume and value of opening transactions in new series of FLEX Options covered by the Pilot Program during the period December 2014 through December 2015 to the total volume and value of all opening FLEX Option transactions in new series during the same period. Further, in Amendment No. 1 the Exchange also compares the Exchange's FLEX Option trading volume to the Exchange's overall, combined trading volume for standardized options and FLEX Options. --------------------------------------------------------------------------- II. Description of the Amended Proposal FLEX Options, unlike traditional standardized options, allow investors to customize basic option terms, including size, expiration date, exercise style, and certain exercise prices.\6\ Pursuant to Commentary .01 to Rule 1079, the Exchange currently has in place a Pilot Program under which the minimum size requirements set forth in Rules 1079(a)(8)(A)(i) and (ii), which apply to RFQs for opening transactions in new series of FLEX Options, are eliminated.\7\ Prior to the Pilot Program, pursuant to Rules 1079(a)(8)(A)(i) and (ii), the minimum value size for a RFQ for an [[Page 14161]] opening transaction in a FLEX series in which there was no open interest at the time the RFQ was submitted was: (i) For FLEX index options, $10 million underlying equivalent value with respect to FLEX market index options and $5 million underlying equivalent value with respect to FLEX industry index options; and (ii) for FLEX equity options, the lesser of 250 contracts or the number of contracts overlying $1 million in the underlying securities.\8\ --------------------------------------------------------------------------- \6\ See Notice; see also Phlx Rule (``Rule'') 1079. FLEX equity, FLEX index, and FLEX currency options are traded on the Exchange, but the Pilot Program encompasses only FLEX equity and FLEX index options, and does not encompass FLEX currency options. See Notice; Commentary .01 to Rule 1079; References to ``FLEX Options'' or ``FLEX'' for purposes of this filing are meant to refer only to FLEX equity and FLEX index options. \7\ See Commentary .01 to Rule 1079; see also Securities Exchange Act Release Nos. 62900 (September 13, 2010), 75 FR 57098 (September 17, 2010) (SR-Phlx-2010-123) (establishing Pilot Program); and 77153 (February 17, 2016) 81 FR 9039 (February 23, 2016) (SR-Phlx-2016-19) (extending Pilot Program until the earlier of March 15, 2016, or approval of the Pilot Program on a permanent basis). The term ``request for quotes'' is defined in Rule 1079(a)(11). \8\ See Rules 1079(a)(8)(A)(i) and (ii). The term ``underlying equivalent value'' is defined in Rule 1079(a)(8)(D). --------------------------------------------------------------------------- By proposing to make the Pilot Program permanent, the Exchange is seeking to establish a one-contract minimum size for RFQs for opening transactions in new series of FLEX Options.\9\ Specifically, the Exchange's proposal would make the Pilot Program permanent by amending Rules 1079(a)(8)(A)(i) and (ii) to replace the current minimum sizes specified therein with a one contract minimum size for all FLEX Options,\10\ and by eliminating the Pilot Program rule text set forth in Commentary .01 to Rule 1079.\11\ In connection with its proposal to make the Pilot Program permanent, the Exchange submitted to the Commission a Pilot Report summarizing Pilot Program data collected for the period December 2014 through December 2015.\12\ In addition, the Exchange states that its proposal to make the Pilot Program permanent and thereby eliminate the minimum size requirements applicable to RFQs for opening transactions in new FLEX series on the Exchange is similar to rule changes by NYSE Arca and CBOE adopting similar pilot programs on a permanent basis.\13\ --------------------------------------------------------------------------- \9\ The Commission notes, as originally proposed, that the pilot program set forth no minimum contract sizes for opening transactions. In proposing to permanently approve the pilot, the Exchange is adopting a one contract size minimum, which essentially is the same as having no minimum contract size. \10\ The new one contract minimum size would apply to FLEX market index options (which are designed to be representative of a stock market as a whole or a range of companies in unrelated industries), FLEX industry index options (which are designed to be representative of a particular industry or a group of related industries), and FLEX equity options. See Rule 1000A (providing definitions for market and industry indexes). Because, as noted above (see supra note 6), the Pilot Program did not encompass FLEX currency options, such options would continue to have the 50- contract minimum size requirement set forth in Rule 1079(a)(8)(A)(iii). See Notice. \11\ See Notice; see also proposed Rules 1079(a)(8)(A)(i) and (ii). \12\ See supra note 5. Specifically, as noted above, the Pilot Report contains data and analysis on open interest and trading volume, and as well as on the types of investors that initiated opening FLEX Options transactions (i.e., institutional, high net worth, or retail) in new FLEX Option series. Id. As is also noted above, Amendment No. 1 contains additional data regarding transactions covered by the Pilot Program and FLEX Option trading on the Exchange. Id. \13\ See Notice (citing Securities Exchange Act Release Nos. 72537 (July 3, 2014), 79 FR 39442 (July 10, 2014) (SR-NYSEArca-2014- 25) (order approving NYSE Arca's proposal to make permanent its pilot program eliminating minimum value sizes for FLEX Options) and 67624 (August 8, 2012), 77 FR 48580 (August 14, 2012) (order approving CBOE's proposal to make permanent its pilot program eliminating minimum value sizes for FLEX Options)). --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\14\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\15\ which requires, among other things, that the rules of a national securities exchange be 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 regulating, clearing, settling, processing information with respect to, and 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; and not be designed to permit unfair discrimination between customers, issuers, brokers or dealers. --------------------------------------------------------------------------- \14\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \15\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- FLEX Options were originally designed for use by institutional and high net worth customers, rather than retail investors.\16\ In approving CBOE's pilot eliminating minimum value sizes for FLEX Options, which was the first such pilot to be approved on a permanent basis, the Commission noted that it had received several comment letters stating that the proposal would assist institutional customers, but it also noted that the elimination of the minimum value size requirements raised the possibility that retail customers would access the FLEX Options market.\17\ One of the risks to retail investors outlined in the ODD \18\ is that, because of the customized nature of FLEX Options and lack of continuous quotes, trading in FLEX Options is often less deep and liquid than trading in standardized options on the same underlying interest.\19\ Additionally, the Commission notes in the CBOE Permanent Approval Order that reducing the minimum value size for opening FLEX Option transactions increases the potential for the FLEX Options market to act as a surrogate for the standardized options market, and expressed concern in this regard because the standardized market contains certain protections for investors not present in the FLEX Options market.\20\ The Commission stated that, in the event CBOE proposed making its pilot program permanent, information regarding the types of customers initiating opening FLEX Option transactions during the pilot would enable the Commission to evaluate how market participants have responded to CBOE's pilot program and what types of customers are using the FLEX Options market.\21\ For these same reasons, at the Commission's request, the Exchange included in its Pilot Report information regarding the types of customers that initiated opening FLEX Option transactions under its Pilot Program.\22\ --------------------------------------------------------------------------- \16\ See Notice; see also Securities Exchange Act Release No. 36841 (February 14, 1996), 61 FR 6666 (February 21, 1996) (order approving SR-PSE-95-24). As noted in the Options Disclosure Document (``ODD''), which explains the characteristics and risks of exchange- traded options, flexibly structured options may be useful to sophisticated investors seeking to manage particular portfolio and trading risks. Rule 9b-1 under the Act requires that broker-dealers furnish the ODD to a customer before accepting an order from the customer to purchase or sell an option contract relating to an options class that is the subject of the ODD, or approving the customer's account for the trading of such option. See 17 CFR 240.9b-1(d). \17\ See Securities Exchange Act Release No. 61439 (January 28, 2010), 75 FR 5831 (February 4, 2010) (order approving SR-CBOE-2009- 087) (``CBOE Permanent Approval Order''). \18\ See supra note 16. \19\ In particular, the ODD states that because many of the terms of FLEX Options are not standardized, it is less likely that there will be an active secondary market in which holders and writers of such options will be able to close out their positions by offsetting sales and purchases. Also, the ODD states that certain margin requirements for positions in flexibly structured options may be significantly greater than the margin requirements applicable to similar positions in other options on the same underlying interest. \20\ See CBOE Permanent Approval Order, supra note 17. In particular, the Commission noted that continuous quotes may not always be available in the FLEX Options market and that FLEX Options do not have trading rotations at either the opening or closing of trading. Id. \21\ Id. The Exchange has submitted a Pilot Report to the Commission as Exhibit 3 to its filing, as well as other, confidential reports of data collected during the Pilot Program. \22\ See Exhibit 3 to the Exchange's rule filing, as amended by Amendment No. 1, supra note 5. --------------------------------------------------------------------------- The Commission believes that these considerations and concerns that informed its analysis of whether to permanently approve CBOE's pilot are [[Page 14162]] equally germane to its analysis here. As such, the Commission has carefully reviewed the Pilot Report data and other information that the Exchange provided to the Commission as Exhibit 3 to its rule filing, as amended by Amendment No. 1.\23\ The Pilot Report reflects that, for the period December 1, 2014 through December 31, 2015, there were 457 opening transactions in new series of FLEX equity options initiated on the Exchange with small minimum value sizes made possible by the Pilot Program, 12 of which were initiated by retail customers, 37 of which were initiated by high net worth customers, and 409 of which were initiated by institutional customers.\24\ In addition, the Pilot Report reflects that there were 12 opening transactions in new series of FLEX index options initiated on the Exchange pursuant to the Pilot Program, none of which were initiated by retail customers, 5 of which were initiated by high net worth customers, and 7 of which were initiated by institutional customers.\25\ Overall, only a limited number of retail customers, as defined by the Exchange, appear to have availed themselves of the pilot and entered into opening transactions in new series of FLEX Options with small minimum value sizes. Moreover, the Exchange has stated that, during the period December 2014 through December 2015, the 457 opening transactions in new series of FLEX equity options covered by the Pilot Program accounted for approximately 6.3% of the total volume and approximately 3.7% of the total value of all opening FLEX equity options transactions in new series--i.e., opening transactions covered by the Pilot Program as well as opening transactions with value sizes above the pre-pilot minimum.\26\ The Exchange has also stated that, during the period December 2014 through December 2015, the 12 opening transactions in new series of FLEX index options covered by the Pilot Program accounted for approximately 8.8% of the total volume and approximately 4.1% of the total value of all opening FLEX index option transactions in new series.\27\ Furthermore, it is the Commission's understanding that FLEX Option trading on the Exchange accounts for less than 1.37% of the Exchange's combined trading volume for standardized and FLEX options.\28\ Notably, the Exchange represents that it has not experienced any adverse market effects with respect to the Pilot Program.\29\ --------------------------------------------------------------------------- \23\ Id. \24\ Id. The Exchange categorized a trade as initiated by a retail customer if the option premium was less than $5,000, as initiated by a high net worth customer if the option premium was between $5,000 and $49,000, and as initiated by an institutional customer if the option premium was greater than $50,000. Id. \25\ Id. \26\ Id. \27\ Id. The Exchange notes that the Pilot Report covers only RFQs for opening transactions in new series of FLEX Options, as per the Pilot Program. The Pilot Report does not cover RFQs for transactions in currently-opened FLEX Option series or responsive quotes for FLEX Options pursuant to Rules 1079(a)(8)(B) or (C), respectively, as transactions in currently-opened FLEX Option series and responsive quotes were not part of the Pilot Program. See Notice. \28\ See Exhibit 3 to the Exchange's rule filing, as amended by Amendment No. 1, supra note 5. \29\ Id. --------------------------------------------------------------------------- On balance, the Commission believes that it is consistent with the Act to make the Pilot Program permanent and thus eliminate, on a permanent basis, the minimum value size requirements currently set forth in Rules 1079(a)(8)(A)(i) and (ii) for RFQs for opening transactions in new series of FLEX Options. The protections noted below, including heightened options suitability requirements, should help to address any concerns about the potential for retail participation in the Exchange's FLEX Options market in the future. Moreover, the Commission is not aware of any data or analysis to date suggesting that the trading of FLEX Options has acted as a surrogate for the trading of standardized options on the Exchange as a result of the Pilot Program. Indeed, as is stated above, the Commission understands that FLEX Option trading on the Exchange accounts for less than 1.37% of the Exchange's combined trading volume for standardized and FLEX options.\30\ In addition, the Exchange has indicated that Pilot Program FLEX Option trades account for a very small proportion of the total volume and total value of all FLEX Option trades.\31\ Thus, it appears that the Pilot Program has not caused significant trading interest to migrate from the Exchange's standardized options market to its FLEX Options market, nor caused, to the best of our knowledge, a large number of investors to use FLEX Options to avoid certain requirements in the standardized market. Based on the current data and size of the FLEX Options market, and the lack of any evidence to the contrary, it would appear that investors are using the FLEX Options market for its intended purpose--to be able to customize certain terms not available in the standardized options market. Further, the Commission notes that it is not aware of any problems resulting from the permanent approval of NYSE Arca's and CBOE's similar pilots eliminating FLEX Option minimum value sizes. As a result, the Commission believes that it is appropriate under the Act, and would promote just and equitable principles of trade, as well as remove impediments to and perfect the mechanism of a free and open market and a national market system, to permanently eliminate the current minimum value size requirements for RFQs for opening transactions in new series of FLEX Options and replace them with a one-contract minimum size. --------------------------------------------------------------------------- \30\ Id. \31\ Id. --------------------------------------------------------------------------- Existing safeguards--such as position reporting requirements and margin requirements--will continue to apply to FLEX Options.\32\ Further, as noted above, under Rule 9b-1 under the Act,\33\ all customers of a broker-dealer with options accounts approved to trade FLEX Options must receive the ODD, which contains specific disclosures about the characteristics and special risks of trading FLEX Options.\34\ In addition, similar to other options, FLEX Options are subject to Trading Permit Holder supervision and suitability requirements, such as in Rules 1025 and 1026, respectively.\35\ In addition to ensuring that FLEX Options are suitable for their customers, broker-dealers also must take into account the characteristics of the FLEX market, as compared to the standardized market, when satisfying their best execution obligations. The Commission believes that the safeguards in place are reasonably designed to help mitigate potential risks for retail investors and other market participants investing in FLEX Options. --------------------------------------------------------------------------- \32\ Certain position limit, aggregation and exercise limit requirements continue to apply to FLEX Options in accordance with Rule 1079(d) (Position Limits) and Rule 1079(e) (Exercise Limits). But the Commission notes that certain FLEX Options do not have position or exercise limits. \33\ 17 CFR 240.9b-1. \34\ See supra notes 16 and 19. \35\ See Notice. --------------------------------------------------------------------------- The Exchange believes that permanently removing the minimum value size requirements for RFQs for opening transactions in new series of FLEX Options and replacing them with a one-contract minimum size will give investors a more viable, exchange-traded alternative to customized options in the OTC market, which are not subject to minimum value size requirements.\36\ Furthermore, the Exchange has represented that broker-dealers have indicated to the Exchange that the minimum value size requirements have prevented them from bringing transactions on the Exchange that are already taking place in the OTC [[Page 14163]] market.\37\ Therefore, it appears possible that eliminating the minimum value sizes for RFQs for opening transactions in new series of FLEX Options could further incent trading interest in customized options to move from the OTC market to the Exchange. To the extent investors choose to trade FLEX Options on the Exchange in lieu of the OTC market as a result of the permanent removal of the minimum value size requirements, such action should benefit investors. As the Commission has previously noted, there are certain benefits to trading on an exchange, such as enhanced efficiency in initiating and closing out positions, increased market transparency, and heightened contra-party creditworthiness due to the role of the Options Clearing Corporation as issuer and guarantor of FLEX Options.\38\ --------------------------------------------------------------------------- \36\ Id. \37\ Id. \38\ See Securities Exchange Act Release No. 57429 (March 4, 2008), 73 FR 13058 (March 11, 2008) (order approving SR-CBOE-2006- 36). --------------------------------------------------------------------------- IV. Solicitation of Comments on Amendment No. 1 Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 1 to the proposed rule change 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 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 the 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-Phlx-2015-94 and should be submitted on or before April 6, 2016. V. Accelerated Approval of Proposal, as Modified by Amendment No. 1 In Amendment No. 1, the Exchange submitted additional Pilot Program data to supplement Exhibit 3 to the Exchange's rule filing, which initially contained a report of Pilot Program data for the period December 2014 through July 2015. Amendment No. 1 contains an updated pilot report that provides data regarding FLEX Option transactions under the Pilot Program for the period August 2015 through December 2015, as well as additional information regarding transactions covered by the Pilot Program and FLEX Option trading on the Exchange.\39\ The Commission believes that the supplemental Pilot Program data set forth in Amendment No. 1 further supports approval of the Pilot Program because, collectively with the Pilot Program data initially submitted as Exhibit 3 to the rule filing, the data reflects that there is minimal usage of FLEX Options by retail customers on the Exchange, and that market participants appear to be utilizing FLEX Options for their intended purpose--i.e., customization of certain terms not available in the standardized options market--and not as a surrogate for standardized option trading. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,\40\ for approving the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of notice in the Federal Register. --------------------------------------------------------------------------- \39\ See Exhibit 3 to the Exchange's rule filing, as amended by Amendment No. 1, supra note 5. \40\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VI. Conclusion In summary, the Commission believes, for the reasons noted above, that the proposed rule change to permanently approve the Pilot Program, thereby permanently implementing a one-contract minimum size requirement in place of the pre-existing minimum size requirements for RFQs for opening transactions in new series of FLEX Options on the Exchange, is consistent with the Act and Section 6(b)(5) thereunder in particular, and should be approved, as amended. The Exchange has committed, and the Commission expects the Exchange, to continue to monitor the usage of FLEX Options, whether changes need to be made to its rules or the ODD to address any changes in retail FLEX Option participation, and for any other issues that may occur as a result of the elimination of the minimum value sizes on a permanent basis, including whether FLEX Option trades are being used as a surrogate for trading options in the standardized market.\41\ --------------------------------------------------------------------------- \41\ See Notice (Exchange representing that it will continue to monitor the usage of FLEX Options and whether any changes to its rules or the ODD are necessary). --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\42\ that the proposed rule change (SR-Phlx-2015-94) be, and it hereby is, approved, on an accelerated basis, as amended. --------------------------------------------------------------------------- \42\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\43\ --------------------------------------------------------------------------- \43\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-05856 Filed 3-15-16; 8:45 am] BILLING CODE 8011-01-P
![14160 Federal Register / Vol. 81, No. 51 / Wednesday, March 16, 2016 / Notices
Commission summarily may information that you wish to make change on February 22, 2016, in order
temporarily suspend such rule change if available publicly. to transmit an updated pilot report that
it appears to the Commission that such All submissions should refer to File supplements Exhibit 3 to the filing, and
action is: (i) Necessary or appropriate in Number SR–BX–2016–016 and should to provide additional information
the public interest; (ii) for the protection be submitted on or before April 6, 2016. regarding transactions covered by the
of investors; or (iii) otherwise in For the Commission, by the Division of Pilot Program and FLEX Option trading
furtherance of the purposes of the Act. Trading and Markets, pursuant to delegated on the Exchange.5 The Commission is
If the Commission takes such action, the authority.44 publishing this notice to solicit
Commission shall institute proceedings Robert W. Errett, comments on Amendment No. 1 from
to determine whether the proposed rule Deputy Secretary. interested persons and is approving the
should be approved or disapproved. [FR Doc. 2016–05854 Filed 3–15–16; 8:45 am] proposed rule change, as modified by
Amendment No. 1, on an accelerated
IV. Solicitation of Comments BILLING CODE 8011–01–P
basis.
Interested persons are invited to
submit written data, views, and II. Description of the Amended
SECURITIES AND EXCHANGE Proposal
arguments concerning the foregoing, COMMISSION
including whether the proposed rule FLEX Options, unlike traditional
change is consistent with the Act. [Release No. 34–77341; File No. SR–Phlx– standardized options, allow investors to
Comments may be submitted by any of 2015–94] customize basic option terms, including
the following methods: size, expiration date, exercise style, and
Self-Regulatory Organizations;
certain exercise prices.6 Pursuant to
Electronic Comments NASDAQ OMX PHLX LLC; Notice of
Commentary .01 to Rule 1079, the
Filing of Amendment No. 1 and Order
• Use the Commission’s Internet Exchange currently has in place a Pilot
Granting Accelerated Approval of
comment form (http://www.sec.gov/ Program under which the minimum size
Proposed Rule Change, as Modified by
rules/sro.shtml); or requirements set forth in Rules
Amendment No. 1, to Make Permanent
• Send an email to rule-comments@ 1079(a)(8)(A)(i) and (ii), which apply to
the Pilot Program Eliminating Minimum
sec.gov. Please include File Number SR– RFQs for opening transactions in new
Value Sizes for Opening Transactions
BX–2016–016 on the subject line. series of FLEX Options, are eliminated.7
in New Series of FLEX Options
Prior to the Pilot Program, pursuant to
Paper Comments
March 10, 2016. Rules 1079(a)(8)(A)(i) and (ii), the
• Send paper comments in triplicate minimum value size for a RFQ for an
to Secretary, Securities and Exchange I. Introduction
Commission, 100 F Street NE., On November 25, 2015, NASDAQ 5 The Exchange attached an Exhibit 3 to its
Washington, DC 20549–1090. OMX PHLX LLC (‘‘Phlx’’ or proposed rule change that contains an initial report
summarizing pilot data collected for the period
All submissions should refer to File ‘‘Exchange’’) filed with the Securities December 1, 2014 through July 31, 2015.
Number SR–BX–2016–016. This file and Exchange Commission Specifically, the report summarizes the trading
number should be included on the (‘‘Commission’’), pursuant to Section volume and underlying value of opening
19(b)(1) of the Securities Exchange Act transactions in new series of FLEX Options with a
subject line if email is used. To help the size below the minimum value thresholds in force
Commission process and review your of 1934 (‘‘Act’’) 1 and Rule 19b–4 before the pilot, as well as the types of customers
comments more efficiently, please use thereunder,2 a proposed rule change to initiating such transactions. In Amendment No. 1,
only one method. The Commission will make permanent its pilot program the Exchange submitted an updated report as an
(‘‘Pilot Program’’) eliminating minimum amendment to Exhibit 3 that supplements the
post all comments on the Commission’s original Exhibit 3 with summary pilot data for the
Internet Web site (http://www.sec.gov/ value sizes for requests for quotes period August 1, 2015 through December 31, 2015
rules/sro.shtml). (‘‘RFQs’’) for opening transactions in (together with the initial report, ‘‘Pilot Report’’). In
Copies of the submission, all new series of flexible exchange options addition, in Amendment No. 1 the Exchange
(‘‘FLEX Options’’ or ‘‘FLEX’’). The compares the total volume and value of opening
subsequent amendments, all written transactions in new series of FLEX Options covered
statements with respect to the proposed proposed rule change was published for by the Pilot Program during the period December
rule change that are filed with the comment in the Federal Register on 2014 through December 2015 to the total volume
Commission, and all written December 14, 2015.3 The Commission and value of all opening FLEX Option transactions
received no comments on the proposal. in new series during the same period. Further, in
communications relating to the Amendment No. 1 the Exchange also compares the
proposed rule change between the On January 28, 2016, the Commission Exchange’s FLEX Option trading volume to the
Commission and any person, other than designated a longer period within which Exchange’s overall, combined trading volume for
those that may be withheld from the to approve the proposed rule change, standardized options and FLEX Options.
6 See Notice; see also Phlx Rule (‘‘Rule’’) 1079.
public in accordance with the disapprove the proposed rule change, or
FLEX equity, FLEX index, and FLEX currency
provisions of 5 U.S.C. 552, will be institute proceedings to determine options are traded on the Exchange, but the Pilot
available for Web site viewing and whether to disapprove the proposed Program encompasses only FLEX equity and FLEX
printing in the Commission’s Public rule change.4 The Exchange filed index options, and does not encompass FLEX
Amendment No. 1 to the proposed rule currency options. See Notice; Commentary .01 to
Reference Room, 100 F Street NE., Rule 1079; References to ‘‘FLEX Options’’ or
Washington, DC 20549, on official 44 17
‘‘FLEX’’ for purposes of this filing are meant to refer
CFR 200.30–3(a)(12).
business days between the hours of 1 15
only to FLEX equity and FLEX index options.
U.S.C. 78s(b)(1). 7 See Commentary .01 to Rule 1079; see also
mstockstill on DSK4VPTVN1PROD with NOTICES
10:00 a.m. and 3:00 p.m. Copies of the 2 17 CFR 240.19b–4.
Securities Exchange Act Release Nos. 62900
filing also will be available for 3 See Securities Exchange Act Release No. 76593
(September 13, 2010), 75 FR 57098 (September 17,
inspection and copying at the principal (December 8, 2015), 80 FR 77399 (‘‘Notice’’). 2010) (SR–Phlx–2010–123) (establishing Pilot
office of the Exchange. All comments 4 See Securities Exchange Act Release No. 76989, Program); and 77153 (February 17, 2016) 81 FR
received will be posted without change; 81 FR 5811 (February 3, 2016). The Commission 9039 (February 23, 2016) (SR–Phlx–2016–19)
designated March 13, 2016, as the date by which (extending Pilot Program until the earlier of March
the Commission does not edit personal it should approve, disapprove, or institute 15, 2016, or approval of the Pilot Program on a
identifying information from proceedings to determine whether to disapprove the permanent basis). The term ‘‘request for quotes’’ is
submissions. You should submit only proposed rule change. defined in Rule 1079(a)(11).
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![Federal Register / Vol. 81, No. 51 / Wednesday, March 16, 2016 / Notices 14163
market.37 Therefore, it appears possible those that may be withheld from the VI. Conclusion
that eliminating the minimum value public in accordance with the In summary, the Commission
sizes for RFQs for opening transactions provisions of 5 U.S.C. 552, will be believes, for the reasons noted above,
in new series of FLEX Options could available for Web site viewing and that the proposed rule change to
further incent trading interest in printing in the Commission’s Public permanently approve the Pilot Program,
customized options to move from the Reference Room, 100 F Street NE., thereby permanently implementing a
OTC market to the Exchange. To the Washington, DC 20549, on official one-contract minimum size requirement
extent investors choose to trade FLEX business days between the hours of in place of the pre-existing minimum
Options on the Exchange in lieu of the 10:00 a.m. and 3:00 p.m. Copies of the size requirements for RFQs for opening
OTC market as a result of the permanent filing also will be available for transactions in new series of FLEX
removal of the minimum value size inspection and copying at the principal Options on the Exchange, is consistent
requirements, such action should office of the Exchange. All comments with the Act and Section 6(b)(5)
benefit investors. As the Commission thereunder in particular, and should be
received will be posted without change;
has previously noted, there are certain approved, as amended. The Exchange
the Commission does not edit personal
benefits to trading on an exchange, such has committed, and the Commission
as enhanced efficiency in initiating and identifying information from
submissions. You should submit only expects the Exchange, to continue to
closing out positions, increased market monitor the usage of FLEX Options,
transparency, and heightened contra- information that you wish to make
available publicly. All submissions whether changes need to be made to its
party creditworthiness due to the role of rules or the ODD to address any changes
the Options Clearing Corporation as should refer to File Number SR–Phlx–
2015–94 and should be submitted on or in retail FLEX Option participation, and
issuer and guarantor of FLEX Options.38 for any other issues that may occur as
before April 6, 2016.
IV. Solicitation of Comments on a result of the elimination of the
Amendment No. 1 V. Accelerated Approval of Proposal, as minimum value sizes on a permanent
Modified by Amendment No. 1 basis, including whether FLEX Option
Interested persons are invited to trades are being used as a surrogate for
submit written data, views, and In Amendment No. 1, the Exchange trading options in the standardized
arguments concerning the foregoing, submitted additional Pilot Program data market.41
including whether Amendment No. 1 to to supplement Exhibit 3 to the It is therefore ordered, pursuant to
the proposed rule change is consistent Exchange’s rule filing, which initially Section 19(b)(2) of the Act,42 that the
with the Act. Comments may be contained a report of Pilot Program data proposed rule change (SR–Phlx–2015–
submitted by any of the following 94) be, and it hereby is, approved, on an
for the period December 2014 through
methods: accelerated basis, as amended.
July 2015. Amendment No. 1 contains
Electronic Comments an updated pilot report that provides For the Commission, by the Division of
• Use the Commission’s Internet data regarding FLEX Option Trading and Markets, pursuant to delegated
transactions under the Pilot Program for authority.43
comment form (http://www.sec.gov/
rules/sro.shtml); or the period August 2015 through Robert W. Errett,
• Send an email to rule-comments@ December 2015, as well as additional Deputy Secretary.
sec.gov. Please include File Number SR– information regarding transactions [FR Doc. 2016–05856 Filed 3–15–16; 8:45 am]
Phlx–2015–94 on the subject line. covered by the Pilot Program and FLEX BILLING CODE 8011–01–P
Option trading on the Exchange.39 The
Paper Comments
Commission believes that the
• Send paper comments in triplicate supplemental Pilot Program data set SECURITIES AND EXCHANGE
to Secretary, Securities and Exchange forth in Amendment No. 1 further COMMISSION
Commission, 100 F Street NE., supports approval of the Pilot Program [Release No. 34–77340; File No. SR–
Washington, DC 20549–1090. because, collectively with the Pilot NYSEArca–2015–93]
All submissions should refer to File Program data initially submitted as
Number SR–Phlx–2015–94. This file Exhibit 3 to the rule filing, the data Self-Regulatory Organizations; NYSE
number should be included on the reflects that there is minimal usage of Arca, Inc.; Order Instituting
subject line if email is used. To help the FLEX Options by retail customers on the Proceedings To Determine Whether to
Commission process and review your Exchange, and that market participants Approve or Disapprove a Proposed
comments more efficiently, please use appear to be utilizing FLEX Options for Rule Change, as Modified by
only one method. The Commission will their intended purpose—i.e., Amendment No. 1 Thereto, Relating To
post all comments on the Commission’s Listing and Trading of Shares of the
customization of certain terms not
Internet Web site (http://www.sec.gov/ Cumberland Municipal Bond ETF
available in the standardized options
rules/sro.shtml). Copies of the Under NYSE Arca Equities Rule 8.600
market—and not as a surrogate for
submission, all subsequent standardized option trading. March 10, 2016.
amendments, all written statements
Accordingly, the Commission finds
with respect to the proposed rule I. Introduction
good cause, pursuant to Section 19(b)(2)
change that are filed with the On November 24, 2015, NYSE Arca,
of the Act,40 for approving the proposed
Commission, and all written Inc. (‘‘Exchange’’) filed with the
mstockstill on DSK4VPTVN1PROD with NOTICES
communications relating to the rule change, as modified by Amendment
No. 1, prior to the thirtieth day after the Securities and Exchange Commission
proposed rule change between the
Commission and any person, other than date of publication of notice in the 41 See Notice (Exchange representing that it will
Federal Register. continue to monitor the usage of FLEX Options and
37 Id. whether any changes to its rules or the ODD are
38 See Securities Exchange Act Release No. 57429 39 See Exhibit 3 to the Exchange’s rule filing, as necessary).
(March 4, 2008), 73 FR 13058 (March 11, 2008) amended by Amendment No. 1, supra note 5. 42 15 U.S.C. 78s(b)(2).
(order approving SR–CBOE–2006–36). 40 15 U.S.C. 78s(b)(2). 43 17 CFR 200.30–3(a)(12).
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Document Created: 2016-03-15 23:44:31
Document Modified: 2016-03-15 23:44:31
| 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 | 81 FR 14160 |
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