82 FR 55676 - Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 903 (Series of Options Open for Trading)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 224 (November 22, 2017)
Federal Register Volume 82, Issue 224 (November 22, 2017)
| Page Range | 55676-55679 | |
| FR Document | 2017-25230 |
[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)] [Notices] [Pages 55676-55679] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-25230] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82095; File No. SR-NYSEAMER-2017-31] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 903 (Series of Options Open for Trading) November 16, 2017. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that on November 2, 2017, NYSE American LLC (``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 903 (Series of Options Open for Trading). The proposed rule change is available on the Exchange's Web site at www.nyse.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 self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those 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 parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the filing is to amend Commentary .05 to Rule 903 to modify the strike price intervals for certain Exchange Traded Funds (each an ``ETF''). Specifically, the Exchange proposes to modify the interval setting regime for options on SPDR[supreg] S&P 500[supreg] ETF (``SPY''), iShares Core S&P 500 ETF (``IVV''), and the SPDR[supreg] Dow Jones[supreg] Industrial Average ETF (``DIA'') to allow the Exchange to initiate $1 or greater strike price intervals above $200. Through this filing, the Exchange intends to make SPY, IVV, and DIA options more tailored and easier for investors and traders to use, which is consistent with the rules of other options exchanges.\4\ --------------------------------------------------------------------------- \4\ See, e.g., Chicago Board of Options Exchange (``CBOE'') Rule 5.5, Interpretation and Policy .08; NASDAQ PHLX LLC (``PHLX'') Rule 1012, Commentary .05. CBOE and PHLX both amended their rules regarding strike setting regimes for SPY and DIA in 2014. See Securities Exchange Act Release Nos. 72949 (August 29, 2014) 79 FR 53089 (September 5, 2014) (SR-Phlx-2014-46) and 72990 (September 4, 2014) 79 FR 53799 (September 10, 2014) (SR-CBOE-2014-068). Earlier this year, CBOE and PHLX further modified their rules to include IVV in the same strike setting regime as SPY. See Securities Exchange Act Release Nos. 80913 (June 13, 2017), 82 FR 27907 (June 19, 2017) (SR-CBOE-2017-048) and 81246 (July 28, 2017) 82 FR 36020 (August 2, 2017) (SR-Phlx-2017-57). The Exchange is authorized to match (and has matched) strikes in DIA, SPY, and IVV that are listed on other exchanges such as CBOE and PHLX. See Rule 903A(b)(vi) (providing that the Exchange ``may list an options series that is listed by another options exchange, provided that at the time such series was listed it was not prohibited under the provisions of the [Options Listing Procedure Plan or OLPP] or the rules of the exchange that initially listed the series''). The proposed rule change would allow the Exchange to initially list strike price intervals of $1 or greater in options on DIA, SPY, or IVV when the strike price is above $200 (regardless of whether other exchanges similarly list such strikes). --------------------------------------------------------------------------- Currently, the S&P 500 Index is above 2000.\5\ The S&P 500 Index is widely regarded as the best single gauge of large cap U.S. equities and is widely quoted as an indicator of stock prices and investor confidence in the securities market. As a result, individual investors often use S&P 500 Index-related products to diversify their portfolios and benefit from market trends. Accordingly, the Exchange believes that offering a wide range of S&P 500 Index-based options affords traders and investors important hedging and trading opportunities. SPY and IVV are identical in all material respects and are designed to track the performance of the S&P 500 Index. Shares of SPY and IVV are currently priced around 1/10th the value of S&P 500 Index. The Dow Jones Industrial Average (``DJIA'') is currently above 20,000 and is one of the most widely followed market indices.\6\ Shares of DIA are currently priced around 1/100th of the DJIA. Accordingly, SPY and IVV strike prices--having a multiplier of $100--reflect a value [[Page 55677]] roughly equal to 1/10th of the value of the S&P 500 Index. For example, if the S&P 500 Index is at 1972.56, shares of SPY and IVV might have a value of approximately 197.26 per share. Consequently, an at-the-money option on SPY or IVV, with a strike price of $197.00 will have a notional value of $19,700. In general, SPY and IVV (and, to a lesser extent, DIA) options provide retail investors and traders with the benefit of trading the broad market in a manageably sized contract. --------------------------------------------------------------------------- \5\ On October 30, 2017, the S&P 500 Index closed at 2,572.83. \6\ On October 30, 2017, the DJIA closed at 23,348.74. --------------------------------------------------------------------------- The Exchange notes that the popularity of options on DIA and SPY (and, to a lesser extent, IVV) is evidenced by the existence of monthly, quarterly, and weekly expiration cycles in these ETFs.\7\ Currently, Commentary .05(a) to Rule 903 provides that the ``interval of strike prices of series of options on Exchange-Traded Fund Shares will be $1 or greater where the strike price is $200 or less and $5 or greater where the strike price is greater than $200.'' \8\ Thus, unless the Exchange is able to match strikes listed on other exchanges (see supra note 4), the current rule limits the trading and hedging possibilities for investors on the Exchange--particularly those investors that would like to execute strategies that are effective in $1 intervals. The Exchange therefore proposes to amend Commentary .05 to Rule 903 to allow the Exchange to initiate $1 strike price intervals in options on SPY, IVV, and DIA. As proposed, the modified rule would provide that ``[n]otwithstanding any other provision of this rule regarding the interval of strike prices of series of options on Exchange-Traded Fund Shares, the interval of strike prices on options on [SPY, IVV, and DIA] will be $1 or greater.'' \9\ --------------------------------------------------------------------------- \7\ For rules regarding quarterly or weekly options (also known as Short Term Options or STOS), see Commentaries .09 and .10, respectively, to Rule 903. \8\ See Rule 903, Commentary .05(a). See also Rule 903, Commentary .10 (d) (providing, in relevant part, that [i]f the class does not trade in $1 strike price intervals, the strike price interval for Short Term Option Series may be (i) $0.50 or greater where the strike price is less than $100; (ii) $1.00 or greater where the strike price is between $100 and $150; or (iii) $2.50 or greater for strike prices greater than $150. A non-Short Term Option that is on a class that has been selected to participate in the Short Term Option Series Program is referred to as a ``Related non- Short Term Option''). \9\ See proposed Rule 903, Commentary .05(d). --------------------------------------------------------------------------- The Exchange believes that modifying the Rule to allow the Exchange to initiate finer--i.e., one dollar--strike intervals in SPY, IVV, and DIA, would provide investors more efficient hedging and trading opportunities. In particular, the proposed ability to initiate $1 intervals, particularly above a $200 strike price, will result in having at-the-money series based upon the underlying SPY, IVV, or DIA moving less than 1%. The Exchange believes this strike setting regime is consistent with slower price movements of broad-based indices. Furthermore, the proposed ability to initiate $1 intervals would allow investors to continue to employ certain option trading strategies (e.g., risk reduction/hedging strategies using SPY weekly options) without the Exchange having to wait for another exchange to list such strikes. Considering that $1 intervals already exist below the $200 price point, and that SPY, IVV, and DIA are above the $200 level, the Exchange believes it would be appropriate to modify the existing $200 level (above which intervals increase 500% to $5) for options on these ETFs. The Exchange believes that eliminating the existing $200 level would allow investors to continue investing, trading and utilizing hedging strategies on these highly-liquid options. Under the current rule, the Exchange is limited in its ability to initiate strikes in options on IVV, DIA, and SPY over $200. Assuming no other exchange lists the desired strike, investors and traders on the Exchange are unable to roll open positions from a lower strike to a higher strike in conjunction with the price movement of the underlying index because the next (higher) available series would be $5 away above a $200 strike price.\10\ Thus, to initiate a position from $200 strike to a $205 strike under the current rule, an investor would need for the underlying product to move 2.5% and would not be able to execute a roll up until such a large movement occurred. With the proposed rule change to allow the Exchange to initiate finer strikes in options on IVV, DIA, and SPY over the $200 level, however, the investor would be in a significantly safer position of being able to roll his open options position from a $200 to a $201 strike price, which is only a 0.5% move for the underlying.\11\ --------------------------------------------------------------------------- \10\ See Rule 903, Commentary .05(a). \11\ See proposed Rule 903, Commentary .05(d). --------------------------------------------------------------------------- The proposed rule change would allow the Exchange to better respond to customer demand for SPY, IVV, and DIA strike prices more precisely aligned with current S&P 500 Index and DJIA values.\12\ The Exchange believes that the proposed rule change, like the other strike price programs currently offered by the Exchange, would benefit investors by continuing to provide investors the flexibility to more closely tailor their investment and hedging decisions using options on SPY, IVV, and DIA. By allowing the Exchange to initiate the listing of series of options on SPY, IVV, and DIA in $1 intervals between strike prices over $200, the proposal would moderately augment the potential total number of options series available on the Exchange.\13\ However, the Exchange believes it and the Options Price Reporting Authority (``OPRA'') have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange also believes that members will not have a capacity issue due to the proposed rule change. Finally, the Exchange represents that it does not believe that this expansion will cause fragmentation of liquidity. --------------------------------------------------------------------------- \12\ See supra notes 5, 6. \13\ As noted herein (see supra note 4), the Exchange has matched strikes listed by other exchanges in options on IVV, DIA and SPY. --------------------------------------------------------------------------- 2. Statutory Basis The proposed rule change is consistent with Section 6(b) \14\ of the Act, in general, and furthers the objectives of Section 6(b)(5),\15\ 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. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \10\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78f(b). \15\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- In particular, the proposed rule change would promote just and equitable principles of trade by allowing the Exchange to initiate strikes in options on IVV, DIA, and SPY over $200, which would result in continued trading and hedging opportunities in options on these ETFs. The proposed change would likewise ensure that such options investors are not at a disadvantage simply because of the strike price. The Exchange also believes the proposed rule change is consistent with Section 6(b)(1) of the Act, which provides that the Exchange be organized and have the capacity to be able to carry out the purposes of the Act and the rules and regulations thereunder, and the rules of the Exchange. The rule change proposal allows the Exchange to respond to customer demand to allow options on SPY, IVV, and DIA to trade [[Page 55678]] in $1 intervals above a $200 strike price. The Exchange does not believe that the proposed rule would create additional capacity issues or affect market functionality. As noted above, under the current rule (absent another exchange listing strikes that the Exchange could match),\16\ ETF options trade in wider $5 intervals above a $200 strike price, whereas options at or below a $200 strike price trade in $1 intervals. This creates a situation where contracts on the same option class effectively may not be able to execute certain strategies such as, for example, rolling to a higher strike price, simply because of the arbitrary $200 strike price above which options intervals increase by $5. This proposal establishes a clear exception to the current ETF interval regime for options on SPY, IVV, and DIA to allow the Exchange to initiate the listing of such options to trade in $1 or greater intervals at all strike prices. --------------------------------------------------------------------------- \16\ See supra note 4. --------------------------------------------------------------------------- The Exchange believes that the proposed rule change, like other strike price programs currently offered by the Exchange, would remove impediments to and perfect the mechanisms of a free and open market and a national market system to the benefit of investors by giving them increased flexibility to more closely tailor their investment and hedging decisions. Finally, the proposal would foster cooperation and coordination with persons engaged in facilitating transactions in securities as this proposal would align Exchange rules with those of other exchanges--including CBOE and PHLX--to permit finer strikes in IVV, DIA, and SPY.\17\ --------------------------------------------------------------------------- \17\ See supra note 4. --------------------------------------------------------------------------- With regard to the impact of this proposal on system capacity, the Exchange believes it and OPRA have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. 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. Rather, the proposed rule change would enable the Exchange to better compete with other options exchanges that have already adopted the proposed strike setting regime.\13\ Although the Exchange is able to match strikes listed by other exchanges, this proposal would allow the [sic] initiate strikes in IVV, DIA, and SPY regardless of strikes listed on other exchanges, which should help level the playing field for investors investing in, trading and utilizing hedging strategies on these options. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\ Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest, (ii) impose any significant burden on competition, and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ --------------------------------------------------------------------------- \18\ 15 U.S.C. 78s(b)(3)(A)(iii). \19\ 17 CFR 240.19b-4(f)(6). \20\ 15 U.S.C. 78s(b)(3)(A). \21\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b- 4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. As noted above, the proposal would allow the Exchange to initiate $1 or greater strike price intervals above $200 for options on SPY, DIA, and IVV. Substantially similar rules are already in place at CBOE and PHLX, and the Exchange currently has the ability to list, and does list, these strike price intervals pursuant to its matching authority in Rule 903A(b)(vi). The Commission therefore believes that waiver of the operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission designates the proposed rule change to be operative upon filing.\22\ --------------------------------------------------------------------------- \22\ For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic 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-NYSEAMER-2017-31 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-NYSEAMER-2017-31. 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 [[Page 55679]] office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEAMER-2017- 31 and should be submitted on or before December 13, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-25230 Filed 11-21-17; 8:45 am] BILLING CODE 8011-01-P
![55676 Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
including whether the proposed rule SECURITIES AND EXCHANGE proposes to modify the interval setting
change is consistent with the Act. COMMISSION regime for options on SPDR® S&P 500®
Comments may be submitted by any of ETF (‘‘SPY’’), iShares Core S&P 500 ETF
[Release No. 34–82095; File No. SR–
the following methods: NYSEAMER–2017–31]
(‘‘IVV’’), and the SPDR® Dow Jones®
Industrial Average ETF (‘‘DIA’’) to allow
Electronic Comments
Self-Regulatory Organizations; NYSE the Exchange to initiate $1 or greater
• Use the Commission’s Internet American LLC; Notice of Filing and strike price intervals above $200.
comment form (http://www.sec.gov/ Immediate Effectiveness of Proposed Through this filing, the Exchange
rules/sro.shtml); or Rule Change To Amend Rule 903 intends to make SPY, IVV, and DIA
• Send an email to rule-comments@ (Series of Options Open for Trading) options more tailored and easier for
sec.gov. Please include File Number SR– investors and traders to use, which is
CBOE–2017–070 on the subject line. November 16, 2017. consistent with the rules of other
Pursuant to Section 19(b)(1) 1 of the options exchanges.4
Paper Comments
Securities Exchange Act of 1934 Currently, the S&P 500 Index is above
• Send paper comments in triplicate (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 2000.5 The S&P 500 Index is widely
to Secretary, Securities and Exchange notice is hereby given that on November regarded as the best single gauge of large
Commission, 100 F Street NE., 2, 2017, NYSE American LLC cap U.S. equities and is widely quoted
Washington, DC 20549–1090. (‘‘Exchange’’) filed with the Securities as an indicator of stock prices and
All submissions should refer to File and Exchange Commission investor confidence in the securities
Number SR–CBOE–2017–070. This file (‘‘Commission’’) the proposed rule market. As a result, individual investors
number should be included on the change as described in Items I and II often use S&P 500 Index-related
subject line if email is used. To help the below, which Items have been prepared products to diversify their portfolios
Commission process and review your by the self-regulatory organization. The and benefit from market trends.
comments more efficiently, please use Commission is publishing this notice to Accordingly, the Exchange believes that
only one method. The Commission will solicit comments on the proposed rule offering a wide range of S&P 500 Index-
post all comments on the Commission’s change from interested persons. based options affords traders and
Internet Web site (http://www.sec.gov/ I. Self-Regulatory Organization’s investors important hedging and trading
rules/sro.shtml). Copies of the Statement of the Terms of Substance of opportunities. SPY and IVV are
submission, all subsequent the Proposed Rule Change identical in all material respects and are
amendments, all written statements designed to track the performance of the
with respect to the proposed rule The Exchange proposes to amend S&P 500 Index. Shares of SPY and IVV
change that are filed with the Rule 903 (Series of Options Open for are currently priced around 1/10th the
Commission, and all written Trading). The proposed rule change is value of S&P 500 Index. The Dow Jones
communications relating to the available on the Exchange’s Web site at Industrial Average (‘‘DJIA’’) is currently
proposed rule change between the www.nyse.com, at the principal office of above 20,000 and is one of the most
Commission and any person, other than the Exchange, and at the Commission’s widely followed market indices.6 Shares
those that may be withheld from the Public Reference Room. of DIA are currently priced around
public in accordance with the II. Self-Regulatory Organization’s 1/100th of the DJIA. Accordingly, SPY
provisions of 5 U.S.C. 552, will be Statement of the Purpose of, and and IVV strike prices—having a
available for Web site viewing and Statutory Basis for, the Proposed Rule multiplier of $100—reflect a value
printing in the Commission’s Public Change
4 See, e.g., Chicago Board of Options Exchange
Reference Room, 100 F Street NE., In its filing with the Commission, the (‘‘CBOE’’) Rule 5.5, Interpretation and Policy .08;
Washington, DC 20549, on official self-regulatory organization included NASDAQ PHLX LLC (‘‘PHLX’’) Rule 1012,
business days between the hours of statements concerning the purpose of, Commentary .05. CBOE and PHLX both amended
10:00 a.m. and 3:00 p.m. Copies of the and basis for, the proposed rule change their rules regarding strike setting regimes for SPY
filing also will be available for and DIA in 2014. See Securities Exchange Act
and discussed any comments it received Release Nos. 72949 (August 29, 2014) 79 FR 53089
inspection and copying at the principal on the proposed rule change. The text (September 5, 2014) (SR–Phlx–2014–46) and 72990
office of the Exchange. All comments of those statements may be examined at (September 4, 2014) 79 FR 53799 (September 10,
received will be posted without change. the places specified in Item IV below. 2014) (SR–CBOE–2014–068). Earlier this year,
Persons submitting comments are CBOE and PHLX further modified their rules to
The Exchange has prepared summaries, include IVV in the same strike setting regime as
cautioned that we do not redact or edit set forth in sections A, B, and C below, SPY. See Securities Exchange Act Release Nos.
personal identifying information from of the most significant parts of such 80913 (June 13, 2017), 82 FR 27907 (June 19, 2017)
comment submissions. You should statements. (SR–CBOE–2017–048) and 81246 (July 28, 2017) 82
submit only information that you wish FR 36020 (August 2, 2017) (SR–Phlx–2017–57). The
A. Self-Regulatory Organization’s Exchange is authorized to match (and has matched)
to make available publicly. All strikes in DIA, SPY, and IVV that are listed on other
submissions should refer to File Statement of the Purpose of, and the exchanges such as CBOE and PHLX. See Rule
Number SR–CBOE–2017–070 and Statutory Basis for, the Proposed Rule 903A(b)(vi) (providing that the Exchange ‘‘may list
should be submitted on or before Change an options series that is listed by another options
exchange, provided that at the time such series was
December 13, 2017. 1. Purpose listed it was not prohibited under the provisions of
For the Commission, by the Division of the [Options Listing Procedure Plan or OLPP] or the
asabaliauskas on DSKBBXCHB2PROD with NOTICES
The purpose of the filing is to amend rules of the exchange that initially listed the
Trading and Markets, pursuant to delegated
authority.13
Commentary .05 to Rule 903 to modify series’’). The proposed rule change would allow the
the strike price intervals for certain Exchange to initially list strike price intervals of $1
Eduardo A. Aleman, or greater in options on DIA, SPY, or IVV when the
Exchange Traded Funds (each an
Assistant Secretary. ‘‘ETF’’). Specifically, the Exchange
strike price is above $200 (regardless of whether
other exchanges similarly list such strikes).
[FR Doc. 2017–25233 Filed 11–21–17; 8:45 am]
5 On October 30, 2017, the S&P 500 Index closed
BILLING CODE P 1 15 U.S.C. 78s(b)(1). at 2,572.83.
2 15 U.S.C. 78a. 6 On October 30, 2017, the DJIA closed at
13 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4. 23,348.74.
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![Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices 55677
roughly equal to 1/10th of the value of money series based upon the underlying initiate the listing of series of options on
the S&P 500 Index. For example, if the SPY, IVV, or DIA moving less than 1%. SPY, IVV, and DIA in $1 intervals
S&P 500 Index is at 1972.56, shares of The Exchange believes this strike setting between strike prices over $200, the
SPY and IVV might have a value of regime is consistent with slower price proposal would moderately augment the
approximately 197.26 per share. movements of broad-based indices. potential total number of options series
Consequently, an at-the-money option Furthermore, the proposed ability to available on the Exchange.13 However,
on SPY or IVV, with a strike price of initiate $1 intervals would allow the Exchange believes it and the
$197.00 will have a notional value of investors to continue to employ certain Options Price Reporting Authority
$19,700. In general, SPY and IVV (and, option trading strategies (e.g., risk (‘‘OPRA’’) have the necessary systems
to a lesser extent, DIA) options provide reduction/hedging strategies using SPY capacity to handle any potential
retail investors and traders with the weekly options) without the Exchange additional traffic associated with this
benefit of trading the broad market in a having to wait for another exchange to proposed rule change. The Exchange
manageably sized contract. list such strikes. Considering that $1 also believes that members will not have
The Exchange notes that the intervals already exist below the $200 a capacity issue due to the proposed
popularity of options on DIA and SPY price point, and that SPY, IVV, and DIA rule change. Finally, the Exchange
(and, to a lesser extent, IVV) is are above the $200 level, the Exchange represents that it does not believe that
evidenced by the existence of monthly, believes it would be appropriate to this expansion will cause fragmentation
quarterly, and weekly expiration cycles modify the existing $200 level (above of liquidity.
in these ETFs.7 Currently, Commentary which intervals increase 500% to $5) for
.05(a) to Rule 903 provides that the options on these ETFs. The Exchange 2. Statutory Basis
‘‘interval of strike prices of series of believes that eliminating the existing The proposed rule change is
options on Exchange-Traded Fund $200 level would allow investors to consistent with Section 6(b) 14 of the
Shares will be $1 or greater where the continue investing, trading and utilizing Act, in general, and furthers the
strike price is $200 or less and $5 or hedging strategies on these highly-liquid objectives of Section 6(b)(5),15 in
greater where the strike price is greater options. particular, in that it is designed to
than $200.’’ 8 Thus, unless the Exchange Under the current rule, the Exchange prevent fraudulent and manipulative
is able to match strikes listed on other is limited in its ability to initiate strikes acts and practices, to promote just and
exchanges (see supra note 4), the current in options on IVV, DIA, and SPY over equitable principles of trade, to foster
rule limits the trading and hedging $200. Assuming no other exchange lists cooperation and coordination with
possibilities for investors on the the desired strike, investors and traders persons engaged in facilitating
Exchange—particularly those investors on the Exchange are unable to roll open transactions in securities, and to remove
that would like to execute strategies that positions from a lower strike to a higher impediments to and perfect the
are effective in $1 intervals. The strike in conjunction with the price mechanisms of a free and open market
Exchange therefore proposes to amend movement of the underlying index and a national market system.
Commentary .05 to Rule 903 to allow because the next (higher) available Additionally, the Exchange believes the
the Exchange to initiate $1 strike price series would be $5 away above a $200 proposed rule change is consistent with
intervals in options on SPY, IVV, and strike price.10 Thus, to initiate a the Section 6(b)(5) 10 requirement that
DIA. As proposed, the modified rule position from $200 strike to a $205 the rules of an exchange not be designed
would provide that ‘‘[n]otwithstanding strike under the current rule, an investor to permit unfair discrimination between
any other provision of this rule would need for the underlying product customers, issuers, brokers, or dealers.
regarding the interval of strike prices of to move 2.5% and would not be able to In particular, the proposed rule
series of options on Exchange-Traded execute a roll up until such a large change would promote just and
Fund Shares, the interval of strike prices movement occurred. With the proposed equitable principles of trade by allowing
on options on [SPY, IVV, and DIA] will rule change to allow the Exchange to the Exchange to initiate strikes in
be $1 or greater.’’ 9 initiate finer strikes in options on IVV, options on IVV, DIA, and SPY over
The Exchange believes that modifying DIA, and SPY over the $200 level, $200, which would result in continued
the Rule to allow the Exchange to however, the investor would be in a trading and hedging opportunities in
initiate finer—i.e., one dollar—strike significantly safer position of being able options on these ETFs. The proposed
intervals in SPY, IVV, and DIA, would to roll his open options position from a change would likewise ensure that such
provide investors more efficient hedging $200 to a $201 strike price, which is options investors are not at a
and trading opportunities. In particular, only a 0.5% move for the underlying.11 disadvantage simply because of the
the proposed ability to initiate $1 The proposed rule change would
intervals, particularly above a $200 strike price.
allow the Exchange to better respond to The Exchange also believes the
strike price, will result in having at-the- customer demand for SPY, IVV, and proposed rule change is consistent with
DIA strike prices more precisely aligned Section 6(b)(1) of the Act, which
7 For rules regarding quarterly or weekly options
with current S&P 500 Index and DJIA provides that the Exchange be organized
(also known as Short Term Options or STOS), see
Commentaries .09 and .10, respectively, to Rule
values.12 The Exchange believes that the and have the capacity to be able to carry
903. proposed rule change, like the other out the purposes of the Act and the
8 See Rule 903, Commentary .05(a). See also Rule strike price programs currently offered rules and regulations thereunder, and
903, Commentary .10 (d) (providing, in relevant by the Exchange, would benefit the rules of the Exchange. The rule
asabaliauskas on DSKBBXCHB2PROD with NOTICES
part, that [i]f the class does not trade in $1 strike investors by continuing to provide
price intervals, the strike price interval for Short change proposal allows the Exchange to
Term Option Series may be (i) $0.50 or greater investors the flexibility to more closely respond to customer demand to allow
where the strike price is less than $100; (ii) $1.00 tailor their investment and hedging options on SPY, IVV, and DIA to trade
or greater where the strike price is between $100 decisions using options on SPY, IVV,
and $150; or (iii) $2.50 or greater for strike prices
greater than $150. A non-Short Term Option that is
and DIA. By allowing the Exchange to 13 As noted herein (see supra note 4), the
on a class that has been selected to participate in Exchange has matched strikes listed by other
10 See Rule 903, Commentary .05(a). exchanges in options on IVV, DIA and SPY.
the Short Term Option Series Program is referred
to as a ‘‘Related non-Short Term Option’’). 11 See proposed Rule 903, Commentary .05(d). 14 15 U.S.C. 78f(b).
9 See proposed Rule 903, Commentary .05(d). 12 See supra notes 5, 6. 15 15 U.S.C. 78f(b)(5).
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![55678 Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
in $1 intervals above a $200 strike price. the [sic] initiate strikes in IVV, DIA, and the proposed rule change to be operative
The Exchange does not believe that the SPY regardless of strikes listed on other upon filing.22
proposed rule would create additional exchanges, which should help level the At any time within 60 days of the
capacity issues or affect market playing field for investors investing in, filing of the proposed rule change, the
functionality. trading and utilizing hedging strategies Commission summarily may
As noted above, under the current on these options. temporarily suspend such rule change if
rule (absent another exchange listing it appears to the Commission that such
strikes that the Exchange could C. Self-Regulatory Organization’s
Statement on Comments on the action is necessary or appropriate in the
match),16 ETF options trade in wider $5 public interest, for the protection of
intervals above a $200 strike price, Proposed Rule Change Received From
Members, Participants, or Others investors, or otherwise in furtherance of
whereas options at or below a $200 the purposes of the Act.
strike price trade in $1 intervals. This No written comments were solicited
creates a situation where contracts on or received with respect to the proposed IV. Solicitation of Comments
the same option class effectively may rule change. Interested persons are invited to
not be able to execute certain strategies III. Date of Effectiveness of the submit written data, views, and
such as, for example, rolling to a higher Proposed Rule Change and Timing for arguments concerning the foregoing,
strike price, simply because of the Commission Action including whether the proposed rule
arbitrary $200 strike price above which change is consistent with the Act.
options intervals increase by $5. This The Exchange has filed the proposed Comments may be submitted by any of
proposal establishes a clear exception to rule change pursuant to Section the following methods:
the current ETF interval regime for 19(b)(3)(A)(iii) of the Act 18 and Rule
options on SPY, IVV, and DIA to allow 19b–4(f)(6) thereunder.19 Because the Electronic Comments
the Exchange to initiate the listing of foregoing proposed rule change does • Use the Commission’s Internet
such options to trade in $1 or greater not: (i) Significantly affect the comment form (http://www.sec.gov/
intervals at all strike prices. protection of investors or the public rules/sro.shtml); or
The Exchange believes that the interest, (ii) impose any significant • Send an email to rule-comments@
proposed rule change, like other strike burden on competition, and (iii) become sec.gov. Please include File Number SR–
price programs currently offered by the operative for 30 days from the date on NYSEAMER–2017–31 on the subject
Exchange, would remove impediments which it was filed, or such shorter time line.
to and perfect the mechanisms of a free as the Commission may designate, it has
and open market and a national market become effective pursuant to Section Paper Comments
system to the benefit of investors by 19(b)(3)(A) of the Act 20 and Rule 19b– • Send paper comments in triplicate
giving them increased flexibility to more 4(f)(6) thereunder.21 to Secretary, Securities and Exchange
closely tailor their investment and A proposed rule change filed under Commission, 100 F Street NE.,
hedging decisions. Finally, the proposal Rule 19b–4(f)(6) normally does not Washington, DC 20549–1090.
would foster cooperation and become operative prior to 30 days after
the date of the filing. However, pursuant All submissions should refer to File
coordination with persons engaged in Number SR–NYSEAMER–2017–31. This
facilitating transactions in securities as to Rule 19b–4(f)(6)(iii), the Commission
may designate a shorter time if such file number should be included on the
this proposal would align Exchange subject line if email is used. To help the
rules with those of other exchanges— action is consistent with the protection
of investors and the public interest. The Commission process and review your
including CBOE and PHLX—to permit comments more efficiently, please use
finer strikes in IVV, DIA, and SPY.17 Exchange has asked the Commission to
waive the 30-day operative delay so that only one method. The Commission will
With regard to the impact of this post all comments on the Commission’s
proposal on system capacity, the the proposal may become operative
immediately upon filing. As noted Internet Web site (http://www.sec.gov/
Exchange believes it and OPRA have the rules/sro.shtml). Copies of the
necessary systems capacity to handle above, the proposal would allow the
Exchange to initiate $1 or greater strike submission, all subsequent
any potential additional traffic amendments, all written statements
associated with this proposed rule price intervals above $200 for options
on SPY, DIA, and IVV. Substantially with respect to the proposed rule
change. The Exchange believes that its change that are filed with the
members will not have a capacity issue similar rules are already in place at
CBOE and PHLX, and the Exchange Commission, and all written
as a result of this proposal. communications relating to the
currently has the ability to list, and does
B. Self-Regulatory Organization’s list, these strike price intervals pursuant proposed rule change between the
Statement on Burden on Competition to its matching authority in Rule Commission and any person, other than
903A(b)(vi). The Commission therefore those that may be withheld from the
The Exchange does not believe that
believes that waiver of the operative public in accordance with the
the proposed rule change will impose
delay is consistent with the protection provisions of 5 U.S.C. 552, will be
any burden on competition not
of investors and the public interest. available for Web site viewing and
necessary or appropriate in furtherance
Therefore, the Commission designates printing in the Commission’s Public
of the purposes of the Act. Rather, the
Reference Room, 100 F Street NE.,
proposed rule change would enable the 18 15 U.S.C. 78s(b)(3)(A)(iii). Washington, DC 20549 on official
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Exchange to better compete with other 19 17 CFR 240.19b–4(f)(6). business days between the hours of
options exchanges that have already 20 15 U.S.C. 78s(b)(3)(A).
10:00 a.m. and 3:00 p.m. Copies of the
adopted the proposed strike setting 21 17 CFR 240.19b–4(f)(6). As required under Rule
filing also will be available for
regime.13 Although the Exchange is able 19b–4(f)(6)(iii), the Exchange provided the
inspection and copying at the principal
to match strikes listed by other Commission with written notice of its intent to file
the proposed rule change, along with a brief
exchanges, this proposal would allow description and the text of the proposed rule 22 For purposes only of waiving the 30-day
change, at least five business days prior to the date operative delay, the Commission has considered the
16 See supra note 4. of filing of the proposed rule change, or such proposed rule’s impact on efficiency, competition,
17 See supra note 4. shorter time as designated by the Commission. and capital formation. See 15 U.S.C. 78c(f).
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![Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices 55679
office of the Exchange. All comments together with MRX and ISE, the ‘‘ISE Exchange’s Current LLC Agreement in
received will be posted without change. Exchanges’’).4 On June 30, 2016, its entirety and replace it with the New
Persons submitting comments are pursuant to this transaction, Nasdaq, LLC Agreement, which is based on the
cautioned that we do not redact or edit Inc. acquired all of the capital stock of limited liability company agreement of
personal identifying information from U.S. Exchange Holdings, Inc. Nasdaq; 10 (2) delete the Exchange’s
comment submissions. You should (‘‘Exchange Holdings’’), and thereby Current Constitution in its entirety and
submit only information that you wish became the indirect, ultimate parent of replace it with the New By-Laws, which
to make available publicly. All the ISE Exchanges.5 Nasdaq, Inc. is also are based on the by-laws of Nasdaq; 11
submissions should refer to File the ultimate parent of Nasdaq BX, Inc. and (3) amend certain of its Rules to
Number SR–NYSEAMER–2017–31 and (‘‘BX’’), The Nasdaq Stock Market LLC reflect the replacement of the Current
should be submitted on or before (‘‘Nasdaq’’), and Nasdaq PHLX LLC Governing Documents with the New
December 13, 2017. (‘‘Phlx’’ and, together with Nasdaq and Governing Documents.12
For the Commission, by the Division of
BX, the ‘‘Nasdaq Exchanges’’).6 The The Exchange represents that the
Trading and Markets, pursuant to delegated Commission notes that the corporate proposed changes are designed to align
authority.23 governance documents of MRX, the Exchange’s corporate governance
Eduardo A. Aleman, specifically its Limited Liability framework with the existing structure of
Company Agreement (‘‘Current LLC the Nasdaq Exchanges, particularly as it
Assistant Secretary.
Agreement’’) and its Constitution relates to the board and committee
[FR Doc. 2017–25230 Filed 11–21–17; 8:45 am]
(‘‘Current Constitution’’ and, together structure, nomination and election
BILLING CODE 8011–01–P
with the Current LLC Agreement, the processes, and related governance
‘‘Current Governing Documents’’) are practices.13 The Exchange also
rules of the Exchange, as are the represents that it is not proposing any
SECURITIES AND EXCHANGE
governing documents of MRX’s amendments to its ownership structure.
COMMISSION
Upstream Owners,7 which include The Exchange does not propose any
[Release No. 34–82101; File No. SR–MRX– certain provisions that are designed to amendments to the governing
2017–18] maintain the independence of MRX’s documents of its Upstream Owners.14
self-regulatory functions (as well as the Thus, the provisions in the governing
Self-Regulatory Organizations; Nasdaq self-regulatory functions of the
MRX, LLC; Order Granting Approval of documents of these entities, which were
Upstream Owners’ other self-regulatory designed to maintain the independence
a Proposed Rule Change To Adopt subsidiaries, i.e., the Nasdaq
New Corporate Governance and of MRX’s self-regulatory functions,
Exchanges).8 would remain unchanged. The
Related Processes Similar to Those of The Exchange intends to effect a
the Nasdaq Exchanges Exchange also represents that it is not
merger with a newly-formed Delaware
proposing any amendments to its Rules
November 16, 2017. limited liability company (‘‘Merger’’)
at this time, other than minor clarifying
under Nasdaq, Inc. that would result in
I. Introduction changes and technical amendments to
MRX as the surviving entity with new
reflect the changes to its governing
On September 19, 2017, Nasdaq MRX, corporate governance documents. In
documents as described in more detail
LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with connection with that Merger, the
below.15 The Exchange states that it
the Securities and Exchange Exchange proposes various changes to
intends to implement its proposed rule
Commission (‘‘Commission’’), pursuant its corporate governance documents and
change no later than by the end of the
to Section 19(b)(1) of the Securities rules (‘‘Rules’’).9 Specifically, the
fourth quarter of 2017.16
Exchange Act of 1934 (‘‘Act’’),1 and Exchange proposes to: (1) Delete the
Rule 19b–4 thereunder,2 proposed rule III. Discussion and Commission
changes to its corporate governance 4 See Securities Exchange Act Release No. 78119 Findings
(June 21, 2016), 81 FR 41611 (June 27, 2016) (SR–
documents and trading rules to align its ISE–2016–11; SR–ISEGemini–2016–05; SR– After careful review, the Commission
corporate governance framework to the ISEMercury–2016–10) (‘‘Nasdaq Acquisition finds that the proposed rule change is
structure of other exchanges owned by Order’’) (order approving Nasdaq, Inc.’s acquisition
of ISE (f/k/a International Securities Exchange, consistent with the requirements of the
its ultimate parent company, Nasdaq,
LLC), GEMX (f/k/a ISE Gemini, LLC), and MRX Act and the rules and regulations
Inc. The proposed rule change was (f/k/a ISE Mercury, LLC)). thereunder applicable to a national
published for comment in the Federal 5 See Notice, supra note 3, at 46848 n.3. Exchange
securities exchange.17 Specifically, as
Register on October 6, 2017.3 The Holdings is the sole owner of ISE Holdings, Inc.
Commission received no comments on (‘‘ISE Holdings,’’ and together with Exchange 10 See Notice, supra note 3, at 46849 n.5.
the proposal. This order approves the Holdings and Nasdaq, Inc., the ‘‘Upstream
11 Id.
Owners’’), which is the sole owner of 100% of the
proposed rule change. Exchange’s limited liability company interests. See 12 The Commission has approved nearly identical
id. at 46849; see also Nasdaq Acquisition Order, proposed rule changes submitted by the Exchange’s
II. Background supra note 4, at 41611. ISE Holdings is also the sole affiliates, ISE and GEMX. See Securities Exchange
On June 21, 2016, the Commission direct owner of ISE and GEMX. See Nasdaq Act Release Nos. 81263 (July 31, 2017), 82 FR 36497
Acquisition Order, supra note 4, at 41611. (August 4, 2017) (SR–ISE–2017–32) (‘‘ISE
approved a proposed rule change 6 See Notice, supra note 3, at 46848. See also Governance Order’’) and 81802 (October 3, 2017),
relating to a corporate transaction in Nasdaq Acquisition Order, supra note 4, at 41611. 82 FR 47055 (October 10, 2017) (SR–GEMX–2017–
which Nasdaq, Inc. would become the As a result of this transaction, the ISE Exchanges 37) (‘‘GEMX Governance Order’’).
asabaliauskas on DSKBBXCHB2PROD with NOTICES
13 See Notice, supra note 3, at 46848–49.
ultimate parent of MRX (the ‘‘Nasdaq and the Nasdaq Exchanges became affiliates. See
Acquisition’’), Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq Acquisition Order, supra note 4, at 41611 14 See generally id.
n.8. 15 See id. at 46849 and 46862–63.
and Nasdaq GEMX, LLC (‘‘GEMX,’’ and 7 See Nasdaq Acquisition Order, supra note 4, at 16 See id. at 46848. The Exchange also states that
41612. it will alert its members in the form of a regulatory
23 17 CFR 200.30–3(a)(12). 8 See, e.g., Nasdaq Acquisition Order, supra note alert to provide notification of the implementation
1 15 U.S.C. 78s(b)(1). 4, at 41612–13. date. Id.
2 17 CFR 240.19b–4. 9 The Rules as proposed to be amended pursuant 17 In approving these proposed rule changes, the
3 See Securities Exchange Act Release No. 81795 to the proposed rule change are referred to herein Commission has considered the proposed rules’
(October 2, 2017), 82 FR 46848 (‘‘Notice’’). as the ‘‘New Rules.’’ Continued
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Document Created: 2017-11-22 00:48:41
Document Modified: 2017-11-22 00:48:41
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 82 FR 55676 |
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