82 FR 55686 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.4-O (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 | 55686-55689 | |
| FR Document | 2017-25229 |
[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)] [Notices] [Pages 55686-55689] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-25229] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82094; File No. SR-NYSEArca-2017-128] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.4-O (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 Arca, Inc. (``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule [[Page 55687]] 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 6.4-O (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 6.4-O 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 6.4A-O(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 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 6.4-O 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 6.4-O 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 .07 and .08, respectively, to Rule 6.4-O. \8\ See Rule 6.4-O, Commentary 5(a). See also Rule 6.4-O, Commentary .07 (e) (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 6.4-O, Commentary 5(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 [[Page 55688]] 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 6.4-O, Commentary 5(a). \11\ See proposed Rule 6.4-O, Commentary 5(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 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 [[Page 55689]] 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-NYSEArca-2017-128 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-NYSEArca-2017-128. 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. 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-NYSEArca-2017-128 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. 2017-25229 Filed 11-21-17; 8:45 am] BILLING CODE 8011-01-P
![55686 Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
existing rules. These provisions clarify Specifically, the Exchange proposed Maker’’ 123 from Section 13.1(z) of the
that amendments to the New Governing changes to its Rules to, among other Current Constitution.
Documents constitute proposed rule things: The Commission believes that the
changes within the meaning of Section • Relocate the concept of CMM Rights proposed changes to MRX’s Rules are
19(b)(2) of the Act and Rule 19b–4 from the Current LLC Agreement 117 to consistent with the Act and, in
thereunder, and are subject to the filing New Rule 100(a)(12), which will state particular Section 6(b)(1) of the Act,124
requirements of Section 19 of the Act that the term ‘‘CMM Rights’’ means the which requires among other things that
and the rules and regulations non-transferable rights held by a a national securities exchange be so
thereunder. Competitive Market Maker.118 organized and have the capacity to carry
The Commission also finds that the • Relocate to New Rule 100(a)(13) the out the purposes of the Act. The
prohibition on the use of regulatory definition of ‘‘Competitive Market Commission notes that many of the
fines, fees, or penalties to fund Maker,’’ 119 which is currently only proposed changes to MRX’s Rules are
dividends is consistent with Section defined in Section 13.1(f) of the Current technical in nature, such as
6(b)(1) of the Act, because it will further Constitution. renumbering of Rules or conforming
the Exchange’s ability to effectively • Relocate the concept of EAM Rights terminology to reflect the replacement
comply with its statutory obligations to New Rule 100(a)(16), which will state of the Current Governing Documents
and is designed to ensure that the that the term ‘‘EAM Rights’’ means the with the New Governing Documents.
regulatory authority of the Exchange is non-transferable rights held by an The Commission also notes that, as
not improperly used.113 This restriction Electronic Access Member.120 described above, the Exchange proposes
on the use of regulatory funds is • Relocate to New Rule 100(a)(17) the to relocate definitions for a number of
intended to preclude the Exchange from definition of ‘‘Electronic Access defined terms used in the Rules from
using its authority to raise Regulatory Member,’’ 121 which is currently only the Current Governing Documents into
Funds for the purpose of benefiting its defined in Article XIII, Section 13.1(j), the Rules.
of the Current Constitution.
shareholders.114
• Relocate the definitions for IV. Conclusion
C. Related Rule Amendments ‘‘Exchange Transaction,’’ ‘‘good It is therefore ordered, pursuant to
The Exchange proposes to amend its standing,’’ and ‘‘System’’ from the Section 19(b)(2) of the Act,125 that the
Rules to reflect the changes to its Current Constitution to the Rules,122 proposed rule change (SR–MRX–2017–
constituent documents through the and delete Rule 100(a)(22A), defining 18) be, and hereby is, approved.
adoption of the New Governing ‘‘LLC Agreement,’’ as that term would
no longer be used in the Rules, as For the Commission, by the Division of
Documents to replace the Current Trading and Markets, pursuant to delegated
amended by the proposed rule change.
Governing Documents. The Exchange authority.126
• Relocate the concept of PMM Rights
states that it is amending its Rules to: (i) Eduardo A. Aleman,
from Article VI of the Current LLC
Clarify any Rules that cross-reference Agreement to New Rule 100(a)(41), Assistant Secretary.
the Current Governing Documents in the which will state that the term ‘‘PMM [FR Doc. 2017–25232 Filed 11–21–17; 8:45 am]
rule text, since those documents are Rights’’ means the non-transferable BILLING CODE 8011–01–P
being replaced by the New Governing rights held by a Primary Market Maker.
Documents; 115 or (ii) relocate in the • Relocate to New Rule 100(a)(42) the
Rules the definitions for a number of definition for ‘‘Primary Market SECURITIES AND EXCHANGE
defined terms used in the Rules that COMMISSION
currently refer back to the Current LLC New Governing Documents, the holders of
[Release No. 34–82094; File No. SR–
Agreement or the Current Constitution Exchange Rights will continue to have voting rights
for representation on the Board through the election NYSEArca–2017–128]
for their meanings.116
of Member Representative Directors. See id. at
46850–51. Self-Regulatory Organizations; NYSE
113 See, e.g., Securities Exchange Act Release No.
117 See Current LLC Agreement, Article VI,
Arca, Inc.; Notice of Filing and
51029 (January 12, 2005), 70 FR 3233, 3241 (January Section 6.2(b).
21, 2005) (SR–ISE–2004–29) (approving an ISE rule 118 CMM Rights are non-transferable rights. The
Immediate Effectiveness of Proposed
interpretation that requires that revenues received holders of CMM Rights may not lease or sell these
Rule Change To Amend Rule 6.4–O
from regulatory fees or regulatory penalties be rights. As discussed above, all Exchange Rights (i.e., (Series of Options Open for Trading)
segregated and applied to fund the legal, regulatory, PMM, CMM, and EAM Rights) convey only voting
and surveillance operations of the Exchange and rights and trading privileges on the Exchange. See November 16, 2017.
not used to pay dividends to the holders of Class
A Common Stock).
Notice, supra note 3, at 46863 n.121. Pursuant to Section 19(b)(1) 1 of the
119 The term ‘‘Competitive Market Maker’’
114 See Notice, supra note 3, at 46853. Securities Exchange Act of 1934
(referred to herein as ‘‘CMM’’) will be defined to
115 The Exchange states that all such changes are
mean a Member that is approved to exercise trading (‘‘Act’’) 2 and Rule 19b–4 thereunder,3
non-substantive, primarily changing terminology, privileges associated with CMM Rights. See New notice is hereby given that, on
such as changing the term ‘‘Constitution’’ to ‘‘By- Rule 100(a)(13). November 2, 2017, NYSE Arca, Inc.
Laws’’ and removing references to the ‘‘Current LLC The term ‘‘Member’’ means an organization that
Agreement.’’ See id. at 46862.
(‘‘Exchange’’) filed with the Securities
has been approved to exercise trading rights
116 See id. at 46851. The Exchange provides that associated with Exchange Rights. See current Rule and Exchange Commission
all the provisions governing the trading privileges 100(a)(23); New Rule 100(a)(28). (‘‘Commission’’) the proposed rule
associated with the Exchange Rights in the Current 120 See supra note 118.
Governing Documents are substantially set forth in 121 The term ‘‘Electronic Access Member’’ 123 The term ‘‘Primary Market Maker’’ (referred to
asabaliauskas on DSKBBXCHB2PROD with NOTICES
the Rules. See id. The Commission notes that, (referred to herein as ‘‘EAM’’) will be defined to herein as ‘‘PMM’’) will be defined to mean a
currently on MRX, the Exchange Rights do not mean a Member that is approved to exercise trading Member that is approved to exercise trading
convey any ownership rights and only provide for privileges associated with EAM Rights. See New privileges associated with PMM Rights. See New
voting rights for representation, through Exchange Rule 100(a)(17). Rule 100(a)(42).
Directors, on the Board and the ability to transact 122 ‘‘Exchange Transaction’’ would be relocated 124 15 U.S.C. 78f(b)(1).
on the Exchange. The Exchange represents that, from Article XIII, Section 13.1(p), of the Current 125 15 U.S.C. 78s(b)(2).
under its Rules, the holders of Exchange Rights will Constitution to New Rule 100(a)(21), ‘‘good 126 17 CFR 200.30–3(a)(12).
continue to have the same trading privileges they standing’’ from Article XIII, Section 13.1(q), of the
1 15 U.S.C. 78s(b)(1).
currently hold as PMMs, CMMs, and EAMs, and the Current Constitution to New Rule 100(a)(24), and
2 15 U.S.C. 78a.
new Board structure of the Exchange will not ‘‘System’’ from Article XIII, Section 13.1(ee), of the
change any trading privileges. Further, under the Current Constitution to New Rule 100(a)(55). 3 17 CFR 240.19b–4.
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![Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices 55687
change as described in Items I and II Currently, the S&P 500 Index is above ‘‘interval of strike prices of series of
below, which Items have been prepared 2000.5 The S&P 500 Index is widely options on Exchange-Traded Fund
by the self-regulatory organization. The regarded as the best single gauge of large Shares will be $1 or greater where the
Commission is publishing this notice to cap U.S. equities and is widely quoted strike price is $200 or less and $5 or
solicit comments on the proposed rule as an indicator of stock prices and greater where the strike price is greater
change from interested persons. investor confidence in the securities than $200.’’ 8 Thus, unless the Exchange
market. As a result, individual investors is able to match strikes listed on other
I. Self-Regulatory Organization’s
often use S&P 500 Index-related exchanges (see supra note 4), the current
Statement of the Terms of Substance of
products to diversify their portfolios rule limits the trading and hedging
the Proposed Rule Change
and benefit from market trends. possibilities for investors on the
The Exchange proposes to amend Accordingly, the Exchange believes that Exchange—particularly those investors
Rule 6.4–O (Series of Options Open for offering a wide range of S&P 500 Index- that would like to execute strategies that
Trading). The proposed rule change is based options affords traders and are effective in $1 intervals. The
available on the Exchange’s Web site at investors important hedging and trading Exchange therefore proposes to amend
www.nyse.com, at the principal office of opportunities. SPY and IVV are Commentary .05 to Rule 6.4–O to allow
the Exchange, and at the Commission’s identical in all material respects and are the Exchange to initiate $1 strike price
Public Reference Room. designed to track the performance of the intervals in options on SPY, IVV, and
II. Self-Regulatory Organization’s S&P 500 Index. Shares of SPY and IVV DIA. As proposed, the modified rule
Statement of the Purpose of, and are currently priced around 1/10th the would provide that ‘‘[n]otwithstanding
Statutory Basis for, the Proposed Rule value of S&P 500 Index. The Dow Jones any other provision of this rule
Change Industrial Average (‘‘DJIA’’) is currently regarding the interval of strike prices of
above 20,000 and is one of the most series of options on Exchange-Traded
In its filing with the Commission, the widely followed market indices.6 Shares Fund Shares, the interval of strike prices
self-regulatory organization included of DIA are currently priced around 1/ on options on [SPY, IVV, and DIA] will
statements concerning the purpose of, 100th of the DJIA. Accordingly, SPY and be $1 or greater.’’ 9
and basis for, the proposed rule change IVV strike prices—having a multiplier of The Exchange believes that modifying
and discussed any comments it received $100—reflect a value roughly equal to 1/ the Rule to allow the Exchange to
on the proposed rule change. The text 10th of the value of the S&P 500 Index. initiate finer—i.e., one dollar—strike
of those statements may be examined at For example, if the S&P 500 Index is at intervals in SPY, IVV, and DIA, would
the places specified in Item IV below. 1972.56, shares of SPY and IVV might provide investors more efficient hedging
The Exchange has prepared summaries, have a value of approximately 197.26 and trading opportunities. In particular,
set forth in sections A, B, and C below, per share. Consequently, an at-the- the proposed ability to initiate $1
of the most significant parts of such money option on SPY or IVV, with a intervals, particularly above a $200
statements. strike price of $197.00 will have a strike price, will result in having at-the-
A. Self-Regulatory Organization’s notional value of $19,700. In general, money series based upon the underlying
Statement of the Purpose of, and the SPY and IVV (and, to a lesser extent, SPY, IVV, or DIA moving less than 1%.
Statutory Basis for, the Proposed Rule DIA) options provide retail investors The Exchange believes this strike setting
Change and traders with the benefit of trading regime is consistent with slower price
the broad market in a manageably sized movements of broad-based indices.
1. Purpose contract. Furthermore, the proposed ability to
The purpose of the filing is to amend The Exchange notes that the initiate $1 intervals would allow
Commentary .05 to Rule 6.4–O to popularity of options on DIA and SPY investors to continue to employ certain
modify the strike price intervals for (and, to a lesser extent, IVV) is option trading strategies (e.g., risk
certain Exchange Traded Funds (each an evidenced by the existence of monthly, reduction/hedging strategies using SPY
‘‘ETF’’). Specifically, the Exchange quarterly, and weekly expiration cycles weekly options) without the Exchange
proposes to modify the interval setting in these ETFs.7 Currently, Commentary having to wait for another exchange to
regime for options on SPDR® S&P 500® .05(a) to Rule 6.4–O provides that the list such strikes. Considering that $1
ETF (‘‘SPY’’), iShares Core S&P 500 ETF intervals already exist below the $200
(‘‘IVV’’), and the SPDR® Dow Jones® SPY. See Securities Exchange Act Release Nos. price point, and that SPY, IVV, and DIA
Industrial Average ETF (‘‘DIA’’) to allow 80913 (June 13, 2017), 82 FR 27907 (June 19, 2017)
(SR–CBOE–2017–048) and 81246 (July 28, 2017) 82
are above the $200 level, the Exchange
the Exchange to initiate $1 or greater FR 36020 (August 2, 2017) (SR–Phlx–2017–57). The believes it would be appropriate to
strike price intervals above $200. Exchange is authorized to match (and has matched) modify the existing $200 level (above
Through this filing, the Exchange strikes in DIA, SPY, and IVV that are listed on other which intervals increase 500% to $5) for
exchanges such as CBOE and PHLX. See Rule 6.4A–
intends to make SPY, IVV, and DIA O(b)(vi) (providing that the Exchange ‘‘may list an options on these ETFs. The Exchange
options more tailored and easier for options series that is listed by another options believes that eliminating the existing
investors and traders to use, which is exchange, provided that at the time such series was $200 level would allow investors to
consistent with the rules of other listed it was not prohibited under the provisions of
the [Options Listing Procedure Plan or OLPP] or the
continue investing, trading and utilizing
options exchanges.4 rules of the exchange that initially listed the
series’’). The proposed rule change would allow the 8 See Rule 6.4–O, Commentary 5(a). See also Rule
4 See, e.g., Chicago Board of Options Exchange Exchange to initially list strike price intervals of $1 6.4–O, Commentary .07 (e) (providing, in relevant
asabaliauskas on DSKBBXCHB2PROD with NOTICES
(‘‘CBOE’’) Rule 5.5, Interpretation and Policy .08; or greater in options on DIA, SPY, or IVV when the part, that [i]f the class does not trade in $1 strike
NASDAQ PHLX LLC (‘‘PHLX’’) Rule 1012, strike price is above $200 (regardless of whether price intervals, the strike price interval for Short
Commentary .05. CBOE and PHLX both amended other exchanges similarly list such strikes). Term Option Series may be (i) $0.50 or greater
their rules regarding strike setting regimes for SPY 5 On October 30, 2017, the S&P 500 Index closed where the strike price is less than $100; (ii) $1.00
and DIA in 2014. See Securities Exchange Act at 2,572.83. or greater where the strike price is between $100
Release Nos. 72949 (August 29, 2014) 79 FR 53089 6 On October 30, 2017, the DJIA closed at and $150; or (iii) $2.50 or greater for strike prices
(September 5, 2014) (SR–Phlx–2014–46) and 72990 23,348.74. greater than $150. A non-Short Term Option that is
(September 4, 2014) 79 FR 53799 (September 10, 7 For rules regarding quarterly or weekly options on a class that has been selected to participate in
2014) (SR–CBOE–2014–068). Earlier this year, (also known as Short Term Options or STOS), see the Short Term Option Series Program is referred
CBOE and PHLX further modified their rules to Commentaries .07 and .08, respectively, to Rule to as a ‘‘Related non-Short Term Option’’).
include IVV in the same strike setting regime as 6.4–O. 9 See proposed Rule 6.4–O, Commentary 5(d).
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![55688 Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
hedging strategies on these highly-liquid 2. Statutory Basis options on SPY, IVV, and DIA to allow
options. The proposed rule change is the Exchange to initiate the listing of
Under the current rule, the Exchange consistent with Section 6(b) 14 of the such options to trade in $1 or greater
is limited in its ability to initiate strikes Act, in general, and furthers the intervals at all strike prices.
objectives of Section 6(b)(5),15 in The Exchange believes that the
in options on IVV, DIA, and SPY over
particular, in that it is designed to proposed rule change, like other strike
$200. Assuming no other exchange lists
prevent fraudulent and manipulative price programs currently offered by the
the desired strike, investors and traders
acts and practices, to promote just and Exchange, would remove impediments
on the Exchange are unable to roll open
equitable principles of trade, to foster to and perfect the mechanisms of a free
positions from a lower strike to a higher
cooperation and coordination with and open market and a national market
strike in conjunction with the price system to the benefit of investors by
movement of the underlying index persons engaged in facilitating
transactions in securities, and to remove giving them increased flexibility to more
because the next (higher) available closely tailor their investment and
series would be $5 away above a $200 impediments to and perfect the
mechanisms of a free and open market hedging decisions. Finally, the proposal
strike price.10 Thus, to initiate a would foster cooperation and
position from $200 strike to a $205 and a national market system.
Additionally, the Exchange believes the coordination with persons engaged in
strike under the current rule, an investor facilitating transactions in securities as
proposed rule change is consistent with
would need for the underlying product this proposal would align Exchange
the Section 6(b)(5) 10 requirement that
to move 2.5% and would not be able to rules with those of other exchanges—
the rules of an exchange not be designed
execute a roll up until such a large including CBOE and PHLX—to permit
to permit unfair discrimination between
movement occurred. With the proposed customers, issuers, brokers, or dealers. finer strikes in IVV, DIA, and SPY.17
rule change to allow the Exchange to In particular, the proposed rule With regard to the impact of this
initiate finer strikes in options on IVV, change would promote just and proposal on system capacity, the
DIA, and SPY over the $200 level, equitable principles of trade by allowing Exchange believes it and OPRA have the
however, the investor would be in a the Exchange to initiate strikes in necessary systems capacity to handle
significantly safer position of being able options on IVV, DIA, and SPY over any potential additional traffic
to roll his open options position from a $200, which would result in continued associated with this proposed rule
$200 to a $201 strike price, which is trading and hedging opportunities in change. The Exchange believes that its
only a 0.5% move for the underlying.11 options on these ETFs. The proposed members will not have a capacity issue
The proposed rule change would change would likewise ensure that such as a result of this proposal.
allow the Exchange to better respond to options investors are not at a B. Self-Regulatory Organization’s
customer demand for SPY, IVV, and disadvantage simply because of the Statement on Burden on Competition
DIA strike prices more precisely aligned strike price.
The Exchange also believes the The Exchange does not believe that
with current S&P 500 Index and DJIA the proposed rule change will impose
values.12 The Exchange believes that the proposed rule change is consistent with
Section 6(b)(1) of the Act, which any burden on competition not
proposed rule change, like the other necessary or appropriate in furtherance
provides that the Exchange be organized
strike price programs currently offered of the purposes of the Act. Rather, the
and have the capacity to be able to carry
by the Exchange, would benefit proposed rule change would enable the
out the purposes of the Act and the
investors by continuing to provide rules and regulations thereunder, and Exchange to better compete with other
investors the flexibility to more closely the rules of the Exchange. The rule options exchanges that have already
tailor their investment and hedging change proposal allows the Exchange to adopted the proposed strike setting
decisions using options on SPY, IVV, respond to customer demand to allow regime.13 Although the Exchange is able
and DIA. By allowing the Exchange to options on SPY, IVV, and DIA to trade to match strikes listed by other
initiate the listing of series of options on in $1 intervals above a $200 strike price. exchanges, this proposal would allow
SPY, IVV, and DIA in $1 intervals The Exchange does not believe that the the [sic] initiate strikes in IVV, DIA, and
between strike prices over $200, the proposed rule would create additional SPY regardless of strikes listed on other
proposal would moderately augment the capacity issues or affect market exchanges, which should help level the
potential total number of options series functionality. playing field for investors investing in,
available on the Exchange.13 However, As noted above, under the current trading and utilizing hedging strategies
the Exchange believes it and the rule (absent another exchange listing on these options
Options Price Reporting Authority strikes that the Exchange could
(‘‘OPRA’’) have the necessary systems match),16 ETF options trade in wider $5 C. Self-Regulatory Organization’s
capacity to handle any potential intervals above a $200 strike price, Statement on Comments on the
whereas options at or below a $200 Proposed Rule Change Received From
additional traffic associated with this
strike price trade in $1 intervals. This Members, Participants, or Others
proposed rule change. The Exchange
also believes that members will not have creates a situation where contracts on No written comments were solicited
a capacity issue due to the proposed the same option class effectively may or received with respect to the proposed
rule change. Finally, the Exchange not be able to execute certain strategies rule change.
represents that it does not believe that such as, for example, rolling to a higher
III. Date of Effectiveness of the
asabaliauskas on DSKBBXCHB2PROD with NOTICES
this expansion will cause fragmentation strike price, simply because of the
Proposed Rule Change and Timing for
of liquidity. arbitrary $200 strike price above which
Commission Action
options intervals increase by $5. This
10 See proposal establishes a clear exception to The Exchange has filed the proposed
Rule 6.4–O, Commentary 5(a).
11 See proposed Rule 6.4–O, Commentary 5(d). the current ETF interval regime for rule change pursuant to Section
12 See supra notes 5, 6. 19(b)(3)(A)(iii) of the Act 18 and Rule
13 As noted herein (see supra note 4), the 14 15 U.S.C. 78f(b).
15 15 U.S.C. 78f(b)(5). 17 See supra note 4.
Exchange has matched strikes listed by other
exchanges in options on IVV, DIA and SPY. 16 See supra note 4. 18 15 U.S.C. 78s(b)(3)(A)(iii).
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![Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices 55689
19b–4(f)(6) thereunder.19 Because the Comments may be submitted by any of SECURITIES AND EXCHANGE
foregoing proposed rule change does the following methods: COMMISSION
not: (i) Significantly affect the
Electronic Comments [Release No. 34–82097; File No. SR–
protection of investors or the public BatsBZX–2017–72]
interest, (ii) impose any significant • Use the Commission’s Internet
burden on competition, and (iii) become comment form (http://www.sec.gov/ Self-Regulatory Organizations; Cboe
operative for 30 days from the date on rules/sro.shtml); or BZX Exchange, Inc.; Notice of Filing of
which it was filed, or such shorter time • Send an email to rule-comments@ a Proposed Rule Change To List and
as the Commission may designate, it has sec.gov. Please include File Number SR– Trade Shares of the Innovator S&P 500
become effective pursuant to Section NYSEArca–2017–128 on the subject 15% Shield Strategy ETF Series,
19(b)(3)(A) of the Act 20 and Rule 19b– line. Innovator S&P 500 Ø5% to Ø35%
4(f)(6) thereunder.21 Shield Strategy ETF Series, Innovator
A proposed rule change filed under Paper Comments
S&P 500 Enhance and 10% Shield
Rule 19b–4(f)(6) normally does not • Send paper comments in triplicate Strategy ETF Series, and Innovator
become operative prior to 30 days after to Secretary, Securities and Exchange S&P 500 Ultra Strategy ETF Series
the date of the filing. However, pursuant Commission, 100 F Street NE., Under Rule 14.11(i)
to Rule 19b–4(f)(6)(iii), the Commission Washington, DC 20549–1090.
may designate a shorter time if such November 16, 2017.
action is consistent with the protection All submissions should refer to File Pursuant to Section 19(b)(1) of the
of investors and the public interest. The Number SR–NYSEArca–2017–128. This Securities Exchange Act of 1934 (the
Exchange has asked the Commission to file number should be included on the ‘‘Act’’),1 and Rule 19b–4 thereunder,2
waive the 30-day operative delay so that subject line if email is used. To help the notice is hereby given that on November
the proposal may become operative Commission process and review your 7, 2017, Cboe BZX Exchange, Inc. (the
immediately upon filing. As noted comments more efficiently, please use ‘‘Exchange’’ or ‘‘BZX’’) (formerly known
above, the proposal would allow the only one method. The Commission will as Bats BZX Exchange, Inc.) filed with
Exchange to initiate $1 or greater strike post all comments on the Commission’s the Securities and Exchange
price intervals above $200 for options Internet Web site (http://www.sec.gov/ Commission (‘‘Commission’’) the
on SPY, DIA, and IVV. Substantially rules/sro.shtml). Copies of the proposed rule change as described in
similar rules are already in place at submission, all subsequent Items I and II below, which Items have
CBOE and PHLX, and the Exchange amendments, all written statements been prepared by the Exchange. The
currently has the ability to list, and does with respect to the proposed rule Commission is publishing this notice to
list, these strike price intervals pursuant change that are filed with the solicit comments on the proposed rule
to its matching authority in Rule Commission, and all written change from interested persons.
903A(b)(vi). The Commission therefore communications relating to the
proposed rule change between the I. Self-Regulatory Organization’s
believes that waiver of the operative
Commission and any person, other than Statement of the Terms of Substance of
delay is consistent with the protection
those that may be withheld from the the Proposed Rule Change
of investors and the public interest.
Therefore, the Commission designates public in accordance with the The Exchange filed a proposed rule
the proposed rule change to be operative provisions of 5 U.S.C. 552, will be change to list and trade shares of the
upon filing.22 available for Web site viewing and Innovator S&P 500 15% Shield Strategy
At any time within 60 days of the printing in the Commission’s Public ETF Series, Innovator S&P 500 ¥5% to
filing of the proposed rule change, the Reference Room, 100 F Street NE., ¥35% Shield Strategy ETF Series,
Commission summarily may Washington, DC 20549 on official Innovator S&P 500 Enhance and 10%
temporarily suspend such rule change if business days between the hours of Shield Strategy ETF Series and
it appears to the Commission that such 10:00 a.m. and 3:00 p.m. Copies of the Innovator S&P 500 Ultra Strategy ETF
action is necessary or appropriate in the filing also will be available for Series under the Innovator ETFs Trust
public interest, for the protection of inspection and copying at the principal (formerly, Academy Funds Trust), under
investors, or otherwise in furtherance of office of the Exchange. All comments Rule 14.11(i) (‘‘Managed Fund Shares’’).
the purposes of the Act. received will be posted without change. The text of the proposed rule change
Persons submitting comments are is available at the Exchange’s Web site
IV. Solicitation of Comments cautioned that we do not redact or edit at www.markets.cboe.com, at the
Interested persons are invited to personal identifying information from principal office of the Exchange, and at
submit written data, views, and comment submissions. You should the Commission’s Public Reference
arguments concerning the foregoing, submit only information that you wish Room.
including whether the proposed rule to make available publicly. All II. Self-Regulatory Organization’s
change is consistent with the Act. submissions should refer to File Statement of the Purpose of, and
Number SR–NYSEArca–2017–128 and Statutory Basis for, the Proposed Rule
19 17 CFR 240.19b–4(f)(6). should be submitted on or before Change
20 15 U.S.C. 78s(b)(3)(A). December 13, 2017.
21 17 CFR 240.19b–4(f)(6). As required under Rule
In its filing with the Commission, the
For the Commission, by the Division of
asabaliauskas on DSKBBXCHB2PROD with NOTICES
19b–4(f)(6)(iii), the Exchange provided the Exchange included statements
Commission with written notice of its intent to file Trading and Markets, pursuant to delegated
the proposed rule change, along with a brief authority.23 concerning the purpose of and basis for
description and the text of the proposed rule the proposed rule change and discussed
Eduardo A. Aleman,
change, at least five business days prior to the date any comments it received on the
of filing of the proposed rule change, or such Assistant Secretary.
proposed rule change. The text of these
shorter time as designated by the Commission. [FR Doc. 2017–25229 Filed 11–21–17; 8:45 am]
22 For purposes only of waiving the 30-day
statements may be examined at the
BILLING CODE 8011–01–P
operative delay, the Commission has considered the
1 15 U.S.C. 78s(b)(1).
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f). 23 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4.
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Document Created: 2017-11-22 00:48:30
Document Modified: 2017-11-22 00:48:30
| 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 55686 |
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