82_FR_9911 82 FR 9886 - Self-Regulatory Organizations; BOX Options Exchange LLC; Order Granting Approval of a Proposed Rule Change To Amend Rule 5050 Series of Options Contracts Open for Trading To Provide for the Listing and Trading on the Exchange of RealDayTM

82 FR 9886 - Self-Regulatory Organizations; BOX Options Exchange LLC; Order Granting Approval of a Proposed Rule Change To Amend Rule 5050 Series of Options Contracts Open for Trading To Provide for the Listing and Trading on the Exchange of RealDayTM

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 25 (February 8, 2017)

Page Range9886-9891
FR Document2017-02541

Federal Register, Volume 82 Issue 25 (Wednesday, February 8, 2017)
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9886-9891]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-02541]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79936; File No. SR-BOX-2016-50]


Self-Regulatory Organizations; BOX Options Exchange LLC; Order 
Granting Approval of a Proposed Rule Change To Amend Rule 5050 Series 
of Options Contracts Open for Trading To Provide for the Listing and 
Trading on the Exchange of RealDay\TM\ Options Pursuant to a Pilot 
Program

February 2, 2017.

I. Introduction

    On October 26, 2016, BOX Options Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
provide for the listing and trading on the Exchange of RealDay\TM\ 
Options (``RealDay Options'') on a pilot basis. The proposed rule 
change was published for comment in the Federal Register on November 
15, 2016.\3\ The Commission received one comment letter on the proposed 
rule change.\4\ On December 20, 2016, pursuant to Section 19(b)(2) of 
the Act,\5\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to approve or disapprove 
the proposed rule change.\6\ This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79258 (November 8, 
2016), 81 FR 80125 (``Notice'').
    \4\ See Letter from Edward T. Tilly, Chief Executive Officer, 
Chicago Board Options Exchange (``CBOE''), Incorporated, to Brent J. 
Fields, Secretary, Commission, dated December 6, 2016 (``CBOE 
Letter'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 79613, 81 FR 95206 
(December 27, 2016). The Commission designated February 13, 2017 as 
the date by which the Commission would either approve or disapprove, 
or institute proceedings to determine whether to approve of 
disapprove, the proposed rule change.

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[[Page 9887]]

II. Description of the Proposed Rule Change

General Description \7\
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    \7\ For additional details, including examples provided by the 
Exchange with respect to the proposed operation of RealDay Options, 
see Notice, supra note 3.
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    Pursuant to a twelve-month pilot program, the Exchange proposes to 
amend its rules to list and trade on the Exchange RealDay Options on 
the SPDR[supreg] S&P 500[supreg] Exchange Traded Fund (``SPY''). The 
Exchange states that RealDay Options are designed and exclusively 
licensed by the RealDay Options Corporation, and would be exclusively 
listed on BOX. RealDay Options would share many characteristics of 
existing standardized options with some distinct variations. Most 
notably, at the commencement of trading of a particular RealDay Option 
and until the close of trading on the last trading day before its 
expiration, the numerical value of the strike price would not be known. 
However, the formula used to calculate the strike price would be fixed 
and known from the time of listing.\8\
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    \8\ The Exchange describes RealDay Options as true, or real, 
one-day options because they are forward start (or delayed start) 
options with strike increments and a strike price setting formula 
that are fixed from the time of listing, but with numerical strike 
prices determined based on the formula using the closing price of 
SPY from the last trading day before expiration.
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    The trading of RealDay Options would in essence be divided into two 
periods: The anticipatory period and the active period. The 
anticipatory period would be the period of time from the day the option 
is listed up until the close of trading on the last trading day before 
expiration. The active period would be the expiration day of the 
option. During the anticipatory period, the strike intervals and strike 
price setting formula would be known, but not the numerical value of 
the strike prices, because they would depend on the closing price of 
SPY from the last trading day before expiration. RealDay Options could 
still be traded in the anticipatory period in the same manner as 
standard options on SPY. During the active period, the numerical value 
of the strike prices would be known. Although the active period is only 
one trading day, RealDay Options could be listed for up to nine months 
in advance of the expiration date, but at least two weeks prior to 
their expiration.\9\
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    \9\ See Proposed Rule 5050(f).
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    The Exchange has only proposed to list RealDay Options on SPY, but 
the Exchange states that it may seek to list RealDay Options on 
additional securities in the future.\10\ According to the Exchange, it 
has proposed to list RealDay Options initially on SPY due to the vast 
liquidity in the security, which the Exchange states to be the largest 
and most actively traded Exchange Traded Fund (``ETF'') in the United 
States.\11\
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    \10\ See Notice, supra note 3, at 80126 (representing that, if 
it were to seek to list RealDay Options on additional securities, 
the Exchange would use the approval process under Form 19b-4).
    \11\ See Notice, supra note 3, at 80126.
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Strike Price, Strike Intervals, Settlement and Exercise Price

    While the numerical value of the strike prices for RealDay Options 
would not be known until the close of trading on the last trading day 
before expiration, the strike intervals and strike price setting 
formula would be fixed from inception.\12\ The formula would involve 
multiplying the closing price of SPY from the last trading day before 
expiration (``Strike Setting Price'') by the Strike Multiplier.\13\ In 
effect, the strike price would stay at the same percentage relationship 
to the price of SPY from the time of listing. The Exchange proposes to 
only list up to a maximum of seven strike prices for each expiration 
date, consisting of up to three strike prices with a price greater than 
the Strike Setting Price, three strike prices with a price less than 
the Strike Setting Price, and one strike price equal to the Strike 
Setting Price.\14\ The Exchange proposes to have discretion in 
determining the number of strike prices that would be listed per 
expiration, provided that the strike prices satisfy these restrictions. 
Additionally, the Exchange would be required to always list the strike 
price that is equal to the Strike Setting Price for each RealDay 
Options expiration. The Exchange proposes to have the discretion to 
determine not to list in-the-money (``ITM'') put or call options for 
any of the seven strike prices,\15\ as the Exchange believes the value 
of RealDay Options is in the instruments that are at-the-money and out-
of-the-money. Similar to other options products listed by the Exchange, 
the Exchange proposes to allow for the addition of strike prices after 
the initial listing of a RealDay Option, provided that the Exchange 
does not list more than the seven strike prices permitted by the 
guidelines described above.\16\
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    \12\ See proposed Rule 5050(f)(8).
    \13\ The ``Strike Multiplier'' is the decimal equivalent of the 
percentage strike of the specific option. The Strike Multiplier 
would be expressed with three decimal places. For example, an option 
that is equal to the Strike Setting price would be 100%, making the 
Strike Multiplier 1.000.
    \14\ See proposed Rule 5050(f)(2).
    \15\ See proposed Rule 5050(f)(2)(ii). The ITM puts that the 
Exchange may decide to not list are those corresponding to the three 
strike prices that are greater than the Strike Setting Price and the 
ITM call options are those corresponding to the three strike prices 
that are less than the Strike Setting Price.
    \16\ See Notice, supra note 3, at 80127.
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    The Exchange also proposes additional procedures in determining the 
exact number of strike prices that may be listed for a RealDay 
Option.\17\ Specifically, if the underlying security is priced at or 
above $25.00 per share, the Exchange would be permitted to list up to 
all seven permitted strike prices. If the underlying security is priced 
at or below $10.00 per share, the Exchange would not list any RealDay 
Options on the underlying security. If the underlying security is 
priced between $10.00 and $25.00 per share, the Exchange would only 
list one strike price, which would be equal to the Strike Setting 
Price.
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    \17\ See proposed Rule 5050(f)(2).
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    The strike price formula would be used after the close of trading 
on the last trading day before expiration in order to calculate the 
numerical values of the strike prices. Specifically, the strike prices 
would be determined by multiplying the Strike Setting Price by the 
Strike Multiplier. Rather than applying the Exchange's general strike 
price interval rules, the strike prices for RealDay Options would have 
fixed strike intervals of 0.50%.\18\ The strike prices would be rounded 
to the nearest minimum trading increment, if necessary. If SPY does not 
open for trading on the trading day before the expiration date, the 
Exchange proposes to use the last available closing price for SPY as 
the Strike Setting Price.
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    \18\ See Proposed Rule 5050(f)(3). There would be one strike 
price equal to 100% of the Strike Setting Price (with a Strike 
Multiplier of 1.000), three strike prices greater than then Strike 
Setting Price determined by adding 0.5%, 1.0%, and 1.5%, 
respectively, to the Strike Setting Price (with Strike Multipliers 
of 1.005, 1.010, and 1.015, respectively), and three strike prices 
lower than the Strike Setting Price determined by subtracting 0.5%, 
1.0%, and 1.5%, respectively, from the Strike Setting Price (with 
Strike Multipliers of 0.995, 0.990, and 0.985, respectively).
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    The Exchange proposes to calculate the exercise and settlement 
price of RealDay Options based on the closing price of SPY on the 
trading day of expiration. The exercise-settlement amount would be 
equal to the difference between the settlement price and the exercise 
price of the option multiplied by 100. Exercise would result in the 
delivery of cash on the business day following expiration. If SPY does 
not open for trading on the trading day of expiration, at the close of 
trading on expiration, RealDay Options would have an exercise price 
that is equal to the

[[Page 9888]]

closing price from the last trading day before expiration.

Other Characteristics

    The Exchange proposes that RealDay Options be P.M. cash-settled and 
have European-style exercise provisions.\19\ These options may expire 
every trading day, including days on which monthly options series, 
Short Term Options Series, and Quarterly Options Series on SPY expire.
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    \19\ See Proposed Rule 5050(f)(4). See also Notice, supra note 
3, at 80126-27 and 80129-30 (discussing the Exchange's 
representations with respect to the appropriateness of its proposed 
settlement and exercise methodologies for RealDay Options).
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    The Exchange proposes to list RealDay Options on SPY with the 
symbol ``SPYZ.'' During the anticipatory period, the Exchange proposes 
to list the strike prices as the Strike Multiplier because the 
numerical value of the strike price would not yet be known. The 
Exchange proposes to use three decimal places to indicate the strike 
prices as the Strike Multiplier during the anticipatory period.\20\ 
According to the Exchange, using three decimal places is unique and not 
a practice currently used for options, which the Exchange believes 
would put investors on notice and aware that the Strike Multiplier does 
not represent a strike price of a typical standard option.\21\ The 
Exchange represents that it has explained what the three decimal places 
would represent to data vendors, the Options Clearing Corporation, and 
various market participants, and the Exchange represents that they have 
confirmed that they would be able to handle the three decimal places 
when RealDay Options are launched.\22\ The Exchange also represents 
that it will provide information and education to market participants 
via circular prior to the launch of RealDay Options to further minimize 
any potential investor confusion.\23\
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    \20\ See Notice, supra note 3, at 80128 (providing an example of 
strike prices for RealDay Options during the anticipatory period).
    \21\ See id. at 80128.
    \22\ See id. at 80128 n.24.
    \23\ See id. at 80128.
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    After the close of trading on the last trading day before 
expiration, the decimal would be converted into the numerical strike 
price by multiplying the Strike Setting Price by the Strike 
Multiplier.\24\
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    \24\ See id. at 80129 (providing an example of the conversion 
into the numerical strike prices). The Exchange notes that an 
adjustment to the Strike Setting Price may be needed in order to 
remove the effects of corporate actions, such as cash dividends. If 
a dividend is declared, the Exchange would adjust the Strike Setting 
Price by subtracting the declared dividend before multiplying it by 
the Strike Multiplier. See id. at 80128 n.25.
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    The Exchange proposes for RealDay Options to overlie 100 shares of 
SPY in the same manner as standard options on SPY. The Exchange's 
standard trading hours for SPY options would also apply to trading in 
RealDay Options. The Exchange proposes to apply margin requirements for 
the purchase and sale of RealDay Options that are identical to the 
margin requirements for standard options on SPY.\25\ The Exchange 
proposes to calculate margin requirements for RealDay Options in the 
same manner as margins for standard options on SPY. The Exchange notes 
that margins would be calculated in the same manner during both the 
anticipatory and active periods. The Exchange states that the strike 
price used for calculating the margin would be the numerical value of 
the strike price using the current price of SPY for the strike setting 
formula.\26\ The Exchange proposes to apply the same minimum trading 
increment of $0.01 to RealDay Options as applicable to standard options 
on SPY.\27\ The Exchange further proposes that the position limits for 
RealDay Options would be the same as the position limits for standard 
options, such that there would be no position or exercise limits for 
RealDay Options on SPY, as with standard options on SPY.\28\ In 
addition, positions in RealDay Options would be aggregated with 
positions in all other options on SPY.
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    \25\ See Proposed Rule 5050(f)(6). The Exchange notes that 
Options Participants and associated persons are bound by the initial 
and maintenance margin requirements of either CBOE or the New York 
Stock Exchange. See Exchange Rule 10120; see also CBOE Rule 12.3.
    \26\ See Notice, supra note 3, at 80129.
    \27\ See Proposed Rule 5050(f)(5).
    \28\ See Proposed Rule 5050(f)(10). See also Securities Exchange 
Act Release No. 67936 (September 27, 2012), 77 FR 60491 (October 3, 
2012) (SR-BOX-2012-013). The Exchange noted that since the removal 
of any position limits on SPY is subject to a pilot program, if such 
pilot is discontinued and SPY becomes subject to position limits, 
then RealDay Options would become subject to the same position 
limits as SPY options. See Notice, supra note 3, at 80130.
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    The Exchange proposes to apply Section 4000 of its rules, which is 
designed to protect public customer trading, to trading in RealDay 
Options. Specifically, Exchange Rules 4020(a) and (b) prohibit Order 
Flow Providers (``OFPs'') \29\ from accepting a Public Customer order 
to purchase or write an option, including RealDay Options, unless such 
customer's account has been approved in writing by a designated Options 
Principal of the OFP. Additionally, Exchange Rule 4040 regarding 
suitability is designed to ensure that options, including RealDay 
Options, are sold only to customers capable of evaluating and bearing 
the risks associated with trading in the instrument. Further, Exchange 
Rule 4050 permits OFPs to exercise discretionary power with respect to 
trading options, including RealDay Options, in a Public Customer's 
account only if the OFP has received prior written authorization from 
the customer and the account has been accepted in writing by a 
designated Options Principal. Finally, the Exchange states that 
Exchange Rules 4030 (Supervision of Accounts), 4060 (Confirmation to 
Public Customers), and 4100 (Delivery of Current Options Disclosure 
Documents and Prospectus) would also apply to trading in RealDay 
Options.
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    \29\ See Rule 100(a)(45). The term OFP means those Options 
Participants representing as agent Customer Orders on BOX and those 
non-Market Maker Participants conducting proprietary trading.
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    The Exchange represents that it has an adequate surveillance 
program in place for RealDay Options and intends to apply the same 
program procedures that it applies to the Exchange's other options 
products, which the Exchange believes would adequately monitor trading 
in RealDay Options.\30\ The Exchange stated that it is also a member of 
the Intermarket Surveillance Group (``ISG''), the members of which work 
together to coordinate surveillance and investigative information 
sharing in the stock and options markets.
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    \30\ See Notice, supra note 3, at 80130.
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    The Exchange further represents that it has the necessary system 
capacity to support the additional quotations and messages that would 
result from the listing and trading of RealDay Options.\31\ The 
Exchange intends to minimize the system capacity required to list 
RealDay Options by limiting the listing to seven strike prices per 
expiration. The Exchange also states that having the discretion to not 
list ITM call or put options would further minimize the required system 
capacity to list RealDay Options.
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    \31\ See id.
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Pilot

    The Exchange has filed this proposal on a pilot basis for a period 
of twelve months (the ``Pilot Program'' or ``Pilot Period'').\32\ The 
Exchange further states that, if it were to propose an extension of the 
Pilot Program or propose to make the Pilot Program permanent, the 
Exchange would submit a filing to the Commission proposing such 
amendments.\33\
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    \32\ See Proposed Rule 5050(f)(9).
    \33\ The Exchange noted that any positions established under the 
pilot would not be impacted by the expiration of the pilot. For 
example, a position in a RealDay Options series that expires beyond 
the conclusion of the pilot period could be established during the 
12-month pilot. If the pilot program were not extended, then the 
position could continue to exist. However, any further trading in 
the series would be restricted to transactions where at least one 
side of the trade is a closing transaction.

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[[Page 9889]]

    The Exchange proposes to submit a report to the Commission two 
months prior to the expiration date of the Pilot Program (the ``Pilot 
Report'').\34\ The Pilot Report would contain an analysis of volume, 
open interest, and trading patterns examining trading in RealDay 
Options. In addition, for certain series, the Pilot Report would 
provide an analysis of price volatility and trading activity in 
additional option series. In addition to the Pilot Report, the Exchange 
would provide the Commission with periodic interim reports while the 
Pilot Program is in effect that would contain some, but not all, of the 
information contained in the Pilot Report. The Pilot Report would be 
provided to the Commission on a confidential basis.
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    \34\ See Notice, supra note 3, at 80131.
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    The Exchange states that the Pilot Report would contain the 
following volume and open interest data for RealDay Options:
    (1) Daily contract trading volume aggregated for all trades, for 
all option series with less than 31 days until expiration;
    (2) daily contract trading volume aggregated by expiration date, 
for all option series with less than 31 days until expiration;
    (3) daily contract trading volume for each individual series;
    (4) daily open interest aggregated for all series, for all option 
series with less than 31 days until expiration;
    (5) daily open interest aggregated for all series by expiration 
date, for all option series with less than 31 days until expiration;
    (6) daily open interest for each individual series;
    (7) statistics on the distribution of trade sizes;
    (8) type of market participant trading (e.g., contract trading 
volume for each market participant type); and
    (9) 5-minute returns, level changes, and trading volume for the S&P 
500 Index, VIX, SPY, IVV, and expiring RealDay options between open and 
close for the first and second Wednesday of the month that is a trading 
day and trading days when standard SPY options expire.
    In addition to the Pilot Report, the Exchange would periodically 
provide the Commission with interim reports of the information listed 
in items (1) through (9) above as required by the Commission while the 
Pilot Program is in effect. These interim reports will also be provided 
on a confidential basis. The initial period of the Exchange's proposed 
Pilot Program is set to expire on February 2, 2018.

III. Summary of Comment Letter

    The Commission received a comment letter from the Chicago Board 
Options Exchange opposing the Exchange's RealDay Options proposal.\35\ 
The commenter argues that the proposal should be disapproved. First, 
the commenter questions whether a RealDay Option can be considered a 
securities option and therefore within the Commission's jurisdiction. 
The commenter asserts that there is no precedent for classifying 
RealDay Options as a securities option \36\ and cites a Seventh Circuit 
decision holding that a contract is an option only if, among other 
things, it ``establish[es] a careful balance among premium, strike 
price, and duration.'' \37\ The commenter notes that, for all but ``a 
tiny portion of its life'' (i.e., one day), a RealDay Option would not 
have a specified strike price and believes that there is a ``serious 
and novel issue about whether [RealDay Options] can be considered a 
securities option--and therefore can fall within the Commission's 
jurisdiction. . . .'' \38\
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    \35\ See CBOE Letter, supra note 4.
    \36\ See id. at 2.
    \37\ See id. at 2 (citing Chicago Mercantile Exchange v. SEC, 
883 F.2d 537, 546 (7th Cir. 1989)).
    \38\ See id. at 2.
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    In its filing, the Exchange cited to CBOE's Delayed Start Options 
(``DSOs'') as precedent for the approval of RealDay Options.\39\ The 
commenter argues that RealDay Options are ``fundamentally different'' 
from DSOs. The commenter notes that, in its own filing seeking approval 
for DSOs, it represented that the time interval between setting the 
strike price and expiration initially would be three months, as 
compared to one day for RealDay Options. At the same time, the 
commenter acknowledges that it also stated that it would be able to 
increase or decrease that interval, but maintains that it ``never 
considered reducing that interval so drastically that the DSO would 
live as a fully specified option for but a single day in a much longer 
lifespan.'' \40\
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    \39\ See Notice, supra note 3, at 80126 n.3; see also id. at 
80127 n.16.
    \40\ See CBOE Letter, supra note 4, at 2.
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    In addition, the commenter states that it would be unprecedented to 
have a cash-settled option on an ETF.\41\ In its filing, the Exchange 
cites to other cash-settled options, including CBOE's SPX options, as 
support for the notion that cash settlement of options is not 
novel.\42\ The commenter notes that SPX options are index options, 
whereas the proposed RealDay Option would be an ETF option, which the 
commenter notes ``have always been physically settled.'' \43\ The 
commenter also argues that it would be without precedent for RealDay 
Options to have European-style exercise when they would be trading 
alongside physically settled options with American-style exercise on 
the same ETF that might have the exact same strikes and would permitted 
to expire on the same day.\44\
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    \41\ See id. at 2-3.
    \42\ See Notice, supra note 3, at 80126 n.11.
    \43\ See CBOE Letter, supra note 4, at 2-3.
    \44\ See id. at 3.
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IV. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\45\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\46\ which requires, among other things, 
that the rules of a national securities exchange be designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \45\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \46\ 15 U.S.C. 78f(b)(5).
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Comment Letter

    The Commission disagrees with the commenter's assertion that, with 
respect to the timing of strike price setting, there is no precedent 
for RealDay Options or their classification as securities options. As 
noted by both the Exchange and the commenter, the Commission previously 
approved an options product with a strike price not specified at the 
time of issuance (i.e., DSOs).\47\ In its order approving the DSO 
product, the Commission examined the question of whether DSOs should be 
designated as standardized options for purposes of Rule 9b-1 under the 
Act and concluded that DSOs should be so designated.\48\ In concluding 
that the ``lack [of] a specified exercise price at the commencement of 
trading does not detract from [the DSOs'] character as

[[Page 9890]]

options,'' the Commission noted that each DSO series would trade with a 
fixed formula for determining the numerical strike price,\49\ which is 
similar to the operation of RealDay Options. Moreover, although CBOE 
states that, for DSOs, it never considered an active period as short as 
a single day, it acknowledges that its own rule filing seeking approval 
for DSOs stated that it would be able to increase or decrease the 
three-month time interval between setting the strike price and 
expiration. The Commission does not believe that the strike price 
setting feature of RealDay Options is a novel issue, and believes the 
same analysis it applied to DSOs applies to RealDay Options.\50\
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    \47\ See Securities Exchange Act Release No. 56855 (November 28, 
2007), 72 FR 68610 (December 5, 2007) (SR-CBOE-2006-90).
    \48\ See id. at 68612-13 (discussing the Commission's 
designation of DSOs as standardized options).
    \49\ See id. at 68613.
    \50\ See id.
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    As noted above, CBOE also asserts that the Exchange's RealDay 
Options proposal is unprecedented because of its proposed settlement 
and exercise methodologies. Among other things, the commenter 
criticizes the Exchange for misleadingly making assertions regarding 
cash settlement and options, noting that while it is not unusual for 
index and currency options to be cash settled, that is not the case 
with ETF options (such as the proposed RealDay Options product). In the 
Notice, the Exchange argues that its proposed settlement and exercise 
methodologies are appropriate for the proposed RealDay Options 
product.\51\ Among other things, the Exchange asserts that there is a 
low potential for manipulation of the settlement value of RealDay 
Options on SPY due to the high cost and regulatory scrutiny that would 
result from any attempted manipulation and the vast liquidity and high 
level of participation among market participants in the market for SPY, 
making manipulation very difficult.\52\ In addition, while the Exchange 
notes that manipulation of the settlement value is unlikely, it 
represents that its current surveillance procedures for its other 
options products will be sufficient to monitor RealDay Options.\53\ The 
Exchange further asserts that this low potential for manipulation and 
its continued monitoring will alleviate any concerns regarding the 
P.M., cash-settled nature of RealDay Options.\54\ According to the 
Exchange, cash settlement helps to mitigate the risk that the price of 
the security could change overnight before the investor would be able 
to liquidate their position, which would undermine the intent of the 
product having an active period designed to cover only a single trading 
day.\55\ The Exchange further notes that P.M. settlement is necessary 
for RealDay Options to prevent events occurring after the close from 
having an effect on the settlement price, which the Exchange believes 
would similarly undermine the intent of RealDay Options to cover only 
one trading day.\56\
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    \51\ See Notice, supra note 3, at 80126-27.
    \52\ See id. at 80129-30.
    \53\ See id. at 80130.
    \54\ See id. at 80126 and 80129-30.
    \55\ See id. at 80126.
    \56\ See id. at 80127.
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    The Commission is cognizant that the proposed settlement and 
exercise features of RealDay Options--while they exist in options more 
broadly--would, taken together, be unique. However, given the 
significant liquidity of the underlying ETF for the proposed 
product,\57\ the Commission initially believes that the proposed 
settlement and exercise features can be appropriate for RealDay Options 
on SPY. As discussed above, though the Commission believes that the 
liquidity of SPY and the proposed surveillance of RealDay Options can 
serve to mitigate manipulation concerns, because of the proposed 
features of RealDay Options, including those with respect to settlement 
and exercise, the Commission believes it is appropriate for the product 
to be approved on a pilot basis such that the Commission may further 
review trading in the product to determine whether its proposed 
features including, among other things, cash settlement, continue to be 
appropriate. Importantly, the Commission notes that, if the Exchange 
were to propose listing RealDay Options on any additional underlying 
product (i.e., other than SPY), the Exchange has stated that it would 
seek approval for such product through a proposed rule change and the 
Commission would have to evaluate such different underlying product in 
the context of RealDay Options, and whether or not the proposed 
settlement and exercise features, among other things, for such RealDay 
Options are appropriate.
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    \57\ See id. at 80126 and 80129-30.
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Other Issues

    The Commission believes that the Exchange's proposal to impose no 
position limits on RealDay Options is appropriate and consistent with 
the Act. As noted above, the Exchange proposed to initially list 
RealDay Options only on SPY. The Commission notes that SPY options are 
the most actively-traded options in terms of average daily volume. The 
Commission believes that because these options are extremely liquid, 
the potential manipulation and potential market disruption concerns 
that position limits are designed to address are mitigated in the case 
of this product. Moreover, the Commission believes that having no 
position limits for these options may benefit investors by bringing 
additional depth and liquidity to these options without raising 
significant concerns about potential manipulation or potential market 
disruption. Further, the Commission notes that standard options on SPY 
are currently not subject to any position limits under a pilot program, 
and the Exchange has proposed to apply any position limits for standard 
options on SPY if that pilot program were discontinued.\58\
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    \58\ See id. at 80130.
---------------------------------------------------------------------------

    The Commission also believes that it is consistent with the Act to 
apply margin requirements to the proposed RealDay Options that are 
otherwise applicable to standard options on SPY. The Commission further 
believes that the Exchange's proposed minimum trading increments, 
strike price setting process,\59\ and other aspects of the proposed 
rule change are appropriate and consistent with the Act.
---------------------------------------------------------------------------

    \59\ The Commission notes that, as described above, the Exchange 
has represented that it has informed various market participants 
about the nature of the proposed use of three decimal places to 
represent the Strike Multiplier, that it has ensured that these 
market participants will understand the meaning of and be able to 
handle the three decimal places, and that it will continue to 
further educate market participants on this process to minimize any 
potential investor confusion. See Notice, supra note 3, at 80128 
n.24.
---------------------------------------------------------------------------

    As a national securities exchange, the Exchange is required, under 
Section 6(b)(1) of the Act,\60\ to enforce compliance by its members 
and persons associated with its members with the provisions of the Act, 
Commission rules and regulations thereunder, and its own rules. In this 
regard, other than for certain exercise and settlement features as 
described above,\61\ the Commission notes that trading of RealDay 
Options will be subject to many of the same rules that currently govern 
the trading of other options on the Exchange.\62\ In addition, as noted 
above, the Exchange has asserted that manipulation of the settlement 
value of RealDay Options on SPY will be difficult based on the size and 
liquidity of the market for SPY.\63\ Moreover, the Exchange has 
represented that it has an adequate surveillance program in place for 
RealDay Options on SPY, and will monitor for any potential manipulation 
of the settlement value according to its current

[[Page 9891]]

surveillance procedures.\64\ In approving the proposed listing and 
trading of the proposed RealDay Options, the Commission has also relied 
on the Exchange's representation that it has the necessary systems 
capacity to support the new options series that will result from this 
proposal.\65\
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78f(b)(1).
    \61\ See supra notes 12-19 and accompanying text.
    \62\ See Exchange Rule 5050.
    \63\ See supra note 52 and accompanying text.
    \64\ See supra note 30 and accompanying text.
    \65\ See supra note 31 and accompanying text.
---------------------------------------------------------------------------

Pilot

    Given the size and liquidity of the market for SPY, the Commission 
believes that the risks of manipulation and potential market disruption 
are significantly mitigated as discussed above. Notwithstanding this 
and the Exchange's representations in this regard, the Commission 
believes that a prudent approach is warranted with respect to the 
Exchange's proposal to list RealDay Options on SPY. To the extent the 
potential for adverse effects with regard to the markets for the SPY 
ETF, the S&P 500 component securities underlying the SPY ETF, or 
RealDay Options on SPY continues to exist, the Exchange's proposal to 
implement this change on a pilot basis should help to address this 
concern. Accordingly, the Commission is approving the proposal on a 
twelve-month pilot basis. Within two months of the end of the Pilot 
Program the Exchange will be required to submit to the Commission the 
Pilot Report. As described in more detail above,\66\ the Pilot Report 
will contain an analysis of volume, open interest, and trading patterns 
examining trading in RealDay Options. In addition, for certain series, 
the Pilot Report will provide an analysis of price volatility and 
trading activity in additional option series. In addition to the Pilot 
Report, the Exchange will provide the Commission with periodic interim 
reports while the Pilot Program is in effect that would contain some, 
but not all, of the information contained in the Pilot Report. The 
Pilot Report will be provided to the Commission on a confidential 
basis. Furthermore, if the pilot is not extended or permanently 
approved by the end of the Pilot Program, any position in RealDay 
Options established during the Pilot Program would remain in effect, 
but any further trading in those RealDay Options would be restricted to 
transactions where at least one side of the trade is a closing 
transaction.
---------------------------------------------------------------------------

    \66\ See supra note 34 and accompanying text.
---------------------------------------------------------------------------

    The Commission expects that, throughout the Pilot Program, the 
Exchange will monitor for any problems and collect and analyze on an 
ongoing basis the data and information that the Exchange ultimately 
intends to include in the Pilot Report. The Commission also expects 
that the Exchange will take prompt action, including timely 
communication with the Commission and with other marketplace self-
regulatory organizations responsible for oversight of trading in 
component stocks, should any unanticipated adverse market effects 
develop.
    Based on the Exchange's representations with respect to the 
proposed RealDay Options on SPY and for the foregoing reasons, the 
Commission finds that the proposed rule change is consistent with the 
Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\67\ that the proposed rule change (SR-BOX-2016-50) be, and hereby 
is, approved on a twelve-month pilot basis set to expire on February 2, 
2018.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02541 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                    9886                        Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                    Plan. In approving the Plan, the SEC                     IV. Solicitation of Comments                            For the Commission, by the Division of
                                                    noted that the Plan ‘‘is necessary and                                                                         Trading and Markets, pursuant to delegated
                                                    appropriate in the public interest, for                    Interested persons are invited to                   authority.35
                                                    the protection of investors and the                      submit written data, views, and                       Robert W. Errett,
                                                    maintenance of fair and orderly markets,                 arguments concerning the foregoing,                   Deputy Secretary.
                                                    to remove impediments to, and perfect                    including whether the proposed rule
                                                                                                                                                                   [FR Doc. 2017–02535 Filed 2–7–17; 8:45 am]
                                                    the mechanism of a national market                       change is consistent with the Act.
                                                                                                                                                                   BILLING CODE 8011–01–P
                                                    system, or is otherwise in furtherance of                Comments may be submitted by any of
                                                    the purposes of the Act.’’ 34 To the                     the following methods:
                                                    extent that this proposal implements,
                                                                                                             Electronic Comments                                   SECURITIES AND EXCHANGE
                                                    interprets or clarifies the Plan and
                                                                                                                                                                   COMMISSION
                                                    applies specific requirements to                           • Use the Commission’s Internet
                                                    Industry Members, the Exchange                           comment form (http://www.sec.gov/
                                                    believes that this proposal furthers the                                                                       [Release No. 34–79936; File No. SR–BOX–
                                                                                                             rules/sro.shtml); or                                  2016–50]
                                                    objectives of the Plan, as identified by
                                                    the SEC, and is therefore consistent with                  • Send an email to rule-comments@
                                                    the Act.                                                 sec.gov. Please include File Number SR–               Self-Regulatory Organizations; BOX
                                                                                                             BatsBZX–2017–08 on the subject line.                  Options Exchange LLC; Order
                                                    (B) Self-Regulatory Organization’s                                                                             Granting Approval of a Proposed Rule
                                                    Statement on Burden on Competition                       Paper Comments                                        Change To Amend Rule 5050 Series of
                                                       The Exchange does not believe that                      • Send paper comments in triplicate                 Options Contracts Open for Trading To
                                                    the proposed rule change will result in                  to Secretary, Securities and Exchange
                                                                                                                                                                   Provide for the Listing and Trading on
                                                    any burden on competition that is not                                                                          the Exchange of RealDayTM Options
                                                                                                             Commission, 100 F Street NE.,
                                                    necessary or appropriate in furtherance                                                                        Pursuant to a Pilot Program
                                                                                                             Washington, DC 20549–1090.
                                                    of the purposes of the Act. The
                                                    Exchange notes that the proposed rule                    All submissions should refer to File                  February 2, 2017.
                                                    change implements provisions of the                      Number SR–BatsBZX–2017–08. This file                  I. Introduction
                                                    CAT NMS Plan, and is designed to                         number should be included on the
                                                    assist the Exchange in meeting its                       subject line if email is used. To help the               On October 26, 2016, BOX Options
                                                    regulatory obligations pursuant to the                   Commission process and review your                    Exchange LLC (the ‘‘Exchange’’) filed
                                                    Plan. The Exchange also notes that the                   comments more efficiently, please use                 with the Securities and Exchange
                                                    Proposed Rules 4.5 through 4.16                          only one method. The Commission will                  Commission (‘‘Commission’’), pursuant
                                                    implement provisions of the CAT NMS                      post all comments on the Commission’s                 to Section 19(b)(1) of the Securities
                                                    Plan will apply equally to all firms that                Internet Web site (http://www.sec.gov/                Exchange Act of 1934 (‘‘Act’’) 1 and Rule
                                                    trade NMS Securities and OTC Equity                      rules/sro.shtml). Copies of the                       19b–4 thereunder,2 a proposed rule
                                                    Securities. In addition, all national                    submission, all subsequent                            change to provide for the listing and
                                                    securities exchanges and FINRA are                                                                             trading on the Exchange of RealDayTM
                                                                                                             amendments, all written statements
                                                    proposing similar rules to apply the                                                                           Options (‘‘RealDay Options’’) on a pilot
                                                                                                             with respect to the proposed rule
                                                    requirements of the CAT NMS Plan to                                                                            basis. The proposed rule change was
                                                    their members. Therefore, this is not a                  change that are filed with the
                                                                                                                                                                   published for comment in the Federal
                                                    competitive rule filing, and, therefore, it              Commission, and all written
                                                                                                                                                                   Register on November 15, 2016.3 The
                                                    does not impose a burden on                              communications relating to the
                                                                                                                                                                   Commission received one comment
                                                    competition.                                             proposed rule change between the
                                                                                                                                                                   letter on the proposed rule change.4 On
                                                                                                             Commission and any person, other than
                                                    (C) Self-Regulatory Organization’s                                                                             December 20, 2016, pursuant to Section
                                                                                                             those that may be withheld from the                   19(b)(2) of the Act,5 the Commission
                                                    Statement on Comments on the                             public in accordance with the
                                                    Proposed Rule Change Received From                                                                             designated a longer period within which
                                                                                                             provisions of 5 U.S.C. 552, will be                   to approve the proposed rule change,
                                                    Members, Participants or Others                          available for Web site viewing and                    disapprove the proposed rule change, or
                                                      Written comments were neither                          printing in the Commission’s Public                   institute proceedings to determine
                                                    solicited nor received.                                  Reference Room, 100 F Street NE.,                     whether to approve or disapprove the
                                                    III. Date of Effectiveness of the                        Washington, DC 20549 on official                      proposed rule change.6 This order
                                                    Proposed Rule Change and Timing for                      business days between the hours of                    approves the proposed rule change.
                                                    Commission Action                                        10:00 a.m. and 3:00 p.m. Copies of the
                                                                                                             filing also will be available for                       35 17  CFR 200.30–3(a)(12).
                                                       Within 45 days of the date of
                                                    publication of this notice in the Federal                inspection and copying at the principal                 1 15  U.S.C. 78s(b)(1).
                                                    Register or within such longer period (i)                office of the Exchange. All comments                     2 17 CFR 240.19b–4.
                                                                                                                                                                      3 See Securities Exchange Act Release No. 79258
                                                    as the Commission may designate up to                    received will be posted without change;
                                                                                                                                                                   (November 8, 2016), 81 FR 80125 (‘‘Notice’’).
                                                    90 days of such date if it finds such                    the Commission does not edit personal                    4 See Letter from Edward T. Tilly, Chief Executive

                                                    longer period to be appropriate and                      identifying information from                          Officer, Chicago Board Options Exchange
                                                    publishes its reasons for so finding or                  submissions. You should submit only                   (‘‘CBOE’’), Incorporated, to Brent J. Fields,
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                             information that you wish to make                     Secretary, Commission, dated December 6, 2016
                                                    (ii) as to which the Exchange consents,                                                                        (‘‘CBOE Letter’’).
                                                    the Commission will: (a) By order                        available publicly. All submissions                      5 15 U.S.C. 78s(b)(2).

                                                    approve or disapprove such proposed                      should refer to File Number SR–                          6 See Securities Exchange Act Release No. 79613,

                                                    rule change, or (b) institute proceedings                BatsBZX–2017–08 and should be                         81 FR 95206 (December 27, 2016). The Commission
                                                    to determine whether the proposed rule                   submitted on or before March 1, 2017.                 designated February 13, 2017 as the date by which
                                                                                                                                                                   the Commission would either approve or
                                                    change should be disapproved.                                                                                  disapprove, or institute proceedings to determine
                                                                                                                                                                   whether to approve of disapprove, the proposed
                                                      34 Approval   Order at 84697.                                                                                rule change.



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                                                                               Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                                           9887

                                                    II. Description of the Proposed Rule                    securities in the future.10 According to                 after the initial listing of a RealDay
                                                    Change                                                  the Exchange, it has proposed to list                    Option, provided that the Exchange
                                                                                                            RealDay Options initially on SPY due to                  does not list more than the seven strike
                                                    General Description 7
                                                                                                            the vast liquidity in the security, which                prices permitted by the guidelines
                                                       Pursuant to a twelve-month pilot                     the Exchange states to be the largest and                described above.16
                                                    program, the Exchange proposes to                       most actively traded Exchange Traded                        The Exchange also proposes
                                                    amend its rules to list and trade on the                Fund (‘‘ETF’’) in the United States.11                   additional procedures in determining
                                                    Exchange RealDay Options on the                                                                                  the exact number of strike prices that
                                                                                                            Strike Price, Strike Intervals, Settlement               may be listed for a RealDay Option.17
                                                    SPDR® S&P 500® Exchange Traded                          and Exercise Price
                                                    Fund (‘‘SPY’’). The Exchange states that                                                                         Specifically, if the underlying security
                                                    RealDay Options are designed and                           While the numerical value of the                      is priced at or above $25.00 per share,
                                                    exclusively licensed by the RealDay                     strike prices for RealDay Options would                  the Exchange would be permitted to list
                                                    Options Corporation, and would be                       not be known until the close of trading                  up to all seven permitted strike prices.
                                                    exclusively listed on BOX. RealDay                      on the last trading day before expiration,               If the underlying security is priced at or
                                                    Options would share many                                the strike intervals and strike price                    below $10.00 per share, the Exchange
                                                    characteristics of existing standardized                setting formula would be fixed from                      would not list any RealDay Options on
                                                    options with some distinct variations.                  inception.12 The formula would involve                   the underlying security. If the
                                                    Most notably, at the commencement of                    multiplying the closing price of SPY                     underlying security is priced between
                                                    trading of a particular RealDay Option                  from the last trading day before                         $10.00 and $25.00 per share, the
                                                    and until the close of trading on the last              expiration (‘‘Strike Setting Price’’) by                 Exchange would only list one strike
                                                    trading day before its expiration, the                  the Strike Multiplier.13 In effect, the                  price, which would be equal to the
                                                    numerical value of the strike price                     strike price would stay at the same                      Strike Setting Price.
                                                    would not be known. However, the                        percentage relationship to the price of                     The strike price formula would be
                                                    formula used to calculate the strike                    SPY from the time of listing. The                        used after the close of trading on the last
                                                    price would be fixed and known from                     Exchange proposes to only list up to a                   trading day before expiration in order to
                                                                                                            maximum of seven strike prices for each                  calculate the numerical values of the
                                                    the time of listing.8
                                                                                                            expiration date, consisting of up to three               strike prices. Specifically, the strike
                                                       The trading of RealDay Options                       strike prices with a price greater than
                                                    would in essence be divided into two                                                                             prices would be determined by
                                                                                                            the Strike Setting Price, three strike                   multiplying the Strike Setting Price by
                                                    periods: The anticipatory period and the                prices with a price less than the Strike
                                                    active period. The anticipatory period                                                                           the Strike Multiplier. Rather than
                                                                                                            Setting Price, and one strike price equal                applying the Exchange’s general strike
                                                    would be the period of time from the                    to the Strike Setting Price.14 The
                                                    day the option is listed up until the                                                                            price interval rules, the strike prices for
                                                                                                            Exchange proposes to have discretion in                  RealDay Options would have fixed
                                                    close of trading on the last trading day                determining the number of strike prices
                                                    before expiration. The active period                                                                             strike intervals of 0.50%.18 The strike
                                                                                                            that would be listed per expiration,                     prices would be rounded to the nearest
                                                    would be the expiration day of the                      provided that the strike prices satisfy
                                                    option. During the anticipatory period,                                                                          minimum trading increment, if
                                                                                                            these restrictions. Additionally, the                    necessary. If SPY does not open for
                                                    the strike intervals and strike price                   Exchange would be required to always
                                                    setting formula would be known, but                                                                              trading on the trading day before the
                                                                                                            list the strike price that is equal to the               expiration date, the Exchange proposes
                                                    not the numerical value of the strike                   Strike Setting Price for each RealDay
                                                    prices, because they would depend on                                                                             to use the last available closing price for
                                                                                                            Options expiration. The Exchange                         SPY as the Strike Setting Price.
                                                    the closing price of SPY from the last                  proposes to have the discretion to                          The Exchange proposes to calculate
                                                    trading day before expiration. RealDay                  determine not to list in-the-money                       the exercise and settlement price of
                                                    Options could still be traded in the                    (‘‘ITM’’) put or call options for any of                 RealDay Options based on the closing
                                                    anticipatory period in the same manner                  the seven strike prices,15 as the                        price of SPY on the trading day of
                                                    as standard options on SPY. During the                  Exchange believes the value of RealDay                   expiration. The exercise-settlement
                                                    active period, the numerical value of the               Options is in the instruments that are at-               amount would be equal to the difference
                                                    strike prices would be known. Although                  the-money and out-of-the-money.                          between the settlement price and the
                                                    the active period is only one trading                   Similar to other options products listed                 exercise price of the option multiplied
                                                    day, RealDay Options could be listed for                by the Exchange, the Exchange proposes                   by 100. Exercise would result in the
                                                    up to nine months in advance of the                     to allow for the addition of strike prices               delivery of cash on the business day
                                                    expiration date, but at least two weeks
                                                                                                                                                                     following expiration. If SPY does not
                                                    prior to their expiration.9                                10 See Notice, supra note 3, at 80126 (representing
                                                                                                                                                                     open for trading on the trading day of
                                                       The Exchange has only proposed to                    that, if it were to seek to list RealDay Options on
                                                                                                                                                                     expiration, at the close of trading on
                                                    list RealDay Options on SPY, but the                    additional securities, the Exchange would use the
                                                                                                            approval process under Form 19b–4).                      expiration, RealDay Options would have
                                                    Exchange states that it may seek to list                   11 See Notice, supra note 3, at 80126.                an exercise price that is equal to the
                                                    RealDay Options on additional                              12 See proposed Rule 5050(f)(8).
                                                                                                               13 The ‘‘Strike Multiplier’’ is the decimal             16 See Notice, supra note 3, at 80127.
                                                      7 For  additional details, including examples         equivalent of the percentage strike of the specific        17 See proposed Rule 5050(f)(2).
                                                    provided by the Exchange with respect to the            option. The Strike Multiplier would be expressed           18 See Proposed Rule 5050(f)(3). There would be
                                                    proposed operation of RealDay Options, see Notice,      with three decimal places. For example, an option
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                                                                                     one strike price equal to 100% of the Strike Setting
                                                    supra note 3.                                           that is equal to the Strike Setting price would be       Price (with a Strike Multiplier of 1.000), three strike
                                                       8 The Exchange describes RealDay Options as          100%, making the Strike Multiplier 1.000.                prices greater than then Strike Setting Price
                                                    true, or real, one-day options because they are            14 See proposed Rule 5050(f)(2).
                                                                                                                                                                     determined by adding 0.5%, 1.0%, and 1.5%,
                                                    forward start (or delayed start) options with strike       15 See proposed Rule 5050(f)(2)(ii). The ITM puts     respectively, to the Strike Setting Price (with Strike
                                                    increments and a strike price setting formula that      that the Exchange may decide to not list are those       Multipliers of 1.005, 1.010, and 1.015, respectively),
                                                    are fixed from the time of listing, but with            corresponding to the three strike prices that are        and three strike prices lower than the Strike Setting
                                                    numerical strike prices determined based on the         greater than the Strike Setting Price and the ITM        Price determined by subtracting 0.5%, 1.0%, and
                                                    formula using the closing price of SPY from the last    call options are those corresponding to the three        1.5%, respectively, from the Strike Setting Price
                                                    trading day before expiration.                          strike prices that are less than the Strike Setting      (with Strike Multipliers of 0.995, 0.990, and 0.985,
                                                       9 See Proposed Rule 5050(f).                         Price.                                                   respectively).



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                                                    9888                       Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                    closing price from the last trading day                    The Exchange proposes for RealDay                   regarding suitability is designed to
                                                    before expiration.                                      Options to overlie 100 shares of SPY in                ensure that options, including RealDay
                                                                                                            the same manner as standard options on                 Options, are sold only to customers
                                                    Other Characteristics
                                                                                                            SPY. The Exchange’s standard trading                   capable of evaluating and bearing the
                                                       The Exchange proposes that RealDay                   hours for SPY options would also apply                 risks associated with trading in the
                                                    Options be P.M. cash-settled and have                   to trading in RealDay Options. The                     instrument. Further, Exchange Rule
                                                    European-style exercise provisions.19                   Exchange proposes to apply margin                      4050 permits OFPs to exercise
                                                    These options may expire every trading                  requirements for the purchase and sale                 discretionary power with respect to
                                                    day, including days on which monthly                    of RealDay Options that are identical to               trading options, including RealDay
                                                    options series, Short Term Options                      the margin requirements for standard                   Options, in a Public Customer’s account
                                                    Series, and Quarterly Options Series on                 options on SPY.25 The Exchange                         only if the OFP has received prior
                                                    SPY expire.                                             proposes to calculate margin                           written authorization from the customer
                                                       The Exchange proposes to list                        requirements for RealDay Options in the                and the account has been accepted in
                                                    RealDay Options on SPY with the                         same manner as margins for standard                    writing by a designated Options
                                                    symbol ‘‘SPYZ.’’ During the anticipatory                options on SPY. The Exchange notes                     Principal. Finally, the Exchange states
                                                    period, the Exchange proposes to list the               that margins would be calculated in the                that Exchange Rules 4030 (Supervision
                                                    strike prices as the Strike Multiplier                  same manner during both the                            of Accounts), 4060 (Confirmation to
                                                    because the numerical value of the                      anticipatory and active periods. The                   Public Customers), and 4100 (Delivery
                                                    strike price would not yet be known.                    Exchange states that the strike price                  of Current Options Disclosure
                                                    The Exchange proposes to use three                      used for calculating the margin would                  Documents and Prospectus) would also
                                                    decimal places to indicate the strike                   be the numerical value of the strike                   apply to trading in RealDay Options.
                                                    prices as the Strike Multiplier during                  price using the current price of SPY for                  The Exchange represents that it has an
                                                    the anticipatory period.20 According to                 the strike setting formula.26 The                      adequate surveillance program in place
                                                    the Exchange, using three decimal                       Exchange proposes to apply the same                    for RealDay Options and intends to
                                                    places is unique and not a practice                     minimum trading increment of $0.01 to                  apply the same program procedures that
                                                    currently used for options, which the                   RealDay Options as applicable to                       it applies to the Exchange’s other
                                                    Exchange believes would put investors                   standard options on SPY.27 The                         options products, which the Exchange
                                                    on notice and aware that the Strike                     Exchange further proposes that the                     believes would adequately monitor
                                                    Multiplier does not represent a strike                  position limits for RealDay Options                    trading in RealDay Options.30 The
                                                    price of a typical standard option.21 The               would be the same as the position limits               Exchange stated that it is also a member
                                                    Exchange represents that it has                         for standard options, such that there                  of the Intermarket Surveillance Group
                                                    explained what the three decimal places                 would be no position or exercise limits                (‘‘ISG’’), the members of which work
                                                    would represent to data vendors, the                    for RealDay Options on SPY, as with                    together to coordinate surveillance and
                                                    Options Clearing Corporation, and                       standard options on SPY.28 In addition,                investigative information sharing in the
                                                    various market participants, and the                    positions in RealDay Options would be                  stock and options markets.
                                                    Exchange represents that they have                      aggregated with positions in all other                    The Exchange further represents that
                                                    confirmed that they would be able to                    options on SPY.                                        it has the necessary system capacity to
                                                    handle the three decimal places when                       The Exchange proposes to apply                      support the additional quotations and
                                                    RealDay Options are launched.22 The                     Section 4000 of its rules, which is                    messages that would result from the
                                                    Exchange also represents that it will                   designed to protect public customer                    listing and trading of RealDay
                                                    provide information and education to                    trading, to trading in RealDay Options.                Options.31 The Exchange intends to
                                                    market participants via circular prior to               Specifically, Exchange Rules 4020(a)                   minimize the system capacity required
                                                    the launch of RealDay Options to further                and (b) prohibit Order Flow Providers                  to list RealDay Options by limiting the
                                                    minimize any potential investor                         (‘‘OFPs’’) 29 from accepting a Public                  listing to seven strike prices per
                                                    confusion.23                                            Customer order to purchase or write an                 expiration. The Exchange also states
                                                       After the close of trading on the last               option, including RealDay Options,                     that having the discretion to not list ITM
                                                    trading day before expiration, the                      unless such customer’s account has                     call or put options would further
                                                    decimal would be converted into the                     been approved in writing by a                          minimize the required system capacity
                                                    numerical strike price by multiplying                   designated Options Principal of the                    to list RealDay Options.
                                                    the Strike Setting Price by the Strike                  OFP. Additionally, Exchange Rule 4040
                                                                                                                                                                   Pilot
                                                    Multiplier.24
                                                                                                              25 See  Proposed Rule 5050(f)(6). The Exchange         The Exchange has filed this proposal
                                                       19 See Proposed Rule 5050(f)(4). See also Notice,    notes that Options Participants and associated         on a pilot basis for a period of twelve
                                                                                                            persons are bound by the initial and maintenance
                                                    supra note 3, at 80126–27 and 80129–30 (discussing
                                                                                                            margin requirements of either CBOE or the New          months (the ‘‘Pilot Program’’ or ‘‘Pilot
                                                    the Exchange’s representations with respect to the                                                             Period’’).32 The Exchange further states
                                                                                                            York Stock Exchange. See Exchange Rule 10120; see
                                                    appropriateness of its proposed settlement and
                                                    exercise methodologies for RealDay Options).
                                                                                                            also CBOE Rule 12.3.                                   that, if it were to propose an extension
                                                                                                               26 See Notice, supra note 3, at 80129.
                                                       20 See Notice, supra note 3, at 80128 (providing                                                            of the Pilot Program or propose to make
                                                                                                               27 See Proposed Rule 5050(f)(5).
                                                    an example of strike prices for RealDay Options            28 See Proposed Rule 5050(f)(10). See also
                                                                                                                                                                   the Pilot Program permanent, the
                                                    during the anticipatory period).                                                                               Exchange would submit a filing to the
                                                       21 See id. at 80128.                                 Securities Exchange Act Release No. 67936
                                                       22 See id. at 80128 n.24.
                                                                                                            (September 27, 2012), 77 FR 60491 (October 3,          Commission proposing such
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                       23 See id. at 80128.
                                                                                                            2012) (SR–BOX–2012–013). The Exchange noted            amendments.33
                                                                                                            that since the removal of any position limits on SPY
                                                       24 See id. at 80129 (providing an example of the     is subject to a pilot program, if such pilot is          30 See Notice, supra note 3, at 80130.
                                                    conversion into the numerical strike prices). The       discontinued and SPY becomes subject to position
                                                                                                                                                                     31 See id.
                                                    Exchange notes that an adjustment to the Strike         limits, then RealDay Options would become subject
                                                                                                                                                                     32 See Proposed Rule 5050(f)(9).
                                                    Setting Price may be needed in order to remove the      to the same position limits as SPY options. See
                                                    effects of corporate actions, such as cash dividends.   Notice, supra note 3, at 80130.                          33 The Exchange noted that any positions

                                                    If a dividend is declared, the Exchange would              29 See Rule 100(a)(45). The term OFP means those    established under the pilot would not be impacted
                                                    adjust the Strike Setting Price by subtracting the      Options Participants representing as agent             by the expiration of the pilot. For example, a
                                                    declared dividend before multiplying it by the          Customer Orders on BOX and those non-Market            position in a RealDay Options series that expires
                                                    Strike Multiplier. See id. at 80128 n.25.               Maker Participants conducting proprietary trading.     beyond the conclusion of the pilot period could be



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                                                                                 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                                       9889

                                                       The Exchange proposes to submit a                       be provided on a confidential basis. The                novel.42 The commenter notes that SPX
                                                    report to the Commission two months                        initial period of the Exchange’s                        options are index options, whereas the
                                                    prior to the expiration date of the Pilot                  proposed Pilot Program is set to expire                 proposed RealDay Option would be an
                                                    Program (the ‘‘Pilot Report’’).34 The                      on February 2, 2018.                                    ETF option, which the commenter notes
                                                    Pilot Report would contain an analysis                                                                             ‘‘have always been physically
                                                                                                               III. Summary of Comment Letter
                                                    of volume, open interest, and trading                                                                              settled.’’ 43 The commenter also argues
                                                    patterns examining trading in RealDay                         The Commission received a comment                    that it would be without precedent for
                                                    Options. In addition, for certain series,                  letter from the Chicago Board Options                   RealDay Options to have European-style
                                                    the Pilot Report would provide an                          Exchange opposing the Exchange’s                        exercise when they would be trading
                                                    analysis of price volatility and trading                   RealDay Options proposal.35 The                         alongside physically settled options
                                                    activity in additional option series. In                   commenter argues that the proposal                      with American-style exercise on the
                                                    addition to the Pilot Report, the                          should be disapproved. First, the                       same ETF that might have the exact
                                                    Exchange would provide the                                 commenter questions whether a                           same strikes and would permitted to
                                                    Commission with periodic interim                           RealDay Option can be considered a                      expire on the same day.44
                                                    reports while the Pilot Program is in                      securities option and therefore within                  IV. Discussion and Commission
                                                    effect that would contain some, but not                    the Commission’s jurisdiction. The                      Findings
                                                    all, of the information contained in the                   commenter asserts that there is no
                                                    Pilot Report. The Pilot Report would be                    precedent for classifying RealDay                          The Commission finds that the
                                                    provided to the Commission on a                            Options as a securities option 36 and                   proposed rule change is consistent with
                                                    confidential basis.                                        cites a Seventh Circuit decision holding                the requirements of the Act and the
                                                       The Exchange states that the Pilot                      that a contract is an option only if,                   rules and regulations thereunder
                                                    Report would contain the following                         among other things, it ‘‘establish[es] a                applicable to a national securities
                                                    volume and open interest data for                          careful balance among premium, strike                   exchange.45 In particular, the
                                                    RealDay Options:                                           price, and duration.’’ 37 The commenter                 Commission finds that the proposal is
                                                       (1) Daily contract trading volume                       notes that, for all but ‘‘a tiny portion of             consistent with Section 6(b)(5) of the
                                                    aggregated for all trades, for all option                  its life’’ (i.e., one day), a RealDay Option            Act,46 which requires, among other
                                                    series with less than 31 days until                        would not have a specified strike price                 things, that the rules of a national
                                                    expiration;                                                and believes that there is a ‘‘serious and              securities exchange be designed to
                                                       (2) daily contract trading volume                       novel issue about whether [RealDay                      promote just and equitable principles of
                                                    aggregated by expiration date, for all                     Options] can be considered a securities                 trade, to remove impediments to and
                                                    option series with less than 31 days                       option—and therefore can fall within                    perfect the mechanism of a free and
                                                    until expiration;                                          the Commission’s jurisdiction. . . .’’ 38               open market and a national market
                                                       (3) daily contract trading volume for                                                                           system and, in general, to protect
                                                                                                                  In its filing, the Exchange cited to
                                                    each individual series;                                                                                            investors and the public interest.
                                                                                                               CBOE’s Delayed Start Options (‘‘DSOs’’)
                                                       (4) daily open interest aggregated for                  as precedent for the approval of RealDay                Comment Letter
                                                    all series, for all option series with less                Options.39 The commenter argues that
                                                    than 31 days until expiration;                                                                                        The Commission disagrees with the
                                                                                                               RealDay Options are ‘‘fundamentally                     commenter’s assertion that, with respect
                                                       (5) daily open interest aggregated for
                                                                                                               different’’ from DSOs. The commenter                    to the timing of strike price setting,
                                                    all series by expiration date, for all
                                                                                                               notes that, in its own filing seeking                   there is no precedent for RealDay
                                                    option series with less than 31 days
                                                                                                               approval for DSOs, it represented that                  Options or their classification as
                                                    until expiration;
                                                       (6) daily open interest for each                        the time interval between setting the                   securities options. As noted by both the
                                                    individual series;                                         strike price and expiration initially                   Exchange and the commenter, the
                                                       (7) statistics on the distribution of                   would be three months, as compared to                   Commission previously approved an
                                                    trade sizes;                                               one day for RealDay Options. At the                     options product with a strike price not
                                                       (8) type of market participant trading                  same time, the commenter                                specified at the time of issuance (i.e.,
                                                    (e.g., contract trading volume for each                    acknowledges that it also stated that it                DSOs).47 In its order approving the DSO
                                                    market participant type); and                              would be able to increase or decrease                   product, the Commission examined the
                                                       (9) 5-minute returns, level changes,                    that interval, but maintains that it                    question of whether DSOs should be
                                                    and trading volume for the S&P 500                         ‘‘never considered reducing that interval               designated as standardized options for
                                                    Index, VIX, SPY, IVV, and expiring                         so drastically that the DSO would live                  purposes of Rule 9b–1 under the Act
                                                    RealDay options between open and                           as a fully specified option for but a                   and concluded that DSOs should be so
                                                    close for the first and second                             single day in a much longer lifespan.’’ 40              designated.48 In concluding that the
                                                    Wednesday of the month that is a                              In addition, the commenter states that               ‘‘lack [of] a specified exercise price at
                                                    trading day and trading days when                          it would be unprecedented to have a                     the commencement of trading does not
                                                    standard SPY options expire.                               cash-settled option on an ETF.41 In its                 detract from [the DSOs’] character as
                                                       In addition to the Pilot Report, the                    filing, the Exchange cites to other cash-
                                                    Exchange would periodically provide                        settled options, including CBOE’s SPX                     42 See Notice, supra note 3, at 80126 n.11.
                                                    the Commission with interim reports of                     options, as support for the notion that                   43 See CBOE Letter, supra note 4, at 2–3.
                                                    the information listed in items (1)                        cash settlement of options is not                         44 See id. at 3.
                                                                                                                                                                         45 In approving this proposed rule change, the
                                                    through (9) above as required by the
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                                                                                                                                                                       Commission notes that it has considered the
                                                    Commission while the Pilot Program is                        35 See CBOE Letter, supra note 4.                     proposed rule’s impact on efficiency, competition,
                                                    in effect. These interim reports will also                   36 See id. at 2.                                      and capital formation. See 15 U.S.C. 78c(f).
                                                                                                                 37 See id. at 2 (citing Chicago Mercantile              46 15 U.S.C. 78f(b)(5).

                                                    established during the 12-month pilot. If the pilot        Exchange v. SEC, 883 F.2d 537, 546 (7th Cir. 1989)).      47 See Securities Exchange Act Release No. 56855
                                                                                                                 38 See id. at 2.
                                                    program were not extended, then the position could                                                                 (November 28, 2007), 72 FR 68610 (December 5,
                                                                                                                 39 See Notice, supra note 3, at 80126 n.3; see also
                                                    continue to exist. However, any further trading in                                                                 2007) (SR–CBOE–2006–90).
                                                    the series would be restricted to transactions where       id. at 80127 n.16.                                        48 See id. at 68612–13 (discussing the
                                                    at least one side of the trade is a closing transaction.     40 See CBOE Letter, supra note 4, at 2.
                                                                                                                                                                       Commission’s designation of DSOs as standardized
                                                       34 See Notice, supra note 3, at 80131.                    41 See id. at 2–3.                                    options).



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                                                    9890                       Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                    options,’’ the Commission noted that                    product having an active period                       that position limits are designed to
                                                    each DSO series would trade with a                      designed to cover only a single trading               address are mitigated in the case of this
                                                    fixed formula for determining the                       day.55 The Exchange further notes that                product. Moreover, the Commission
                                                    numerical strike price,49 which is                      P.M. settlement is necessary for RealDay              believes that having no position limits
                                                    similar to the operation of RealDay                     Options to prevent events occurring                   for these options may benefit investors
                                                    Options. Moreover, although CBOE                        after the close from having an effect on              by bringing additional depth and
                                                    states that, for DSOs, it never considered              the settlement price, which the                       liquidity to these options without
                                                    an active period as short as a single day,              Exchange believes would similarly                     raising significant concerns about
                                                    it acknowledges that its own rule filing                undermine the intent of RealDay                       potential manipulation or potential
                                                    seeking approval for DSOs stated that it                Options to cover only one trading day.56              market disruption. Further, the
                                                    would be able to increase or decrease                      The Commission is cognizant that the               Commission notes that standard options
                                                    the three-month time interval between                   proposed settlement and exercise                      on SPY are currently not subject to any
                                                    setting the strike price and expiration.                features of RealDay Options—while they                position limits under a pilot program,
                                                    The Commission does not believe that                    exist in options more broadly—would,                  and the Exchange has proposed to apply
                                                    the strike price setting feature of                     taken together, be unique. However,                   any position limits for standard options
                                                    RealDay Options is a novel issue, and                   given the significant liquidity of the                on SPY if that pilot program were
                                                    believes the same analysis it applied to                underlying ETF for the proposed                       discontinued.58
                                                    DSOs applies to RealDay Options.50                      product,57 the Commission initially
                                                                                                                                                                     The Commission also believes that it
                                                       As noted above, CBOE also asserts                    believes that the proposed settlement
                                                                                                            and exercise features can be appropriate              is consistent with the Act to apply
                                                    that the Exchange’s RealDay Options
                                                                                                            for RealDay Options on SPY. As                        margin requirements to the proposed
                                                    proposal is unprecedented because of its
                                                                                                            discussed above, though the                           RealDay Options that are otherwise
                                                    proposed settlement and exercise
                                                                                                            Commission believes that the liquidity                applicable to standard options on SPY.
                                                    methodologies. Among other things, the
                                                                                                            of SPY and the proposed surveillance of               The Commission further believes that
                                                    commenter criticizes the Exchange for
                                                                                                            RealDay Options can serve to mitigate                 the Exchange’s proposed minimum
                                                    misleadingly making assertions
                                                                                                            manipulation concerns, because of the                 trading increments, strike price setting
                                                    regarding cash settlement and options,
                                                                                                            proposed features of RealDay Options,                 process,59 and other aspects of the
                                                    noting that while it is not unusual for
                                                    index and currency options to be cash                   including those with respect to                       proposed rule change are appropriate
                                                    settled, that is not the case with ETF                  settlement and exercise, the                          and consistent with the Act.
                                                    options (such as the proposed RealDay                   Commission believes it is appropriate                    As a national securities exchange, the
                                                    Options product). In the Notice, the                    for the product to be approved on a pilot             Exchange is required, under Section
                                                    Exchange argues that its proposed                       basis such that the Commission may                    6(b)(1) of the Act,60 to enforce
                                                    settlement and exercise methodologies                   further review trading in the product to              compliance by its members and persons
                                                    are appropriate for the proposed                        determine whether its proposed features               associated with its members with the
                                                    RealDay Options product.51 Among                        including, among other things, cash                   provisions of the Act, Commission rules
                                                    other things, the Exchange asserts that                 settlement, continue to be appropriate.               and regulations thereunder, and its own
                                                    there is a low potential for manipulation               Importantly, the Commission notes that,               rules. In this regard, other than for
                                                    of the settlement value of RealDay                      if the Exchange were to propose listing               certain exercise and settlement features
                                                    Options on SPY due to the high cost and                 RealDay Options on any additional                     as described above,61 the Commission
                                                    regulatory scrutiny that would result                   underlying product (i.e., other than                  notes that trading of RealDay Options
                                                    from any attempted manipulation and                     SPY), the Exchange has stated that it                 will be subject to many of the same
                                                    the vast liquidity and high level of                    would seek approval for such product                  rules that currently govern the trading of
                                                    participation among market participants                 through a proposed rule change and the                other options on the Exchange.62 In
                                                    in the market for SPY, making                           Commission would have to evaluate                     addition, as noted above, the Exchange
                                                    manipulation very difficult.52 In                       such different underlying product in the              has asserted that manipulation of the
                                                    addition, while the Exchange notes that                 context of RealDay Options, and                       settlement value of RealDay Options on
                                                    manipulation of the settlement value is                 whether or not the proposed settlement                SPY will be difficult based on the size
                                                    unlikely, it represents that its current                and exercise features, among other                    and liquidity of the market for SPY.63
                                                    surveillance procedures for its other                   things, for such RealDay Options are                  Moreover, the Exchange has represented
                                                    options products will be sufficient to                  appropriate.                                          that it has an adequate surveillance
                                                    monitor RealDay Options.53 The                                                                                program in place for RealDay Options
                                                                                                            Other Issues
                                                    Exchange further asserts that this low                                                                        on SPY, and will monitor for any
                                                    potential for manipulation and its                         The Commission believes that the                   potential manipulation of the settlement
                                                    continued monitoring will alleviate any                 Exchange’s proposal to impose no                      value according to its current
                                                    concerns regarding the P.M., cash-                      position limits on RealDay Options is
                                                    settled nature of RealDay Options.54                    appropriate and consistent with the Act.                58 See id. at 80130.
                                                    According to the Exchange, cash                         As noted above, the Exchange proposed                   59 The  Commission notes that, as described
                                                    settlement helps to mitigate the risk that              to initially list RealDay Options only on             above, the Exchange has represented that it has
                                                                                                            SPY. The Commission notes that SPY                    informed various market participants about the
                                                    the price of the security could change                                                                        nature of the proposed use of three decimal places
                                                    overnight before the investor would be                  options are the most actively-traded                  to represent the Strike Multiplier, that it has
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                                                    able to liquidate their position, which                 options in terms of average daily                     ensured that these market participants will
                                                    would undermine the intent of the                       volume. The Commission believes that                  understand the meaning of and be able to handle
                                                                                                            because these options are extremely                   the three decimal places, and that it will continue
                                                                                                                                                                  to further educate market participants on this
                                                      49 See id. at 68613.                                  liquid, the potential manipulation and                process to minimize any potential investor
                                                      50 See id.                                            potential market disruption concerns                  confusion. See Notice, supra note 3, at 80128 n.24.
                                                      51 See Notice, supra note 3, at 80126–27.                                                                     60 15 U.S.C. 78f(b)(1).
                                                      52 See id. at 80129–30.                                 55 See id. at 80126.                                  61 See supra notes 12–19 and accompanying text.
                                                      53 See id. at 80130.                                    56 See id. at 80127.                                  62 See Exchange Rule 5050.
                                                      54 See id. at 80126 and 80129–30.                       57 See id. at 80126 and 80129–30.                     63 See supra note 52 and accompanying text.




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                                                                               Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                                      9891

                                                    surveillance procedures.64 In approving                 Exchange ultimately intends to include                 Commission is publishing this notice to
                                                    the proposed listing and trading of the                 in the Pilot Report. The Commission                    solicit comments on the proposed rule
                                                    proposed RealDay Options, the                           also expects that the Exchange will take               change from interested persons.
                                                    Commission has also relied on the                       prompt action, including timely
                                                                                                                                                                   I. Self-Regulatory Organization’s
                                                    Exchange’s representation that it has the               communication with the Commission
                                                                                                                                                                   Statement of the Terms of Substance of
                                                    necessary systems capacity to support                   and with other marketplace self-
                                                                                                                                                                   the Proposed Rule Change
                                                    the new options series that will result                 regulatory organizations responsible for
                                                    from this proposal.65                                   oversight of trading in component                         Pursuant to the provisions of Section
                                                                                                            stocks, should any unanticipated                       19(b)(1) of the Securities Exchange Act
                                                    Pilot                                                                                                          of 1934 (‘‘Exchange Act’’),5 and Rule
                                                                                                            adverse market effects develop.
                                                       Given the size and liquidity of the                    Based on the Exchange’s                              19b–4 thereunder,6 IEX is filing with the
                                                    market for SPY, the Commission                          representations with respect to the                    Commission a proposed rule change to
                                                    believes that the risks of manipulation                 proposed RealDay Options on SPY and                    adopt the Rule Series 11.600 to
                                                    and potential market disruption are                     for the foregoing reasons, the                         implement the compliance rule
                                                    significantly mitigated as discussed                    Commission finds that the proposed                     (‘‘Compliance Rule’’) regarding the
                                                    above. Notwithstanding this and the                     rule change is consistent with the Act.                National Market System Plan Governing
                                                    Exchange’s representations in this                                                                             the Consolidated Audit Trail (the ‘‘CAT
                                                    regard, the Commission believes that a                  V. Conclusion                                          NMS Plan’’ or ‘‘Plan’’).7 The text of the
                                                    prudent approach is warranted with                        It is therefore ordered, pursuant to                 proposed rule change is available at the
                                                    respect to the Exchange’s proposal to                   Section 19(b)(2) of the Act,67 that the                Exchange’s Web site at
                                                    list RealDay Options on SPY. To the                     proposed rule change (SR–BOX–2016–                     www.iextrading.com, at the principal
                                                    extent the potential for adverse effects                50) be, and hereby is, approved on a                   office of the Exchange, and at the
                                                    with regard to the markets for the SPY                  twelve-month pilot basis set to expire                 Commission’s Public Reference Room.
                                                    ETF, the S&P 500 component securities                   on February 2, 2018.                                   II. Self-Regulatory Organization’s
                                                    underlying the SPY ETF, or RealDay                        For the Commission, by the Division of               Statement of the Purpose of, and the
                                                    Options on SPY continues to exist, the                  Trading and Markets, pursuant to delegated             Statutory Basis for, the Proposed Rule
                                                    Exchange’s proposal to implement this                   authority.68                                           Change
                                                    change on a pilot basis should help to                  Robert W. Errett,
                                                    address this concern. Accordingly, the                                                                            In its filing with the Commission, the
                                                                                                            Deputy Secretary.
                                                    Commission is approving the proposal                                                                           self-regulatory organization included
                                                                                                            [FR Doc. 2017–02541 Filed 2–7–17; 8:45 am]
                                                    on a twelve-month pilot basis. Within                                                                          statements concerning the purpose of
                                                                                                            BILLING CODE 8011–01–P
                                                    two months of the end of the Pilot                                                                             and basis for the proposed rule change
                                                    Program the Exchange will be required                                                                          and discussed any comments it received
                                                    to submit to the Commission the Pilot                                                                          on the proposed rule change. The text
                                                                                                            SECURITIES AND EXCHANGE
                                                    Report. As described in more detail                                                                            of these statements may be examined at
                                                                                                            COMMISSION
                                                    above,66 the Pilot Report will contain an                                                                      the places specified in Item IV below.
                                                    analysis of volume, open interest, and                  [Release No. 34–79934; File No. SR–IEX–                The self-regulatory organization has
                                                    trading patterns examining trading in                   2017–04]                                               prepared summaries, set forth in
                                                    RealDay Options. In addition, for certain                                                                      Sections A, B, and C below, of the most
                                                                                                            Self-Regulatory Organizations;                         significant aspects of such statements.
                                                    series, the Pilot Report will provide an                Investors Exchange LLC; Notice of
                                                    analysis of price volatility and trading                Filing of Proposed Rule Change To                      A. Self-Regulatory Organization’s
                                                    activity in additional option series. In                Adopt the Rule Series 11.600 To                        Statement of the Purpose of, and
                                                    addition to the Pilot Report, the                       Implement the Compliance Rule                          Statutory Basis for, the Proposed Rule
                                                    Exchange will provide the Commission                    Regarding the National Market System                   Change
                                                    with periodic interim reports while the                 Plan Governing the Consolidated Audit
                                                    Pilot Program is in effect that would                                                                          1. Purpose
                                                                                                            Trail
                                                    contain some, but not all, of the                                                                              (a) Purpose [sic]
                                                    information contained in the Pilot                      February 2, 2017.                                         Bats BYX Exchange, Inc., Bats BZX
                                                    Report. The Pilot Report will be                           Pursuant to Section 19(b)(1) 1 of the               Exchange, Inc., Bats EDGA Exchange,
                                                    provided to the Commission on a                         Securities Exchange Act of 1934 (the                   Inc., Bats EDGX Exchange, Inc., BOX
                                                    confidential basis. Furthermore, if the                 ‘‘Act’’) 2 and Rule 19b–4 thereunder,3                 Options Exchange LLC, C2 Options
                                                    pilot is not extended or permanently                    notice is hereby given that, on January                Exchange, Incorporated, Chicago Board
                                                    approved by the end of the Pilot                        30, 2017, the Investors Exchange LLC                   Options Exchange, Incorporated,
                                                    Program, any position in RealDay                        (‘‘IEX’’ or the ‘‘Exchange’’) filed with the           Chicago Stock Exchange, Inc., Financial
                                                    Options established during the Pilot                    Securities and Exchange Commission                     Industry Regulatory Authority, Inc.,
                                                    Program would remain in effect, but any                 (the ‘‘Commission’’) the proposed rule                 International Securities Exchange, LLC,
                                                    further trading in those RealDay Options                change as described in Items I, II and III             Investors Exchange LLC, ISE Gemini,
                                                    would be restricted to transactions                     below, which Items have been prepared                  LLC, ISE Mercury, LLC, Miami
                                                    where at least one side of the trade is                 by the self-regulatory organization.4 The              International Securities Exchange LLC,
                                                    a closing transaction.                                                                                         MIAX PEARL, LLC, NASDAQ BX, Inc.,
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                                                       The Commission expects that,                           67 15  U.S.C. 78s(b)(2).
                                                                                                                                                                   NASDAQ PHLX LLC, The NASDAQ
                                                    throughout the Pilot Program, the                         68 17  CFR 200.30–3(a)(12).
                                                                                                                                                                   Stock Market LLC, National Stock
                                                                                                              1 15 U.S.C. 78s(b)(1).
                                                    Exchange will monitor for any problems                                                                         Exchange, Inc., New York Stock
                                                                                                              2 15 U.S.C. 78a.
                                                    and collect and analyze on an ongoing
                                                                                                              3 17 CFR 240.19b–4.
                                                    basis the data and information that the                   4 The Exchange originally filed this proposed rule     5 15U.S.C. 78s(b)(1).
                                                                                                                                                                     6 17CRF 240.19b–4.
                                                                                                            change on January 17, 2017 under File No. SR–IEX–
                                                      64 See supra note 30 and accompanying text.           2017–02, and the Exchange subsequently withdrew          7 Unless otherwise specified, capitalized terms
                                                      65 See supra note 31 and accompanying text.           that filing on January 30, 2017 and filed this         used in this rule filing are defined as set forth
                                                      66 See supra note 34 and accompanying text.           proposed rule change.                                  herein or in the CAT NMS Plan.



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Document Created: 2017-02-08 02:59:24
Document Modified: 2017-02-08 02:59:24
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 9886 

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