83_FR_21409 83 FR 21319 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Approving a Proposed Rule Change Amending Rule 1079, FLEX Index, Equity and Currency Options, and Rule 1059, Accommodation Transactions, To Allow the Closing of Flexible Exchange Options (“FLEX options”) in Cabinet Trading

83 FR 21319 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Approving a Proposed Rule Change Amending Rule 1079, FLEX Index, Equity and Currency Options, and Rule 1059, Accommodation Transactions, To Allow the Closing of Flexible Exchange Options (“FLEX options”) in Cabinet Trading

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 90 (May 9, 2018)

Page Range21319-21320
FR Document2018-09838

Federal Register, Volume 83 Issue 90 (Wednesday, May 9, 2018)
[Federal Register Volume 83, Number 90 (Wednesday, May 9, 2018)]
[Notices]
[Pages 21319-21320]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-09838]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83167; File No. SR-Phlx-2018-20]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Approving a 
Proposed Rule Change Amending Rule 1079, FLEX Index, Equity and 
Currency Options, and Rule 1059, Accommodation Transactions, To Allow 
the Closing of Flexible Exchange Options (``FLEX options'') in Cabinet 
Trading

May 3, 2018.

I. Introduction

    On February 28, 2018, Nasdaq PHLX LLC (``Exchange'' or ``Phlx'') 
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 
amending Phlx's Rule 1079, relating to FLEX Options, and Phlx Rule 
1059, relating to accommodation transactions. The proposed rule change 
was published for comment in the Federal Register on March 19, 2018.\3\ 
The Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 82866 (Mar. 13, 
2018), 83 FR 12058 (Mar. 19, 2018) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange has proposed to amend Phlx Rule 1079, governing FLEX 
option transactions, and Phlx Rule 1059, governing accommodation 
transactions (also known as cabinet trades), to permit open FLEX 
positions to be closed pursuant to the cabinet procedures in Phlx Rule 
1059.
    Phlx Rule 1079 permits the trading of FLEX options, which are 
options customized to fit specific investment strategies and goals.\4\ 
Further, Phlx Rule 1079(a)(4) requires that bids or offers in FLEX 
trades be made at the minimum increments specified in Phlx Rule 
1034.\5\ Generally, the minimum increments for stock, index and 
exchange traded fund options are either $.10 or $.05, unless such 
options are subject to a penny pilot set forth in the rule.
---------------------------------------------------------------------------

    \4\ See Phlx Rule 1079. See also Notice, supra note 3, at 12059. 
Pursuant to Phlx Rule 1079, investors can specify the 
characteristics for FLEX Option contracts such as the expiration 
date, the strike price, and the exercise-style.
    \5\ Phlx Rule 1034 (a) provides that with certain exceptions, 
``all options on stocks, index options, and Exchange Traded Fund 
Shares quoting in decimals at $3.00 or higher shall have a minimum 
increment of $.10, and all options on stocks and index options 
quoting in decimals under $3.00 shall have a minimum increment of 
$.05.''
---------------------------------------------------------------------------

    Phlx Rule 1059 permits trading of cabinet orders, defined as 
closing limit orders at a price of $1 per option contract for the 
account of a customer, firm, specialist or registered options trader 
\6\ (``ROT'').\7\ Thus, cabinet trades are generally effectuated at 
less than the minimum increments required for FLEX options, as 
described above, under the Phlx Rules 1079 and 1034. According to Phlx, 
cabinet trading is intended to accommodate persons wishing to effect 
closing transactions in options for which there is no auction market. 
Cabinet trading, according to the Exchange, allows market participants 
to close listed options on the Exchange that are of minimal value or 
worthless, or not actively traded, often for the purpose of 
establishing tax losses.\8\
---------------------------------------------------------------------------

    \6\ See Phlx Rule 1014(b). An ROT is a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account. Each ROT electing to engage in 
Exchange options transactions shall be assigned by the Exchange one 
or more classes of options, and Exchange options transactions 
initiated by such ROT on the Floor for any account in which he had 
an interest shall to the extent prescribed by the Exchange be in 
such assigned classes.
    \7\ See Phlx Rule 1059(a). Commentary .02 to Phlx Rule 1059 
provides that limit orders with a price of at least $0 but less than 
$1 per option contract may also trade under the terms and conditions 
in Phlx Rule 1059, subject to certain limitations.
    \8\ See Notice, supra note 3, at 12059 n.3. A cabinet trade is a 
transaction in which the per-contract value of the cabinet trade is 
less than the per-contract value of a trade at the specified minimum 
increment for the option contract. See id.
---------------------------------------------------------------------------

    The Exchange has proposed to add Phlx Rule 1079(g) and Commentary 
.03 to Phlx Rule 1059 to state that open FLEX option positions are 
eligible to be closed in accordance with the minimum increments set 
forth in Phlx Rule 1059 governing cabinet trading.\9\ The Exchange 
further proposed that a FLEX option cabinet order may be executed 
against contra side interest that closes the FLEX option position or, 
to the extent permitted by the cabinet rule (specifically Phlx Rule 
1059(a)(iii)), against contra side interest that opens a FLEX option 
position.\10\
---------------------------------------------------------------------------

    \9\ See proposed Phlx Rule 1079(g) and proposed Commentary .03 
to Phlx Rule 1059.
    \10\ See id. Phlx Rule 1059(a)(iii) provides that floor brokers 
would represent the orders in the crowd. See Phlx Rule 1059(a).
---------------------------------------------------------------------------

    Under existing Phlx rules all FLEX options are governed by the 
procedures for FLEX options in Phlx Rule 1079. To accommodate FLEX 
options trading as a cabinet order under Phlx Rule 1059, the Exchange 
also proposed in new Section 1079(g) that sections (a) and (b) of Phlx 
Rule 1079 would not apply to FLEX option transactions in the 
cabinet.\11\ According to the Exchange, Phlx Rule 1079(a), which sets 
forth the potential characteristics of FLEX options, such as underlying 
interest and the quote format, would not be applicable for the closing 
of FLEX options in the cabinet because the characteristics of the FLEX 
options in the cabinet would already be known.\12\ Further, Phlx stated 
that because FLEX options trading in the cabinet would be governed by 
the cabinet trading rules set forth in Phlx Rule 1059, except for the 
provisions of Phlx Rule 1079 noted below which will continue to apply, 
Phlx Rule 1079(b), which covers procedures for quoting and trading FLEX 
options, and the provisions of Phlx Rule 1079(a) defining aspects of a 
FLEX request for the RFQ process, are not applicable.\13\
---------------------------------------------------------------------------

    \11\ See proposed Phlx Rule 1079(g) and proposed Commentary .03 
to Phlx Rule 1059.
    \12\ See Notice, supra note 3, at 12059 n.6.
    \13\ See id.
---------------------------------------------------------------------------

    Under the Phlx's proposal, Phlx Rules 1079(c)-(f) would, however, 
continue to apply to FLEX option cabinet

[[Page 21320]]

transactions.\14\ Phlx Rule 1079(c) restricts participation in FLEX 
cabinet trades to entities that meet the requirements set forth in this 
subsection,\15\ and Phlx Rules 1079(d) and (e) govern position limits 
and exercise limits.\16\
---------------------------------------------------------------------------

    \14\ See proposed Phlx Rule 1079(g) and proposed Commentary .03 
to Phlx Rule 1059.
    \15\ See Phlx Rule 1079(c), which sets forth requirements for 
ROTs and specialists to be assigned to FLEX Options as well as 
financial requirements for floor brokers to trade FLEX Options.
    \16\ See Notice, supra note 3, at 12059 n.6. Phlx Rule 1079(f) 
relates to the exercise-by-exception procedure of Rule 805 of the 
Options Clearing Corporation.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act \17\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\18\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\19\ which 
requires that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f.
    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that allowing the closing of FLEX options 
positions through cabinet trading is designed to promote just and 
equitable principles of trade and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system by 
allowing market participants to close out their FLEX options positions 
that have little or no value prior to the options' expiration. 
Currently, market participants holding Phlx listed non-FLEX 
standardized options are allowed to close out positions with little or 
no value through an accommodation transaction known as a cabinet trade. 
FLEX option market participants currently do not have the same 
opportunity, despite the fact that there may be tax advantages to 
closing out a FLEX option position at a loss prior to the options 
expiration, and instead must hold the FLEX options until it expires, 
most likely worthless.\20\ The Exchange also noted in its proposal that 
recently market participants have expressed an interest in closing FLEX 
options under the Phlx's cabinet rule.\21\ The proposed rule change, 
will therefore, provide market participants with an opportunity to 
liquidate FLEX option positions that are of minimal or no value prior 
to the FLEX options expiration, similar to that currently permitted by 
other market participants holding standardized options.
---------------------------------------------------------------------------

    \20\ As noted above, currently the FLEX rules do not permit Flex 
options to be traded as a cabinet order. Among other issues under 
the FLEX rules, the minimum size increments required under the FLEX 
rules essentially prohibit accommodation transactions in FLEX 
options.
    \21\ See Notice, supra note 3, at 12059-60.
---------------------------------------------------------------------------

    The Commission recognizes that the FLEX options market is unique in 
that it allows the customization of certain options terms between buyer 
and seller and that, as result, the FLEX options market does not 
typically have the liquidity and active trading market offered in the 
standardized options market. Despite these unique characteristics, 
however, allowing FLEX market participants to close out their FLEX 
options positions with little or no value in an accommodation 
transaction under cabinet trading procedures, and subject to certain 
FLEX rules continuing to apply, would appear to be helpful to FLEX 
market participants.
    Further, under the proposal, the existing Phlx rules concerning 
enhanced financial requirements and who may trade FLEX under Phlx Rule 
1079 would continue to apply to any FLEX options executed under the 
cabinet trading rules. Any orders, whether a closing order or, as 
permitted, an opening order, executed against a Phlx FLEX option 
cabinet order are still therefore considered FLEX options orders, as 
indicated in the proposed changes to both Phlx Rules 1079 and 1059.
    In addition, the position and exercise limits for FLEX options will 
continue to apply to FLEX options closed in the cabinet. The Commission 
notes, however, that under the FLEX rules equity options do not have 
position limits and positions in FLEX options are generally not 
aggregated with standardized options for position limit purposes, with 
some exceptions.\22\ The Commission expects Phlx to monitor FLEX 
cabinet orders to ensure that the lack of equity option position limits 
and aggregation with standardized positions do not present risks that 
would require the Exchange to impose additional margin as permitted 
under Phlx Rule 1079(d)(2) governing FLEX options. In addition, we 
request Phlx to monitor positions opened to accommodate a FLEX cabinet 
closing limit order to ensure that such open positions do not create 
any additional market risk that would need to be addressed through Phlx 
rules, such as requiring the aggregation of positions in standardized 
options with FLEX opening orders to accommodate a FLEX cabinet order. 
We would also expect Phlx to inform us generally of any other concerns 
that have arisen in allowing FLEX options to be executed under the 
cabinet trading rules.
---------------------------------------------------------------------------

    \22\ See Phlx Rule 1079(d)(2)-(4).
---------------------------------------------------------------------------

    For the reasons above, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Phlx-2018-20) be, and hereby 
is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).
    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09838 Filed 5-8-18; 8:45 am]
 BILLING CODE 8011-01-P



                                                                              Federal Register / Vol. 83, No. 90 / Wednesday, May 9, 2018 / Notices                                                         21319

                                               The Commission may not conduct or                        Federal Register on March 19, 2018.3                   which there is no auction market.
                                             sponsor a collection of information                        The Commission received no comment                     Cabinet trading, according to the
                                             unless it displays a currently valid OMB                   letters on the proposed rule change.                   Exchange, allows market participants to
                                             control number. No person shall be                         This order approves the proposed rule                  close listed options on the Exchange
                                             subject to any penalty for failing to                      change.                                                that are of minimal value or worthless,
                                             comply with a collection of information                    II. Description of the Proposed Rule                   or not actively traded, often for the
                                             subject to the PRA that does not display                   Change                                                 purpose of establishing tax losses.8
                                             a valid Office of Management and                                                                                    The Exchange has proposed to add
                                             Budget (OMB) control number.                                  The Exchange has proposed to amend
                                                                                                        Phlx Rule 1079, governing FLEX option                  Phlx Rule 1079(g) and Commentary .03
                                               Background documentation for this                                                                               to Phlx Rule 1059 to state that open
                                             information collection may be viewed at                    transactions, and Phlx Rule 1059,
                                                                                                        governing accommodation transactions                   FLEX option positions are eligible to be
                                             the following website: www.reginfo.gov.                                                                           closed in accordance with the minimum
                                             Comments should be directed to: (i)                        (also known as cabinet trades), to permit
                                                                                                        open FLEX positions to be closed                       increments set forth in Phlx Rule 1059
                                             Desk Officer for the Securities and                                                                               governing cabinet trading.9 The
                                             Exchange Commission, Office of                             pursuant to the cabinet procedures in
                                                                                                        Phlx Rule 1059.                                        Exchange further proposed that a FLEX
                                             Information and Regulatory Affairs,
                                                                                                           Phlx Rule 1079 permits the trading of               option cabinet order may be executed
                                             Office of Management and Budget,
                                                                                                        FLEX options, which are options                        against contra side interest that closes
                                             Room 10102, New Executive Office
                                                                                                        customized to fit specific investment                  the FLEX option position or, to the
                                             Building, Washington, DC 20503, or by
                                                                                                        strategies and goals.4 Further, Phlx Rule              extent permitted by the cabinet rule
                                             sending an email to: Shagufta_Ahmed@
                                                                                                        1079(a)(4) requires that bids or offers in             (specifically Phlx Rule 1059(a)(iii)),
                                             omb.eop.gov; and (ii) Pamela Dyson,
                                                                                                        FLEX trades be made at the minimum                     against contra side interest that opens a
                                             Director/Chief Information Officer,
                                                                                                        increments specified in Phlx Rule                      FLEX option position.10
                                             Securities and Exchange Commission,
                                                                                                        1034.5 Generally, the minimum                            Under existing Phlx rules all FLEX
                                             c/o Remi Pavlik-Simon, 100 F St. NE,
                                                                                                        increments for stock, index and                        options are governed by the procedures
                                             Washington, DC 20549 or send an email
                                                                                                        exchange traded fund options are either                for FLEX options in Phlx Rule 1079. To
                                             to: PRA_Mailbox@sec.gov. Comments
                                                                                                        $.10 or $.05, unless such options are                  accommodate FLEX options trading as a
                                             must be submitted to OMB within 30
                                                                                                        subject to a penny pilot set forth in the              cabinet order under Phlx Rule 1059, the
                                             days of this notice.
                                                                                                        rule.                                                  Exchange also proposed in new Section
                                               Dated: May 4, 2018.                                         Phlx Rule 1059 permits trading of
                                                                                                                                                               1079(g) that sections (a) and (b) of Phlx
                                             Eduardo A. Aleman,                                         cabinet orders, defined as closing limit
                                                                                                                                                               Rule 1079 would not apply to FLEX
                                             Assistant Secretary.                                       orders at a price of $1 per option
                                                                                                                                                               option transactions in the cabinet.11
                                             [FR Doc. 2018–09884 Filed 5–8–18; 8:45 am]                 contract for the account of a customer,
                                                                                                                                                               According to the Exchange, Phlx Rule
                                                                                                        firm, specialist or registered options
                                             BILLING CODE 8011–01–P                                                                                            1079(a), which sets forth the potential
                                                                                                        trader 6 (‘‘ROT’’).7 Thus, cabinet trades
                                                                                                                                                               characteristics of FLEX options, such as
                                                                                                        are generally effectuated at less than the
                                                                                                                                                               underlying interest and the quote
                                             SECURITIES AND EXCHANGE                                    minimum increments required for FLEX
                                                                                                        options, as described above, under the                 format, would not be applicable for the
                                             COMMISSION                                                                                                        closing of FLEX options in the cabinet
                                                                                                        Phlx Rules 1079 and 1034. According to
                                             [Release No. 34–83167; File No. SR–Phlx–                   Phlx, cabinet trading is intended to                   because the characteristics of the FLEX
                                             2018–20]                                                   accommodate persons wishing to effect                  options in the cabinet would already be
                                                                                                        closing transactions in options for                    known.12 Further, Phlx stated that
                                             Self-Regulatory Organizations; Nasdaq                                                                             because FLEX options trading in the
                                             PHLX LLC; Order Approving a                                   3 See Securities Exchange Act Release No. 82866     cabinet would be governed by the
                                             Proposed Rule Change Amending Rule                         (Mar. 13, 2018), 83 FR 12058 (Mar. 19, 2018)           cabinet trading rules set forth in Phlx
                                             1079, FLEX Index, Equity and Currency                      (‘‘Notice’’).                                          Rule 1059, except for the provisions of
                                                                                                           4 See Phlx Rule 1079. See also Notice, supra note
                                             Options, and Rule 1059,                                                                                           Phlx Rule 1079 noted below which will
                                             Accommodation Transactions, To                             3, at 12059. Pursuant to Phlx Rule 1079, investors
                                                                                                        can specify the characteristics for FLEX Option
                                                                                                                                                               continue to apply, Phlx Rule 1079(b),
                                             Allow the Closing of Flexible Exchange                     contracts such as the expiration date, the strike      which covers procedures for quoting
                                             Options (‘‘FLEX options’’) in Cabinet                      price, and the exercise-style.                         and trading FLEX options, and the
                                             Trading                                                       5 Phlx Rule 1034 (a) provides that with certain
                                                                                                                                                               provisions of Phlx Rule 1079(a) defining
                                                                                                        exceptions, ‘‘all options on stocks, index options,    aspects of a FLEX request for the RFQ
                                             May 3, 2018.                                               and Exchange Traded Fund Shares quoting in
                                                                                                        decimals at $3.00 or higher shall have a minimum       process, are not applicable.13
                                             I. Introduction                                            increment of $.10, and all options on stocks and         Under the Phlx’s proposal, Phlx Rules
                                                                                                        index options quoting in decimals under $3.00 shall
                                                On February 28, 2018, Nasdaq PHLX                       have a minimum increment of $.05.’’                    1079(c)–(f) would, however, continue to
                                             LLC (‘‘Exchange’’ or ‘‘Phlx’’) filed with                     6 See Phlx Rule 1014(b). An ROT is a regular        apply to FLEX option cabinet
                                             the Securities and Exchange                                member or a foreign currency options participant of
                                                                                                                                                                  8 See Notice, supra note 3, at 12059 n.3. A cabinet
                                                                                                        the Exchange located on the trading floor who has
                                             Commission (‘‘Commission’’), pursuant                      received permission from the Exchange to trade in      trade is a transaction in which the per-contract
                                             to Section 19(b)(1) of the Securities                      options for his own account. Each ROT electing to      value of the cabinet trade is less than the per-
                                             Exchange Act of 1934 (‘‘Act’’) 1 and Rule                  engage in Exchange options transactions shall be       contract value of a trade at the specified minimum
                                             19b–4 thereunder,2 a proposed rule                         assigned by the Exchange one or more classes of        increment for the option contract. See id.
                                                                                                        options, and Exchange options transactions                9 See proposed Phlx Rule 1079(g) and proposed
                                             change amending Phlx’s Rule 1079,
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                                                                                                        initiated by such ROT on the Floor for any account     Commentary .03 to Phlx Rule 1059.
                                             relating to FLEX Options, and Phlx Rule                    in which he had an interest shall to the extent           10 See id. Phlx Rule 1059(a)(iii) provides that floor
                                             1059, relating to accommodation                            prescribed by the Exchange be in such assigned
                                                                                                                                                               brokers would represent the orders in the crowd.
                                             transactions. The proposed rule change                     classes.
                                                                                                           7 See Phlx Rule 1059(a). Commentary .02 to Phlx
                                                                                                                                                               See Phlx Rule 1059(a).
                                             was published for comment in the                                                                                     11 See proposed Phlx Rule 1079(g) and proposed
                                                                                                        Rule 1059 provides that limit orders with a price
                                                                                                        of at least $0 but less than $1 per option contract    Commentary .03 to Phlx Rule 1059.
                                               1 15   U.S.C. 78s(b)(1).                                                                                           12 See Notice, supra note 3, at 12059 n.6.
                                                                                                        may also trade under the terms and conditions in
                                               2 17   CFR 240.19b–4.                                    Phlx Rule 1059, subject to certain limitations.           13 See id.




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                                             21320                         Federal Register / Vol. 83, No. 90 / Wednesday, May 9, 2018 / Notices

                                             transactions.14 Phlx Rule 1079(c)                       the options expiration, and instead must              margin as permitted under Phlx Rule
                                             restricts participation in FLEX cabinet                 hold the FLEX options until it expires,               1079(d)(2) governing FLEX options. In
                                             trades to entities that meet the                        most likely worthless.20 The Exchange                 addition, we request Phlx to monitor
                                             requirements set forth in this                          also noted in its proposal that recently              positions opened to accommodate a
                                             subsection,15 and Phlx Rules 1079(d)                    market participants have expressed an                 FLEX cabinet closing limit order to
                                             and (e) govern position limits and                      interest in closing FLEX options under                ensure that such open positions do not
                                             exercise limits.16                                      the Phlx’s cabinet rule.21 The proposed               create any additional market risk that
                                                                                                     rule change, will therefore, provide                  would need to be addressed through
                                             III. Discussion and Commission
                                                                                                     market participants with an opportunity               Phlx rules, such as requiring the
                                             Findings
                                                                                                     to liquidate FLEX option positions that               aggregation of positions in standardized
                                                After careful review, the Commission                 are of minimal or no value prior to the               options with FLEX opening orders to
                                             finds that the proposed rule change is                  FLEX options expiration, similar to that              accommodate a FLEX cabinet order. We
                                             consistent with the requirements of the                 currently permitted by other market                   would also expect Phlx to inform us
                                             Act 17 and the rules and regulations                    participants holding standardized                     generally of any other concerns that
                                             thereunder applicable to a national                     options.                                              have arisen in allowing FLEX options to
                                             securities exchange.18 In particular, the                  The Commission recognizes that the                 be executed under the cabinet trading
                                             Commission finds that the proposed                      FLEX options market is unique in that                 rules.
                                             rule change is consistent with Section                  it allows the customization of certain
                                             6(b)(5) of the Act,19 which requires that               options terms between buyer and seller                  For the reasons above, the
                                             the rules of an exchange be designed to                 and that, as result, the FLEX options                 Commission finds that the proposed
                                             prevent fraudulent and manipulative                     market does not typically have the                    rule change is consistent with the Act.
                                             acts and practices, to promote just and                 liquidity and active trading market                   IV. Conclusion
                                             equitable principles of trade, to foster                offered in the standardized options
                                             cooperation and coordination with                       market. Despite these unique                            It is therefore ordered, pursuant to
                                             persons engaged in regulating, clearing,                characteristics, however, allowing FLEX               Section 19(b)(2) of the Act,23 that the
                                             settling, processing information with                   market participants to close out their                proposed rule change (SR–Phlx–2018–
                                             respect to, and facilitating transactions               FLEX options positions with little or no              20) be, and hereby is, approved.
                                             in securities, to remove impediments to                 value in an accommodation transaction                   For the Commission, by the Division of
                                             and perfect the mechanism of a free and                 under cabinet trading procedures, and                 Trading and Markets, pursuant to delegated
                                             open market and a national market                       subject to certain FLEX rules continuing              authority.24
                                             system, and, in general, to protect                     to apply, would appear to be helpful to               Eduardo A. Aleman,
                                             investors and the public interest.                      FLEX market participants.
                                                The Commission believes that                            Further, under the proposal, the                   Assistant Secretary.
                                             allowing the closing of FLEX options                    existing Phlx rules concerning enhanced               [FR Doc. 2018–09838 Filed 5–8–18; 8:45 am]
                                             positions through cabinet trading is                    financial requirements and who may                    BILLING CODE 8011–01–P
                                             designed to promote just and equitable                  trade FLEX under Phlx Rule 1079 would
                                             principles of trade and to remove                       continue to apply to any FLEX options
                                             impediments to and perfect the                          executed under the cabinet trading                    SECURITIES AND EXCHANGE
                                             mechanism of a free and open market                     rules. Any orders, whether a closing                  COMMISSION
                                             and a national market system by                         order or, as permitted, an opening order,
                                             allowing market participants to close                   executed against a Phlx FLEX option                   [Release No. 34–83163; File No. SR–BOX–
                                             out their FLEX options positions that                   cabinet order are still therefore                     2018–13]
                                             have little or no value prior to the                    considered FLEX options orders, as
                                             options’ expiration. Currently, market                  indicated in the proposed changes to                  Self-Regulatory Organizations; BOX
                                             participants holding Phlx listed non-                   both Phlx Rules 1079 and 1059.                        Options Exchange LLC; Notice of
                                             FLEX standardized options are allowed                      In addition, the position and exercise             Filing and Immediate Effectiveness of
                                             to close out positions with little or no                limits for FLEX options will continue to              a Proposed Rule Change To Adopt
                                             value through an accommodation                          apply to FLEX options closed in the                   Price Protections for Complex Orders
                                             transaction known as a cabinet trade.                   cabinet. The Commission notes,
                                             FLEX option market participants                                                                               May 3, 2018.
                                                                                                     however, that under the FLEX rules
                                             currently do not have the same                          equity options do not have position                      Pursuant to Section 19(b)(1) of the
                                             opportunity, despite the fact that there                limits and positions in FLEX options are              Securities Exchange Act of 1934
                                             may be tax advantages to closing out a                  generally not aggregated with                         (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                             FLEX option position at a loss prior to                 standardized options for position limit               notice is hereby given that on April 25,
                                                                                                     purposes, with some exceptions.22 The                 2018, BOX Options Exchange LLC (the
                                               14 See proposed Phlx Rule 1079(g) and proposed
                                                                                                     Commission expects Phlx to monitor                    ‘‘Exchange’’) filed with the Securities
                                             Commentary .03 to Phlx Rule 1059.
                                               15 See Phlx Rule 1079(c), which sets forth            FLEX cabinet orders to ensure that the                and Exchange Commission
                                             requirements for ROTs and specialists to be             lack of equity option position limits and             (‘‘Commission’’) the proposed rule
                                             assigned to FLEX Options as well as financial           aggregation with standardized positions               change as described in Items I and II
                                             requirements for floor brokers to trade FLEX            do not present risks that would require               below, which Items have been prepared
                                             Options.
                                               16 See Notice, supra note 3, at 12059 n.6. Phlx       the Exchange to impose additional                     by the self-regulatory organization. The
                                             Rule 1079(f) relates to the exercise-by-exception                                                             Commission is publishing this notice to
amozie on DSK3GDR082PROD with NOTICES




                                             procedure of Rule 805 of the Options Clearing              20 As noted above, currently the FLEX rules do     solicit comments on the proposed rule
                                             Corporation.                                            not permit Flex options to be traded as a cabinet     change from interested persons.
                                               17 15 U.S.C. 78f.                                     order. Among other issues under the FLEX rules,
                                               18 In approving this proposed rule change, the        the minimum size increments required under the
                                                                                                                                                             23 15 U.S.C. 78s(b)(2).
                                             Commission has considered the proposed rule’s           FLEX rules essentially prohibit accommodation
                                                                                                                                                             24 17 CFR 200.30–3(a)(12).
                                             impact on efficiency, competition, and capital          transactions in FLEX options.
                                                                                                        21 See Notice, supra note 3, at 12059–60.            1 15 U.S.C. 78s(b)(1).
                                             formation. See 15 U.S.C. 78c(f).
                                               19 15 U.S.C. 78f(b)(5).                                  22 See Phlx Rule 1079(d)(2)–(4).                     2 17 CFR 240.19b–4.




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Document Created: 2018-05-09 03:17:17
Document Modified: 2018-05-09 03:17:17
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 Citation83 FR 21319 

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