83 FR 21320 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Price Protections for Complex Orders
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 90 (May 9, 2018)
Federal Register Volume 83, Issue 90 (May 9, 2018)
| Page Range | 21320-21324 | |
| FR Document | 2018-09806 |
[Federal Register Volume 83, Number 90 (Wednesday, May 9, 2018)] [Notices] [Pages 21320-21324] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-09806] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83163; File No. SR-BOX-2018-13] Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Price Protections for Complex Orders May 3, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on April 25, 2018, BOX Options Exchange LLC (the ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- [[Page 21321]] I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to adopt price protections for Complex Orders. The text of the proposed rule change is available from the principal office of the Exchange, at the Commission's Public Reference Room and also on the Exchange's internet website at http://boxoptions.com. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to adopt price protections for Complex Orders executed on BOX. The Exchange notes that the proposed change is similar to the rules of another exchange.\3\ The Exchange is proposing debit/credit checks and price validation for eligible Complex Orders.\4\ The proposed Complex Order price check parameters will apply to all Complex Orders, including auctions (COPIP, Facilitation, and Solicitation) and Complex Qualified Open Outcry Orders (``Complex QOO Orders'').\5\ --------------------------------------------------------------------------- \3\ See Chicago Board Options Exchange, Incorporated (``Cboe'') Interpretations and Polices .08(c) and (g) to Rule 6.53C. The Exchange notes that the proposed rules determine whether a Complex Order is debit or credit by using a slightly different process than that employed by Cboe. Specifically, CBOE will group the legs of a Complex Order into pairs and compare multiple pairs to determine whether the Complex Order is a credit or debit while the Exchange is proposing to create groups (which may include more than two legs) based on expiration date. However, the ultimate determination of whether a Complex Order is a debit or credit is the same under the different processes. Therefore, the Exchange believes the proposed rule change is substantially similar to the rules of Cboe. The proposed Maximum Price protection is based on Cboe Rule 6.53C.08(g). \4\ See proposed IM-7240-1. \5\ Under Exchange rules, a Complex QOO Order is not executed until it is processed by the system. See Rule 7600(a). The system applies the proposed price check parameters upon receipt of a Complex QOO Order. Therefore, the proposed protections apply to Complex QOO Orders in the same way as any other Complex Order received by the system. --------------------------------------------------------------------------- Debit/Credit Checks The Exchange is proposing a debit/credit check that will prevent the execution of certain Complex Orders at erroneous prices.\6\ Specifically, the system will reject a Complex Limit Order for a credit strategy with a net debit price or a Complex Limit Order for a debit strategy with a net credit price. --------------------------------------------------------------------------- \6\ See proposed IM-7240-1(a). --------------------------------------------------------------------------- The system determines whether an order is a debit or credit based on general options volatility and pricing principles, which the Exchange understands are used by market participants in their option pricing models. With respect to options with the same underlying:If two calls have the same expiration date, the price of the call with the lower exercise price is more than the price of the call with the higher exercise price; if two puts have the same expiration date, the price of the put with the higher exercise price is more than the price of the put with the lower exercise price; and if two calls (puts) have the same exercise price, the price of the call (put) with the near expiration is less than the price of the call (put) with the farther expiration. In other words, a call (put) with a lower (higher) exercise price is more expensive than a call (put) with a higher (lower) exercise price, because the ability to buy stock at a lower price is more valuable than the ability to buy stock at a higher price, and the ability to sell stock at a higher price is more valuable than the ability to sell stock at a lower price. A call (put) with a farther expiration is more expensive than the price of a call (put) with a nearer expiration, because locking in a price further in the future involves more risk for the buyer and seller and thus is more valuable, making an option (call or put) with a farther expiration more expensive than an option with a nearer expiration. Pursuant to the aforementioned principles, the Exchange will reject an eligible Complex Order that is a Limit Complex Order for a credit strategy with a net debit price, or a Limit Complex Order for a debit strategy with a net credit price. The system will identify the strategy as a debit or credit based on the potential profit or loss of the Complex Order. The system accomplishes this by first grouping the legs of the Complex Order by expiration date. The system then calculates the potential profit or loss of each group for a range of price levels of the underlying security. The specific price levels are equal to the strike price of each leg in the group. If, at all price levels, the profit or loss for the group is break- even or profit, then the group is a debit.\7\ If, at all price levels, the profit or loss for the group is break-even or loss, then the group is a credit.\8\ If all the groups of a Complex Order are a debit(credit), then the Complex Order is a debit(credit).\9\ --------------------------------------------------------------------------- \7\ See proposed IM-7240-1(a)(1)(i). The reason that the group is a debit is because an investor would expect to pay for a strategy that produced a profit. \8\ See proposed IM-7240-1(a)(1)(ii). The reason that the group is a credit is because an investor would expect to be compensated for a strategy that produced a loss. \9\ See proposed IM-7240-1(a)(2). --------------------------------------------------------------------------- For example, assume a Complex Order to buy 50 Jan $1 XYZ calls, sell 50 Jan $2 XYZ calls, sell 50 Jan $3 XYZ calls, and buy 50 Jan $4 XYZ calls is entered at a net credit price (i.e., the net sale proceeds from the Jan $2 and $3 calls are larger than the net purchase cost from the Jan $1 and $4 calls). Since all legs have the same expiration, they will be grouped together and the potential profit or loss will be calculated for the group. If, at all price levels, the profit or loss for the group is break-even or profit, then the Complex Order is a debit. If, at all price levels, the profit or loss for the group is break-even or loss, then the Complex Order is a credit. Upon evaluating the group, the system will determine that the Complex Order appears to be erroneously priced as a net credit; it should instead be a net debit because the profit or loss for the group is break-even or profit for each price level. Specifically, as shown in the table below, the net purchase cost of the Jan $1 and $4 XYZ calls is larger than or equal to the net sale proceeds from the Jan $2 and $3 calls at each strike price level. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Profit or Loss ---------------------------------------------------------------------------------------------------------------- Strike Price Level ($).......................... 1 2 3 4 Buy $1 Call..................................... 0 1 2 3 [[Page 21322]] Sell $2 Call.................................... 0 0 -1 -2 Sell $3 Call.................................... 0 0 0 -1 Buy $4 Call..................................... 0 0 0 0 --------------------------------------------------------------- Total Profit & Loss......................... 0 1 1 0 ---------------------------------------------------------------------------------------------------------------- If not all groups of a Complex Order are a debit or credit, the system, for American-style options only, will determine if the Complex Order is a debit or a credit by comparing legs across expiration dates.\10\ The system will first convert all legs to the same expiration and then compare the profit or loss, as provided in proposed IM-7240-1(a)(i), while taking into account the conversion of the expiration date of the leg(s). The system will evaluate the converted leg(s) based on the fact that an option with a farther expiration has a higher value when compared to an option with the same exercise price but a closer expiration. For example, if a sell leg is converted to a farther expiration and the strategy still yields a profit when the system evaluates the potential profit or loss of the strategy, the strategy is a debit because even by increasing the value of a sell leg the strategy still yields a profit. --------------------------------------------------------------------------- \10\ See proposed IM-7240-1(a)(3). --------------------------------------------------------------------------- For example, assume a Complex Order to buy 50 Feb $1 XYZ calls, sell 50 Jan $2 XYZ calls, sell 50 Jan $3 XYZ calls, and buy 50 Feb $4 XYZ calls, is entered at a net credit price (i.e., the net sale proceeds from the Jan $2 and $3 calls is larger than the net purchase cost from the Feb $1 and $4 calls). Since not all legs have the same expiration, they will be grouped by expiration date first. The Feb $1 and $4 calls would be one group and the Jan $2 and $3 calls would be the other group. This would yield one group as a debit (Feb $1 and $4 calls) and one as a credit (Jan $2 and $3 calls). Therefore, the system would not be able to determine if the Complex Order is a debit or credit based on the groups since not all of the groups are a debit or credit. Instead, the system will determine if the Complex Order is a debit or credit by comparing all the legs of the Complex Order together. The first step is to convert the Jan $2 and $3 calls to Feb $2 and $3 calls so all legs have the same expiration and therefore the potential profit or loss can be calculated pursuant to proposed IM- 7240-1(a)(1). Upon evaluating all legs collectively, the system will determine that the Complex Order appears to be erroneously priced as a net credit; it should instead be a net debit because the profit or loss for all the legs is break-even or profit for each price level. Specifically, as shown in the table below, the net purchase cost of the Feb $1 and $4 XYZ calls are larger than or equal to the net sale proceeds from the converted Feb $2 and$3 calls at each underlying price level. After calculating the profit or loss, the system will determine if the outcome would change based on the converted leg (i.e., the Jan $2 and $3 calls being converted to Feb $2 and $3 calls). The system will determine that the outcome is correct because the conversion of the Jan $2 and $3 calls to more expensive Feb $2 and $3 calls still yielded a break-even or profit for each price level even though the converted Feb $2 and $3 calls are more expensive than the actual Jan $2 and $3 calls. Therefore, since selling more expensive call options (i.e., Feb $2 and $3 calls) still yielded a break-even or profit at all price levels, it can easily be deduced that selling the actual, less expensive, Jan $2 and $3 calls would yield the same result. ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Profit or Loss ---------------------------------------------------------------------------------------------------------------- Strike Price Level ($).......................... 1 2 3 4 Buy $1 Call..................................... 0 1 2 3 Sell $2 Call.................................... 0 0 -1 -2 Sell $3 Call.................................... 0 0 0 -1 Buy $4 Call..................................... 0 0 0 0 --------------------------------------------------------------- Total Profit & Loss......................... 0 1 1 0 ---------------------------------------------------------------------------------------------------------------- If the system cannot identify whether the Complex Order is a credit or debit pursuant to proposed IM-7240-1(a)(2) or (3), the system will not apply the check in proposed IM-7240-1(a).\11\ --------------------------------------------------------------------------- \11\ See proposed IM-7240-1(a)(4). --------------------------------------------------------------------------- Maximum Price After a Complex Order passes the debit/credit check, the system will then calculate a maximum price for certain Complex Orders.\12\ Specifically, the system will calculate a maximum price for true butterfly spreads, vertical spreads, and box spreads. After calculating the maximum price, the system will reject a Complex Limit Order that is a true butterfly spread, vertical spread, or a box spread if the absolute value of the Complex Order's limit price is greater than the maximum price. For a Complex Market Order that is a true butterfly spread, vertical spread, or a box spread, the system will reject the Complex Market Order if the absolute value of the execution price is greater than the maximum price. As described in greater detail below, the maximum price value is calculated by adding a price buffer to the absolute value of a true butterfly spread, vertical spread, or box spread. --------------------------------------------------------------------------- \12\ See proposed IM-7240-1(b). --------------------------------------------------------------------------- The price buffer is calculated by taking a specified percentage of the absolute value of the strategy.\13\ The system will provide a minimum and maximum value for the price buffer. If the price buffer is below the minimum value, then the minimum is used by the system when calculating the maximum price value. If the price buffer is above the maximum value, then the maximum is used by the system when calculating the maximum price value. The specified percentage, minimum value, and maximum value shall be the same for all classes. Unless determined otherwise by the Exchange and announced to Participants via Circular, the specified percentage is 5%, the minimum value is $0.10, and the maximum value is $1.00. --------------------------------------------------------------------------- \13\ See proposed IM-7240-1(b)(1). --------------------------------------------------------------------------- An absolute value will be calculated for those strategies to which the Maximum Price protection applies. The absolute value for a vertical spread is the absolute difference between the exercise prices of the two legs.\14\ The absolute value for a true butterfly spread [[Page 21323]] is the absolute difference between the middle leg exercise price and the exercise price of the leg on either side.\15\ The absolute value for a box spread is the absolute difference between the exercise prices of each pair of legs.\16\ --------------------------------------------------------------------------- \14\ See proposed IM-7240-1(b)(2). \15\ See proposed IM-7240-1(b)(3). \16\ See proposed IM-7240-1(b)(4). --------------------------------------------------------------------------- Vertical Spread Example Assume a Complex Limit Order to buy 10 Dec $30 XYZ puts and sell 10 Dec $20 XYZ puts at $10.60. The absolute value for the vertical spread is $10 (the absolute value of 30-20). The specified percentage is set to 5%, the minimum value is set to $0.10, and the maximum value is set to $1.00. The price buffer for the vertical spread would be $0.50 ($10.00 * .05). Therefore the system will reject any Complex Limit Order because the price ($10.60) is greater than the Maximum Price of $10.50 for the strategy. True Butterfly Spread Example Assume a Complex Limit Order to buy 10 Dec $10 XYZ calls, sell 20 Dec $40 XYZ calls, and buy 10 Dec $70 XYZ calls at $30.50. The absolute value for the butterfly spread is $30 (the absolute value of 10-40 or 40-70). The specified percentage is set to 5%, the minimum value is set to $0.10, and the maximum value is set to $1.00. The price buffer for the butterfly spread would be $1.50 ($30.00 * .05); however, since that amount is above the maximum value, the system would use the maximum value ($1.00) as the price buffer instead. Therefore the system would accept the Complex Limit Order because the price ($30.50) is less than the Maximum Price of $31.00 for the strategy. Box Spread Example Assume a Complex Limit Order to buy 10 Dec $4 XYZ calls, sell 10 Dec $5 XYZ calls, buy 10 Dec $5 XYZ puts, and sell 10 Dec $4 puts at $1.09. The absolute value for the box spread is $1.00 (the absolute value of 5-4). The specified percentage is set to 5%, the minimum value is set to $0.10, and the maximum value is set to $1.00. The price buffer for the box spread would be $0.05 ($1.00 * .05); however, since that amount is below the minimum value, the system would use the minimum value ($0.10) as the price buffer instead. Therefore the system would accept the Complex Limit Order because the price ($1.09) is less than the Maximum Price of $1.10 for the strategy. The Exchange will provide notice of the exact implementation date of the proposed protections, via Circular, at least two weeks prior to implementing the proposed change. The Exchange anticipates implementing the proposed protections during Q2 of 2018. 2. Statutory Basis The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Securities Exchange Act of 1934 (the ``Act''),\17\ in general, and Section 6(b)(5) of the Act,\18\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, 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(b). \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- In particular, the proposed rule change to implement a debit/credit check for Complex Orders for which the Exchange can determine whether a Complex Order is a debit or credit is consistent with the Act. With the use of debit/credit checks, the Exchange can further assist with the maintenance of a fair and orderly market by mitigating the potential risks associated with Complex Orders trading at prices that are inconsistent with their strategies (which may result in executions at prices that are extreme and potentially erroneous), which ultimately protects investors. This proposed implementation of the debit/credit check promotes just and equitable principles of trade, as it is based on the same general option and volatility pricing principles which the Exchange understands are used by market participants in their option pricing models. Additionally, the Exchange also believes that calculating a maximum price for true butterfly spreads, vertical spreads, and box spreads will assist with the maintenance of fair and orderly markets by helping to mitigate the potential risks associated with Complex Orders trading at extreme and potentially erroneous prices that are inconsistent with particular Complex Order strategies. Further, the Exchange notes that the maximum price is designed to mitigate the potential risks of executions at prices that are not within an acceptable price range, as a means to help mitigate the potential risks associated with Complex Orders trading at prices that are inconsistent with their strategies, in addition to the debit/credit check. As such, the proposed rule change is designed to protect investors and the public interest. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed Complex Order protections will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In this regard and as indicated above, the Exchange notes that the rule change is being proposed as a competitive response to the rules of another exchange.\19\ Additionally, the Exchange believes the proposed rule change is beneficial to Participants as it will provide increased protections that will prevent the execution of certain Complex Orders that were entered in error. The Exchange believes the proposal is pro- competitive and should serve to attract additional Complex Orders to the Exchange. Further, the Exchange does not believe the proposed change will not impose a burden on intramarket competition because it is available to all Participants. --------------------------------------------------------------------------- \19\ See supra, note 3. --------------------------------------------------------------------------- For the reasons stated, the Exchange does not believe that the proposed rule changes will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act, and the Exchange believes the proposed change will, in fact, enhance competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ --------------------------------------------------------------------------- \20\ 15 U.S.C. 78s(b)(3)(A). \21\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b- 4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. --------------------------------------------------------------------------- [[Page 21324]] A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act \22\ normally does not become operative for 30 days after the date of its filing. However, Rule 19b-4(f)(6)(iii) \23\ permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed rule change may become operative upon filing. The Exchange states that waiver of the operative delay would be consistent with the protection of investors and the public interest because it will allow the Exchange to immediately provide Participants with additional protections for Complex Orders submitted and executed on the Exchange. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the operative delay and designates the proposal as operative upon filing.\24\ --------------------------------------------------------------------------- \22\ 17 CFR 240.19b-4(f)(6). \23\ 17 CFR 240.19b-4(f)(6)(iii). \24\ For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-BOX-2018-13 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-BOX-2018-13. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BOX-2018-13, and should be submitted on or before May 30, 2018. --------------------------------------------------------------------------- \25\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\25\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-09806 Filed 5-8-18; 8:45 am] BILLING CODE 8011-01-P
![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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A proposed rule change filed Commission, 100 F Street NE, ‘‘Act’’),1 and Rule 19b–4 thereunder,2
pursuant to Rule 19b–4(f)(6) under the Washington, DC 20549–1090. notice is hereby given that on May 2,
Act 22 normally does not become All submissions should refer to File 2018, Cboe Exchange, Inc. (the
operative for 30 days after the date of its Number SR–BOX–2018–13. This file ‘‘Exchange’’ or ‘‘Cboe Options’’) filed
filing. However, Rule 19b–4(f)(6)(iii) 23 number should be included on the with the Securities and Exchange
permits the Commission to designate a subject line if email is used. To help the Commission (the ‘‘Commission’’) the
shorter time if such action is consistent Commission process and review your proposed rule change as described in
with the protection of investors and the comments more efficiently, please use Items I and II below, which Items have
public interest. The Exchange has asked only one method. The Commission will been prepared by the Exchange. The
the Commission to waive the 30-day post all comments on the Commission’s Exchange filed the proposal as a ‘‘non-
operative delay so that the proposed internet website (http://www.sec.gov/ controversial’’ proposed rule change
rule change may become operative upon rules/sro.shtml). Copies of the pursuant to Section 19(b)(3)(A)(iii) of
filing. The Exchange states that waiver submission, all subsequent the Act 3 and Rule 19b–4(f)(6)
of the operative delay would be amendments, all written statements thereunder.4 The Commission is
consistent with the protection of with respect to the proposed rule publishing this notice to solicit
investors and the public interest change that are filed with the comments on the proposed rule change
because it will allow the Exchange to Commission, and all written from interested persons.
immediately provide Participants with communications relating to the I. Self-Regulatory Organization’s
additional protections for Complex proposed rule change between the Statement of the Terms of Substance of
Orders submitted and executed on the Commission and any person, other than the Proposed Rule Change
Exchange. The Commission believes those that may be withheld from the
that waiving the 30-day operative delay public in accordance with the The Exchange proposes to extend the
is consistent with the protection of provisions of 5 U.S.C. 552, will be operation of its SPXPM pilot program.
investors and the public interest. available for website viewing and The text of the proposed rule change is
Therefore, the Commission hereby printing in the Commission’s Public provided below.
waives the operative delay and Reference Room, 100 F Street NE, (additions are italicized; deletions are
designates the proposal as operative Washington, DC 20549 on official [bracketed])
upon filing.24 business days between the hours of * * * * *
At any time within 60 days of the 10:00 a.m. and 3:00 p.m. Copies of such
filing of the proposed rule change, the filing also will be available for Cboe Exchange, Inc. Rules
Commission summarily may inspection and copying at the principal * * * * *
temporarily suspend such rule change if office of the Exchange. All comments
it appears to the Commission that such Rule 24.9. Terms of Index Option
received will be posted without change.
action is necessary or appropriate in the Contracts
Persons submitting comments are
public interest, for the protection of cautioned that we do not redact or edit (No change).
investors, or otherwise in furtherance of personal identifying information from . . . Interpretations and Policies:
the purposes of the Act. If the comment submissions. You should .01–.13 (No change).
Commission takes such action, the submit only information that you wish .14 In addition to A.M.-settled
Commission shall institute proceedings to make available publicly. All Standard & Poor’s 500 Stock Index
to determine whether the proposed rule submissions should refer to File options approved for trading on the
should be approved or disapproved. Number SR–BOX–2018–13, and should Exchange pursuant to Rule 24.9, the
IV. Solicitation of Comments be submitted on or before May 30, 2018. Exchange may also list options on the
Interested persons are invited to For the Commission, by the Division of S&P 500 Index whose exercise
submit written data, views, and Trading and Markets, pursuant to delegated settlement value is derived from closing
arguments concerning the foregoing, authority.25 prices on the last trading day prior to
including whether the proposed rule Eduardo A. Aleman, expiration (P.M.-settled third Friday-of-
change is consistent with the Act. Assistant Secretary. the-month SPX options series). The
Comments may be submitted by any of [FR Doc. 2018–09806 Filed 5–8–18; 8:45 am] Exchange may also list options on the
the following methods: BILLING CODE 8011–01–P
Mini-SPX Index (‘‘XSP’’) whose exercise
settlement value is derived from closing
Electronic Comments prices on the last trading day prior to
• Use the Commission’s internet SECURITIES AND EXCHANGE expiration (‘‘P.M.-settled’’). P.M.-settled
comment form (http://www.sec.gov/ COMMISSION third Friday-of-the-month SPX options
rules/sro.shtml); or series and P.M.-settled XSP options will
• Send an email to rule-comments@ [Release No. 34–83166; File No. SR–CBOE– be listed for trading for a pilot period
sec.gov. Please include File Number SR– 2018–036] ending [May 3]November 5, 2018.
BOX–2018–13 on the subject line. * * * * *
Self-Regulatory Organizations; Cboe The text of the proposed rule change
Paper Comments
Exchange, Inc.; Notice of Filing and is also available on the Exchange’s
• Send paper comments in triplicate Immediate Effectiveness of a Proposed website (http://www.cboe.com/
to Secretary, Securities and Exchange Rule Change To Extend the Operation AboutCBOE/
amozie on DSK3GDR082PROD with NOTICES
of the SPXPM Pilot Program CBOELegalRegulatoryHome.aspx), at
22 17 CFR 240.19b–4(f)(6).
the Exchange’s Office of the Secretary,
23 17 CFR 240.19b–4(f)(6)(iii). May 3, 2018.
24 For purposes only of waiving the 30-day
Pursuant to Section 19(b)(1) of the 1 15 U.S.C. 78s(b)(1).
operative delay, the Commission has also Securities Exchange Act of 1934 (the 2 17 CFR 240.19b–4.
considered the proposed rule’s impact on
3 15 U.S.C. 78s(b)(3)(A)(iii).
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f). 25 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(6).
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Document Created: 2018-05-09 03:17:58
Document Modified: 2018-05-09 03:17:58
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 21320 |
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