83 FR 28296 - Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend IM-3120-2 of BOX Rule 3120 (Position Limits) To Amend the Position and Exercise Limits for Options on the Standard and Poor's Depositary Receipts Trust (“SPY”)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 117 (June 18, 2018)

[Federal Register Volume 83, Number 117 (Monday, June 18, 2018)]
[Notices]
[Pages 28296-28298]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-12930]



[[Page 28296]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83414; File No. SR-BOX-2018-22]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend IM-3120-2 of BOX Rule 3120 (Position Limits) To Amend the 
Position and Exercise Limits for Options on the Standard and Poor's 
Depositary Receipts Trust (``SPY'')

June 12, 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 June 6, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend IM-3120-2 of BOX Rule 3120 (Position 
Limits) to amend the position and exercise limits for options on the 
Standard and Poor's Depositary Receipts Trust (``SPY''). 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
    BOX Rule 3120 (Position Limits) establishes position limits for 
aggregate positions in option contracts traded on the Exchange. IM-
3120-2 to BOX Rule 3120 lists specific position limits for certain 
select underlying securities.\3\ SPY is among the certain select 
underlying securities listed in such Rule. Currently, this Rule 
provides that there are no position limits and there are no exercise 
limits on options overlying SPY pursuant to a pilot program, which is 
scheduled to expire on July 12, 2018 (``SPY Pilot Program'').\4\
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    \3\ The Exchange notes that IM-3140-1 to BOX Rule 3140 (Exercise 
Limits) states that exercise limits established under Rule 3140 
shall be equivalent to the position limits prescribed for such 
options in IM-3120-2.
    \4\ See Securities Exchange Act Release Nos. 67936 (September 
27, 2012), 77 FR 60491 (October 3, 2012) (SR-BOX-2012-013) (adoption 
of the SPY Pilot Program), 81092 (July 7, 2017), 82 FR 32402 (July 
13, 2017) (SR-BOX-2017-22) (extending the SPY Pilot Program to July 
12, 2018).
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    The Exchange proposes to amend IM-3120-2 to allow the SPY Pilot 
Program to terminate on July 12, 2018, the current expiration date of 
the SPY Pilot Program. In lieu of extending the SPY Pilot Program for 
another year, the Exchange proposes to allow the SPY Pilot Program to 
terminate and to establish position and exercise limits of 1,800,000 
contracts, for options on SPY, with such change becoming operative on 
July 12, 2018, so that there is no lapse in time between termination of 
the SPY Pilot Program and the establishment of the new limits. 
Furthermore, as a result of the termination of the SPY Pilot Program, 
the Exchange does not believe it is necessary to submit a SPY Pilot 
Program Report at the end of the SPY Pilot Program. Based on the prior 
SPY Pilot Program Reports provided to the Commission,\5\ the Exchange 
believes it is appropriate to terminate the SPY Pilot Program and that 
permanent position and exercise limits should be established for SPY.
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    \5\ Id.
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    Position limits are designed to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. The 
potential manipulative schemes and adverse market impact are balanced 
against the potential of setting the limits so low as to discourage 
participation in the options market. The level of those position limits 
must be balanced between curtailing potential manipulation and the cost 
of preventing potential hedging activity that could be used for 
legitimate economic purposes.
    The SPY Pilot Program was established in 2012 in order to eliminate 
position and exercise limits for physically-settled SPY options.\6\ In 
2005, the position limits for SPY options were increased from 75,000 
contracts to 300,000 contracts on the same side of the market.\7\ In 
July 2011, the position limit for these options was again increased 
from 300,000 contracts to 900,000 contracts on the same side of the 
market.\8\ Then, in 2012, the position limits for SPY options were 
eliminated as part of the SPY Pilot Program.\9\
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    \6\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); 67937 
(September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-2012-
091).
    \7\ See Securities Exchange Act Release No. 51041 (January 14, 
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06).
    \8\ See Securities Exchange Act Release No. 64928 (July 20, 
2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065).
    \9\ See supra note 6.
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    The underlying SPY tracks the performance of the S&P 500 Index and 
the Exchange notes that the SPY and SPY options have deep, liquid 
markets that reduce concerns regarding manipulation and disruption in 
the underlying markets. In support of its proposed rule change, Miami 
International Securities Exchange LLC (``MIAX'') has collected the 
following trading statistics for SPY and SPY Options: (1) The average 
daily volume (``ADV'') to date (as of May 15, 2018) for SPY is 108.32 
million shares; (2) the ADV to date in 2018 for SPY options is 3.9 
million contracts per day; (3) the total shares outstanding for SPY are 
965.43 million; and (4) the fund market cap for SPY is 261.65 
billion.\10\ The Exchange, based on MIAX's compiled trading statistics, 
represents further that there is tremendous liquidity in the securities 
that make up the S&P 500 Index.
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    \10\ See Securities Exchange Act Release No. 83349 (May 30, 
2018), 83 FR 26123 (June 5, 2018) (SR-MIAX-2018-11).
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    Accordingly, the Exchange proposes to amend IM-3120-2 to Rule 3120 
to set forth that the position and exercise limits for options on SPY 
would be 1,800,000 contracts on the same side of the market. These 
position and exercise limits equal the current position and exercise 
limits for options on QQQQ, which the Commission previously approved to 
be increased from 900,000 contracts on the same side of the market, to 
1,800,000 contracts on the

[[Page 28297]]

same side of the market.\11\ The Exchange also notes that SPY is more 
liquid than QQQQ.\12\ The Exchange believes that establishing position 
and exercise limits for the SPY options in the amount of 1,800,000 
contracts on the same side of the market subject to this proposal would 
allow for the maintenance of the liquid and competitive market 
environment for these options, which will benefit customers interested 
in these products. Under the proposal, the reporting requirement for 
the options would be unchanged.
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    \11\ See Securities Exchange Act Release No. 82930 (March 22, 
2018), 83 FR 13330 (March 28, 2018) (SR-BOX-2018-10); see also 
Securities Exchange Act Release No. 82770 (February 23, 2018), 83 FR 
8907 (March 1, 2018) (SR-CBOE-2017-057).
    \12\ From the beginning of the year, through May 15, 2018, the 
ADV for SPY was 108.32 million shares while the ADV for QQQQ was 
46.64 million shares (calculated using data from Yahoo Finance as of 
May 15, 2018).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act.\13\ Specifically, the proposal 
is consistent with Section 6(b)(5) of the Act \14\ because 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. The Exchange believes that 
establishing permanent position and exercise limits for SPY options 
subject to this proposal will encourage Market Makers to continue to 
provide sufficient liquidity in SPY options on the Exchange, which will 
enhance the process of price discovery conducted on the Exchange. The 
proposal will also benefit institutional investors as well as retail 
traders, and public customers, by continuing to provide them with an 
effective trading and hedging vehicle. In addition, the Exchange 
believes that the structure of the SPY options subject to this proposal 
and the considerable liquidity of the market for those options 
diminishes the opportunity to manipulate this product and disrupt the 
underlying market that a lower position limit may protect against.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    Increased position limits for select actively traded options, such 
as that proposed herein (increased as compared to the 900,000 limit in 
place prior to the SPY Pilot Program),\15\ is not novel and has been 
previously approved by the Commission. For example, the Commission has 
previously approved a rule change permitting the Exchange to double the 
position and exercise limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQQ, 
and EWJ.\16\ Furthermore, as previously mentioned, the Commission 
specifically approved a proposal by the Exchange to increase the 
position and exercise limits for options on QQQQ from 900,000 contracts 
on the same side of the market to 1,800,000 contracts on the same side 
of the market; similar to the current proposal for options on SPY.\17\ 
The Exchange also notes that SPY is more liquid than QQQQ.\18\
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    \15\ See supra note 8.
    \16\ See supra note 10.
    \17\ Id.
    \18\ See supra note 11.
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    Lastly, the Commission expressed the belief that implementing 
higher position and exercise limits may bring additional depth and 
liquidity without increasing concerns regarding intermarket 
manipulation or disruption of the options or the underlying 
securities.\19\ The Exchange's existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from increasing position and exercise limits 
(increased as compared to the 900,000 limit in place prior to the SPY 
Pilot Program).\20\
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    \19\ See supra note 10.
    \20\ See supra note 8.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
entire proposal is consistent with Section (6)(b)(8) of the Act \21\ in 
that it does not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. On the 
contrary, the Exchange believes the proposal promotes competition 
because it will enable the option exchanges to attract additional order 
flow from the over-the-counter market, who in turn compete for those 
orders. The Exchange believes that the proposed rule change will result 
in continued opportunities to achieve the investment and trading 
objectives of market participants seeking efficient trading and hedging 
vehicles, to the benefit of investors, market participants, and the 
marketplace in general. BOX believes this proposed rule change is 
necessary to permit fair competition among the options exchanges and to 
establish uniform position limits for additional multiply listed option 
classes.
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    \21\ 15 U.S.C. 78f(b)(8).
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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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-4(f)(6) 
\23\ thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
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    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 [email protected]. Please include 
File Number SR-BOX-2018-22 on the subject line.

[[Page 28298]]

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BOX-2018-22. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BOX-2018-22 and should be submitted on 
or before July 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12930 Filed 6-15-18; 8:45 am]
BILLING CODE 8011-01-P