83 FR 28474 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend The Nasdaq Options Market LLC (“NOM”) Rules at Supplementary Material to Chapter III, Section 7, Entitled “Position Limits,” and Section 9, Entitled “Exercise Limits”
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 118 (June 19, 2018)
Federal Register Volume 83, Issue 118 (June 19, 2018)
| Page Range | 28474-28477 | |
| FR Document | 2018-13080 |
[Federal Register Volume 83, Number 118 (Tuesday, June 19, 2018)] [Notices] [Pages 28474-28477] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-13080] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83421; File No. SR-NASDAQ-2018-044] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend The Nasdaq Options Market LLC (``NOM'') Rules at Supplementary Material to Chapter III, Section 7, Entitled ``Position Limits,'' and Section 9, Entitled ``Exercise Limits'' June 13, 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 11, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. 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 28475]] I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend The Nasdaq Options Market LLC (``NOM'') Rules at Supplementary Material to Chapter III, Section 7, entitled ``Position Limits,'' and Section 9, entitled ``Exercise Limits,'' to amend position limits for options on the SPDR[supreg] S&P 500[supreg] exchange-traded fund (``SPY ETF'' or ``SPY''), which list and trade under the symbol ``SPY.'' The text of the proposed rule change is available on the Exchange's website at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange 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 Exchange 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 NOM Rules at Supplementary Material to Chapter III, Section 7, entitled ``Position Limits'' and Section 9, entitled ``Exercise Limits'' indicate the manner in which positions for aggregate positions in option contracts are treated on the Exchange. SPY is among the certain select underlying securities listed in each such Rule. Indicates [sic] the manner in which positions for aggregate positions in option contracts are treated on the Exchange.\3\ SPY is among the certain select underlying securities listed in each such Rule. Currently, these Rules provide 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\ --------------------------------------------------------------------------- \3\ See Chapter III, Section 9 for applicable exercise limits. \4\ See Securities Exchange Act Release No. 69180 (March 19, 2013), 78 FR 17962 (March 25, 2013) (SR-NASDAQ-2013-046); 72142 (May 9, 2014), 79 FR 27961 (May 15, 2014) (SR-NASDAQ-2014-052); 75413 (July 9, 2015), 80 FR 41519 (July 15, 2015) (SR-NASDAQ-2015-072); 78123 (June 22, 2016), 81 FR 42030 (June 28, 2016) (SR-NASDAQ-2016- 084); and 81090 (July 7, 2017), 82 FR 32394 (July 13, 2017) (SR- NASDAQ-2017-063). --------------------------------------------------------------------------- The Exchange proposes to amend Chapter III, Section 7 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. --------------------------------------------------------------------------- \5\ Id. --------------------------------------------------------------------------- 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 2013 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 2013, the position limits for SPY options were eliminated as part of the SPY Pilot Program.\9\ --------------------------------------------------------------------------- \6\ See Securities Exchange Act Release No. 69180 (March 19, 2013), 78 FR 17962 (March 25, 2013) (SR-NASDAQ-2013-046). \7\ See Securities Exchange Act Release No. 51041 (January 14, 2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06). NOM's position limit in SPY in 2005 was based on The Chicago Board Options Exchange, Inc.'s current rule. \8\ See Securities Exchange Act Release No. 64928 (July 20, 2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065). NOM's position limit in SPY in 2005 was based on The Chicago Board Options Exchange, Inc.'s current rule. \9\ See note 5 above. --------------------------------------------------------------------------- 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 this proposed rule change, the Exchange 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. The Exchange represents further that there is tremendous liquidity in the securities that make up the S&P 500 Index. Accordingly, the Exchange proposes to amend Chapter III, Section 7 [sic] 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 QQQ, 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 same side of the market.\10\ The Exchange also notes that SPY is more iquid [sic] than QQQ.\11\ 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. --------------------------------------------------------------------------- \10\ See Securities Exchange Act Release No. 82770 (February 23, 2018), 83 FR 8907 (March 1, 2018) (SR-CBOE-2017-057). NOM's current rule is based on Cboe Exchange, Inc.'s rule. \11\ From the beginning of the year, through May 15, 2018, the ADV for SPY was 108.32 million shares while the ADV for QQQ was 46.64 million shares (calculated using data from Yahoo Finance as of May 15, 2018). --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\12\ in general, and furthers the [[Page 28476]] objectives of Section 6(b)(5) of the Act,\13\ in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. 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. --------------------------------------------------------------------------- \12\ 15 U.S.C. 78f(b). \13\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- 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),\14\ 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, QQQ, and EWJ.\15\ Furthermore, as previously mentioned, the Commission specifically approved a proposal by the Exchange to increase the position and exercise limits for options on QQQ 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.\16\ The Exchange also notes that SPY is more liquid than QQQ.\17\ --------------------------------------------------------------------------- \14\ See note 9. \15\ See note 11 above. \16\ Id. \17\ See note 12 above. --------------------------------------------------------------------------- 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.\18\ 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).\19\ --------------------------------------------------------------------------- \18\ See note 11 above. \19\ See note 9 above. --------------------------------------------------------------------------- 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 \20\ 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. The Exchange 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. Furthermore, the Exchange believes that the other options exchanges will file similar proposals with the Commission. --------------------------------------------------------------------------- \20\ 15 U.S.C. 78(f)(b)(8). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 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 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)(iii) of the Act \21\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\22\ --------------------------------------------------------------------------- \21\ 15 U.S.C. 78s(b)(3)(A)(iii). \22\ 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. --------------------------------------------------------------------------- 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) 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 CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NASDAQ-2018-044 on the subject line. 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-NASDAQ -2018-044. 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 [[Page 28477]] 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-NASDAQ-2018-044 and should be submitted on or before July 10, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-13080 Filed 6-18-18; 8:45 am] BILLING CODE 8011-01-P
![28474 Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
Members to increase their participation (C) Self-Regulatory Organization’s Commission and any person, other than
in BYX Equities. Therefore, eliminating Statement on Comments on the those that may be withheld from the
the tier will have a negligible effect on Proposed Rule Change Received From public in accordance with the
order flow and market behavior. The Members, Participants or Others provisions of 5 U.S.C. 552, will be
Exchange believes the proposed change The Exchange has not solicited, and available for website viewing and
is not unfairly discriminatory because it does not intend to solicit, comments on printing in the Commission’s Public
will apply equally to all Members. this proposed rule change. The Reference Room, 100 F Street NE,
Exchange has not received any Washington, DC 20549, on official
The Exchange next notes that volume- business days between the hours of
based discounts such as those currently unsolicited written comments from
Members or other interested parties. 10:00 a.m. and 3:00 p.m. Copies of the
maintained on the Exchange have been filing also will be available for
widely adopted by exchanges and are III. Date of Effectiveness of the inspection and copying at the principal
equitable and non-discriminatory Proposed Rule Change and Timing for office of the Exchange. All comments
because they are open to all Members on Commission Action received will be posted without change.
an equal basis and provide additional The foregoing rule change has become Persons submitting comments are
benefits or discounts that are reasonably effective pursuant to Section 19(b)(3)(A) cautioned that we do not redact or edit
related to the value of an exchange’s of the Act 14 and paragraph (f) of Rule personal identifying information from
market quality associated with higher 19b–4 thereunder.15 At any time within comment submissions. You should
levels of market activity, such as higher 60 days of the filing of the proposed rule submit only information that you wish
levels of liquidity provision and/or change, the Commission summarily may to make available publicly. All
growth patterns, and introduction of temporarily suspend such rule change if submissions should refer to File
higher volumes of orders into the price it appears to the Commission that such Number SR–CboeBYX–2018–007 and
and volume discovery processes. While action is necessary or appropriate in the should be submitted on or before July
the proposed modification to Add/ public interest, for the protection of 10, 2018.
Remove Volume Tiers 2, 3, 8 and 9 investors, or otherwise in furtherance of For the Commission, by the Division of
makes such tiers slightly more difficult the purposes of the Act. Trading and Markets, pursuant to delegated
to attain, it is intended to incentivize IV. Solicitation of Comments authority.16
Members to send additional volume to Eduardo A. Aleman,
Interested persons are invited to
the Exchange in an effort to qualify or submit written data, views, and Assistant Secretary.
continue to qualify for the reduced fees arguments concerning the foregoing, [FR Doc. 2018–13085 Filed 6–18–18; 8:45 am]
and enhanced rebates, as applicable, including whether the proposed rule BILLING CODE 8011–01–P
made available by the tiers. As such, the change is consistent with the Act.
Exchange also believes that the Comments may be submitted by any of
proposed changes are reasonable. The the following methods: SECURITIES AND EXCHANGE
Exchange notes that increased volume COMMISSION
Electronic Comments
on the Exchange provides greater
trading opportunities for all market • Use the Commission’s internet [Release No. 34–83421; File No. SR–
participants. comment form (http://www.sec.gov/ NASDAQ–2018–044]
rules/sro.shtml); or
(B) Self-Regulatory Organization’s • Send an email to rule-comments@ Self-Regulatory Organizations; The
Statement on Burden on Competition sec.gov. Please include File Number SR– Nasdaq Stock Market LLC; Notice of
CboeBYX–2018–007 on the subject line. Filing and Immediate Effectiveness of
The Exchange does not believe that Proposed Rule Change To Amend The
the proposed rule change will impose Paper Comments Nasdaq Options Market LLC (‘‘NOM’’)
any burden on competition not • Send paper comments in triplicate Rules at Supplementary Material to
necessary or appropriate in furtherance to Secretary, Securities and Exchange Chapter III, Section 7, Entitled
of the purposes of the Act. The Commission, 100 F Street NE, ‘‘Position Limits,’’ and Section 9,
Exchange does not believe that any of Washington, DC 20549–1090. Entitled ‘‘Exercise Limits’’
the proposed change to the Exchange’s All submissions should refer to File
June 13, 2018.
tiered pricing structure burden Number SR–CboeBYX–2018–007. This
competition, but instead, that they file number should be included on the Pursuant to Section 19(b)(1) of the
enhance competition as they are subject line if email is used. To help the Securities Exchange Act of 1934
intended to increase the Commission process and review your (‘‘Act’’),1 and Rule 19b–4 thereunder,2
competitiveness of BYX by modifying comments more efficiently, please use notice is hereby given that on June 11,
pricing incentives in order to attract only one method. The Commission will 2018, The Nasdaq Stock Market LLC
order flow and incentivize participants post all comments on the Commission’s (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
to increase their participation on the internet website (http://www.sec.gov/ Securities and Exchange Commission
Exchange. The Exchange notes that it rules/sro.shtml). Copies of the (‘‘Commission’’) the proposed rule
operates in a highly competitive market submission, all subsequent change as described in Items I, II, and
amendments, all written statements III below, which Items have been
in which market participants can
with respect to the proposed rule prepared by the Exchange. The
daltland on DSKBBV9HB2PROD with NOTICES
readily direct order flow to competing
change that are filed with the Commission is publishing this notice to
venues if they deem fee structures to be
Commission, and all written solicit comments on the proposed rule
unreasonable or excessive. The change from interested persons.
communications relating to the
Exchange does not believe the proposed proposed rule change between the
amendments would burden intramarket 16 17 CFR 200.30–3(a)(12).
competition as they would be available 14 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1).
to all Members uniformly. 15 17 CFR 240.19b–4(f). 2 17 CFR 240.19b–4.
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I. Self-Regulatory Organization’s The Exchange proposes to amend limits for SPY options were eliminated
Statement of the Terms of Substance of Chapter III, Section 7 to allow the SPY as part of the SPY Pilot Program.9
the Proposed Rule Change Pilot Program to terminate on July 12, The underlying SPY tracks the
The Exchange proposes to amend The 2018, the current expiration date of the performance of the S&P 500 Index and
Nasdaq Options Market LLC (‘‘NOM’’) SPY Pilot Program. In lieu of extending the Exchange notes that the SPY and
Rules at Supplementary Material to the SPY Pilot Program for another year, SPY options have deep, liquid markets
Chapter III, Section 7, entitled ‘‘Position the Exchange proposes to allow the SPY that reduce concerns regarding
Limits,’’ and Section 9, entitled Pilot Program to terminate and to manipulation and disruption in the
‘‘Exercise Limits,’’ to amend position establish position and exercise limits of
underlying markets. In support of this
limits for options on the SPDR® S&P 1,800,000 contracts, for options on SPY,
proposed rule change, the Exchange has
500® exchange-traded fund (‘‘SPY ETF’’ with such change becoming operative
collected the following trading statistics
or ‘‘SPY’’), which list and trade under on July 12, 2018, so that there is no
for SPY and SPY Options: (1) The
the symbol ‘‘SPY.’’ lapse in time between termination of the
SPY Pilot Program and the average daily volume (‘‘ADV’’) to date
The text of the proposed rule change (as of May 15, 2018) for SPY is 108.32
is available on the Exchange’s website at establishment of the new limits.
Furthermore, as a result of the million shares; (2) the ADV to date in
http://nasdaq.cchwallstreet.com, at the 2018 for SPY options is 3.9 million
principal office of the Exchange, and at termination of the SPY Pilot Program,
the Exchange does not believe it is contracts per day; (3) the total shares
the Commission’s Public Reference outstanding for SPY are 965.43 million;
Room. necessary to submit a SPY Pilot Program
Report at the end of the SPY Pilot and (4) the fund market cap for SPY is
II. Self-Regulatory Organization’s Program. Based on the prior SPY Pilot 261.65 billion. The Exchange represents
Statement of the Purpose of, and Program Reports provided to the further that there is tremendous
Statutory Basis for, the Proposed Rule Commission,5 the Exchange believes it liquidity in the securities that make up
Change is appropriate to terminate the SPY Pilot the S&P 500 Index.
In its filing with the Commission, the Program and that permanent position Accordingly, the Exchange proposes
Exchange included statements and exercise limits should be to amend Chapter III, Section 7 [sic] to
concerning the purpose of and basis for established for SPY. set forth that the position and exercise
the proposed rule change and discussed Position limits are designed to limits for options on SPY would be
any comments it received on the address potential manipulative schemes 1,800,000 contracts on the same side of
proposed rule change. The text of these and adverse market impact surrounding the market. These position and exercise
statements may be examined at the the use of options, such as disrupting limits equal the current position and
places specified in Item IV below. The the market in the security underlying exercise limits for options on QQQ,
Exchange has prepared summaries, set the options. The potential manipulative which the Commission previously
forth in sections A, B, and C below, of schemes and adverse market impact are approved to be increased from 900,000
the most significant aspects of such balanced against the potential of setting contracts on the same side of the
statements. the limits so low as to discourage market, to 1,800,000 contracts on the
participation in the options market. The same side of the market.10 The Exchange
A. Self-Regulatory Organization’s level of those position limits must be
Statement of the Purpose of, and also notes that SPY is more iquid [sic]
balanced between curtailing potential than QQQ.11 The Exchange believes that
Statutory Basis for, the Proposed Rule manipulation and the cost of preventing
Change establishing position and exercise limits
potential hedging activity that could be
for the SPY options in the amount of
1. Purpose used for legitimate economic purposes.
The SPY Pilot Program was 1,800,000 contracts on the same side of
NOM Rules at Supplementary established in 2013 in order to eliminate the market subject to this proposal
Material to Chapter III, Section 7, position and exercise limits for would allow for the maintenance of the
entitled ‘‘Position Limits’’ and Section physically-settled SPY options.6 In liquid and competitive market
9, entitled ‘‘Exercise Limits’’ indicate 2005, the position limits for SPY environment for these options, which
the manner in which positions for options were increased from 75,000 will benefit customers interested in
aggregate positions in option contracts contracts to 300,000 contracts on the these products. Under the proposal, the
are treated on the Exchange. SPY is same side of the market.7 In July 2011, reporting requirement for the options
among the certain select underlying the position limit for these options was would be unchanged.
securities listed in each such Rule. again increased from 300,000 contracts
Indicates [sic] the manner in which 2. Statutory Basis
to 900,000 contracts on the same side of
positions for aggregate positions in the market.8 Then, in 2013, the position The Exchange believes that its
option contracts are treated on the proposal is consistent with Section 6(b)
Exchange.3 SPY is among the certain FR 27961 (May 15, 2014) (SR–NASDAQ–2014–052); of the Act,12 in general, and furthers the
select underlying securities listed in 75413 (July 9, 2015), 80 FR 41519 (July 15, 2015)
each such Rule. Currently, these Rules (SR–NASDAQ–2015–072); 78123 (June 22, 2016), CBOE–2011–065). NOM’s position limit in SPY in
81 FR 42030 (June 28, 2016) (SR–NASDAQ–2016–
provide that there are no position limits 084); and 81090 (July 7, 2017), 82 FR 32394 (July
2005 was based on The Chicago Board Options
and there are no exercise limits on Exchange, Inc.’s current rule.
13, 2017) (SR–NASDAQ–2017–063). 9 See note 5 above.
options overlying SPY pursuant to a 5 Id.
10 See Securities Exchange Act Release No. 82770
pilot program, which is scheduled to 6 See Securities Exchange Act Release No. 69180
(February 23, 2018), 83 FR 8907 (March 1, 2018)
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expire on July 12, 2018 (‘‘SPY Pilot (March 19, 2013), 78 FR 17962 (March 25, 2013)
(SR–NASDAQ–2013–046). (SR–CBOE–2017–057). NOM’s current rule is based
Program’’).4 7 See Securities Exchange Act Release No. 51041 on Cboe Exchange, Inc.’s rule.
11 From the beginning of the year, through May
(January 14, 2005), 70 FR 3408 (January 24, 2005)
3 See Chapter III, Section 9 for applicable exercise (SR–CBOE–2005–06). NOM’s position limit in SPY 15, 2018, the ADV for SPY was 108.32 million
limits. in 2005 was based on The Chicago Board Options shares while the ADV for QQQ was 46.64 million
4 See Securities Exchange Act Release No. 69180 Exchange, Inc.’s current rule. shares (calculated using data from Yahoo Finance
(March 19, 2013), 78 FR 17962 (March 25, 2013) 8 See Securities Exchange Act Release No. 64928 as of May 15, 2018).
(SR–NASDAQ–2013–046); 72142 (May 9, 2014), 79 (July 20, 2011), 76 FR 44633 (July 26, 2011) (SR– 12 15 U.S.C. 78f(b).
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inspection and copying at the principal letters on the proposed rule change. Brokers (‘‘IBs’’) 19 to directly route a
office of the Exchange. All comments This order institutes proceedings under QCT Cross to a non-affiliated third-party
received will be posted without change. Section 19(b)(2)(B) of the Exchange Act 6 broker-dealer designated by the IB
Persons submitting comments are to determine whether to approve or (‘‘designated executing broker’’) for
cautioned that we do not redact or edit disapprove the proposed rule change. execution. Route QCT Cross orders will
personal identifying information from be handled like current Routable
II. Description of the Proposed Rule
comment submissions. You should Orders,20 except that the Route QCT
Change
submit only information that you wish Cross order will never be submitted to
to make available publicly. All Currently, under the Exchange’s rules, the Matching System for execution.
submissions should refer to File Routable Orders 7 submitted to the CHX Specifically, upon receipt of a Route
Number SR–NASDAQ–2018–044 and matching system (‘‘Matching System’’) 8 QCT Cross order, the Exchange will
should be submitted on or before July for execution are routed away from the cause the order to be routed IOC 21 from
10, 2018. Matching System automatically if a the Exchange, through CHXBD, LLC
For the Commission, by the Division of
Routing Event 9 is triggered. The (‘‘CHXBD’’), the Exchange’s affiliated
Trading and Markets, pursuant to delegated Exchange’s current rules provide that all routing broker, to the designated
authority.23 Routable Orders 10 are limit orders. executing broker identified by the IB.22
Eduardo A. Aleman, Market 11 and cross orders 12 are never The Exchange states that the
Assistant Secretary.
routable. The Exchange does not relationship between a designated
currently permit orders to be directly executing broker and CHXBD will be
[FR Doc. 2018–13080 Filed 6–18–18; 8:45 am]
routed to an away Trading Center 13 governed by applicable CHX Rules 23
BILLING CODE 8011–01–P
without first being submitted to the and customary interbroker agreements,
Matching System. such as fully-disclosed clearing and
SECURITIES AND EXCHANGE Because Qualifed Contingent Trade customer agreements. The Exchange
COMMISSION (‘‘QCT’’) Crosses 14 are exempt from the represents that at all times, the use of
trade-through prohibition of Rule 611 of Route QCT Cross will be optional.24 The
[Release No. 34–83425; File No. SR–CHX– Regulation NMS,15 the Matching System
2018–001]
Exchange also states that Route QCT
permits QCT Crosses to trade-through Cross is similar to the routing options
protected quotes of away markets. available on the Nasdaq Stock Market 25
Self-Regulatory Organizations; Under the Exchange’s current rules,
Chicago Stock Exchange, Inc.; Order and Cboe BYX and Cboe BZX
QCT Crosses are handled IOC 16 and can exchanges.26
Instituting Proceedings To Determine never rest on the CHX book. Moreover,
Whether To Approve or Disapprove a a QCT Cross submitted to the Matching Specifically, the Exchange has
Proposed Rule Change To Adopt the System will be cancelled back to the proposed to adopt proposed Article 19,
Route QCT Cross Routing Option order sender as ‘‘blocked’’ if a precedent Rule 4 (Routing Options) to provide that
June 13, 2018. limit order priced at or better than the routing options may be combined with
QCT Cross is resting on the CHX book,17 all available order types, modifiers and
I. Introduction except that a QCT Cross priced at the related terms, except for order types,
On March 6, 2018, the Chicago Stock top of the CHX book (i.e., the best- modifiers, and related terms that are
Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’) ranked order on the CHX book pursuant inconsistent with the terms of a routing
filed with the Securities and Exchange to Article 20, Rule 8(b)) that qualifies for option, and that the Exchange may
Commission (‘‘Commission’’), pursuant Cross With Size 18 handling will be activate or deactivate any routing option
to Section 19(b)(1) of the Securities permitted to execute. at its discretion and, if practicable, after
Exchange Act of 1934 (‘‘Exchange The Exchange has proposed to adopt notice to Participants.27 Article 19, Rule
Act’’) 1 and Rule 19b–4 thereunder,2 a the Route QCT Cross routing option, 4(a)(1) provides that Route QCT Cross is
proposed rule change to adopt the Route which will permit only Institutional
19 The Exchange states that it has proposed to
QCT Cross routing option. The proposed
limit use of Route QCT Cross to IBs to be consistent
rule change was published for comment 6 15 U.S.C. 78s(b)(2)(B).
with the fact that only IBs are currently permitted
in the Federal Register on March 20, 7 See CHX Article 1, Rule 1(oo).
to submit QCT Crosses to the Matching System. See
8 The Matching System is part of the Exchange’s
2018.3 On May 1, 2018, pursuant to CHX Article 1, Rule 2(b)(2)(E).
‘‘Trading Facilities,’’ as defined under CHX Article
Section 19(b)(2) of the Exchange Act,4 1, Rule 1(z).
20 See CHX Article 1, Rule 1(oo).
21 See CHX Article 1, Rule 2(a)(2).
the Commission designated a longer 9 See CHX Article 19, Rule 3(a)(1)–(5).
22 The Exchange states that IBs will be permitted
period within which to approve the 10 See CHX Article 1, Rule 1(oo) defining
to identify only one designated executing broker to
proposed rule change, disapprove the ‘‘Routable Order.’’ which all Route QCT Cross orders submitted by the
proposed rule change, or institute 11 See CHX Article 1, Rule 2(a)(3) defining
IB will be routed, subject to additional
proceedings to determine whether to ‘‘market order.’’ requirements, as described below.
12 See CHX Article 1, Rule 2(a)(2) defining ‘‘cross 23 See e.g., CHX Article 19, Rule 2(a).
disapprove the proposed rule change.5 order.’’ 24 See Notice, supra note 3 at 12215.
The Commission received no comment 13 See CHX Article 1, Rule 1(nn) defining
25 See id. The Exchange states that like Route
‘‘Trading Center.’’ QCT Cross, the ‘‘Directed Order’’ routing option
23 17 CFR 200.30–3(a)(12). 14 QCT Crosses are cross orders that are
offered by the Nasdaq Stock Market (‘‘Nasdaq’’)
1 15 U.S.C. 78s(b)(1). component orders to Qualified Contingent Trades permits an order sender to route an order to another
2 17 CFR 240.19b–4. that are submitted by an Institutional Broker. See market center while bypassing the Nasdaq’s order
CHX Article 1, Rule 2(b)(2)(E) defining ‘‘Qualified
daltland on DSKBBV9HB2PROD with NOTICES
3 See Securities Exchange Act Release No. 82870 book, which may result in the routed order
(March 14, 2018), 83 FR 12214 (‘‘Notice’’). Contingent Trade.’’ See also CHX Article 1, Rule executing at a price through Nasdaq’s top of book.
4 15 U.S.C. 78s(b)(2). 2(a)(2) defining ‘‘cross order.’’ See id.
15 See Securities Exchange Act Release No. 57620 26 The Exchange states that like Route QCT Cross,
5 See Securities Exchange Act Release No. 83143,
83 FR 20123 (May 7, 2018). The Commission (April 4, 2008), 73 FR 19271 (April 4, 2008). the ‘‘DRT’’ routing option offered by the Cboe BYX
16 See CHX Article 1, Rule 2(a)(2)
designated June 18, 2018, as the date by which the and Cboe BZX exchanges permits an order to be
17 See CHX Article 1, Rule 2(a)(2). See also CHX routed to one or more away alternative trading
Commission shall approve or disapprove, or
institute proceedings to determine whether to Article 20, Rule 8(e)(1). systems. See id.
disapprove, the proposed rule change. 18 See CHX Article 1, Rule 2(g)(1). 27 See CHX Article 1, Rule 1(s).
VerDate Sep<11>2014 17:55 Jun 18, 2018 Jkt 244001 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 E:\FR\FM\19JNN1.SGM 19JNN1](https://thefederalregister.org/doc/83_FR_28592/page/4.svg)
Document Created: 2018-07-02 11:21:41
Document Modified: 2018-07-02 11:21:41
| 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 28474 |
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