83 FR 53699 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Section (a)(i)(D) of Rule 1012

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 206 (October 24, 2018)

[Federal Register Volume 83, Number 206 (Wednesday, October 24, 2018)]
[Notices]
[Pages 53699-53701]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-23173]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84449; File No. SR-Phlx-2018-64]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section 
(a)(i)(D) of Rule 1012

October 18, 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 October 17, 2018, Nasdaq PHLX LLC (``Exchange'') filed with the 
Securities and Exchange Commission

[[Page 53700]]

(``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.
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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 Section (a)(i)(D) of Rule 1012, 
Series of Options Open for Trading, to permit the listing and trading 
of up to ten expiration months for long term options on the 
SPDR[supreg] S&P 500[supreg] exchange-traded fund (the ``SPY ETF'').
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section (a)(i)(D) of Rule 1012 currently provides that the Exchange 
may list, with respect to any class of stock or Exchange-Traded Fund 
Share options series, options having from twelve up to thirty-nine 
months from the time they are listed (``LEAPS'') until expiration. 
There may be up to six expiration months.\3\ The Exchange proposes to 
amend Section (a)(i)(D) of Rule 1012 to permit up to ten LEAPS 
expiration months for options on the SPDR[supreg] S&P 500[supreg] 
exchange-traded fund (``SPY'') in response to customer demand.\4\ The 
proposal will add liquidity to the SPY options market by allowing 
market participants to hedge risks relating to SPY positions over a 
longer time period with a known and limited cost.
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    \3\ Strike price interval, bid/ask differential and continuity 
rules shall not apply to such options series until the time to 
expiration is less than nine months.
    \4\ In contrast to Section (a)(i)(D) of Rule 1012, Exchange Rule 
1101A(b)(iii) which applies to index options permits to the Exchange 
to list LEAPS on any class of stock index options, adding up to ten 
expiration months. The Exchange seeks to list ten expiration months 
of LEAPS on the SPY ETF, just as it now may list ten LEAPS 
expiration months on index options, in order to provide investors 
with a wider choice of investments.
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    The SPY options market today is characterized by its tremendous 
daily and annual liquidity. As a consequence the Exchange believes that 
the listing of additional SPY LEAPS expiration months would be well 
received by investors. This proposal to expand the number of permitted 
SPY long-term expiration months would not apply to LEAPS on any other 
class of stock or Exchange-Traded Fund Share.\5\
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    \5\ Historically, SPY is the largest and most actively traded 
ETF in the United States as measured by its assets under management 
and the value of shares traded.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ 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, 
by offering market participants additional LEAPS on SPY options for 
their investment and risk management purposes. The proposal is intended 
simply to provide additional trading opportunities which have been 
requested by customers, thereby facilitating transactions in options 
and contributing to the protection of investors and the maintenance of 
fair and orderly markets. The proposed rule change responds to the 
continuing needs of market participants, particularly portfolio 
managers and other institutional customers, by providing protection 
from long-term market moves and by offering an alternative to hedging 
portfolios with futures positions or off-exchange customized derivative 
instruments.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    Rule 1012 has permitted up to six expiration months in LEAPS since 
1991, when the Exchange increased the number of permissible expiration 
months from four to six. In approving the increase to six expiration 
months, the Commission stated that it did not believe that increasing 
the number of expiration months to six would cause, by itself, a 
proliferation of expiration months. The Commission also required that 
the Exchange monitor the volume of additional options series listed as 
a result of the rule change, and the effect on the Exchange's system 
capacity and quotation dissemination displays.\8\ The Exchange believes 
that the addition today of four additional expiration months for SPY 
LEAPS likewise does not represent a proliferation of expiration months, 
but is instead a very modest expansion of LEAPS options in response to 
stated customer demand. Significantly, the proposal would feature new 
LEAPS expiration months in only a single class of options that are very 
liquid and heavily traded, as discussed above. Additionally, the 
Exchange notes by way of precedent that ten expiration months are 
already permitted for stock index LEAPS options. Further, the Exchange 
has the necessary systems capacity to support the new SPY expiration 
months.
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    \8\ See Securities Exchange Act Release No. 29103 (April 18, 
1991), 56 FR 19132 (April 25, 1991) (approving SR-Phlx-91-18).
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. The proposal merely provides 
investors additional investment and risk management opportunities by 
providing flexibility to the Exchange to list additional long term 
options expiration series, expanding the number of SPY LEAPS offered on 
the Exchange from six expiration months to ten expiration months.

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 \9\ and

[[Page 53701]]

subparagraph (f)(6) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 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-Phlx-2018-64 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-Phlx-2018-64. 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-Phlx-2018-64, and should be submitted on 
or before November 14, 2018.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23173 Filed 10-23-18; 8:45 am]
 BILLING CODE 8011-01-P