83 FR 8914 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Adopt New Order Type Protections, Butterfly and Box Spread Protections for Complex Order Strategy Trades

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 41 (March 1, 2018)

Page Range		8914-8917
FR Document		2018-04126
Federal Register, Volume 83 Issue 41 (Thursday, March 1, 2018)
[Federal Register Volume 83, Number 41 (Thursday, March 1, 2018)]
[Notices]
[Pages 8914-8917]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-04126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82766; File No. SR-Phlx-2018-14]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1, To Adopt New 
Order Type Protections, Butterfly and Box Spread Protections for 
Complex Order Strategy Trades

February 23, 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 February 9, 2018, Nasdaq PHLX LLC (``Phlx'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been

[[Page 8915]]

prepared by the Exchange. On February 21, 2018, the Exchange filed 
Amendment No. 1 to the proposal. Amendment No. 1 replaces and 
supersedes the original filing in its entirety. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, 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 adopt new order type protections, 
Butterfly and Box Spread protections, for Complex Order \3\ strategy 
trades. This rule change replaces and supersedes SR-Phlx-2018-14.
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    \3\ A Complex Order is an order involving the simultaneous 
purchase and/or sale of two or more different options series in the 
same underlying security, priced as a net debit or credit based on 
the relative prices of the individual components, for the same 
account, for the purpose of executing a particular investment 
strategy. See Phlx Rule 1098(a)(i).
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    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
    The purpose of the proposed rule change is to adopt Complex Order 
protections for butterfly and box spreads, which are Complex Order 
strategies. Today, Phlx members may submit butterfly and box spreads 
into the Phlx System. Phlx proposes to define a butterfly spread as a 
three legged Complex Order with certain characteristics.\4\ The 
Exchange is proposing to reject butterfly spreads which are outside of 
certain parameters to avoid potential executions at prices that exceed 
the minimum and maximum possible intrinsic value of the spread by a 
specified amount. Additionally, Phlx proposes to define a box spread as 
a four legged Complex Order with certain characteristics.\5\ The 
Exchange is proposing to reject box spreads which are outside of 
certain parameters to avoid potential executions at prices that exceed 
the minimum and maximum possible intrinsic value of the spread by a 
specified amount. Today, the Exchange offers similar order protection 
features for Complex Orders such as Strategy Price Protection \6\ and 
Acceptable Complex Execution \7\ to avoid erroneous trades. Each 
protection will be discussed in more detail below.
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    \4\ This strategy utilizes a combination of either all calls or 
all puts of the same expiration date in the same underlying to limit 
risk.
    \5\ This strategy utilizes a combination of put/call pairs of 
options with the same expiration date in the same underlying to 
limit risk.
    \6\ See Phlx Rule 1098(g).
    \7\ See Phlx Rule 1098(h)(i).
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Butterfly Spread Protection
    As noted above, the Exchange proposes to adopt a Butterfly Spread 
Protection. A butterfly spread is a three legged Complex Order with the 
following: (1) Two legs to buy (sell) the same number of calls (puts); 
(2) one leg to sell (buy) twice the number of calls (puts) with a 
strike price at mid-point of the two legs to buy (sell); (3) all legs 
have the same expiration; and (4) each leg strike price is equidistant 
from the next sequential strike price. With this protection, a Complex 
Order, including auction and auction responses, that is priced higher 
than the Maximum Value (defined below) or lower than the Minimum Value 
(defined below) will be cancelled. A Complex Market Order will be 
accepted, but will be restricted from trading at a price higher than 
the Maximum Value or lower than the Minimum Value.
    The Initial Maximum Value shall be the distance between the leg 
with the mid-point strike price and either of the outer leg strike 
prices. The Maximum Value Buffer is the lesser of a configurable 
absolute dollar value or percentage of the Initial Maximum Value set by 
the Exchange and announced via a notice to members. The Exchange 
intends to set the Maximum Value Buffer at zero initially. The Maximum 
Value is calculated by adding the Initial Maximum Value and Maximum 
Value Buffer.
    The Initial Minimum Value shall be zero. The Minimum Value Buffer 
is a configurable absolute dollar value set by the Exchange and 
announced via a notice to members. The Exchange intends to set the 
Minimum Value Buffer at zero initially. The Exchange would monitor the 
zero value, including feedback from market participants, in determining 
whether the value is set at the appropriate level. The concern would 
set [sic] from market participants who are unable to close out 
positions. The Minimum Value is calculated by subtracting the Minimum 
Value Buffer from the Initial Minimum Value of zero. There are 
circumstances were [sic] the Minimum Value Buffer [sic] may be less 
than zero. For example, market participants who desire to trade out of 
positions at intrinsic value may not find a contra-side willing to 
trade without a premium. A small incremental allowance outside of the 
minimum/maximum value allows for a small premium to offset commissions 
associated with trading and may incentivize participants to take the 
other side of spreads trading at intrinsic value. For the participant 
looking to close out their position, it may be financially beneficial 
to pay a small premium and close out the position rather than carry 
such position to expiration and take delivery. The Butterfly Spread 
Protection would apply throughout the trading day, including pre-
market, during the Opening Process and during Halts. Below is an 
example of the application of this protection.
Example 1
    Assume the following Complex Order legs for a butterfly spread:

1. Buy 1 NDX 6960 Jan 26 Call (33.70 x 34.60)
2. Sell 2 NDX 6970 Jan 26 Calls (27.00 x 27.90)
3. Buy 1 NDX 6980 Jan 26 Call (28.40 x 29.50)
The derived net Phlx complex market (``cPBBO'') is 6.30 x 10.10
Assume both the Maximum Value Buffer and Minimum Value Buffer are 0
Minimum Value = 0
 Initial Minimum Value: 0.00
 Minimum Value Buffer: 0.00
 Minimum Value: 0.00 - 0.00 = 0.00
Maximum Value = 10
 Initial Maximum Value: 6970 (middle leg strike price) - 6960 
(outer leg strike price) = 10.00
 Maximum Value Buffer: 0.00
 Maximum Value: 10.00 (Initial Maximum Value) + 0.00 (Maximum 
Value Buffer) = 10.00

    An incoming order to buy the spread defined above for 10.10 will be 
cancelled because the purchase price of 10.10 is greater than the 
Maximum Value of 10.00.

[[Page 8916]]

Example 2
    Assume the following Complex Order legs for a butterfly spread:

1. Buy 1 NDX 6960 Jan 26 Call (33.70 x 34.60)
2. Sell 2 NDX 6970 Jan 26 Calls (27.00 x 27.90)
3. Buy 1 NDX 6980 Jan 26 Call (28.40 x 29.45)
The derived net Phlx complex market (``cPBBO'') is 6.30 x 10.05
Assume both the Maximum Value Buffer and Minimum Value Buffer are 0.05
Minimum Value = -0.05
 Initial Minimum Value: 0.00
 Minimum Value Buffer: 0.05
 Minimum Value: 0.00-0.05 = -0.05
Maximum Value = 10.05
 Initial Maximum Value: 6970 (middle leg strike price)-6960 
(outer leg strike price) = 10.00
 Maximum Value Buffer: 0.05
 Maximum Value: 10.00 (Initial Maximum Value) + 0.05 (Maximum 
Value Buffer) = 10.05

    An incoming order to buy the spread defined above for 10.05 will be 
accepted and executed against the simple market because the purchase 
price of 10.05 is equal to the Maximum Value 10.05.
Box Spread Protection
    As noted above, the Exchange proposes to adopt a Box Spread 
Protection. A box spread is a four legged Complex Order with the 
following: (1) One pair of legs with the same strike price with one leg 
to buy a call (put) and one leg to sell a put (call); (2) a second pair 
of legs with a different strike price from the pair described in (1) 
with one leg to sell a call (put) and one leg to buy a put (call); (3) 
all legs have the same expiration; and (4) all legs have equal volume. 
With this protection, Complex Orders, including auction and auction 
responses that are priced higher than the Maximum Value or lower than 
the Minimum Value, will be cancelled. A Complex Market Order will be 
accepted but will be restricted from trading at a price higher than the 
Maximum Value or lower than the Minimum Value.
    The Initial Maximum Value shall be the distance between the strike 
prices of each pair of leg strike prices. The Maximum Value Buffer is 
the lesser of a configurable absolute dollar value or percentage of the 
Initial Maximum Value set by the Exchange and announced via a notice to 
members. The Exchange intends to set the Maximum Value Buffer at zero 
initially. The Maximum Value is calculated by adding the Initial 
Maximum Value and Maximum Value Buffer.
    The Initial Minimum Value shall be zero. The Initial Minimum Value 
Buffer is a configurable absolute dollar value set by the Exchange and 
announced via a notice to members. The Exchange intends to set the 
Minimum Value Buffer at zero initially. The Minimum Value is calculated 
by subtracting the Minimum Value Buffer from the Initial Minimum Value 
of zero.
    The Box Spread Protection would apply throughout the trading day, 
including pre-market, during the Opening Process and during Halts. 
Below is an example of the application of this protection.
Example 1
    Assume the following Complex Order pairs for a box spread:

1. Pair A:
    a. Buy 1 NDX 6960 Jan 26 Call (30.80 x 34.05)
    b. Sell 1 NDX 6960 Jan 26 Put (33.50 x 36.00)
2. Pair B:
    a. Sell 1 NDX 6970 Jan 26 Call (27.50 x 29.00)
    b. Buy 1 NDX 6970 Jan 26 Put (36.40 x 37.05)
The derived net Phlx complex market (``cPBBO'') is 2.20 x 10.10
Assume both Maximum Value Buffer and Minimum Value Buffer are 0.00
Minimum Value = 0.00
 Initial Minimum Value: 0.00
 Minimum Value Buffer: 0.00
 Minimum Value: 0.00-0.00 = 0.00
Maximum Value = 10.00
 Initial Maximum Value: 6970 (Pair A strike price)-6960 (Pair B 
strike price) = 10.00
 Maximum Value Buffer: 0.00
 Maximum Value: 10.00 (Initial Maximum Value) + 0.00 (Maximum 
Value Buffer) = 10.00
    An incoming order to buy the spread defined above for 10.10 will be 
cancelled because the purchase price of 10.10 is greater than the 
Maximum Value of 10.00.
Example 2
    Assume the following Complex Order pairs for a box spread:

1. Pair A:
    a. Buy 1 NDX 6960 Jan 26 Call (30.80 x 34.05)
    b. Sell 1 NDX 6960 Jan 26 Put (33.50 x 36.50)
2. Pair B:
    a. Sell 1 NDX 6970 Jan 26 Call (27.50 x 30.75)
    b. Buy 1 NDX 6970 Jan 26 Put (36.40 x 37.05)
The derived net Phlx complex market (``cPBBO'') is -0.05 x 10.10
Assume both Maximum Value Buffer and Minimum Value Buffer are 0.05
Minimum Value = -0.05
 Initial Minimum Value: 0.00
 Minimum Value Buffer: 0.05
 Minimum Value: 0.00-0.05 = -0.05
Maximum Value = 10.05
 Initial Maximum Value: 6970 (Pair A strike price)-6960 (Pair B 
strike price) = 10.00
 Maximum Value Buffer: 0.05
 Maximum Value: 10.00 (Initial Maximum Value) + 0.05 (Maximum 
Value Buffer) = 10.05

    An incoming order to sell the spread defined above for -0.05 will 
be accepted and executed against the simple market because the purchase 
price of -0.05 is equal than the Minimum Value of -0.05.
Implementation
    The Exchange would implement these new protections no later than 
August 30, 2018. The Exchange would notify members of the exact 
implementation date by issuing a notice to members.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ 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 protections for certain Complex Orders which restrict 
executions that exceed the intrinsic value of the spread by a specified 
(or configurable) amount. Further, the Exchange believes that its 
proposal will mitigate risks to market participants. Specifically, Phlx 
believes that the change, which is responsive to member input, will 
facilitate transactions in securities and perfect the mechanism of a 
free and open market by providing its members with additional 
functionality that will assist them with managing their risk by 
checking each Complex Order that is either a butterfly or box spread 
against certain parameters described within the filing before accepting 
the Complex Orders into the order book.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the parameters described herein, 
including parameters which will be configured by the Exchange, will 
protect members from executing orders too far outside the Minimum Value 
and Maximum Value which considers the intrinsic value of the strategy, 
thereby promoting fair and orderly markets and the protection of 
investors. The Exchange intends to offer

[[Page 8917]]

a buffer allowance from the minimum/maximum values permitted for the 
execution of these strategy orders to allow market participants 
flexibility to manage their business and accommodate executions outside 
of this range. The Exchange would monitor the zero value, including 
feedback from market participants, in determining whether the value is 
set at the appropriate level. The concern would set [sic] from market 
participants who are unable to close out positions. There are 
circumstances were [sic] the Minimum Value Buffer [sic] may be less 
than zero. For example, market participants who desire to trade out of 
positions at intrinsic value may not find a contra-side willing to 
trade without a premium. A small incremental allowance outside of the 
minimum/maximum value allows for a small premium to offset commissions 
associated with trading and may incentivize participants to take the 
other side of spreads trading at intrinsic value. For the participant 
looking to close out their position, it may be financially beneficial 
to pay a small premium and close out the position rather than carry 
such position to expiration and take delivery. The purpose of this rule 
change is not to impede current order handling but to ensure execution 
prices are within a reasonable range of minimum and maximum values. 
These parameters are consistent with order protection features for 
Strategy Price Protection in that Strategy Price Protection offers a 
buffer allowance from the permitted values.\10\
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    \10\ See Phlx Rule 1098(g).
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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. Specifically, the proposal does 
not impose an intra-market burden on competition, because it will apply 
to all Complex Orders which are either butterfly or box spreads entered 
by any Phlx member. Further, the proposal will not impose an undue 
burden on inter-market competition, rather the proposal will assist the 
Exchange in remaining competitive in light of protections offered by 
other options exchanges.\11\ The Exchange competes with many other 
options exchanges which offer Complex Orders. In this highly 
competitive market, market participants can easily and readily direct 
order flow to competing venues.
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    \11\ See CBOE Rule 6.53C, Interpretations and Policies .08.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2018-14 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-2018-14. 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-Phlx-2018-14, and should be submitted on 
or before March 22, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-04126 Filed 2-28-18; 8:45 am]
BILLING CODE 8011-01-P
8914 Federal Register / Vol. 83, No. 41 / Thursday, March 1, 2018 / Notices

A. Self-Regulatory Organization’s III. Date of Effectiveness of the internet website (http://www.sec.gov/
Statement of the Purpose of, and Proposed Rule Change and Timing for rules/sro.shtml).
Statutory Basis for, the Proposed Rule Commission Action Copies of the submission, all
Change subsequent amendments, all written
Because the foregoing proposed rule statements with respect to the proposed
1. Purpose change does not: (i) Significantly affect rule change that are filed with the
the protection of investors or the public Commission, and all written
The purpose of the proposal is to interest; (ii) impose any significant communications relating to the
update Rule 1082. Specifically, the burden on competition; and (iii) become proposed rule change between the
Exchange proposes to delete Rule operative for 30 days from the date on Commission and any person, other than
1082(a)(ii)(B)(2), which is obsolete, which it was filed, or such shorter time those that may be withheld from the
because the Phlx XL system no longer as the Commission may designate, it has public in accordance with the
operates. It was replaced by Phlx XL II.3 become effective pursuant to Section provisions of 5 U.S.C. 552, will be
The Exchange no longer automatically 19(b)(3)(A)(iii) of the Act 6 and available for website viewing and
provides two-sided quotes with a size of subparagraph (f)(6) of Rule 19b–4 printing in the Commission’s Public
one contract that comply with the thereunder.7 Reference Room, 100 F Street NE,
Exchange’s rules concerning quote At any time within 60 days of the Washington, DC 20549, on official
spread parameters on behalf of the filing of the proposed rule change, the business days between the hours of
specialist until such time as the Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
specialist revises the quotation. The rule temporarily suspend such rule change if filing also will be available for
text of Rule 1082(a)(ii)(B)(2) is clear that it appears to the Commission that such inspection and copying at the principal
this functionality only applied to Phlx action is: (i) Necessary or appropriate in office of the Exchange. All comments
XL. the public interest; (ii) for the protection received will be posted without change.
of investors; or (iii) otherwise in Persons submitting comments are
2. Statutory Basis furtherance of the purposes of the Act. cautioned that we do not edit personal
If the Commission takes such action, the identifying information from comment
The Exchange believes that its Commission shall institute proceedings submissions. You should submit only
proposal is consistent with Section 6(b) to determine whether the proposed rule information that you wish to make
of the Act,4 in general, and furthers the should be approved or disapproved. available publicly. All submissions
objectives of Section 6(b)(5) of the Act,5 should refer to File Number SR–Phlx–
in particular, in that it is designed to IV. Solicitation of Comments
2018–16 and should be submitted on or
promote just and equitable principles of Interested persons are invited to before March 22, 2018.
trade and to protect investors and the submit written data, views, and
For the Commission, by the Division of
public interest by eliminating from the arguments concerning the foregoing, Trading and Markets, pursuant to delegated
Exchange’s Rules a provision that has including whether the proposed rule authority.8
become obsolete. Updating Rule 1082 change is consistent with the Act. Robert W. Errett,
will protect investors and the public Comments may be submitted by any of Deputy Secretary.
interest by ensuring that the Rule is the following methods:
[FR Doc. 2018–04125 Filed 2–28–18; 8:45 am]
accurate and reflective of the operation Electronic Comments BILLING CODE 8011–01–P
of the current trading system that the
Exchange employs. • Use the Commission’s internet
comment form (http://www.sec.gov/ SECURITIES AND EXCHANGE
B. Self-Regulatory Organization’s rules/sro.shtml); or COMMISSION
Statement on Burden on Competition • Send an email to rule-comments@
sec.gov. Please include File Number SR– [Release No. 34–82766; File No. SR–Phlx–
The Exchange does not believe that Phlx–2018–16 on the subject line. 2018–14]
the proposal will impose any burden on
competition not necessary or Paper Comments Self-Regulatory Organizations; Nasdaq
appropriate in furtherance of the PHLX LLC; Notice of Filing of
• Send paper comments in triplicate
purposes of the Act. The proposal to Proposed Rule Change, as Modified by
to Secretary, Securities and Exchange
delete an obsolete provision of Rule Amendment No. 1, To Adopt New
Commission, 100 F Street NE,
1082 will not impact competition Order Type Protections, Butterfly and
Washington, DC 20549–1090.
because the proposal is not designed to Box Spread Protections for Complex
All submissions should refer to File Order Strategy Trades
address competitive issues, but rather to Number SR–Phlx–2018–16. This file
render the Exchange’s Rulebook number should be included on the February 23, 2018.
accurate and current. subject line if email is used. To help the Pursuant to Section 19(b)(1) of the
C. Self-Regulatory Organization’s Commission process and review your Securities Exchange Act of 1934
Statement on Comments on the comments more efficiently, please use (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
only one method. The Commission will notice is hereby given that on February
Proposed Rule Change Received From
post all comments on the Commission’s 9, 2018, Nasdaq PHLX LLC (‘‘Phlx’’ or
Members, Participants, or Others
the ‘‘Exchange’’) filed with the
No written comments were either 6 15 U.S.C. 78s(b)(3)(A)(iii). Securities and Exchange Commission
amozie on DSK30RV082PROD with NOTICES

solicited or received. 7 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– (‘‘SEC’’ or ‘‘Commission’’) the proposed
4(f)(6) requires a self-regulatory organization to give rule change as described in Items I, II,
the Commission written notice of its intent to file and III below, which Items have been
3 See Securities Exchange Act Release No. 59995
the proposed rule change at least five business days
(May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– prior to the date of filing of the proposed rule
Phlx–2009–32). change, or such shorter time as designated by the
8 17 CFR 200.30–3(a)(12).
4 15 U.S.C. 78f(b). 1 15 U.S.C. 78s(b)(1).
Commission. The Exchange has satisfied this
5 15 U.S.C. 78f(b)(5). requirement. 2 17 CFR 240.19b–4.

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8916 Federal Register / Vol. 83, No. 41 / Thursday, March 1, 2018 / Notices

Example 2 is a configurable absolute dollar value • Initial Minimum Value: 0.00
Assume the following Complex Order set by the Exchange and announced via • Minimum Value Buffer: 0.05
a notice to members. The Exchange • Minimum Value: 0.00¥0.05 = ¥0.05
legs for a butterfly spread:
intends to set the Minimum Value Maximum Value = 10.05
1. Buy 1 NDX 6960 Jan 26 Call (33.70 • Initial Maximum Value: 6970 (Pair A
× 34.60) Buffer at zero initially. The Minimum
Value is calculated by subtracting the strike price)¥6960 (Pair B strike
2. Sell 2 NDX 6970 Jan 26 Calls (27.00 price) = 10.00
× 27.90) Minimum Value Buffer from the Initial
Minimum Value of zero. • Maximum Value Buffer: 0.05
3. Buy 1 NDX 6980 Jan 26 Call (28.40 • Maximum Value: 10.00 (Initial
× 29.45) The Box Spread Protection would
apply throughout the trading day, Maximum Value) + 0.05 (Maximum
The derived net Phlx complex market Value Buffer) = 10.05
(‘‘cPBBO’’) is 6.30 × 10.05 including pre-market, during the
Assume both the Maximum Value Opening Process and during Halts. An incoming order to sell the spread
Buffer and Minimum Value Buffer Below is an example of the application defined above for ¥0.05 will be
are 0.05 of this protection. accepted and executed against the
Minimum Value = ¥0.05 simple market because the purchase
• Initial Minimum Value: 0.00 Example 1 price of ¥0.05 is equal than the
• Minimum Value Buffer: 0.05 Assume the following Complex Order Minimum Value of ¥0.05.
• Minimum Value: 0.00¥0.05 = ¥0.05 pairs for a box spread: Implementation
Maximum Value = 10.05 1. Pair A:
• Initial Maximum Value: 6970 (middle The Exchange would implement these
a. Buy 1 NDX 6960 Jan 26 Call (30.80
leg strike price)¥6960 (outer leg new protections no later than August
× 34.05)
strike price) = 10.00 30, 2018. The Exchange would notify
• Maximum Value Buffer: 0.05 b. Sell 1 NDX 6960 Jan 26 Put (33.50
members of the exact implementation
• Maximum Value: 10.00 (Initial × 36.00)
date by issuing a notice to members.
Maximum Value) + 0.05 (Maximum 2. Pair B:
Value Buffer) = 10.05 a. Sell 1 NDX 6970 Jan 26 Call (27.50 2. Statutory Basis
× 29.00) The Exchange believes that its
An incoming order to buy the spread
b. Buy 1 NDX 6970 Jan 26 Put (36.40 proposal is consistent with Section 6(b)
defined above for 10.05 will be accepted
× 37.05) of the Act,8 in general, and furthers the
and executed against the simple market
The derived net Phlx complex market objectives of Section 6(b)(5) of the Act,9
because the purchase price of 10.05 is
(‘‘cPBBO’’) is 2.20 × 10.10 in particular, in that it is designed to
equal to the Maximum Value 10.05.
Assume both Maximum Value Buffer promote just and equitable principles of
Box Spread Protection and Minimum Value Buffer are 0.00 trade, to remove impediments to and
As noted above, the Exchange Minimum Value = 0.00 perfect the mechanism of a free and
proposes to adopt a Box Spread • Initial Minimum Value: 0.00 open market and a national market
Protection. A box spread is a four legged • Minimum Value Buffer: 0.00 system, and, in general to protect
Complex Order with the following: (1) • Minimum Value: 0.00¥0.00 = 0.00 investors and the public interest, by
One pair of legs with the same strike Maximum Value = 10.00 offering protections for certain Complex
price with one leg to buy a call (put) and • Initial Maximum Value: 6970 (Pair A Orders which restrict executions that
one leg to sell a put (call); (2) a second strike price)¥6960 (Pair B strike exceed the intrinsic value of the spread
pair of legs with a different strike price price) = 10.00 by a specified (or configurable) amount.
from the pair described in (1) with one • Maximum Value Buffer: 0.00 Further, the Exchange believes that its
leg to sell a call (put) and one leg to buy • Maximum Value: 10.00 (Initial proposal will mitigate risks to market
a put (call); (3) all legs have the same Maximum Value) + 0.00 (Maximum participants. Specifically, Phlx believes
expiration; and (4) all legs have equal Value Buffer) = 10.00 that the change, which is responsive to
volume. With this protection, Complex An incoming order to buy the spread member input, will facilitate
Orders, including auction and auction defined above for 10.10 will be transactions in securities and perfect the
responses that are priced higher than cancelled because the purchase price of mechanism of a free and open market by
the Maximum Value or lower than the 10.10 is greater than the Maximum providing its members with additional
Minimum Value, will be cancelled. A Value of 10.00. functionality that will assist them with
Complex Market Order will be accepted Example 2 managing their risk by checking each
but will be restricted from trading at a Complex Order that is either a butterfly
price higher than the Maximum Value Assume the following Complex Order or box spread against certain parameters
or lower than the Minimum Value. pairs for a box spread: described within the filing before
The Initial Maximum Value shall be 1. Pair A: accepting the Complex Orders into the
the distance between the strike prices of a. Buy 1 NDX 6960 Jan 26 Call (30.80 order book.
each pair of leg strike prices. The × 34.05) The Exchange believes that the
Maximum Value Buffer is the lesser of b. Sell 1 NDX 6960 Jan 26 Put (33.50 parameters described herein, including
a configurable absolute dollar value or × 36.50) parameters which will be configured by
percentage of the Initial Maximum 2. Pair B: the Exchange, will protect members
Value set by the Exchange and a. Sell 1 NDX 6970 Jan 26 Call (27.50 from executing orders too far outside the
announced via a notice to members. The × 30.75) Minimum Value and Maximum Value
amozie on DSK30RV082PROD with NOTICES

Exchange intends to set the Maximum b. Buy 1 NDX 6970 Jan 26 Put (36.40 which considers the intrinsic value of
Value Buffer at zero initially. The × 37.05) the strategy, thereby promoting fair and
Maximum Value is calculated by adding The derived net Phlx complex market orderly markets and the protection of
the Initial Maximum Value and (‘‘cPBBO’’) is ¥0.05 × 10.10 investors. The Exchange intends to offer
Maximum Value Buffer. Assume both Maximum Value Buffer
The Initial Minimum Value shall be and Minimum Value Buffer are 0.05 8 15 U.S.C. 78f(b).
zero. The Initial Minimum Value Buffer Minimum Value = ¥0.05 9 15 U.S.C. 78f(b)(5).

VerDate Sep<11>2014 17:26 Feb 28, 2018 Jkt 244001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 E:\FR\FM\01MRN1.SGM 01MRN1
Document Created: 2018-02-28 23:58:40
Document Modified: 2018-02-28 23:58:40
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 8914