Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Increase the Position and Exercise Limits for Options on the iShares MSCI Emerging Markets Index Fund to 500,000 Contracts, 76132-76135 [2012-31017]
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76132
Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
charged to all Permit Holders on all
their transactions that clear as customer
at the OCC. Moreover, the Exchange
believes the ORF ensures fairness by
assessing higher fees to those Permit
Holders that require more Exchange
regulatory services based on the amount
of customer options business they
conduct. Regulating customer trading
activity is much more labor intensive
and requires greater expenditure of
human and technical resources than
regulating non-customer trading
activity, which tends to be more
automated and less labor-intensive. As a
result, the costs associated with
administering the customer component
of the Exchange’s overall regulatory
program are materially higher than the
costs associated with administering the
non-customer component (e.g., Permit
Holder proprietary transactions) of its
regulatory program.6
The ORF is designed to recover a
material portion of the costs of
supervising and regulating Permit
Holder customer options business
including performing routine
surveillances, investigations,
examinations, financial monitoring, and
policy, rulemaking, interpretive, and
enforcement activities. The Exchange
will continue to monitor the amount of
revenue collected from the ORF to
ensure that it, in combination with its
other regulatory fees and fines, does not
exceed the Exchange’s total regulatory
costs. If the Exchange determines
regulatory revenues exceed regulatory
costs, the Exchange will adjust the ORF
by submitting a fee change filing to the
Commission. The Exchange notifies
Permit Holders of adjustments to the
ORF via regulatory circular.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
C2 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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
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The Exchange neither solicited nor
received comments on the proposed
rule change.
6 If the Exchange changes its method of funding
regulation or if circumstances otherwise change in
the future, the Exchange may decide to modify the
ORF or assess a separate regulatory fee on Permit
Holder proprietary transactions if the Exchange
deems it advisable. See email from Jaime Galvan,
Senior Attorney, C2, to Johnna Dumler, Special
Counsel, Commission, dated December 18, 2012.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)7 of the Act and paragraph (f)
of Rule 19b–48 thereunder. 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.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–C2–2012–040 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–C2–2012–040. 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 Web site (https://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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NW.,
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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–C2–
2012–040, and should be submitted on
or before January 16, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–31018 Filed 12–21–12; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68478; File No. SR–BOX–
2012–023]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Increase the
Position and Exercise Limits for
Options on the iShares MSCI Emerging
Markets Index Fund to 500,000
Contracts
December 19, 2012.
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 December
12, 2012, BOX Options Exchange LLC
(‘‘BOX’’ or ‘‘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 Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Interpretive Material to Rule 3120
(Position Limits) to increase the position
and exercise limits for options on the
iShares MSCI Emerging Markets Index
Fund (‘‘EEM’’) to 500,000 contracts. The
text of the proposed rule change is
available from the principal office of the
Exchange, at the Commission’s Public
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
7 15
U.S.C. 78s(b)(3)(A).
8 17 C.F.R. 240.19b–4(f).
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Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Reference Room and also on the
Exchange’s Internet Web site at https://
boxexchange.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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.
Position limits for exchange-traded
fund (‘‘ETFs’’) options, such as EEM
options, are determined pursuant to
Rule 3120 (Position Limits) and vary
according to the number of outstanding
shares and trading volume during the
most recent six-month trading period of
an underlying stock or ETF. The largest
in capitalization and most frequently
traded stocks and ETFs have an option
position limit of 250,000 contracts (with
adjustments for splits, re-capitalizations,
etc.) on the same side of the market;
smaller capitalization stocks and ETFs
have position limits of 200,000, 75,000,
50,000 or 25,000 contracts (with
adjustments for splits, re-capitalizations,
etc.) on the same side of the market. The
current position limit for EEM options
is 250,000 contracts. The purpose of the
2011 ADV
(mil. shares)
ETF
EEM .................................................
IWM ..................................................
SPY ..................................................
2011 ADV
(option contracts)
65
64.1
213
76133
proposed rule change is to amend
Interpretative Material (IM–3120–2) to
Rule 3120 to increase the position and
exercise limits for EEM options to
500,000 contracts.3 There is precedent
for establishing position limits for
options on actively-traded ETFs and
these position limit levels are set forth
in IM–3120–2.4
In support of this proposed rule
change, and as noted by the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’) in a related filing,5 the below
trading statistics compare EEM to IWM
and SPY. As shown in the table, the
average daily volume in 2011 for EEM
was 65 million shares compared to 64.1
million shares for IWM and 213 million
shares for SPY. The total shares
outstanding for EEM was 922.9 million
compared to 192.6 million shares for
IWM and 716.1 million shares for SPY.
Further, the fund market cap for EEM
was $41.1 billion compared to $15.5
billion for IWM and $98.3 billion for
SPY.
Shares outstanding
(Mil.)
280,000
662,500
2,892,000
922.9
192.6
716.1
Fund market
cap ($bil)
41.1
15.5
98.3
tkelley on DSK3SPTVN1PROD with
In further support of this proposal, the
Exchange represents that EEM still
qualifies for the initial listing criteria set
forth in Rule 5020(h) for ETFs holding
non-U.S. component securities.6 EEM
tracks the performance of the MSCI
Emerging Markets Index, which has
approximately 800 component
securities.7 ‘‘The MSCI Emerging
Markets Index is a free float-adjusted
market capitalization index that is
designed to measure equity market
performance of emerging markets. The
MSCI Emerging Markets Index consists
of the following 21 emerging market
country indices: Brazil, Chile, China,
Colombia, Czech Republic, Egypt,
Hungary, India, Indonesia, Korea,
Malaysia, Mexico, Morocco, Peru,
Philippines, Poland, Russia, South
Africa, Taiwan, Thailand, and
Turkey.’’ 8 The Exchange represents that
more than 50% of the weight of the
securities held by EEM are now subject
to a comprehensive surveillance
agreement (‘‘CSA’’).9 Additionally, the
component securities of the MSCI
Emerging Markets Index on which EEM
is based for which the primary market
is in any one country that is not subject
to a CSA do not represent 20% or more
of the weight of the MSCI Emerging
Markets Index.10 Finally, the
component securities of the MSCI
Emerging Markets Index on which EEM
is based for which the primary market
is in any two countries that are not
subject to CSAs do not represent 33% or
more of the weight of the MSCI
Emerging Markets Index.11
The Exchange believes that the
liquidity in the underlying ETF and the
liquidity in EEM options support its
request to increase the position and
exercise limits for EEM options. As to
the underlying ETF, through October 17,
2012 the year-to-date average daily
trading volume for EEM across all
exchanges was 49.3 million shares. As
to EEM options, the year-to-date average
daily trading volume for EEM options
across all exchanges was approximately
250,000 contracts. The Exchange
believes that increasing position limits
for EEM options will lead to a more
liquid and competitive market
environment for EEM options that will
benefit customers interested in this
product. Under the Exchange’s
proposal, the options reporting
requirement for EEM would continue
unabated. Thus, the Exchange would
still require that each Options
Participant and associated person of an
Options Participant that maintain a
position in EEM options on the same
side of the market, for its own account
or for the account of a customer, report
certain information to the Exchange.
3 By virtue of IM–3140–1 to Rule 3140, which is
not being amended by this filing, the exercise limit
for EEM options would be similarly increased. See
IM–3140–1 to Rule 3140 (Exercise Limits).
4 IM–3120–2 lists exceptions to standard position
limits which are, for put or call option contracts
overlying the following securities: 300,000 contracts
for the DIAMONDS Trust (DIA); 500,000 contracts
for the iShares Russell 2000 Index Fund (IWM);
900,000 contracts for the PowerShares QQQ Trust
(QQQQ); and no limit for the Standard and Poor’s
Depository Receipts Trust (SPY).
5 See Securities Exchange Act Release No. 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012)
(SR–CBOE–2012–066).
6 The Exchange notes that the initial listing
criteria for options on ETFs that hold non-U.S.
component securities are more stringent than the
maintenance listing criteria for those same ETF
options. See Rule 5020(h) and Rule 5030(h).
7 See https://us.ishares.com/product_info/fund/
overview/EEM.htm and https://www.msci.com/
products/indices/licensing/
msci_emerging_markets/. Identification of the
specific securities in the EEM and their individual
concentrations in the EEM can be accessed at:
https://us.ishares.com/product_info/fund/holdings/
EEM.htm.
8 See https://www.msci.com/products/indices/
tools/#EM.
9 See Rule 5020(h)(2)(A).
10 See Rule 5020(h)(2)(B).
11 See Rule 5020(h)(2)(C).
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Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
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This information would include, but
would not be limited to, the option
position, whether such position is
hedged and, if so, a description of the
hedge, and the collateral used to carry
the position, if applicable. In addition,
the general reporting requirement for
customer accounts that maintain an
aggregate position of 200 or more option
contracts would remain at this level for
EEM options.12
As the anniversary of listed options
trading approaches its fortieth year, the
Exchange believes that the existing
surveillance procedures and reporting
requirements at BOX Options Exchange
LLC, other options exchanges, and at the
several clearing firms are capable of
properly identifying unusual and/or
illegal trading activity. In addition,
routine oversight inspections of the
Exchange’s regulatory programs by the
Commission have not uncovered any
material inconsistencies or
shortcomings in the manner in which
the Exchange’s market surveillance is
conducted. These procedures utilize
daily monitoring of market movements
via automated surveillance techniques
to identify unusual activity in both
options and underlying stocks.13
Furthermore, large stock holdings
must be disclosed to the Commission by
way of Schedules 13D or 13G.14 Options
positions are part of any reportable
positions and, thus, cannot be legally
hidden. Moreover, the Exchange’s
requirement that Options Participants
are to file reports with the Exchange for
any customer who held aggregate large
long or short positions of any single
class for the previous day will continue
to serve as an important part of the
Exchange’s surveillance efforts.
The Exchange believes that the
current financial requirements imposed
by the Exchange and by the Commission
adequately address concerns that an
Options Participant or associated person
of an Options Participants or its
customer may try to maintain an
inordinately large un-hedged position in
an option, particularly on EEM. Current
margin and risk-based haircut
methodologies serve to limit the size of
positions maintained by any one
account by increasing the margin and/
or capital that a Participant must
maintain for a large position held by
itself or by its customer.15 In addition,
the Commission’s net capital rule, Rule
12 Reporting requirements are stated in Rule 3150
(Reports Related to Position Limits).
13 These procedures have been effective for the
surveillance of EEM options trading and will
continue to be employed.
14 17 CFR 240.13d-1.
15 See Rule 10120 (Margin Requirements) for a
description of margin requirements.
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15c3–116 under the Act imposes a
capital charge on Participants to the
extent of any margin deficiency
resulting from the higher margin
requirement, which should serve as an
additional form of protection.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder, including the requirements
of Section 6(b) of the Act.17 In
particular, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5)18 requirements that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
to remove impediments to and to perfect
the mechanism for a free and open
market and a national market system,
and, in general, to protect investors and
the public interest.
Specifically, the proposed rule change
will benefit large market makers (which
generally have the greatest potential and
actual ability to provide liquidity and
depth in the product), as well as retail
traders, investors, and public customers,
by providing them with a more effective
trading and hedging vehicle. In
addition, the Exchange believes that the
structure of EEM options and the
considerable liquidity of the market for
EEM options diminish the opportunity
to manipulate this product and disrupt
the underlying market that a lower
position limit may protect against.
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.
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: (1) Does not significantly affect
the protection of investors or the public
16 17
CFR 240.15c3–1.
U.S.C. 78f(b).
18 15 U.S.C. 78f(b)(5).
17 15
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interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act19 and
Rule 19b–4(f)(6) thereunder.20
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of filing. However, Rule 19b–
4(f)(6)(iii) permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange requests that the Commission
waive the 30-day operative delay so that
it can increase the position and exercise
limits for EEM options immediately,
which will result in consistency and
uniformity among the competing
options exchanges as to the position and
exercise limits for EEM options. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest.21 The Commission notes
the proposal is substantively identical to
a proposal that was recently approved
by the Commission, and does not raise
any new regulatory issues.22 For these
reasons, the Commission designates the
proposed rule change as operative upon
filing.
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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
19 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
provide the Commission with written notice of its
intent to file the proposed rule change, along with
a brief description and text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has fulfilled this requirement.
21 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
22 See Securities Exchange Act Release No. 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012)
(SR–CBOE–2012–066).
20 17
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Federal Register / Vol. 77, No. 247 / Wednesday, December 26, 2012 / Notices
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number
SR–BOX–2012–023 on the subject line.
Paper Comments
tkelley on DSK3SPTVN1PROD with
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–BOX–2012–023. 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 Web site (https://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 Web site 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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BOX–
2012–023 and should be submitted on
or before January 16, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–31017 Filed 12–21–12; 4:15 pm]
BILLING CODE 8011–01–P
23 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
the most significant aspects of such
statements.
[Release No. 34–68457; File No. SR–CBOE–
2012–120]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change, as Modified by
Amendment No. 2, To Allow the Listing
and Trading of a P.M.-Settled S&P 500
Index Option Product
December 18, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
5, 2012, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. On December 17,
2012, the Exchange filed Amendments
No. 1 and 2 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to permit the
listing and trading of P.M.-settled S&P
500 Index options on a pilot basis. The
text of the proposed rule change is
available on the Exchange’s Web site
(https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Exchange withdrew Amendment No. 1 on
December 17, 2012. In Amendment No. 2, the
Exchange represented that it does not believe that
CBOE Trading Permit Holders will experience
significant operations issues when trading P.M.settled S&P 500 Index products on CBOE.
2 17
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1. Purpose
The purpose of this rule filing is to
permit the listing and trading, on a pilot
basis, of Standard & Poor’s 500 Index
(‘‘S&P 500’’) options with third-Fridayof-the-month (‘‘Expiration Friday’’)
expiration dates for which the exercise
settlement value will be based on the
index value derived from the closing
prices of component securities (‘‘P.M.settled’’) for an initial period of twelve
months (the ‘‘Pilot Program’’). The S&P
500 is a capitalization-weighted index of
500 stocks from a broad range of
industries. The component stocks are
weighted according to the total market
value of their outstanding shares. The
impact of a component’s price change is
proportional to the issue’s total market
share value, which is the share price
times the number of shares outstanding.
These are summed for all 500 stocks and
divided by a predetermined base value.
The base value for the S&P 500 is
adjusted to reflect changes in
capitalization resulting from, among
other things, mergers, acquisitions,
stock rights, and substitutions.
The proposed contract (‘‘SPXPM’’)
would use a $100 multiplier, and the
minimum trading increment would be
$0.05 for options trading below $3.00
and $0.10 for all other series. Strike
price intervals would be set no less than
5 points apart. Consistent with existing
rules for index options, the Exchange
would allow up to twelve near-term
expiration months,4 as well as LEAPS.5
Expiration processing would occur on
Saturday following the Expiration
Friday. The product would have
European-style exercise, and because it
is based on the S&P 500, there would be
no position limits.6 The Exchange has
the flexibility to open for trading
additional series in response to
customer demand. SPXPM would be
4 The Exchange wishes to give the same
expiration month options for SPXPM as are given
for SPX, since both options classes are derived from
the S&P 500.
5 Pursuant to CBOE Rule 24.9(b)(1)(A), index
LEAPS may expire from 12–180 months from the
date of issuance.
6 There would be reporting requirements
pursuant to Rule 4.13, Reports Related to Position
Limits, and Interpretation and Policy .03 to Rule
24.4, Position Limits for Broad-Based Index
Options, which sets forth the reporting
requirements for certain broad-based indexes that
do not have position limits.
E:\FR\FM\26DEN1.SGM
26DEN1
]]>Agencies
[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76132-76135]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31017]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68478; File No. SR-BOX-2012-023]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Increase the Position and Exercise Limits for Options on the iShares
MSCI Emerging Markets Index Fund to 500,000 Contracts
December 19, 2012.
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 December 12, 2012, BOX Options Exchange LLC (``BOX'' or
``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 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 Interpretive Material to Rule 3120
(Position Limits) to increase the position and exercise limits for
options on the iShares MSCI Emerging Markets Index Fund (``EEM'') to
500,000 contracts. The text of the proposed rule change is available
from the principal office of the Exchange, at the Commission's Public
[[Page 76133]]
Reference Room and also on the Exchange's Internet Web site at https://boxexchange.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
Position limits for exchange-traded fund (``ETFs'') options, such
as EEM options, are determined pursuant to Rule 3120 (Position Limits)
and vary according to the number of outstanding shares and trading
volume during the most recent six-month trading period of an underlying
stock or ETF. The largest in capitalization and most frequently traded
stocks and ETFs have an option position limit of 250,000 contracts
(with adjustments for splits, re-capitalizations, etc.) on the same
side of the market; smaller capitalization stocks and ETFs have
position limits of 200,000, 75,000, 50,000 or 25,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market. The current position limit for EEM options is 250,000
contracts. The purpose of the proposed rule change is to amend
Interpretative Material (IM-3120-2) to Rule 3120 to increase the
position and exercise limits for EEM options to 500,000 contracts.\3\
There is precedent for establishing position limits for options on
actively-traded ETFs and these position limit levels are set forth in
IM-3120-2.\4\
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\3\ By virtue of IM-3140-1 to Rule 3140, which is not being
amended by this filing, the exercise limit for EEM options would be
similarly increased. See IM-3140-1 to Rule 3140 (Exercise Limits).
\4\ IM-3120-2 lists exceptions to standard position limits which
are, for put or call option contracts overlying the following
securities: 300,000 contracts for the DIAMONDS Trust (DIA); 500,000
contracts for the iShares Russell 2000 Index Fund (IWM); 900,000
contracts for the PowerShares QQQ Trust (QQQQ); and no limit for the
Standard and Poor's Depository Receipts Trust (SPY).
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In support of this proposed rule change, and as noted by the
Chicago Board Options Exchange, Incorporated (``CBOE'') in a related
filing,\5\ the below trading statistics compare EEM to IWM and SPY. As
shown in the table, the average daily volume in 2011 for EEM was 65
million shares compared to 64.1 million shares for IWM and 213 million
shares for SPY. The total shares outstanding for EEM was 922.9 million
compared to 192.6 million shares for IWM and 716.1 million shares for
SPY. Further, the fund market cap for EEM was $41.1 billion compared to
$15.5 billion for IWM and $98.3 billion for SPY.
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\5\ See Securities Exchange Act Release No. 68086 (October 23,
2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066).
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2011 ADV (option Shares outstanding
ETF 2011 ADV (mil. shares) contracts) (Mil.) Fund market cap ($bil)
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EEM................................................. 65 280,000 922.9 41.1
IWM................................................. 64.1 662,500 192.6 15.5
SPY................................................. 213 2,892,000 716.1 98.3
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In further support of this proposal, the Exchange represents that
EEM still qualifies for the initial listing criteria set forth in Rule
5020(h) for ETFs holding non-U.S. component securities.\6\ EEM tracks
the performance of the MSCI Emerging Markets Index, which has
approximately 800 component securities.\7\ ``The MSCI Emerging Markets
Index is a free float-adjusted market capitalization index that is
designed to measure equity market performance of emerging markets. The
MSCI Emerging Markets Index consists of the following 21 emerging
market country indices: Brazil, Chile, China, Colombia, Czech Republic,
Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco,
Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and
Turkey.'' \8\ The Exchange represents that more than 50% of the weight
of the securities held by EEM are now subject to a comprehensive
surveillance agreement (``CSA'').\9\ Additionally, the component
securities of the MSCI Emerging Markets Index on which EEM is based for
which the primary market is in any one country that is not subject to a
CSA do not represent 20% or more of the weight of the MSCI Emerging
Markets Index.\10\ Finally, the component securities of the MSCI
Emerging Markets Index on which EEM is based for which the primary
market is in any two countries that are not subject to CSAs do not
represent 33% or more of the weight of the MSCI Emerging Markets
Index.\11\
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\6\ The Exchange notes that the initial listing criteria for
options on ETFs that hold non-U.S. component securities are more
stringent than the maintenance listing criteria for those same ETF
options. See Rule 5020(h) and Rule 5030(h).
\7\ See https://us.ishares.com/product_info/fund/overview/EEM.htm and https://www.msci.com/products/indices/licensing/msci_emerging_markets/. Identification of the specific securities in the
EEM and their individual concentrations in the EEM can be accessed
at: https://us.ishares.com/product_info/fund/holdings/EEM.htm.
\8\ See https://www.msci.com/products/indices/tools/#EM.
\9\ See Rule 5020(h)(2)(A).
\10\ See Rule 5020(h)(2)(B).
\11\ See Rule 5020(h)(2)(C).
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The Exchange believes that the liquidity in the underlying ETF and
the liquidity in EEM options support its request to increase the
position and exercise limits for EEM options. As to the underlying ETF,
through October 17, 2012 the year-to-date average daily trading volume
for EEM across all exchanges was 49.3 million shares. As to EEM
options, the year-to-date average daily trading volume for EEM options
across all exchanges was approximately 250,000 contracts. The Exchange
believes that increasing position limits for EEM options will lead to a
more liquid and competitive market environment for EEM options that
will benefit customers interested in this product. Under the Exchange's
proposal, the options reporting requirement for EEM would continue
unabated. Thus, the Exchange would still require that each Options
Participant and associated person of an Options Participant that
maintain a position in EEM options on the same side of the market, for
its own account or for the account of a customer, report certain
information to the Exchange.
[[Page 76134]]
This information would include, but would not be limited to, the option
position, whether such position is hedged and, if so, a description of
the hedge, and the collateral used to carry the position, if
applicable. In addition, the general reporting requirement for customer
accounts that maintain an aggregate position of 200 or more option
contracts would remain at this level for EEM options.\12\
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\12\ Reporting requirements are stated in Rule 3150 (Reports
Related to Position Limits).
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As the anniversary of listed options trading approaches its
fortieth year, the Exchange believes that the existing surveillance
procedures and reporting requirements at BOX Options Exchange LLC,
other options exchanges, and at the several clearing firms are capable
of properly identifying unusual and/or illegal trading activity. In
addition, routine oversight inspections of the Exchange's regulatory
programs by the Commission have not uncovered any material
inconsistencies or shortcomings in the manner in which the Exchange's
market surveillance is conducted. These procedures utilize daily
monitoring of market movements via automated surveillance techniques to
identify unusual activity in both options and underlying stocks.\13\
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\13\ These procedures have been effective for the surveillance
of EEM options trading and will continue to be employed.
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Furthermore, large stock holdings must be disclosed to the
Commission by way of Schedules 13D or 13G.\14\ Options positions are
part of any reportable positions and, thus, cannot be legally hidden.
Moreover, the Exchange's requirement that Options Participants are to
file reports with the Exchange for any customer who held aggregate
large long or short positions of any single class for the previous day
will continue to serve as an important part of the Exchange's
surveillance efforts.
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\14\ 17 CFR 240.13d-1.
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The Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns that an Options Participant or associated person of an Options
Participants or its customer may try to maintain an inordinately large
un-hedged position in an option, particularly on EEM. Current margin
and risk-based haircut methodologies serve to limit the size of
positions maintained by any one account by increasing the margin and/or
capital that a Participant must maintain for a large position held by
itself or by its customer.\15\ In addition, the Commission's net
capital rule, Rule 15c3-1\16\ under the Act imposes a capital charge on
Participants to the extent of any margin deficiency resulting from the
higher margin requirement, which should serve as an additional form of
protection.
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\15\ See Rule 10120 (Margin Requirements) for a description of
margin requirements.
\16\ 17 CFR 240.15c3-1.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder, including the
requirements of Section 6(b) of the Act.\17\ In particular, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5)\18\ requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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Specifically, the proposed rule change will benefit large market
makers (which generally have the greatest potential and actual ability
to provide liquidity and depth in the product), as well as retail
traders, investors, and public customers, by providing them with a more
effective trading and hedging vehicle. In addition, the Exchange
believes that the structure of EEM options and the considerable
liquidity of the market for EEM options diminish the opportunity to
manipulate this product and disrupt the underlying market that a lower
position limit may protect against.
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.
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: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act\19\ and Rule 19b-4(f)(6) thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has fulfilled this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange requests that the Commission waive
the 30-day operative delay so that it can increase the position and
exercise limits for EEM options immediately, which will result in
consistency and uniformity among the competing options exchanges as to
the position and exercise limits for EEM options. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest.\21\ The Commission
notes the proposal is substantively identical to a proposal that was
recently approved by the Commission, and does not raise any new
regulatory issues.\22\ For these reasons, the Commission designates the
proposed rule change as operative upon filing.
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\21\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\22\ See Securities Exchange Act Release No. 68086 (October 23,
2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-066).
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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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
[[Page 76135]]
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BOX-2012-023 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2012-023. 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 Web site (https://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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BOX-2012-023 and should be
submitted on or before January 16, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31017 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P
