Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Option Contracts Overlying 10 Shares of Certain Securities, 8208-8211 [2013-02426]
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8208
Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Notices
6(b)(5) 6 in particular in that it is
designed to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and in
general, to protect investors and the
public interest.
Specifically, the proposed change
would promote uniformity across
securities and futures markets
concerning when and how to halt
trading in relation to equity-based
products as a result of extraordinary
market volatility which in turn
facilitates the protection of investors
and the public interest. Having trading
halts apply across markets that operate
under different regulatory regimes will
benefit the public interest because
similar products will be subject to
consistent market-wide trading halt
rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CFE 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.7 The Exchange
believes that the proposal will
strengthen competition because
coordination of market-wide trading
halts among securities and futures
markets for equity-based products
avoids the competitive disadvantage
that would exist if some exchanges
trading equity-based products halted in
a coordinated fashion due to
extraordinary market volatility and
others did not.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
tkelley on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The proposed rule change will
become operative on February 4, 2013.
At any time within 60 days of the date
of effectiveness of the proposed rule
change, the Commission, after
consultation with the CFTC, may
summarily abrogate the proposed rule
change and require that the proposed
rule change be refiled in accordance
U.S.C. 78f(b)(5).
7 15 U.S.C. 78a et seq.
with the provisions of Section 19(b)(1)
of the Act.8
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–CFE–2013–002 on the
subject line.
17:18 Feb 04, 2013
[FR Doc. 2013–02422 Filed 2–4–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68771; File No. SR–BOX–
2013–07]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To List and
Trade Option Contracts Overlying 10
Shares of Certain Securities
Paper Comments
January 30, 2013.
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
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 January
22, 2013, 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.
All submissions should refer to File
Number SR–CFE–2013–002. 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 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 offices 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–CFE–
2013–002, and should be submitted on
or before February 26, 2013.
6 15
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade option contracts overlying 10
shares of a security (‘‘mini-options
contracts’’). The text of the proposed
rule change is available from the
principal office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s Internet 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
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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U.S.C. 78s(b)(1).
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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Notices
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
The purpose of the proposed rule
change is to add Interpretive Material to
Rule 3120 (Position Limits) and Rule
5050 (Series of Options Contracts Open
for Trading), and amend Rule 3130
(Exemptions from Position Limits) and
Rule 7040 (Meaning of Premium Quotes
and Orders) so that BOX may list and
trade Mini Options overlying five (5)
high-priced securities for which the
standard contract overlying the same
security exhibits significant liquidity.
Specifically, the Exchange proposes to
list Mini Options on SPDR S&P 500
(‘‘SPY’’), Apple, Inc. (‘‘AAPL’’), SPDR
Gold Trust (‘‘GLD’’), Google Inc.
(‘‘GOOG’’) and Amazon.com Inc.
(‘‘AMZN’’).3 The Exchange believes that
this proposal would allow investors to
select among options on various highpriced and actively traded securities,
each with a unit of trading ten times
lower than that of the regular-sized
options contracts, or 10 shares.
For example, with Apple Inc.
(‘‘AAPL’’) trading at $638.17 on October
8, 2012, ($63,817 for 100 shares
underlying a standard contract), the 640
level call expiring on October 19 was
trading at $8.30. The cost of the
standard contract overlying 100 shares
would be $830, which is substantially
8209
higher in notional terms than the
average equity option price of $255.02.4
Proportionately equivalent mini-options
contracts on AAPL would provide
investors with the ability to manage and
hedge their portfolio risk on their
underlying investment, at a price of
$83.00 per contract. In addition,
investors who hold a position in AAPL
at less than the round lot size would
still be able to avail themselves of
options to manage their portfolio risk.
For example, the holder of 50 shares of
AAPL could write covered calls for five
mini-options contracts. The table below
demonstrates the proposed differences
between a mini-options contract and a
standard contract with a strike price of
$125 per share and a bid or offer of
$3.20 per share:
Standard
Share Deliverable Upon Exercise ................................................................................................................................
Strike Price ...................................................................................................................................................................
Bid/Offer ........................................................................................................................................................................
Premium Multiplier ........................................................................................................................................................
Total Value of Deliverable ............................................................................................................................................
Total Value of Contract ................................................................................................................................................
100 shares ..
125 ..............
3.20 .............
$100 ............
$12,500 .......
$320 ............
Mini
10 shares
125
3.20
$10
$1,250
$32
tkelley on DSK3SPTVN1PROD with NOTICES
BOX currently lists and trades
standardized option contracts on a
number of equities and ExchangeTraded Funds (‘‘ETFs’’) each with a unit
of trading of 100 shares. Except for the
difference in the number of deliverable
shares, the proposed Mini Options
would have the same terms and contract
characteristics as regular-sized equity
and ETF options, including exercise
style. All existing Exchange rules
applicable to options on equities and
ETFs would apply to Mini Options,
except with respect to position and
exercise limits and hedge exemptions to
those position limits, which would be
tailored for the smaller size. Pursuant to
proposed Interpretive Material to Rule
3120 (IM–3120–3), position limits
applicable to a regular-sized option
contract would also apply to the Mini
Options on the same underlying
security, with 10 Mini Option contracts
counting as one regular-sized contract.
Positions in both the regular-sized
option contract and Mini Options on the
same security will be combined for
purposes of calculating positions.
Further, hedge exemptions will apply
pursuant to Rule 3130(b), which the
Exchange proposes to revise to provide
that 10 (as opposed to 100) shares of the
underlying security is the appropriate
hedge for Mini Options and to make
clear that the hedge exemptions apply to
the position limits set forth in IM–3120–
3.5
Also, of note, NYSE Arca, Inc.
(‘‘NYSE Arca’’) lists and trades option
contracts overlying a number of shares
other than 100.6 Moreover, the concept
of listing and trading parallel options
products of reduced values and sizes on
the same underlying security is not
novel. For example, parallel product
pairs on a full-value and reduced value
basis are currently listed on the S&P 500
Index (‘‘SPX’’ and ‘‘XSP,’’ respectively),
the Nasdaq 100 Index (‘‘NDX’’ and
‘‘MNX,’’ respectively) and the Russell
2000 Index (‘‘RUT’’ and ‘‘RMN,’’
respectively).
The Exchange believes that the
proposal to list Mini Options will not
lead to investor confusion. There are
two important distinctions between
Mini Options and regular-sized options
that are designed to ease the likelihood
of any investor confusion. First, the
premium multiplier for the proposed
Mini Options will be 10, rather than
100, to reflect the smaller unit of
trading. To reflect this change, the
Exchange proposes to add Rule 7040(c)
which notes that bids and offers for an
option contract overlying 10 shares
would be expressed in terms of dollars
per 1/10th part of the total value of the
contract. Thus, an offer of ‘‘.50’’ shall
represent an offer of $5.00 on an option
contract having a unit of trading
consisting of 10 shares. Second, the
Exchange intends to designate Mini
Options with different trading symbols
than those designated for the regularsized contracts. For example, while the
trading symbol for regular option
contracts for Apple, Inc. is AAPL, the
Exchange proposes to adopt AAPL7 as
the trading symbol for Mini Options on
that same security.
The Exchange proposes to add
Interpretive Material IM–5050–10 to
Rule 5050 (Series of Options Contracts
3 These issues were selected because they are
priced greater than $100 and are among the most
actively traded issues, in that the standard contract
exhibits average daily volume (‘‘ADV’’) over the
previous three calendar months of at least 45,000
contracts, excluding LEAPS and FLEX series. The
Exchange notes that any expansion of the program
would require that a subsequent proposed rule
change be submitted to the Commission.
4 2012 Year-to-date through September 28. A high
priced underlying security may have relatively
expensive options, because a low percentage move
in the share price may mean a large movement in
the options in terms of absolute dollars. See https://
www.theocc.com/webapps/monthly-volumereports?reportClass=equity.
5 Exchange Rule 3140 (Exercise Limits) refers to
exercise limits that correspond to aggregate
positions as described in Rule 3120 (Position
Limits). Today, the position limits established in a
given option under Rule 3120 is also the exercise
limit for such option. Thus, although the proposed
rule change would not amend the text of Rule 3140
(Exercise Limits) itself, the proposed change to add
IM–3120–3 would have a corresponding effect on
the exercise limits.
6 See Securities Exchange Act Release No. 44025
(February 28, 2001) 66 FR 13986 (March 8, 2001)
(approving SR–PCX–01–12).
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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Notices
Open for Trading) to reflect that strike
prices for Mini Options shall be set at
the same level as for regular options. For
example, a call series strike price to
deliver 10 shares of stock at $125 per
share has a total deliverable value of
$1,250, and the strike price will be set
at 125. Further, pursuant to proposed
new IM–5050–10, the Exchange
proposes to not permit the listing of
additional series of Mini Options if the
underlying is trading at $90 or less to
limit the number of strikes once the
underlying is no longer a high priced
security. The Exchange proposes a
$90.01 minimum for continued
qualification so that additional series of
Mini Options that correspond to
standard strikes may be added even
though the underlying has fallen
slightly below the initial qualification
standard. In addition, the underlying
security must be trading above $90 for
five consecutive days before the listing
of Mini Option contracts in a new
expiration month. This restriction will
allow the Exchange to list strikes in
Mini Options without disruption when
a new expiration month is added even
if the underlying has had a minor
decline in price. The same trading rules
applicable to existing equity and ETF
options would apply, including Market
Maker obligations, to Mini Options.7
The Exchange notes that by listing the
same strike price for Mini Options as for
regular options, the Exchange seeks to
keep intact the long-standing
relationship between the underlying
security and an option strike price thus
allowing investors to intuitively grasp
the option’s value, i.e., option is in the
money, at the money or out of the
money. The Exchange believes that by
not changing anything but the
multiplier and the option symbol, as
discussed above, retail investors will be
able to grasp the distinction between
regular option contracts and Mini
Options. The Exchange notes that The
Options Clearing Corporation (‘‘the
OCC’’) Symbology is structured for
contracts that have a deliverable of other
than 100 shares to be designated with a
numeric added to the standard trading
symbol. Further, the Exchange believes
that the contract characteristics of Mini
Options are consistent with the terms of
the Options Disclosure Document.
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
the potential additional traffic
7 See BOX Rules 8040 (Obligations of Market
Makers) and 8050 (Market Maker Quotations).
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17:18 Feb 04, 2013
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associated with the listing and trading
of Mini Options. The Exchange has
further discussed the proposed listing
and trading of Mini Options with the
OCC, which has represented that it is
able to accommodate the proposal. In
addition, the Exchange would file a
proposed rule change to adopt
transaction fees specific to Mini
Options. The Exchange notes that the
current Fee Schedule will not apply to
the trading of mini-options contracts.
The Exchange will not commence
trading of mini-option contracts until
specific fees for mini-options contracts
trading have been filed with the
Commission.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,8
in general, and with Section 6(b)(5) of
the Act,9 in particular, in that the
proposal is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Exchange believes that investors
would benefit from the introduction and
availability of Mini Options by making
options on high priced securities more
readily available as an investing tool at
more affordable prices, particularly for
average retail investors, who otherwise
may not be able to participate in trading
options on high priced securities. The
Exchange intends to adopt a different
trading symbol to distinguish Mini
Options from its currently listed option
contracts and therefore, eliminate
investor confusion with respect to
product distinction. Moreover, the
proposed rule change is designed to
protect investors and the public interest
by providing investors with an
enhanced tool to reduce risk in high
priced securities. In particular, Mini
Options would provide retail customers
who invest in SPY, AAPL, GLD, GOOG
and AMZN in lots of less than 100
shares with a means of protecting their
investments that is currently only
available to those who have positions of
100 shares or more. Further, the
proposed rule change is limited to just
five high priced securities to ensure that
only securities that have significant
options liquidity and therefore,
customer demand, are selected to have
Mini Options listed on them.
8 15
9 15
PO 00000
U.S.C. 78f.
U.S.C. 78f(b)(5).
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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. To the
contrary, the Exchange believes that
offering these products on BOX similar
to other exchanges will provide
investors with various venues in which
to trade Mini Options. The Exchange
notes that the rule change is being
proposed as a competitive response to
recently approved NYSE Arca and ISE
filings and believes this proposed rule
change is necessary to permit fair
competition among the options
exchanges.
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 10 and
Rule 19b–4(f)(6) thereunder.11
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 list and trade the proposed minioption contracts as soon as it is able.12
10 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.
12 The Commission notes that the Exchange’s
current Fee Schedule will not apply to the trading
of mini-option contracts, and the Exchange will not
11 17
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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Notices
The Commission believes that waiving
the 30-day operative delay is consistent
with the protection of investors and the
public interest.13 The Commission notes
the proposal is substantively identical to
proposals that were recently approved
by the Commission, and does not raise
any new regulatory issues.14 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
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–BOX–2013–07 on the
subject line.
tkelley on DSK3SPTVN1PROD with NOTICES
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–2013–07. 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
commence trading of mini-option contracts until
specific fees for mini-option contracts trading have
been filed with the Commission.
13 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).
14 See Securities Exchange Act Release No. 67948
(September 28, 2012), 77 FR 60735 (October 4,
2012) (SR–NYSEArca–2012–64 and SR–ISE–2012–
58).
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17:18 Feb 04, 2013
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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–
2013–07 and should be submitted on or
before February 26, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–02426 Filed 2–4–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68770; File No. SR–CBOE–
2013–011]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Delay the
Operative Date of a Rule Change To
Exchange Rule 6.3B
January 30, 2013.
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 January
28, 2013, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) 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.
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delay the
operative date of a rule change to
Exchange Rule 6.3B, which provides for
methodology for determining when to
halt trading in all stocks due to
extraordinary market volatility, from the
date of February 4, 2013, until April 8,
2013.
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 [sic].
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 6.3B, which provides the
methodology for determining when to
halt trading in all stocks due to
extraordinary market volatility,3 to
delay the operative date of the pilot by
which such Rule operates from the
current scheduled date of February 4,
2013, until April 8, 2013, to coincide
with the initial date of operations of the
Regulation NMS Plan to Address
Extraordinary Market Volatility (‘‘LULD
Plan’’).4 As proposed, the pilot period
3 Exchange Rule 6.3B does not currently contain
any reference to the specific levels of decline in the
DJIA that would trigger a market-wide trading halt.
Instead, the rule was amended in 1997 to provide
that a market-wide halt will be triggered on the
Exchange whenever a market-wide halt is in effect
on the New York Stock Exchange LLC (‘‘NYSE’’).
See Securities Exchange Act Release No. 38221
(January 31, 1997), 62 FR 5871 (February 7,
1997)(SR–CBOE–96–78).
4 The Exchange adopted the proposed changes to
the market-wide circuit breakers on a pilot basis for
a period that corresponds to the pilot period for the
LULD Plan so that the impact of the two proposals
can be reviewed together. See Securities Exchange
Act Release No. 67090 (May 31, 2012), 77 FR 33531
Continued
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]]>Agencies
[Federal Register Volume 78, Number 24 (Tuesday, February 5, 2013)]
[Notices]
[Pages 8208-8211]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02426]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68771; File No. SR-BOX-2013-07]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To List
and Trade Option Contracts Overlying 10 Shares of Certain Securities
January 30, 2013.
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 January 22, 2013, 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 list and trade option contracts overlying
10 shares of a security (``mini-options contracts''). The text of the
proposed rule change is available from the principal office of the
Exchange, at the Commission's Public Reference Room and also on the
Exchange's Internet 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
[[Page 8209]]
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
The purpose of the proposed rule change is to add Interpretive
Material to Rule 3120 (Position Limits) and Rule 5050 (Series of
Options Contracts Open for Trading), and amend Rule 3130 (Exemptions
from Position Limits) and Rule 7040 (Meaning of Premium Quotes and
Orders) so that BOX may list and trade Mini Options overlying five (5)
high-priced securities for which the standard contract overlying the
same security exhibits significant liquidity. Specifically, the
Exchange proposes to list Mini Options on SPDR S&P 500 (``SPY''),
Apple, Inc. (``AAPL''), SPDR Gold Trust (``GLD''), Google Inc.
(``GOOG'') and Amazon.com Inc. (``AMZN'').\3\ The Exchange believes
that this proposal would allow investors to select among options on
various high-priced and actively traded securities, each with a unit of
trading ten times lower than that of the regular-sized options
contracts, or 10 shares.
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\3\ These issues were selected because they are priced greater
than $100 and are among the most actively traded issues, in that the
standard contract exhibits average daily volume (``ADV'') over the
previous three calendar months of at least 45,000 contracts,
excluding LEAPS and FLEX series. The Exchange notes that any
expansion of the program would require that a subsequent proposed
rule change be submitted to the Commission.
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For example, with Apple Inc. (``AAPL'') trading at $638.17 on
October 8, 2012, ($63,817 for 100 shares underlying a standard
contract), the 640 level call expiring on October 19 was trading at
$8.30. The cost of the standard contract overlying 100 shares would be
$830, which is substantially higher in notional terms than the average
equity option price of $255.02.\4\ Proportionately equivalent mini-
options contracts on AAPL would provide investors with the ability to
manage and hedge their portfolio risk on their underlying investment,
at a price of $83.00 per contract. In addition, investors who hold a
position in AAPL at less than the round lot size would still be able to
avail themselves of options to manage their portfolio risk. For
example, the holder of 50 shares of AAPL could write covered calls for
five mini-options contracts. The table below demonstrates the proposed
differences between a mini-options contract and a standard contract
with a strike price of $125 per share and a bid or offer of $3.20 per
share:
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\4\ 2012 Year-to-date through September 28. A high priced
underlying security may have relatively expensive options, because a
low percentage move in the share price may mean a large movement in
the options in terms of absolute dollars. See https://www.theocc.com/webapps/monthly-volume-reports?reportClass=equity.
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Standard Mini
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Share Deliverable Upon Exercise 100 shares......... 10 shares
Strike Price................... 125................ 125
Bid/Offer...................... 3.20............... 3.20
Premium Multiplier............. $100............... $10
Total Value of Deliverable..... $12,500............ $1,250
Total Value of Contract........ $320............... $32
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BOX currently lists and trades standardized option contracts on a
number of equities and Exchange-Traded Funds (``ETFs'') each with a
unit of trading of 100 shares. Except for the difference in the number
of deliverable shares, the proposed Mini Options would have the same
terms and contract characteristics as regular-sized equity and ETF
options, including exercise style. All existing Exchange rules
applicable to options on equities and ETFs would apply to Mini Options,
except with respect to position and exercise limits and hedge
exemptions to those position limits, which would be tailored for the
smaller size. Pursuant to proposed Interpretive Material to Rule 3120
(IM-3120-3), position limits applicable to a regular-sized option
contract would also apply to the Mini Options on the same underlying
security, with 10 Mini Option contracts counting as one regular-sized
contract. Positions in both the regular-sized option contract and Mini
Options on the same security will be combined for purposes of
calculating positions. Further, hedge exemptions will apply pursuant to
Rule 3130(b), which the Exchange proposes to revise to provide that 10
(as opposed to 100) shares of the underlying security is the
appropriate hedge for Mini Options and to make clear that the hedge
exemptions apply to the position limits set forth in IM-3120-3.\5\
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\5\ Exchange Rule 3140 (Exercise Limits) refers to exercise
limits that correspond to aggregate positions as described in Rule
3120 (Position Limits). Today, the position limits established in a
given option under Rule 3120 is also the exercise limit for such
option. Thus, although the proposed rule change would not amend the
text of Rule 3140 (Exercise Limits) itself, the proposed change to
add IM-3120-3 would have a corresponding effect on the exercise
limits.
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Also, of note, NYSE Arca, Inc. (``NYSE Arca'') lists and trades
option contracts overlying a number of shares other than 100.\6\
Moreover, the concept of listing and trading parallel options products
of reduced values and sizes on the same underlying security is not
novel. For example, parallel product pairs on a full-value and reduced
value basis are currently listed on the S&P 500 Index (``SPX'' and
``XSP,'' respectively), the Nasdaq 100 Index (``NDX'' and ``MNX,''
respectively) and the Russell 2000 Index (``RUT'' and ``RMN,''
respectively).
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\6\ See Securities Exchange Act Release No. 44025 (February 28,
2001) 66 FR 13986 (March 8, 2001) (approving SR-PCX-01-12).
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The Exchange believes that the proposal to list Mini Options will
not lead to investor confusion. There are two important distinctions
between Mini Options and regular-sized options that are designed to
ease the likelihood of any investor confusion. First, the premium
multiplier for the proposed Mini Options will be 10, rather than 100,
to reflect the smaller unit of trading. To reflect this change, the
Exchange proposes to add Rule 7040(c) which notes that bids and offers
for an option contract overlying 10 shares would be expressed in terms
of dollars per 1/10th part of the total value of the contract. Thus, an
offer of ``.50'' shall represent an offer of $5.00 on an option
contract having a unit of trading consisting of 10 shares. Second, the
Exchange intends to designate Mini Options with different trading
symbols than those designated for the regular-sized contracts. For
example, while the trading symbol for regular option contracts for
Apple, Inc. is AAPL, the Exchange proposes to adopt AAPL7 as the
trading symbol for Mini Options on that same security.
The Exchange proposes to add Interpretive Material IM-5050-10 to
Rule 5050 (Series of Options Contracts
[[Page 8210]]
Open for Trading) to reflect that strike prices for Mini Options shall
be set at the same level as for regular options. For example, a call
series strike price to deliver 10 shares of stock at $125 per share has
a total deliverable value of $1,250, and the strike price will be set
at 125. Further, pursuant to proposed new IM-5050-10, the Exchange
proposes to not permit the listing of additional series of Mini Options
if the underlying is trading at $90 or less to limit the number of
strikes once the underlying is no longer a high priced security. The
Exchange proposes a $90.01 minimum for continued qualification so that
additional series of Mini Options that correspond to standard strikes
may be added even though the underlying has fallen slightly below the
initial qualification standard. In addition, the underlying security
must be trading above $90 for five consecutive days before the listing
of Mini Option contracts in a new expiration month. This restriction
will allow the Exchange to list strikes in Mini Options without
disruption when a new expiration month is added even if the underlying
has had a minor decline in price. The same trading rules applicable to
existing equity and ETF options would apply, including Market Maker
obligations, to Mini Options.\7\
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\7\ See BOX Rules 8040 (Obligations of Market Makers) and 8050
(Market Maker Quotations).
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The Exchange notes that by listing the same strike price for Mini
Options as for regular options, the Exchange seeks to keep intact the
long-standing relationship between the underlying security and an
option strike price thus allowing investors to intuitively grasp the
option's value, i.e., option is in the money, at the money or out of
the money. The Exchange believes that by not changing anything but the
multiplier and the option symbol, as discussed above, retail investors
will be able to grasp the distinction between regular option contracts
and Mini Options. The Exchange notes that The Options Clearing
Corporation (``the OCC'') Symbology is structured for contracts that
have a deliverable of other than 100 shares to be designated with a
numeric added to the standard trading symbol. Further, the Exchange
believes that the contract characteristics of Mini Options are
consistent with the terms of the Options Disclosure Document.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle the potential additional traffic associated with the
listing and trading of Mini Options. The Exchange has further discussed
the proposed listing and trading of Mini Options with the OCC, which
has represented that it is able to accommodate the proposal. In
addition, the Exchange would file a proposed rule change to adopt
transaction fees specific to Mini Options. The Exchange notes that the
current Fee Schedule will not apply to the trading of mini-options
contracts. The Exchange will not commence trading of mini-option
contracts until specific fees for mini-options contracts trading have
been filed with the Commission.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general, and with
Section 6(b)(5) of the Act,\9\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, 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.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that investors would benefit from the
introduction and availability of Mini Options by making options on high
priced securities more readily available as an investing tool at more
affordable prices, particularly for average retail investors, who
otherwise may not be able to participate in trading options on high
priced securities. The Exchange intends to adopt a different trading
symbol to distinguish Mini Options from its currently listed option
contracts and therefore, eliminate investor confusion with respect to
product distinction. Moreover, the proposed rule change is designed to
protect investors and the public interest by providing investors with
an enhanced tool to reduce risk in high priced securities. In
particular, Mini Options would provide retail customers who invest in
SPY, AAPL, GLD, GOOG and AMZN in lots of less than 100 shares with a
means of protecting their investments that is currently only available
to those who have positions of 100 shares or more. Further, the
proposed rule change is limited to just five high priced securities to
ensure that only securities that have significant options liquidity and
therefore, customer demand, are selected to have Mini Options listed on
them.
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. To the contrary, the Exchange
believes that offering these products on BOX similar to other exchanges
will provide investors with various venues in which to trade Mini
Options. The Exchange notes that the rule change is being proposed as a
competitive response to recently approved NYSE Arca and ISE filings and
believes this proposed rule change is necessary to permit fair
competition among the options exchanges.
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 \10\ and Rule 19b-4(f)(6)
thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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 list and trade the proposed
mini-option contracts as soon as it is able.\12\
[[Page 8211]]
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public
interest.\13\ The Commission notes the proposal is substantively
identical to proposals that were recently approved by the Commission,
and does not raise any new regulatory issues.\14\ For these reasons,
the Commission designates the proposed rule change as operative upon
filing.
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\12\ The Commission notes that the Exchange's current Fee
Schedule will not apply to the trading of mini-option contracts, and
the Exchange will not commence trading of mini-option contracts
until specific fees for mini-option contracts trading have been
filed with the Commission.
\13\ 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).
\14\ See Securities Exchange Act Release No. 67948 (September
28, 2012), 77 FR 60735 (October 4, 2012) (SR-NYSEArca-2012-64 and
SR-ISE-2012-58).
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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
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-2013-07 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-2013-07. 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-2013-07 and should be
submitted on or before February 26, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02426 Filed 2-4-13; 8:45 am]
BILLING CODE 8011-01-P
