Self-Regulatory Organizations; BOX Options Exchange LLC; Order Granting Approval of Proposed Rule Change To List and Trade Option Contracts Overlying 1,000 Shares of the SPDR S&P 500 Exchange-Traded Fund, 27271-27274 [2013-11002]
Download as PDF
<![CDATA[
Federal Register / Vol. 78, No. 90 / Thursday, May 9, 2013 / Notices
to be fair and reasonable because these
DLMMs satisfy additional quoting and
other obligations in the specific option
class not faced by either Market Makers
in the relevant class or DLMMs without
an appointment in the relevant class.
The Exchange believes that satisfying
additional quoting and other obligations
balances the benefit of the DLMM
participation entitlement and justifies
limiting it to DLMMs with an
appointment in the relevant option
class. The Exchange notes that such a
limitation on the DLMM participation is
not new to this proposal, but is a
continuation of the current operation of
Rule 514(h).
The Exchange notes that it operates in
a highly competitive market in which
market participants can readily direct
order flow to competing venues who
offer similar functionality. Many
competing venues offer similar
functionality to market participants. To
this end, the Exchange is proposing a
market enhancement to encourage
market participants to trade on the
Exchange. The Exchange believes the
proposed rule change is procompetitive
because it would enable the Exchange to
provide member organizations with
functionality that is similar to that of
other exchanges.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
mstockstill on DSK4VPTVN1PROD with NOTICES
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 11 and Rule 19b–4(f)(6) 12
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
11 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
12 17
VerDate Mar<15>2010
17:18 May 08, 2013
Jkt 229001
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–MIAX–2013–20 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–MIAX–2013–20. 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
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
27271
should refer to File Number SR–MIAX–
2013–20 and should be submitted on or
before May 30, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–11000 Filed 5–8–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69511; File No. SR–BOX–
2013–06
Self-Regulatory Organizations; BOX
Options Exchange LLC; Order
Granting Approval of Proposed Rule
Change To List and Trade Option
Contracts Overlying 1,000 Shares of
the SPDR S&P 500 Exchange-Traded
Fund
May 3, 2013.
I. Introduction
On January 18, 2013, BOX Options
Exchange LLC (‘‘Exchange’’ or ‘‘BOX)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade option contracts
overlying 1,000 shares of the SPDR S&P
500 Exchange-Traded Fund (‘‘Jumbo
SPY Options’’). The proposed rule
change was published for comment in
the Federal Register on February 4,
2013.3 The Commission initially
received two comment letters on the
proposed rule change.4 On March 20,
2013, the Commission extended the
time period for Commission action to
May 5, 2013.5 The Commission
subsequently received one additional
comment letter on the proposed rule
change.6 On April 19, 2013, BOX
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 68759
(January 29, 2013), 78 FR 7835 (‘‘Notice’’).
4 See letters to Elizabeth M. Murphy, Secretary,
Commission, from Janet McGinness, EVP &
Corporate Secretary, General Counsel, NYSE
Markets, NYSE Euronext (‘‘NYSE’’), dated February
25, 2013 (‘‘NYSE Letter’’) and Edward T. Tilly,
President and Chief Operating Officer, Chicago
Board Options Exchange, Incorporated (‘‘CBOE’’),
dated February 25, 2013 (‘‘CBOE Letter’’).
5 See Securities Exchange Act Release No. 69193,
78 FR 18403 (March 26, 2013).
6 See letter to Elizabeth M. Murphy, Secretary,
Commission, from Joan C. Conley, Senior Vice
President & Corporate Secretary, NASDAQ OMX
Group, Inc. (‘‘Nasdaq’’), dated March 21, 2013
(‘‘Nasdaq Letter’’).
1 15
E:\FR\FM\09MYN1.SGM
09MYN1
27272
Federal Register / Vol. 78, No. 90 / Thursday, May 9, 2013 / Notices
submitted a response to the comment
letters.7 This order grants approval of
the proposed rule change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade Jumbo SPY Options, which are
option contracts that overlie 1,000 SPDR
S&P 500 Exchange-Traded Fund
(‘‘SPY’’) shares. Under the Exchange’s
proposal, Jumbo SPY Options would be
assigned different trading symbols
(SPYJ) than the corresponding standard
options on SPY.8 In addition, the
Exchange proposes to list Jumbo SPY
Options for all expirations applicable to
standard options on SPY,9 and proposes
that strike prices for Jumbo SPY Options
be set at the same level as standard
options on SPY.10 Bids and offers for
Jumbo SPY Options would be expressed
in terms of dollars per 1/1000th part of
the total value of the options contract.11
The table below, which was included by
the Exchange in its filing, demonstrates
the proposed differences between a
Jumbo SPY Option and a standard SPY
option with a strike price of $45 per
share and a bid or offer of $3.20 per
share:
Standard
Shares Deliverable Upon Exercise ...............................................................................................
Strike Price ...................................................................................................................................
Bid or Offer ...................................................................................................................................
Premium Multiplier ........................................................................................................................
Total Value of Deliverable ............................................................................................................
Total Value of Contract ................................................................................................................
100 shares ..................
45 ................................
3.20 .............................
$100 ............................
$4,500 .........................
$320 ............................
Jumbo
1,000 shares.
45.
3.20.
$1,000.
$45,000.
$3,200.
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.13 Specifically, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,14 which requires,
among other things, that the rules of a
national securities exchange be
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.
Commenters raised and the Exchange
addressed in its response several issues
related to the proposal, which are
discussed below.
All three commenters express concern
that the proposal did not specify the
minimum price variation that would be
applicable to Jumbo SPY Options and
that market participants could not
understand how this new product
would trade without this information.15
In particular, NYSE expresses concern
that if BOX imposes a higher minimum
price variation for Jumbo SPY Options
as compared to existing SPY options,
the marketplace would have no ability
to provide tight and competitive
markets in Jumbo SPY Options, using
standard SPY options as a reference.16
Similarly, Nasdaq also questions the
merit of BOX’s conclusion that because
of the liquidity in SPY and options on
SPY, existing market forces should keep
the prices between standard SPY
options and Jumbo SPY Options
consistent.17
NYSE and Nasdaq also state that the
proposal fails to discuss Jumbo SPY
Options in the context of BOX’s price
improvement process (‘‘PIP’’).18 NYSE
further states that if Jumbo SPY Options
would be eligible for the PIP, a different
minimum price variation would be of
even greater concern.19 In addition,
NYSE points out that the proposal does
not discuss the treatment of Jumbo SPY
Options for purposes of complex orders,
market maker appointments, and market
maker quoting obligations.20 Lastly,
CBOE states that the proposal fails to
state whether BOX’s existing fee
schedule will apply to Jumbo SPY
Options.21
In its response letter, BOX states that
it will file a rule change before the
launch of Jumbo SPY Options to
provide that the minimum price
variation for Jumbo SPY Options will be
the same as the minimum price
variation for standard options on SPY
(i.e., penny increments).22 BOX also
states that it will file a rule change
before the launch of Jumbo SPY Options
to provide additional details with
respect to complex orders, PIP,
minimum contract thresholds for
solicitation and facilitation auctions,
market maker appointments and
obligations, and fees.23
Specifically, BOX notes that Jumbo
SPY Options will interact with complex
orders in the same manner as mini
options.24 Further, Jumbo SPY Options
will be eligible for PIP auctions.25 With
respect to minimum contract thresholds
in the solicitation and facilitation
auctions, BOX will adjust the thresholds
for Jumbo SPY Options to 1/10th of its
current requirement for standard
options.26 With respect to market maker
appointment and quoting obligations,
Jumbo SPY Options will be treated in
the same manner as mini options.27
Finally, BOX states that its current
transaction fees will not apply to Jumbo
SPY Options, and BOX will not
commence trading of Jumbo SPY
7 See letter to Elizabeth M. Murphy, Secretary,
Commission, from Lisa J. Fall, President, BOX,
dated April 19, 2013 (‘‘BOX Response Letter’’).
8 See Notice, supra note 3, at 7836.
9 See BOX Rule 5050(e)(1).
10 See BOX Rule 5050(e)(2).
11 See BOX Rule 5050(e)(3).
12 See Notice, supra note 3, at 7836. The
Exchange also states that it has discussed the
proposed listing and trading of Jumbo SPY Options
with the Options Clearing Corporation (‘‘OCC’’),
and the OCC has represented that it is able to
accommodate Jumbo SPY Options. See id.
13 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
14 15 U.S.C. 78f(b)(5).
15 See NYSE Letter, supra note 4, at 1–2; CBOE
Letter, supra note 4, at 3; and Nasdaq Letter, supra
note 6, at 2.
16 See NYSE Letter, supra note 4, at 2.
17 See Nasdaq Letter, supra note 6, at 2.
18 See NYSE Letter, supra note 4, at 2 and Nasdaq
Letter, supra note 6, at 2.
19 See NYSE Letter, supra note 4, at 2–3.
20 See id., at 5.
21 See CBOE Letter, supra note 4, at 4.
22 See BOX Response Letter, supra note 7, at 1.
23 See id., at 3.
24 See id.
25 See id.
26 See id.
27 See id.
The Exchange states that it has
analyzed its capacity and represents that
it and the Options Price Reporting
Authority have the necessary systems
capacity to handle the potential
additional traffic associated with the
listing and trading of Jumbo SPY
Options.12
mstockstill on DSK4VPTVN1PROD with NOTICES
III. Discussion and Commission
Findings
VerDate Mar<15>2010
17:18 May 08, 2013
Jkt 229001
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
E:\FR\FM\09MYN1.SGM
09MYN1
Federal Register / Vol. 78, No. 90 / Thursday, May 9, 2013 / Notices
Options until specific fees have been
filed with the Commission.28
NYSE argues that the proposal
provides no explanation for why Jumbo
SPY Options would make options on
large blocks of the SPY ETF more
available as an investing tool,
particularly for institutional investors.29
NYSE also states that, unlike mini
options, Jumbo SPY Options do not
enable any trade to take place that
cannot already take place because an
institutional investor looking to
purchase 1,000 contracts of a given SPY
option is already able to do so in the
standard-sized SPY options market.30
Nasdaq similarly comments that Jumbo
SPY Options bring no benefits to
investors or the market.31
In its response letter, BOX states its
belief that Jumbo SPY Options would
benefit investors by providing
additional methods to trade highly
liquid options on SPY and providing
greater ability to hedge risk in managing
larger portfolios.32 BOX also states its
belief that the market will decide the
issue of whether or not Jumbo SPY
Options add value, and that market
participants may elect not to trade
Jumbo SPY options if they find these
options to not add value to the
marketplace.33 In addition, in its
response letter, BOX represents that its
current transaction fees will not apply
to Jumbo SPY Options, and it will not
commence trading of Jumbo SPY
Options until specific fees have been
filed with the Commission.34 The
Commission believes that the listing and
trading of Jumbo SPY Options could
benefit investors by providing them
with an additional investment
alternative. In addition, the Commission
believes, as noted by BOX in the
proposal, that the listing and trading of
Jumbo SPY Options could benefit
investors by providing another means to
mitigate risk in managing large
portfolios, particularly for institutional
investors.35
All three commenters express concern
that the proposal can cause investor
confusion.36 In its response letter, BOX
states that it does not believe that the
listing of a third product on SPY will
lead to any more confusion than having
28 See
id.
NYSE Letter, supra note 4, at 4.
30 See id.
31 See Nasdaq Letter, supra note 6, at 3.
32 See BOX Response Letter, supra note 7, at 2.
33 See id.
34 See id., at 3.
35 See Notice, supra note 3, at 7836.
36 See NYSE Letter, supra note 4, at 5–6; CBOE
Letter, supra note 4, at 2–3; and Nasdaq Letter,
supra note 6, at 1.
mstockstill on DSK4VPTVN1PROD with NOTICES
29 See
VerDate Mar<15>2010
17:18 May 08, 2013
Jkt 229001
two options on SPY.37 BOX notes that
Jumbo SPY Options will be designated
with a different trading symbol (SPYJ).38
BOX also states that the marketplace
and investors have matured and become
more sophisticated, and investors will
easily be able to differentiate between
standard, mini, and Jumbo SPY
options.39 The Commission agrees that
the use of different trading symbols for
Jumbo SPY Options should help
investors and other market participants
to distinguish those options from the
corresponding standard and mini
options. The Commission also believes
that the proposed treatment of strike
prices 40 and bids and offers 41 for Jumbo
SPY Options is consistent with the Act,
as these amendments should make clear
how Jumbo SPY Options would be
quoted and traded.
NYSE states that Jumbo SPY Options
are designed specifically for large
institutional investors and are generally
too large for average retail investors and,
thus, could create a two-tiered market
for SPY options.42 According to NYSE,
today, when an institutional investor
trades 10 standard SPY options, it helps
to foster transparency and price
discovery, which directly benefits retail
investors.43 NYSE expresses the concern
that Jumbo SPY Options will likely
result in some of the institutional
activity migrating away from the
standard SPY options, to the direct
detriment of retail investors.44
Similarly, CBOE argues that the
potential for market fragmentation
increases with each additional and
different contract on a single security,
even if that security is highly liquid
with a well-established trading
history.45 Nasdaq also raises questions
regarding the potential for a two-tiered
market for SPY options and the impact
of Jumbo SPY Options on the existing
market for standard and mini SPY
options.46 Further, Nasdaq raises the
question of whether Jumbo SPY Options
37 See
BOX Response Letter, supra note 7, at 1.
id., at 2.
39 See id., at 1–2.
40 See BOX Rule 5050(e)(2).
41 See BOX Rule 5050(e)(3).
42 See NYSE Letter, supra note 4, at 3–4.
43 See id., at 4.
44 See id.
45 See CBOE Letter, supra note 4, at 3.
46 See Nasdaq Letter, supra note 6, at 2. See also
CBOE Letter, supra note 4, at n.2 (commenting that
the proposal does not reference the potential impact
on the marketplace of having three different
contracts trading concurrently on the same security)
and 4 (stating that the introduction of several
contracts on the same security with differing
deliverable share amounts warrants an incremental
and measured approach by the Commission and
that the Commission should consider a studied
analysis of the marketplace’s reception to and any
possible confusion that could result from having
38 See
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
27273
could materially fragment liquidity and
harm or weaken the price discovery
process.47
In the case of the market for SPY
options, BOX notes in its response letter
that there generally exists a critical mass
of willing buyers and sellers both for the
options and for the underlying
securities that mitigate the concerns
raised by the commenters.48
Specifically, BOX notes in its filing that
standard options on SPY are currently
the most actively traded options in
terms of average daily volume.49
Further, in its filing, BOX states its
understanding that the OCC’s portfolio
margining process will be set to have
positions in a standard contract and a
jumbo contract set against each other,
and that consistent cross margining will
be available between standard and
jumbo options.50 BOX concludes that
the availability of Jumbo SPY Options
would likely result in more efficient
pricing through arbitrage with standard
SPY options.51 In its response letter,
BOX also states that the trading of
Jumbo SPY Options has the potential of
providing greater liquidity by providing
increased opportunity for trading and,
consequently, increasing price
transparency by providing additional
information to market participants.52
The Commission notes that price
protection would not apply across
standard and Jumbo SPY Options on an
intramarket basis, as they are separate
products. The Commission recognizes
that trading different options products
that overlie the same security could
disperse trading interest across the
products to some extent. In illiquid or
nascent markets, increased dispersion
across products may cause particular
concern, as the markets for the separate
products may lack the critical mass of
buyers and sellers to allow such a
market to become established or, once
established, to thrive. The Commission
believes that the high trading volume
different contracts on the same security that expire
on the same day and that deliver varying share
amounts).
47 See Nasdaq Letter, supra note 6, at 2.
48 See BOX Response Letter, supra note 7, at 2.
49 See Notice, supra note 3, at 7836. According to
BOX, the average daily volume for SPY options was
2,156,482 contracts in April 2012. See id., at n.5.
The average daily volume for the same period for
the next four most actively traded options was:
Apple Inc.—1,074,351; S&P 500 Index—656,250;
PowerShares QQQ TrustSM, Series 1—573,790; and
iShares® Russell 2000® Index Fund—550,316. See
id. See also OCC Exchange Volume by Class,
available at https://theocc.com/webapps/volbyclassreports (indicating that SPY options are currently
the most actively traded options in terms of
volume).
50 See id., at 7836.
51 See id.
52 See BOX Response Letter, supra note 7, at 3.
E:\FR\FM\09MYN1.SGM
09MYN1
27274
Federal Register / Vol. 78, No. 90 / Thursday, May 9, 2013 / Notices
and liquidity in the market for SPY and
SPY options should mitigate the market
fragmentation and price protection
concerns that commenters raised.53
Moreover, the Commission notes that
the proposal is limited to jumbo options
on SPY and in order to expand the
trading of jumbo options beyond those
overlying SPY, BOX would be required
to file new proposed rule changes with
the Commission pursuant to Section
19(b) of the Act.54 Proposals to expand
jumbo options to cover other underlying
securities that do not exhibit the depth
and liquidity of the SPY and SPY
options markets potentially could give
rise to concern. Finally, the Commission
expects BOX to monitor the trading of
Jumbo SPY Options to evaluate whether
any issues develop.
As a national securities exchange, the
Exchange is required, under Section
6(b)(1) of the Act,55 to enforce
compliance by its members and persons
associated with its members with the
provisions of the Act, Commission rules
and regulations thereunder, and its own
rules. In this regard, the Commission
notes that the Exchange’s rules that
apply to the trading of standard options
would apply to Jumbo SPY Options.
The Commission also notes that the
Exchange’s existing market maker
quoting obligations would apply to
Jumbo SPY Options.56 In addition, the
Commission notes that intermarket
trade-through protection would apply to
Jumbo SPY Options to the extent that
they are traded on more than one
market.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,57 that the
proposed rule change (SR–BOX–2013–
06) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–11002 Filed 5–8–13; 8:45 am]
mstockstill on DSK4VPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
53 See OCC Exchange Volume by Class, available
at https://theocc.com/webapps/volbyclass-reports
(indicating that SPY options are currently the most
actively traded options in terms of volume).
54 See Notice, supra note 3, at n.5.
55 15 U.S.C. 78f(b)(1).
56 See BOX Rule 8050.
57 15 U.S.C. 78s(b)(2).
58 17 CFR 200.30–3(a)(12).
VerDate Mar<15>2010
17:18 May 08, 2013
Jkt 229001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69510; File No. SR–EDGX–
2013–15]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Amendments
to the EDGX Exchange, Inc. Fee
Schedule
May 3, 2013.
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 May 1,
2013, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which items have been prepared
by the self-regulatory organization. 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 its
fees and rebates applicable to Members 3
of the Exchange pursuant to EDGX Rule
15.1(a) and (c). All of the changes
described herein are applicable to EDGX
Members. The text of the proposed rule
change is available on the Exchange’s
Internet Web site at
www.directedge.com, at the Exchange’s
principal office, and at the Public
Reference Room of the Commission.
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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 As defined in Exchange Rule 1.5(n).
2 17
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In securities priced at or above $1.00,
the Exchange currently provides a
rebate of $0.0002 per share for Members’
orders that yield Flag BY, which routes
to BATS BYX (‘‘BYX’’) and removes
liquidity using routing strategies ROUC,
ROUE, or ROBY.4 The Exchange
proposes to amend its fee schedule to
assess no charge (‘‘free’’) nor provide
any rebate for Members’ orders that
yield Flag BY. When Direct Edge ECN
LLC (d/b/a DE Route) (‘‘DE Route’’), the
Exchange’s affiliated routing brokerdealer, routes to BYX, it is rebated
$0.0005 per share for adding an average
daily volume of 50,000 shares per day
on BYX.5 However, DE Route will pass
through the non-tiered rate on BYX (no
fee nor rebate) to the Exchange and the
Exchange, in turn, will pass through no
fee nor rebate to its Members.6
In securities priced at $1.00 or above,
the Exchange currently assesses a charge
of $0.0005 per share for Members’
orders that yield Flag RY, which routes
to BYX and adds liquidity. The
Exchange proposes to amend its fee
schedule to increase the rate it charges
Members from $0.0005 per share to
$0.0007 per share for Flag RY. The
proposed change represents a pass
through of the rate that DE Route is
charged for routing orders to BYX that
do not qualify for additional volume
tiered discounts.7 DE Route passes
through the charge to the Exchange and
the Exchange, in turn, passes through
the charge to its Members. The
Exchange notes that the proposed
change is in response to BYX’s April
2013 fee filing with the Commission,
wherein BYX increased the rate it
charges its customers, such as DE Route,
from a charge of $0.0005 per share to a
charge of $0.0007 per share for orders
4 As
defined in Exchange Rule 11.9(b)(2).
Securities Exchange Act Release No. 69317
(April 5, 2013), 78 FR 21651 (April 11, 2013) (SR–
BYX–2013–012) (amending the rebate BYX
provides for removing liquidity from the BYX order
book for executions by members that add a daily
average volume of at least 50,000 shares from
$0.0002 per share to $0.0005 per share).
6 The Exchange notes that to the extent DE Route
does or does not achieve any volume tiered rebate
on BYX, its rate for Flag BY will not change. See
BYX Fee Schedule, https://cdn.batstrading.com/
resources/regulation/rule_book/BATSExchanges_Fee_Schedules.pdf (offering no rebate to
remove liquidity from BYX for executions by its
members that do not qualify for an enhanced
rebate).
7 The Exchange notes that to the extent DE Route
does or does not achieve any volume tiered rebate
on BYX, its rate for Flag RY will not change.
5 See
E:\FR\FM\09MYN1.SGM
09MYN1
]]>Agencies
[Federal Register Volume 78, Number 90 (Thursday, May 9, 2013)]
[Notices]
[Pages 27271-27274]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11002]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69511; File No. SR-BOX-2013-06
Self-Regulatory Organizations; BOX Options Exchange LLC; Order
Granting Approval of Proposed Rule Change To List and Trade Option
Contracts Overlying 1,000 Shares of the SPDR S&P 500 Exchange-Traded
Fund
May 3, 2013.
I. Introduction
On January 18, 2013, BOX Options Exchange LLC (``Exchange'' or
``BOX) filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade option contracts overlying 1,000
shares of the SPDR S&P 500 Exchange-Traded Fund (``Jumbo SPY
Options''). The proposed rule change was published for comment in the
Federal Register on February 4, 2013.\3\ The Commission initially
received two comment letters on the proposed rule change.\4\ On March
20, 2013, the Commission extended the time period for Commission action
to May 5, 2013.\5\ The Commission subsequently received one additional
comment letter on the proposed rule change.\6\ On April 19, 2013, BOX
[[Page 27272]]
submitted a response to the comment letters.\7\ This order grants
approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 68759 (January 29,
2013), 78 FR 7835 (``Notice'').
\4\ See letters to Elizabeth M. Murphy, Secretary, Commission,
from Janet McGinness, EVP & Corporate Secretary, General Counsel,
NYSE Markets, NYSE Euronext (``NYSE''), dated February 25, 2013
(``NYSE Letter'') and Edward T. Tilly, President and Chief Operating
Officer, Chicago Board Options Exchange, Incorporated (``CBOE''),
dated February 25, 2013 (``CBOE Letter'').
\5\ See Securities Exchange Act Release No. 69193, 78 FR 18403
(March 26, 2013).
\6\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Joan C. Conley, Senior Vice President & Corporate Secretary,
NASDAQ OMX Group, Inc. (``Nasdaq''), dated March 21, 2013 (``Nasdaq
Letter'').
\7\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Lisa J. Fall, President, BOX, dated April 19, 2013 (``BOX
Response Letter'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Jumbo SPY Options, which
are option contracts that overlie 1,000 SPDR S&P 500 Exchange-Traded
Fund (``SPY'') shares. Under the Exchange's proposal, Jumbo SPY Options
would be assigned different trading symbols (SPYJ) than the
corresponding standard options on SPY.\8\ In addition, the Exchange
proposes to list Jumbo SPY Options for all expirations applicable to
standard options on SPY,\9\ and proposes that strike prices for Jumbo
SPY Options be set at the same level as standard options on SPY.\10\
Bids and offers for Jumbo SPY Options would be expressed in terms of
dollars per 1/1000th part of the total value of the options
contract.\11\ The table below, which was included by the Exchange in
its filing, demonstrates the proposed differences between a Jumbo SPY
Option and a standard SPY option with a strike price of $45 per share
and a bid or offer of $3.20 per share:
---------------------------------------------------------------------------
\8\ See Notice, supra note 3, at 7836.
\9\ See BOX Rule 5050(e)(1).
\10\ See BOX Rule 5050(e)(2).
\11\ See BOX Rule 5050(e)(3).
------------------------------------------------------------------------
Standard Jumbo
------------------------------------------------------------------------
Shares Deliverable Upon Exercise 100 shares........ 1,000 shares.
Strike Price.................... 45................ 45.
Bid or Offer.................... 3.20.............. 3.20.
Premium Multiplier.............. $100.............. $1,000.
Total Value of Deliverable...... $4,500............ $45,000.
Total Value of Contract......... $320.............. $3,200.
------------------------------------------------------------------------
The Exchange states that it has analyzed its capacity and
represents that it and the Options Price Reporting Authority have the
necessary systems capacity to handle the potential additional traffic
associated with the listing and trading of Jumbo SPY Options.\12\
---------------------------------------------------------------------------
\12\ See Notice, supra note 3, at 7836. The Exchange also states
that it has discussed the proposed listing and trading of Jumbo SPY
Options with the Options Clearing Corporation (``OCC''), and the OCC
has represented that it is able to accommodate Jumbo SPY Options.
See id.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\13\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\14\ which requires, among
other things, that the rules of a national securities exchange be
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. Commenters raised and the Exchange addressed in its response
several issues related to the proposal, which are discussed below.
---------------------------------------------------------------------------
\13\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
All three commenters express concern that the proposal did not
specify the minimum price variation that would be applicable to Jumbo
SPY Options and that market participants could not understand how this
new product would trade without this information.\15\ In particular,
NYSE expresses concern that if BOX imposes a higher minimum price
variation for Jumbo SPY Options as compared to existing SPY options,
the marketplace would have no ability to provide tight and competitive
markets in Jumbo SPY Options, using standard SPY options as a
reference.\16\ Similarly, Nasdaq also questions the merit of BOX's
conclusion that because of the liquidity in SPY and options on SPY,
existing market forces should keep the prices between standard SPY
options and Jumbo SPY Options consistent.\17\
---------------------------------------------------------------------------
\15\ See NYSE Letter, supra note 4, at 1-2; CBOE Letter, supra
note 4, at 3; and Nasdaq Letter, supra note 6, at 2.
\16\ See NYSE Letter, supra note 4, at 2.
\17\ See Nasdaq Letter, supra note 6, at 2.
---------------------------------------------------------------------------
NYSE and Nasdaq also state that the proposal fails to discuss Jumbo
SPY Options in the context of BOX's price improvement process
(``PIP'').\18\ NYSE further states that if Jumbo SPY Options would be
eligible for the PIP, a different minimum price variation would be of
even greater concern.\19\ In addition, NYSE points out that the
proposal does not discuss the treatment of Jumbo SPY Options for
purposes of complex orders, market maker appointments, and market maker
quoting obligations.\20\ Lastly, CBOE states that the proposal fails to
state whether BOX's existing fee schedule will apply to Jumbo SPY
Options.\21\
---------------------------------------------------------------------------
\18\ See NYSE Letter, supra note 4, at 2 and Nasdaq Letter,
supra note 6, at 2.
\19\ See NYSE Letter, supra note 4, at 2-3.
\20\ See id., at 5.
\21\ See CBOE Letter, supra note 4, at 4.
---------------------------------------------------------------------------
In its response letter, BOX states that it will file a rule change
before the launch of Jumbo SPY Options to provide that the minimum
price variation for Jumbo SPY Options will be the same as the minimum
price variation for standard options on SPY (i.e., penny
increments).\22\ BOX also states that it will file a rule change before
the launch of Jumbo SPY Options to provide additional details with
respect to complex orders, PIP, minimum contract thresholds for
solicitation and facilitation auctions, market maker appointments and
obligations, and fees.\23\
---------------------------------------------------------------------------
\22\ See BOX Response Letter, supra note 7, at 1.
\23\ See id., at 3.
---------------------------------------------------------------------------
Specifically, BOX notes that Jumbo SPY Options will interact with
complex orders in the same manner as mini options.\24\ Further, Jumbo
SPY Options will be eligible for PIP auctions.\25\ With respect to
minimum contract thresholds in the solicitation and facilitation
auctions, BOX will adjust the thresholds for Jumbo SPY Options to 1/
10th of its current requirement for standard options.\26\ With respect
to market maker appointment and quoting obligations, Jumbo SPY Options
will be treated in the same manner as mini options.\27\ Finally, BOX
states that its current transaction fees will not apply to Jumbo SPY
Options, and BOX will not commence trading of Jumbo SPY
[[Page 27273]]
Options until specific fees have been filed with the Commission.\28\
---------------------------------------------------------------------------
\24\ See id.
\25\ See id.
\26\ See id.
\27\ See id.
\28\ See id.
---------------------------------------------------------------------------
NYSE argues that the proposal provides no explanation for why Jumbo
SPY Options would make options on large blocks of the SPY ETF more
available as an investing tool, particularly for institutional
investors.\29\ NYSE also states that, unlike mini options, Jumbo SPY
Options do not enable any trade to take place that cannot already take
place because an institutional investor looking to purchase 1,000
contracts of a given SPY option is already able to do so in the
standard-sized SPY options market.\30\ Nasdaq similarly comments that
Jumbo SPY Options bring no benefits to investors or the market.\31\
---------------------------------------------------------------------------
\29\ See NYSE Letter, supra note 4, at 4.
\30\ See id.
\31\ See Nasdaq Letter, supra note 6, at 3.
---------------------------------------------------------------------------
In its response letter, BOX states its belief that Jumbo SPY
Options would benefit investors by providing additional methods to
trade highly liquid options on SPY and providing greater ability to
hedge risk in managing larger portfolios.\32\ BOX also states its
belief that the market will decide the issue of whether or not Jumbo
SPY Options add value, and that market participants may elect not to
trade Jumbo SPY options if they find these options to not add value to
the marketplace.\33\ In addition, in its response letter, BOX
represents that its current transaction fees will not apply to Jumbo
SPY Options, and it will not commence trading of Jumbo SPY Options
until specific fees have been filed with the Commission.\34\ The
Commission believes that the listing and trading of Jumbo SPY Options
could benefit investors by providing them with an additional investment
alternative. In addition, the Commission believes, as noted by BOX in
the proposal, that the listing and trading of Jumbo SPY Options could
benefit investors by providing another means to mitigate risk in
managing large portfolios, particularly for institutional
investors.\35\
---------------------------------------------------------------------------
\32\ See BOX Response Letter, supra note 7, at 2.
\33\ See id.
\34\ See id., at 3.
\35\ See Notice, supra note 3, at 7836.
---------------------------------------------------------------------------
All three commenters express concern that the proposal can cause
investor confusion.\36\ In its response letter, BOX states that it does
not believe that the listing of a third product on SPY will lead to any
more confusion than having two options on SPY.\37\ BOX notes that Jumbo
SPY Options will be designated with a different trading symbol
(SPYJ).\38\ BOX also states that the marketplace and investors have
matured and become more sophisticated, and investors will easily be
able to differentiate between standard, mini, and Jumbo SPY
options.\39\ The Commission agrees that the use of different trading
symbols for Jumbo SPY Options should help investors and other market
participants to distinguish those options from the corresponding
standard and mini options. The Commission also believes that the
proposed treatment of strike prices \40\ and bids and offers \41\ for
Jumbo SPY Options is consistent with the Act, as these amendments
should make clear how Jumbo SPY Options would be quoted and traded.
---------------------------------------------------------------------------
\36\ See NYSE Letter, supra note 4, at 5-6; CBOE Letter, supra
note 4, at 2-3; and Nasdaq Letter, supra note 6, at 1.
\37\ See BOX Response Letter, supra note 7, at 1.
\38\ See id., at 2.
\39\ See id., at 1-2.
\40\ See BOX Rule 5050(e)(2).
\41\ See BOX Rule 5050(e)(3).
---------------------------------------------------------------------------
NYSE states that Jumbo SPY Options are designed specifically for
large institutional investors and are generally too large for average
retail investors and, thus, could create a two-tiered market for SPY
options.\42\ According to NYSE, today, when an institutional investor
trades 10 standard SPY options, it helps to foster transparency and
price discovery, which directly benefits retail investors.\43\ NYSE
expresses the concern that Jumbo SPY Options will likely result in some
of the institutional activity migrating away from the standard SPY
options, to the direct detriment of retail investors.\44\ Similarly,
CBOE argues that the potential for market fragmentation increases with
each additional and different contract on a single security, even if
that security is highly liquid with a well-established trading
history.\45\ Nasdaq also raises questions regarding the potential for a
two-tiered market for SPY options and the impact of Jumbo SPY Options
on the existing market for standard and mini SPY options.\46\ Further,
Nasdaq raises the question of whether Jumbo SPY Options could
materially fragment liquidity and harm or weaken the price discovery
process.\47\
---------------------------------------------------------------------------
\42\ See NYSE Letter, supra note 4, at 3-4.
\43\ See id., at 4.
\44\ See id.
\45\ See CBOE Letter, supra note 4, at 3.
\46\ See Nasdaq Letter, supra note 6, at 2. See also CBOE
Letter, supra note 4, at n.2 (commenting that the proposal does not
reference the potential impact on the marketplace of having three
different contracts trading concurrently on the same security) and 4
(stating that the introduction of several contracts on the same
security with differing deliverable share amounts warrants an
incremental and measured approach by the Commission and that the
Commission should consider a studied analysis of the marketplace's
reception to and any possible confusion that could result from
having different contracts on the same security that expire on the
same day and that deliver varying share amounts).
\47\ See Nasdaq Letter, supra note 6, at 2.
---------------------------------------------------------------------------
In the case of the market for SPY options, BOX notes in its
response letter that there generally exists a critical mass of willing
buyers and sellers both for the options and for the underlying
securities that mitigate the concerns raised by the commenters.\48\
Specifically, BOX notes in its filing that standard options on SPY are
currently the most actively traded options in terms of average daily
volume.\49\ Further, in its filing, BOX states its understanding that
the OCC's portfolio margining process will be set to have positions in
a standard contract and a jumbo contract set against each other, and
that consistent cross margining will be available between standard and
jumbo options.\50\ BOX concludes that the availability of Jumbo SPY
Options would likely result in more efficient pricing through arbitrage
with standard SPY options.\51\ In its response letter, BOX also states
that the trading of Jumbo SPY Options has the potential of providing
greater liquidity by providing increased opportunity for trading and,
consequently, increasing price transparency by providing additional
information to market participants.\52\
---------------------------------------------------------------------------
\48\ See BOX Response Letter, supra note 7, at 2.
\49\ See Notice, supra note 3, at 7836. According to BOX, the
average daily volume for SPY options was 2,156,482 contracts in
April 2012. See id., at n.5. The average daily volume for the same
period for the next four most actively traded options was: Apple
Inc.--1,074,351; S&P 500 Index--656,250; PowerShares QQQ Trust\SM\,
Series 1--573,790; and iShares[supreg] Russell 2000[supreg] Index
Fund--550,316. See id. See also OCC Exchange Volume by Class,
available at https://theocc.com/webapps/volbyclass-reports
(indicating that SPY options are currently the most actively traded
options in terms of volume).
\50\ See id., at 7836.
\51\ See id.
\52\ See BOX Response Letter, supra note 7, at 3.
---------------------------------------------------------------------------
The Commission notes that price protection would not apply across
standard and Jumbo SPY Options on an intramarket basis, as they are
separate products. The Commission recognizes that trading different
options products that overlie the same security could disperse trading
interest across the products to some extent. In illiquid or nascent
markets, increased dispersion across products may cause particular
concern, as the markets for the separate products may lack the critical
mass of buyers and sellers to allow such a market to become established
or, once established, to thrive. The Commission believes that the high
trading volume
[[Page 27274]]
and liquidity in the market for SPY and SPY options should mitigate the
market fragmentation and price protection concerns that commenters
raised.\53\ Moreover, the Commission notes that the proposal is limited
to jumbo options on SPY and in order to expand the trading of jumbo
options beyond those overlying SPY, BOX would be required to file new
proposed rule changes with the Commission pursuant to Section 19(b) of
the Act.\54\ Proposals to expand jumbo options to cover other
underlying securities that do not exhibit the depth and liquidity of
the SPY and SPY options markets potentially could give rise to concern.
Finally, the Commission expects BOX to monitor the trading of Jumbo SPY
Options to evaluate whether any issues develop.
---------------------------------------------------------------------------
\53\ See OCC Exchange Volume by Class, available at https://theocc.com/webapps/volbyclass-reports (indicating that SPY options
are currently the most actively traded options in terms of volume).
\54\ See Notice, supra note 3, at n.5.
---------------------------------------------------------------------------
As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\55\ to enforce compliance by its members
and persons associated with its members with the provisions of the Act,
Commission rules and regulations thereunder, and its own rules. In this
regard, the Commission notes that the Exchange's rules that apply to
the trading of standard options would apply to Jumbo SPY Options. The
Commission also notes that the Exchange's existing market maker quoting
obligations would apply to Jumbo SPY Options.\56\ In addition, the
Commission notes that intermarket trade-through protection would apply
to Jumbo SPY Options to the extent that they are traded on more than
one market.
---------------------------------------------------------------------------
\55\ 15 U.S.C. 78f(b)(1).
\56\ See BOX Rule 8050.
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\57\ that the proposed rule change (SR-BOX-2013-06) be, and hereby
is, approved.
---------------------------------------------------------------------------
\57\ 15 U.S.C. 78s(b)(2).
\58\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11002 Filed 5-8-13; 8:45 am]
BILLING CODE 8011-01-P
