Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Short Term Options Series, 45515-45521 [2014-18376]
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Federal Register / Vol. 79, No. 150 / Tuesday, August 5, 2014 / Notices
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.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 16 and Rule 19b–
4(f)(6) thereunder.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change 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:
• 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–
NYSEMKT–2014–62 on the subject line.
Paper Comments
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• Send paper comments in triplicate
to Secretary, Securities and Exchange
16 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s 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 Commission
deems this requirement to have been met.
17 17
18:16 Aug 04, 2014
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–18383 Filed 8–4–14; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
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Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2014–62. 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–
NYSEMKT–2014–62 and should be
submitted on or before August 26, 2014.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72700; File No. SR–BX–
2014–038]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to
Short Term Options Series
July 29, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
18 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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45515
notice is hereby given that, on July 25,
2014, NASDAQ OMX BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) 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 Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
certain Exchange rules pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 3 and Rule
19b–4 thereunder,4 to: (i) Expand the
Short Term Option Program (‘‘STO
Program’’ or ‘‘Program’’) 5 so that the
Exchange may change the current thirty
option class limitation to fifty option
classes on which STOs may be opened;
(ii) list or add STOs within fifty percent
(50%) above or below the closing price
of the underlying security from the
preceding day if the price of the
underlying security is greater than $20,
or within one hundred percent (100%)
above or below the closing price of the
underlying security from the preceding
day if the price of the underlying
security is less than or equal to $20; (iii)
open up to thirty STO series for each
expiration date in an STO class; (iv) add
additional STO strike price intervals to
give the Exchange the ability to initiate
strike prices in more granular intervals;
(v) provide for the ability to open up to
five consecutive expirations under the
STO Program; (vi) introduce finer strike
price intervals for standard expiration
contracts in option classes that also
have STOs listed on them (‘‘related nonSTOs’’ or ‘‘related non-Short Term
Options’’); (vii) add delisting provisions;
and (viii) in general harmonize the
different parts of the Program.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxbx.cchwallstreet.com, at the
3 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
5 STOs, also known as ‘‘weekly options’’ as well
as ‘‘Short Term Options’’, are series in an options
class that are approved for listing and trading on the
Exchange in which the series are opened for trading
on any Thursday or Friday that is a business day
and that expire on the Friday of the next business
week. If a Thursday or Friday is not a business day,
the series may be opened (or shall expire) on the
first business day immediately prior to that
Thursday or Friday, respectively. Chapter IV at
Section 6, Supplementary Material .07 governs
rules for STO Program rules regarding non-index
options. Chapter XIV, Section 11 governs rules for
STO Program rules regarding index options, which
are not implicated by this proposal.
4 17
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Federal Register / Vol. 79, No. 150 / Tuesday, August 5, 2014 / Notices
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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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 amend Chapter IV, Section
6 to expand the STO Program for nonindex options so that the Exchange may
change the current thirty option class
limitation to fifty options classes on
which STOs may be opened; list or add
STOs within fifty percent (50%) above
or below the price of the underlying
security 6 from the preceding day if the
price of the underlying security is
greater than $20, or within one hundred
percent (100%) above or below the price
of the underlying security from the
preceding day if the price of the
underlying security is less than or equal
to $20; open up to thirty STO series for
each expiration date in an STO class;
add additional STO strike price
intervals to give the Exchange the ability
to initiate strike prices in more granular
intervals; provide for the ability to open
up to five consecutive expirations under
the STO Program; introduce finer strike
price intervals for standard expiration
contracts in option classes that also
have STOs listed on them (‘‘related nonSTOs’’ or ‘‘related non-Short Term
Options’’); add delisting provisions; and
in general harmonize the different parts
of the Program.
The STO Program, which was
initiated in 2010,7 is codified in the
Supplementary Material to Section 6 of
Chapter IV at .07 for non-index options
6 The price of the underlying security will be
calculated commensurate with Supplementary
Material .06(a) to Chapter IV, Section 6.
7 See Securities Exchange Act Release No. 62505
(July 15, 2010), 75 FR 42792 (July 22, 2010) (SR–
BX–2010–047) (notice of filing and immediate
effectiveness to establish a Short Term Options
Program).
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including equity, currency, and
exchange traded fund (‘‘ETF’’) options.8
These sections currently state that after
an option class has been approved for
listing and trading on the Exchange, the
Exchange may open for trading on any
Thursday or Friday that is a business
day series of options on no more than
thirty option classes that expire on the
Friday of the following business week
that is a business day.9 In addition to
the thirty option class limitation, there
is also a limitation that no more than
twenty series for each expiration date in
those classes may be opened for
trading.10 Furthermore, the strike price
of each STO has to be fixed with
approximately the same number of
strike prices being opened above and
below the value of the underlying
security at about the time that the STOs
are initially opened for trading on the
Exchange, and with strike prices being
within thirty percent (30%) above or
below the closing price of the
underlying security from the preceding
day.11 The Exchange proposes in part to
increase the number of STO classes that
may be opened, match the opening of
initial and additional STO strikes to
what is permissible per the OLPP,12 add
8 The Exchange does not by this filing propose
any changes to Chapter XIV, Section 11 related to
the STO Program for index options.
9 The increase in the number of option issues that
could be opened pursuant to the STO Program was
approved in 2011. See Securities Exchange Act
Release No. 65776 (November 17, 2011), 76 FR
72482 (November 23, 2011) (SR–Phlx–2011–131)
(approval order). See also Phlx Rule 1012 at
Commentary .11(a).
10 However, if the Exchange opens less than
twenty (20) STOs for a Short Term Option
Expiration Date, additional series may be opened
for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market,
to meet customer demand or when the market price
of the underlying security moves substantially from
the exercise price or prices of the series already
opened. Any additional strike prices listed by the
Exchange shall be within thirty percent (30%)
above or below the current price of the underlying
security. The Exchange may also open additional
strike prices of Short Term Option Series that are
more than 30% above or below the current price of
the underlying security provided that demonstrated
customer interest exists for such series, as
expressed by institutional, corporate or individual
customers or their brokers. Market-makers trading
for their own account shall not be considered when
determining customer interest under this provision.
The opening of the new Short Term Option Series
shall not affect the series of options of the same
class previously opened. Supplementary Material
.07(d) to Chapter IV, Section 6. The Exchange
proposes, as discussed below, to change twenty (20)
Short Term Option Series to thirty (30) Short Term
Option Series to achieve consistency with other
proposed rule changes.
11 See Supplementary Material .07(d) of Chapter
IV, Section 6.
12 The full name of the OLPP (which is applicable
to all option exchanges) is Plan For The Purpose of
Developing and Implementing Procedures Designed
to Facilitate the Listing and Trading of
Standardized Options Submitted Pursuant to
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new strike prices increments that may
be used in the STO Program, and in
general harmonize the different parts of
the Program (e.g., initial listings and
additional series).
The Proposal
First, the Exchange proposes to
increase the number of STO classes that
may be opened after an option class has
been approved for listing and trading on
the Exchange. Specifically, the
Exchange proposes in Supplementary
Material .07(a) of Chapter IV, Section 6
that the Exchange may select up to fifty
currently listed option classes on which
Short Term Option Series may be
opened. The Exchange proposes also
that for each option class eligible for
participation in the STO Program, the
Exchange may open up to thirty STO
Series for each expiration date in that
class.13 The Exchange believes that this
proposed moderate increase is needed
and advisable in light of the
demonstrated acceptance and
popularity of the STO Program among
market participants, as discussed below.
Second, the Exchange proposes to
indicate under what circumstances,
subsequent to opening initial STO
classes, additional STO strike prices
Section 11A(a)(3)(B) of the Securities Exchange Act
of 1934. With regard to the listing of new series on
equity, ETF, or trust issued receipt (‘‘TIRs’’) option
classes, subsection 3.(g)(i) of the OLPP states, in
relevant part, that the exercise price of each option
series listed by an exchange that chooses to list a
series of options (known as the Series Selecting
Exchange) shall be fixed at a price per share which
is reasonably close to the price of the underlying
equity security, ETF, or TIR at or about the time the
Series Selecting Exchange determines to list such
series. Except as provided in subparagraphs (ii)
through (iv) of the OLPP, if the price of the
underlying security is less than or equal to $20, the
Series Selecting Exchange shall not list new option
series with an exercise price more than 100% above
or below the price of the underlying security. If the
price of the underlying security is greater than $20,
the Series Selecting Exchange shall not list new
option series with an exercise price more than 50%
above or below the price of the underlying security.
Subsection 3.(g)(i) of the OLPP indicates that an
option series price has to be reasonably close to the
price of the underlying security and must not
exceed a maximum of 50% or 100%, depending on
the price, from the underlying. The Exchange’s
proposal related to non-index options, while
conforming to the current structure of the
Exchange’s STO rules, is similar in practical effect
to the noted OLPP subsection.
13 The current limitation is up to thirty currently
listed option classes and up to twenty series for
each expiration date in an STO class. See
Supplementary Material .07(a) of Chapter IV,
Section 6. The Exchange is proposing to include
language in the rule that indicates that the addition
of strike prices of STOs that are more than 50%
above or below the current value of the underlying
security (if the price is greater than $20) must
comply with the OLPP. The Exchange notes that the
number of classes that may participate in the STOS
Program is aggregated between equity options and
index options and is not apportioned between
equity options and index options.
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Federal Register / Vol. 79, No. 150 / Tuesday, August 5, 2014 / Notices
may be added. Specifically, the
Exchange proposes in Supplementary
Material .07(c) to Chapter IV, Section 6
that any initial series listed by the
Exchange shall be reasonably close to
the price of the underlying equity
security and within the following
parameters: (i) If the price of the
underlying security is less than or equal
to $20, additional strike prices shall be
not more than one hundred percent
(100%) above or below the price of the
underlying security; and (ii) if the price
of the underlying security is greater than
$20, additional strike prices shall be not
more than fifty percent (50%) above or
below the price of the underlying
security. This proposal is in line with
the process for adding new series of
options found in subsection 3(g)(i) of
the OLPP, and harmonizes the Program
internally. The Exchange believes that
this proposal is a reasonable and
desirable enhancement to the STO
Program.
Third, the Exchange proposes changes
to Supplementary Material .07(d) to
Chapter IV, Section 6 to indicate that
any additional strike prices listed by the
Exchange shall be reasonably close to
the price of the underlying equity
security and within the following
parameters: (i) If the price of the
underlying security is less than or equal
to $20, additional strike prices shall be
not more than one hundred percent
(100%) above or below the price of the
underlying security; and (ii) if the price
of the underlying security is greater than
$20, additional strike prices shall be not
more than fifty percent (50%) above or
below the price of the underlying
security. This is done so that the
parameters for opening STOs and
adding strike prices are in conformity.
The Exchange proposes additional
changes to Supplementary Material
.07(d) to Chapter IV, Section 6 to
indicate that if the Exchange has opened
less than thirty (30) Short Term Option
Series for a Short Term Option
Expiration Date, the Exchange may also
open additional strike prices of Short
Term Option Series that are more than
50% above or below the current price of
the underlying security (if the price is
greater than $20); provided that
demonstrated customer interest exists
for such series, as expressed by
institutional, corporate or individual
customers or their brokers. Market
Makers trading for their own account
are not considered when determining
customer interest.14 This is done to
14 Supplementary Material .06(a) to Chapter IV,
Section 6 currently states that if the price of the
underlying security is greater than $20, the
Exchange shall not list new option series with an
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conform the additional strike price
methodology with the proposed 50%
listing standard in the same subsections,
and to ensure that the opening 30 Short
Term Option Series language is
consistent with other proposed
changes,15 while retaining the
demonstrated interest language that may
be useful in unforeseen circumstances.
Fourth, the Exchange proposes to add
language to provide for circumstances
where the underlying security has
moved such that there are no series that
are at least 10% above or below the
current price of the underlying security,
the Exchange is proposing to add new
language to Chapter IV, Section 6 at
Supplementary Material .07(d) to
provide that in the event that the
underlying security has moved such
that there are no series that are at least
10% above or below the current price of
the underlying security, the Exchange
will delist any series with no open
interest in both the call and the put
series having a: (i) Strike higher than the
highest price with open interest in the
put and/or call series for a given
expiration week; and (ii) strike lower
than the lowest strike price with open
interest in the put and/or the call series
for a given expiration week. The
opening of the new Short Term Option
Series shall not affect the series of
options of the same class previously
opened. This language will conform
these rules to other exchange rules.16
Fifth, the Exchange proposes to
indicate that the interval between strike
prices and STOs listed in accordance
with the STO Program may be (i) $0.50
or greater where the strike price is less
than $75, and $1 or greater where the
strike price is between $75 and $150 for
all classes that participate in the Short
Term Options Series Program;17 (ii)
$0.50 for classes that trade in one dollar
increments in Related non-Short Term
Options and that participate in the Short
Term Option Series Program; or (iii)
$2.50 or greater where the strike price
is above $150. Related non-Short Term
Option series shall be opened during the
exercise price more than 50% above or below the
price of the underlying security. Immediately before
this language, the Exchange proposes to also add a
carve-out that states: ‘‘Except as provided in
Supplementary Material to Section 6 at .07(d) . . .’’
15 The Exchange believes that the 100% standard
proposed for initial listings where the price of the
underlying is below $20 is adequate and does not
need to be repeated for additional series adds.
16 See Securities Exchange Act Release Nos.
70116 (August 5, 2013), 78 FR 48754 (August 9,
2013) (SR–Phlx–2013–79) and 71004 (December 6,
2013), 78 FR 75437 (December 11, 2013) (SR–Phlx–
2013–101). See also Phlx Rule 1012, Commentary
.11(d).
17 STO strike price intervals may also be in $1
increments in Related non-STOs that participate in
the STO Program.
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month prior to the expiration of such
Related non-Short Term Option series in
the same manner as permitted in
Supplementary Material to Section 6 at
.07 and in the same strike price intervals
that are permitted in Supplementary
Material to Section 6 at .07.
The principal reason for the proposed
expansion is in response to market and
customer demand to list actively traded
products in more granular strike price
intervals and to provide Exchange
members and their customers increased
trading opportunities in the Short Term
Option Program, which is one of the
most popular and quickly-expanding
options expiration programs.18 The
Exchange has observed increased
demand for STO classes and/or series,
particularly when market moving events
such as significant market volatility,
corporate events, or large market, sector,
or individual issue price swings have
occurred. There are substantial benefits
to market participants in the ability to
trade eligible option classes at more
granular strike price intervals.
Furthermore, the Exchange supports the
objective of responding to customer
demand for harmonized listing between
STO and Related non-Short Term
Options and the availability of more
granular strike price intervals.
For example, assume ABC is trading
at $56.54 and the monthly expiration
contract is three weeks to expiration.
Assume also that the Exchange has
listed all available STO expirations and
thus has STOs listed on ABC for weeks
one, two, four, five, and six. Each of the
five weekly ABC expiration dates can be
listed with strike prices in $0.50
intervals, including, for example, the
$56.50 at-the-money strike. Because the
monthly expiration contract has three
weeks to expiration, however, the nearthe-money strikes must be listed in $5
intervals unless those options are
eligible for one of the Exchange’s other
strike price programs. In this instance,
that would mean that investors would
be limited to choosing, for example,
between the $55 and $60 strike prices
instead of the $56.50 at-the-money
strike available for STOs. This is the
case even though contracts on the same
option class that expire both several
weeks before and several weeks after the
monthly expiration are eligible for finer
strike price intervals. Under the
proposed rule change, the Exchange
would be permitted to list the related
non-short term option on ABC, which is
18 Since the inception of the Short Term Options
Series Program, it has steadily expanded to the
point that by the end of 2012, STOs represented 7%
of the total options volume on the Exchange and
13% of the total options volume in the United
States.
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less than a month to expiration, in the
same strike price intervals as allowed
for STOs. Thus, the Exchange would be
able to list, and investors would be able
to trade, all expirations described above
with the same uniform $0.50 strike price
interval.
As proposed, the Exchange would be
permitted to begin listing the monthly
expiration contract in these narrower
intervals at any time during the month
prior to expiration, which begins on the
first trading day after the prior month’s
expiration date, subject to the
provisions of Exchange rules. For
example, since the August 2014
monthly option will expire on Saturday,
August 16, the proposed rule change
will allow the Exchange to list the
August 2014 monthly option in short
term option intervals starting Monday,
July 21. This language will conform
these rules to other exchange rules.19
The Exchange proposes to amend
Chapter IV, Section 6(d)(vi) to amend
the strike price interval setting
parameters for Related non-Short Term
Option series. Specifically, the
Exchange proposes to add rule text
which states, ‘‘notwithstanding any
other provision regarding strike prices
in Chapter IV, Section 6, non-Short
Term Options that are on a class that
has been selected to participate in the
Short Term Option Series Program
(referred to as a ‘‘Related non-Short
Term Option series’’) shall be opened
during the month prior to expiration in
the same manner as permitted in
Supplementary Material .07 to Chapter
IV, Section 6 and in the same strike
price intervals that are permitted in
Supplementary Material .07 to Chapter
IV, Section 6.’’ This language is similar
to Phlx rule text.20
Sixth, the Exchange is proposing to
amend Supplementary Material .07 of
Chapter IV, Section 6 to open up to five
consecutive expirations under the STO
Program for trading on the Exchange to
allow for the Exchange to delist any
series in the STOs that do not have open
interest, and to expand the number of
series of STOs under limited
circumstances. This proposal seeks to
allow the Exchange to open STO series
for up to five consecutive week
expirations. However, a STO expiration
will not be added in the same week that
a monthly options series expires or, in
19 See Securities Exchange Act Release Nos.
67753 (August 29, 2012), 77FR 54635 (September 5,
2012) (SR–Phlx–2012–78); 69633 (May 23, 2013), 78
FR 32498 (May 30, 2013) (SR–Phlx–2013–55);
71004 (December 6, 2013), 78 FR 75437 (December
11, 2013) (SR–Phlx–2013–101); and 72504 (July 1,
2014), 79 FR 38628 (July 8, 2014) (SR–Phlx–2014–
41).
20 See Rule 1012 at Commentary .11(e).
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the case of a Quarterly Options Series
(‘‘QOS’’),21 on an expiration that
coincides with an expiration of QOS on
the same class. In other words, the total
number of consecutive expirations will
be five, including existing monthly or
quarterly expirations.22 The Exchange
believes that the current proposed
revision to the STO Program will permit
the Exchange to meet increased
customer demand. The proposed
revision will also provide market
participants with the ability to trade and
hedge in a greater number of option
classes and series.
All options exchanges that have
weeklies programs have similar rules
regarding their own programs, and tend
to emulate STO changes that are
initiated by other options exchanges.
The Exchange recognizes that while this
may result in a potentially increased
combined capacity footprint of
exchanges with weeklies programs, the
specific beneficial changes proposed in
this filing greatly outweigh any such
potential impact.
The principal reason for the proposed
expansion is market demand for
additional STO classes and series and a
desire to make the STO Program more
effective. There is continuing strong
customer demand for having the ability
to execute hedging and trading
strategies via STOs, particularly in the
current fast and volatile multi-faceted
trading and investing environment that
extends across numerous markets and
platforms 23 and includes market
moving events such as significant
market volatility, corporate events, or
large market, sector, or individual issue
price swings. The Exchange has been
requested by traders and other market
participants to expand the STO Program
to allow additional STO offerings and
increased efficiency.
In order that the Exchange not exceed
the current thirty option class and
twenty option series restriction, the
Exchange has on occasion had to turn
away STO customers (traders and
investors) because it could not list, or
had to delist, STOs or could not open
adequate STO Series because of
21 See Supplementary Material .04 to Chapter IV,
Section 6 for a discussion of Quarterly Options
Series.
22 For example, if QOS expire week 1 and
monthly options expire week 3 from now, the
proposal would allow the following expirations:
Week 1 QOS, week 2 STOs, week 3 monthly, week
4 STOs, and week 5 STOs. If QOS expire week 3
and monthly options expire week 5, the following
expirations would be allowed: Week 1 STOs, week
2 STOs, week 3 QOS, week 4 STOs, and week 5
monthly.
23 These include, without limitation, options,
equities, futures, derivatives, indexes, ETFs,
exchange traded notes, currencies, and over the
counter instruments.
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
restrictions in the STO Program. This
has negatively impacted investors and
traders, particularly retail public
customers, who have continued to
request the Exchange not to remove STO
classes or add STO classes, or have
requested the Exchange to expand the
STO Program so that additional STO
classes and series could be opened that
would allow the market participants to
execute trading and hedging
strategies.24 There are, as discussed,
substantial benefits to market
participants having the ability to trade
eligible option classes within the STO
Program. Furthermore, the Exchange
supports the objective of responding to
customer need to enhance successful
programs to make them more efficient
for hedging and trading purposes.
The Exchange notes that the STO
Program has been well-received by
market participants, in particular by
retail investors. The volume of STO
trading has increased by 132% since the
beginning of 2011 25 and continues to
grow, such that currently STOs
represent 20% of trading volume on the
Exchange and 31% of trading volume
across all option exchanges.26 The
Exchange believes that weekly
expiration options will continue to grow
in importance for all market
participants, including institutional and
retail investors.27
The proposed revisions to the STO
Program will permit the Exchange to
meet customer demand for better STO
Program use and efficiency,
harmonization of OLPP and STO
Program rules, internal harmonization
of the STO Program, and a reasonable
expansion of strike price intervals in the
Program.
24 Phlx noted, in its STO Program expansion
proposal in 2011, that it was requested by a retail
investor to reinstate an STO class that the Exchange
had to remove from trading because of the class
option limitation within the Program. The investor
told the Exchange that he had used the removed
class as a powerful tool for hedging a market sector,
and that various strategies that the investor put into
play were disrupted and eliminated when the class
was removed. See Securities Exchange Act Release
No. 65776 (November 17, 2011), 76 FR 72482
(November 23, 2011)(SR–Phlx–2011–131)(order
approving opening STO series on 30 option
classes).
25 Since the STO Program was initiated in 2010
on the Exchange and other markets (some of which
were established after the STO Program was
initiated), STO Program volume has expanded by
more than 3000%.
26 During the same period of time, however, the
volume of standard monthly options across all
exchanges has, on the other hand, declined by 28%.
27 The current STO Program, which is similar
across all options markets that have weeklies
programs, is in its current formulation one of the
more challenging industry-wide listings program to
administer. Recognizing the importance of the
Program, the Exchange is seeking to improve the
Program for non-index STOs by making it more
uniform and logical.
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By way of example, if an investor
wants to gain exposure to a relatively
higher priced security like GOOGL, he
may invest in GOOGL stock and/or
GOOGL options. Currently, the investor
must choose a strike price that might
lack the precision he is looking for in
order to gain or reduce exposure to
GOOGL. If the investor is looking to
invest in a long position in GOOGL, for
example, he may choose to execute a
covered call strategy by selling calls on
GOOGL. Assume GOOGL is trading at
$415. Under the current rules the
nearest out of the money STO call
would be the $420.00 strike, which
would, with one week until expiration,
trade at or about $2.15. If the $417.50
strike were available per this proposal,
however, the investor could sell calls at
approximately $3.15. This would allow
the investor to still execute an out of the
money covered call strategy, but would
increase the potential return by $1, or
approximately 46% ($1/$2.15), thus
offering approximately 46% additional
risk protection. To the investor writing
covered calls on his GOOGL equity
position, this extra risk protection could
be very significant on an annual basis,
and costly if not available.
By way of a second example, if an
investor wants to gain exposure to a
lower priced security like Banc of
America (BAC), he may invest in BAC
stock and/or options. Assume BAC is
trading at $14.60. The investor may
have established a long position in a
non-STO BAC option like, for example,
the standard expiration BAC Aug 17th
1.00 calls. To offset some of the risk the
investor possesses in the BAC Aug 17th
1.00 calls, the investor may wish to
make a corresponding trade in the BAC
Aug 10th (STO) 1.00 call. Currently, the
investor does not have this risk
reduction strategy available to him, as
the current BAC STO does not have
available strikes. The proposal would
correct this shortcoming.
By way of further example, in a lower
priced stock such as BAC there may be
a need for tighter strike price intervals
in case of a precipitous drop in price.
Assume BAC is trading at $14.60.
Assume BAC announces a large loss,
and the stock price drops to $6. The
Exchange believes that investors should
have the ability to use calls or puts with
a more targeted strike price to attain
proper risk protection—one of the great
advantages of options. Because current
STO rules do not allow a strike price
below $9.50 in the BAC STO, however,
an investor looking to purchase out of
the money put protection for a short
period of time, and at a lower premium
than a longer term option, is not able to
do so. BAC $9.50 strike puts would
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18:16 Aug 04, 2014
Jkt 232001
trade at a premium of about $3.50 or
more, and would require the investor to
sell or exercise his puts by expiration if
they remained in the money. An Aug
10th $5.00 out of the money STO option
in BAC, on the other hand, would trade
a much more affordable premium due to
being out of the money, and would only
require the investor to sell or exercise
his put if the BAC stock price continued
its precipitous drop. Clearly, the ability
to make more targeted and efficient
decisions regarding the protection of
investments is of great importance to
investments and market participants,
and should be encouraged.
Following are illustrations of the STO
listing process per the rules as
proposed. Assume that the Alcoa Inc.
(AA) STO closes at $7.92. Pursuant to
the proposed rule, STOs may be added
between $1 and $15.50 (half point strike
intervals are currently permitted where
the strike price is below $75). On day
one, the maximum number of Short
Term Option Series that may be listed
are thirty. If the Exchange opens less
than thirty Short Term Option Series,
additional series may be added as the
underlying price moves. If the AA price
moves to $10, additional series can be
added as high as $20 (100% above the
underlying price). If the AA price moves
to $5, additional lower strikes would
not be added, since the initial strikes go
as low as possible ($1). Or, assume that
the McDonald’s Corporation (MCD) STO
closes at $96.26. Pursuant to the
proposed rule, Short Term Options
Series may be added between $49 and
$144 (in $0.50 and $1 intervals). On day
one, no more than thirty Short Term
Option Series may be listed. If the
Exchange opens less than thirty Short
Term Option Series, additional series
may be added as the underlying price
moves. If the MCD price moves to $105,
additional series can be added as high
as $155 (50% above the underlying
price). If the MCD price moves to $87,
additional lower strikes can be added as
low as $43.50. To list strikes above the
50% threshold, however, there must be
demonstrated customer interest for such
series, as expressed by institutional,
corporate or individual customers or
their brokers.
Following are illustrations of the STO
delisting process per the rules as
proposed. Series delisting would occur
under the proposed rule if the stock
price moves and there are no series at
least 10% above/below the current
price. Assume AA closed at $7.92 and
strikes were listed between $1 and $15.
If the AA price moved to $15, and there
were no strikes at $16.50 or above (at
least 10% above the current price), the
delisting process would begin. For the
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
45519
delisting process, staff would simply
need to check what, if any, strikes are
higher than the highest strike with open
interest, and lower than the lowest
strike with open interest. Unlike the
current delisting process, there would
be no need to check whether strikes
were within a listing band (e.g., 10% to
30%). Or, assume that MCD closed at
$96.26 and strikes were listed between
$82 and $110. If the MCD price moved
to $104, and there were no strikes at
$115 or above (at least 10% above the
current price), the delisting process
would begin. For the delisting process,
staff would simply need to check what
strikes are higher than the highest strike
with open interest, and lower than the
lowest strike with open interest.
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
any potential additional traffic
associated with this current amendment
to the STO Program. The Exchange
believes that its members will not have
a capacity issue as a result of this
proposal. The Exchange represents that
it will monitor the trading volume
associated with the additional options
series listed as a result of this proposal
and the effect (if any) of these additional
series on market fragmentation and on
the capacity of the Exchange’s
automated systems.28
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 29 in general, and furthers the
objectives of Section 6(b)(5) of the Act 30
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, 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.
Expanding the classes and additional
series that can be opened in the STO
Program, simplifying the delisting
28 As noted previously, because the STO Program
is an industry-wide program, exchanges tend to
emulate the rule filings of one another. The
Exchange recognizes that while this may result in
a potentially increased combined capacity footprint
of exchanges with weeklies programs, the Exchange
believes that the specific beneficial changes
proposed in this filing greatly outweigh any such
potential impact.
29 15 U.S.C. 78f(b).
30 15 U.S.C. 78f(b)(5).
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process, and allowing $2.50 strike price
intervals will result in a continuing
benefit to investors by giving them more
flexibility to closely tailor their
investment and hedging decisions in
greater number of securities. Further,
the amended rules will allow the
Exchange to initiate strike prices in
more granular intervals for STOs, which
will benefit investors by providing them
with the flexibility to more closely tailor
their investment and hedging decisions.
The Exchange also believes that it is
reasonable to harmonize strike prices
between STOs and Related non-Short
Term Options during expiration month
for Related non-Short Term Options,
because doing so will ensure conformity
between STOs and Related non-Short
Term Options that are on the same class.
While the proposed rule change may
generate additional quote traffic, the
Exchange does not believe that any
increased traffic will become
unmanageable since the proposal
remains limited to a fixed number of
classes. The Exchange also believes that
the proposed rule change will ensure
competition because it will allow the
Exchange to initiate series in the same
strike intervals as ISE, CBOE and other
options exchanges.31
The STO Program has been wellreceived by market participants and in
particular by retail investors and has
seen increasing trading volume. The
Exchange believes that the current
proposed revisions to the STO Program
will permit the Exchange to meet
customer demand for enhanced STO
Program use and efficiency,
harmonization of OLPP and STO
Program rules, and a reasonable
expansion of strike price intervals in the
Program to the benefit of investors,
market participants, and the
marketplace.
With regard to the impact of this
proposal on system capacity, the
Exchange believes that it and OPRA
have the necessary systems capacity to
handle any potential additional traffic
associated with this current amendment
to the STO Program. The Exchange
believes that its members will not have
a capacity issue as a result of this
proposal. All exchanges that have STO
programs have largely similar STO rules
and tend to emulate STO rule changes
proposals initiated by other exchanges.
While the Exchange recognizes that this
proposal may be copied by other
exchanges and impact their capacity,
the Exchange believes that any such
potential capacity impact will not
outweigh (and does not outweigh for the
Exchange) the significant benefits that
this proposal will afford market
participants and the market in general
in terms of significantly greater
flexibility and increases in efficient
trading and hedging options.
The proposed revisions to the STO
Program will permit the Exchange to
meet customer demand for better STO
Program use and efficiency,
harmonization of OLPP and STO
Program rules, internal harmonization
of the STO Program, and a reasonable
expansion of strike price intervals in the
Program.
The Exchange believes that the ability
to delist series with no open interest in
both the call and the put series will
benefit investors by devoting the STO
cap to those series that are more closely
tailored to the investment decisions and
hedging decisions of investors.
Finally, as noted herein, standard
expiration options currently trade in
wider intervals than their weekly
counterparts, except during the week
prior to expiration. This creates a
situation where contracts on the same
option class that expire both several
weeks before and several weeks after the
standard expiration are eligible to trade
in strike price intervals that the
standard expiration contract is not.
There is continuing strong customer
demand to have the ability to execute
hedging and trading strategies in the
finer strike price intervals available in
STOs, and the Exchange believes that
the proposed rule change will increase
market efficiency by harmonizing strike
price intervals for contracts that are
close to expiration, whether those
contracts happen to be listed pursuant
to weekly or monthly expiration cycles.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes that the
proposal is decidedly pro-competitive.
The Exchange believes that the
proposed rule change will result in
additional investment options and
opportunities to achieve the investment
objectives of market participants seeking
efficient trading and hedging vehicles,
to the benefit of investors, market
participants, and the marketplace in
general.
18:16 Aug 04, 2014
Jkt 232001
PO 00000
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not significantly affect the
protection of investors or the public
interest; does not impose any significant
burden on competition; and by its terms
does not become operative for 30 days
from the date on which it was filed, or
such shorter time as the Commission
may designate, it has become effective
pursuant to Section 19(b)(3)(A) 32 of the
Act and Rule 19b–4(f)(6)(iii)
thereunder.33
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: Necessary or appropriate in
the public interest; for the protection of
investors; or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2014–038 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BX–2014–038. 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
32 15
31 See ISE Rule 504, CBOE Rule 5.5 and Phlx Rule
1012.
VerDate Mar<15>2010
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
33 17
Frm 00099
Fmt 4703
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E:\FR\FM\05AUN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
05AUN1
Federal Register / Vol. 79, No. 150 / Tuesday, August 5, 2014 / Notices
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–BX–
2014–038 and should be submitted on
or before August 26, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–18376 Filed 8–4–14; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–72712; File No. SR–BX–
2014–037]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Disclose
Publicly the Sources of Data Used for
Exchange Functions
mstockstill on DSK4VPTVN1PROD with NOTICES
July 29, 2014.
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 July 16,
2014, NASDAQ OMX BX, Inc.
(‘‘Exchange’’ or ‘‘BX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a 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
34 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
18:16 Aug 04, 2014
comments on the proposed rule change
from interested persons.
proposed rule changes with the Commission
by July 15, 2014.5
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
BX fully supports the Commission’s
efforts to provide more clarity in this
area. Through this proposed rule
change, BX is publicly clarifying on a
market-by-market basis the specific
network processor and proprietary data
feeds that BX utilizes for the handling,
routing, and execution of orders, and for
performing the regulatory compliance
checks related to each of those
functions. These complex practices are
governed by a few, simple principles
that are designed to ensure that BX has
the most accurate view of the trading
interest available across multiple
markets, and to maximize the
synchronization of the many exchange
functions that depend upon the
calculation of an accurate NBBO and
top-of-book for each market. These
principles are:
1. BX uses a proprietary data feed
from each exchange that provides a
reliable proprietary data feed. Where no
reliable proprietary data feed is
available, BX uses the network
processor feed;
2. Where BX uses a proprietary data
feed for an exchange quote, it also
maintains access to the network
processor feed as a back-up in the event
a specific proprietary feed become
unavailable or unusable for any reason;
3. BX uses the same proprietary data
feed when performing order handling,
routing, and execution functions, and
also when the execution and routing
system performs internal compliance
checks related to those functions; and
4. BX acquires and processes all
proprietary and network processor feeds
via the same technological configuration
(i.e., telecommunication circuitry,
switches, and feed handlers) to the
greatest extent possible.
5. BX calculates the National Best Bid
and Offer (‘‘NBBO’’) and top-of-book for
each exchange at a single point within
the BX system, and then distributes that
data simultaneously to numerous
applications performing order
handling,6 routing, execution, and
internal compliance functions
throughout the BX system.
As of the date of this filing, BX
utilizes the following data feeds for the
handling, execution and routing of
BX proposes a rule change to disclose
publicly the sources of data, whether
from the network processors or from
direct data feeds, that BX utilizes when
performing (1) order handling and
execution; (2) order routing; and (3)
related compliance processes.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, BX
is requesting a waiver of the
requirement to provide notice of the
proposed rule change.3 [sic] 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
Jkt 232001
45521
In her June 5, 2014 market structure
speech, the Chair requested that all
national securities exchanges review
and disclose their policies and
procedures governing the market data
used when performing important
exchange functions.4 In a letter dated
June 20, 2014, the Director of the
Division of Trading and Markets
codified this request:
We believe there is a need for clarity
regarding whether (1) the SIP data feeds, (2)
proprietary data feeds, or (3) a combination
thereof, are used by the exchanges for
purposes of (1) order handling and execution
(e.g., with pegged or midpoint orders), (2)
order routing, and (3) regulatory compliance,
as applicable. . . . Accordingly, we ask that
proposed rule changes be filed that disclose
the particular market data feeds that are used
for each of these purposes. Consistent with
your recent discussions with Commission
staff, we ask that each SRO file these
3 On July 14, 2014, NASDAQ OMX did provide
notice of an identical filing on behalf of the
NASDAQ Stock Market LLC.
4 See Mary Jo White, Chair, Securities and
Exchange Commission, Speech at the Sandler
O’Neill & Partners L.P. Global Exchange and
Brokerage Conference (June 5, 2014).
PO 00000
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5 See Letter from Steven Luparello, Director, SEC
Division of Trading and Markets, to Robert Greifeld,
Chief Executive Officer, NASDAQ OMX Group,
Inc., dated June 20, 2014.
6 With respect to order handling, the NBBO and
top-of-book calculation feeds applications
governing the proper processing midpoint orders,
pegged orders, price-to-comply orders, and retail
orders.
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]]>Agencies
[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45515-45521]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18376]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72700; File No. SR-BX-2014-038]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Short Term Options Series
July 29, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that, on July 25, 2014, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
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 Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend certain Exchange rules pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \3\
and Rule 19b-4 thereunder,\4\ to: (i) Expand the Short Term Option
Program (``STO Program'' or ``Program'') \5\ so that the Exchange may
change the current thirty option class limitation to fifty option
classes on which STOs may be opened; (ii) list or add STOs within fifty
percent (50%) above or below the closing price of the underlying
security from the preceding day if the price of the underlying security
is greater than $20, or within one hundred percent (100%) above or
below the closing price of the underlying security from the preceding
day if the price of the underlying security is less than or equal to
$20; (iii) open up to thirty STO series for each expiration date in an
STO class; (iv) add additional STO strike price intervals to give the
Exchange the ability to initiate strike prices in more granular
intervals; (v) provide for the ability to open up to five consecutive
expirations under the STO Program; (vi) introduce finer strike price
intervals for standard expiration contracts in option classes that also
have STOs listed on them (``related non-STOs'' or ``related non-Short
Term Options''); (vii) add delisting provisions; and (viii) in general
harmonize the different parts of the Program.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ STOs, also known as ``weekly options'' as well as ``Short
Term Options'', are series in an options class that are approved for
listing and trading on the Exchange in which the series are opened
for trading on any Thursday or Friday that is a business day and
that expire on the Friday of the next business week. If a Thursday
or Friday is not a business day, the series may be opened (or shall
expire) on the first business day immediately prior to that Thursday
or Friday, respectively. Chapter IV at Section 6, Supplementary
Material .07 governs rules for STO Program rules regarding non-index
options. Chapter XIV, Section 11 governs rules for STO Program rules
regarding index options, which are not implicated by this proposal.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxbx.cchwallstreet.com, at the
[[Page 45516]]
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Chapter IV,
Section 6 to expand the STO Program for non-index options so that the
Exchange may change the current thirty option class limitation to fifty
options classes on which STOs may be opened; list or add STOs within
fifty percent (50%) above or below the price of the underlying security
\6\ from the preceding day if the price of the underlying security is
greater than $20, or within one hundred percent (100%) above or below
the price of the underlying security from the preceding day if the
price of the underlying security is less than or equal to $20; open up
to thirty STO series for each expiration date in an STO class; add
additional STO strike price intervals to give the Exchange the ability
to initiate strike prices in more granular intervals; provide for the
ability to open up to five consecutive expirations under the STO
Program; introduce finer strike price intervals for standard expiration
contracts in option classes that also have STOs listed on them
(``related non-STOs'' or ``related non-Short Term Options''); add
delisting provisions; and in general harmonize the different parts of
the Program.
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\6\ The price of the underlying security will be calculated
commensurate with Supplementary Material .06(a) to Chapter IV,
Section 6.
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The STO Program, which was initiated in 2010,\7\ is codified in the
Supplementary Material to Section 6 of Chapter IV at .07 for non-index
options including equity, currency, and exchange traded fund (``ETF'')
options.\8\ These sections currently state that after an option class
has been approved for listing and trading on the Exchange, the Exchange
may open for trading on any Thursday or Friday that is a business day
series of options on no more than thirty option classes that expire on
the Friday of the following business week that is a business day.\9\ In
addition to the thirty option class limitation, there is also a
limitation that no more than twenty series for each expiration date in
those classes may be opened for trading.\10\ Furthermore, the strike
price of each STO has to be fixed with approximately the same number of
strike prices being opened above and below the value of the underlying
security at about the time that the STOs are initially opened for
trading on the Exchange, and with strike prices being within thirty
percent (30%) above or below the closing price of the underlying
security from the preceding day.\11\ The Exchange proposes in part to
increase the number of STO classes that may be opened, match the
opening of initial and additional STO strikes to what is permissible
per the OLPP,\12\ add new strike prices increments that may be used in
the STO Program, and in general harmonize the different parts of the
Program (e.g., initial listings and additional series).
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\7\ See Securities Exchange Act Release No. 62505 (July 15,
2010), 75 FR 42792 (July 22, 2010) (SR-BX-2010-047) (notice of
filing and immediate effectiveness to establish a Short Term Options
Program).
\8\ The Exchange does not by this filing propose any changes to
Chapter XIV, Section 11 related to the STO Program for index
options.
\9\ The increase in the number of option issues that could be
opened pursuant to the STO Program was approved in 2011. See
Securities Exchange Act Release No. 65776 (November 17, 2011), 76 FR
72482 (November 23, 2011) (SR-Phlx-2011-131) (approval order). See
also Phlx Rule 1012 at Commentary .11(a).
\10\ However, if the Exchange opens less than twenty (20) STOs
for a Short Term Option Expiration Date, additional series may be
opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying security moves substantially
from the exercise price or prices of the series already opened. Any
additional strike prices listed by the Exchange shall be within
thirty percent (30%) above or below the current price of the
underlying security. The Exchange may also open additional strike
prices of Short Term Option Series that are more than 30% above or
below the current price of the underlying security provided that
demonstrated customer interest exists for such series, as expressed
by institutional, corporate or individual customers or their
brokers. Market-makers trading for their own account shall not be
considered when determining customer interest under this provision.
The opening of the new Short Term Option Series shall not affect the
series of options of the same class previously opened. Supplementary
Material .07(d) to Chapter IV, Section 6. The Exchange proposes, as
discussed below, to change twenty (20) Short Term Option Series to
thirty (30) Short Term Option Series to achieve consistency with
other proposed rule changes.
\11\ See Supplementary Material .07(d) of Chapter IV, Section 6.
\12\ The full name of the OLPP (which is applicable to all
option exchanges) is Plan For The Purpose of Developing and
Implementing Procedures Designed to Facilitate the Listing and
Trading of Standardized Options Submitted Pursuant to Section
11A(a)(3)(B) of the Securities Exchange Act of 1934. With regard to
the listing of new series on equity, ETF, or trust issued receipt
(``TIRs'') option classes, subsection 3.(g)(i) of the OLPP states,
in relevant part, that the exercise price of each option series
listed by an exchange that chooses to list a series of options
(known as the Series Selecting Exchange) shall be fixed at a price
per share which is reasonably close to the price of the underlying
equity security, ETF, or TIR at or about the time the Series
Selecting Exchange determines to list such series. Except as
provided in subparagraphs (ii) through (iv) of the OLPP, if the
price of the underlying security is less than or equal to $20, the
Series Selecting Exchange shall not list new option series with an
exercise price more than 100% above or below the price of the
underlying security. If the price of the underlying security is
greater than $20, the Series Selecting Exchange shall not list new
option series with an exercise price more than 50% above or below
the price of the underlying security. Subsection 3.(g)(i) of the
OLPP indicates that an option series price has to be reasonably
close to the price of the underlying security and must not exceed a
maximum of 50% or 100%, depending on the price, from the underlying.
The Exchange's proposal related to non-index options, while
conforming to the current structure of the Exchange's STO rules, is
similar in practical effect to the noted OLPP subsection.
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The Proposal
First, the Exchange proposes to increase the number of STO classes
that may be opened after an option class has been approved for listing
and trading on the Exchange. Specifically, the Exchange proposes in
Supplementary Material .07(a) of Chapter IV, Section 6 that the
Exchange may select up to fifty currently listed option classes on
which Short Term Option Series may be opened. The Exchange proposes
also that for each option class eligible for participation in the STO
Program, the Exchange may open up to thirty STO Series for each
expiration date in that class.\13\ The Exchange believes that this
proposed moderate increase is needed and advisable in light of the
demonstrated acceptance and popularity of the STO Program among market
participants, as discussed below.
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\13\ The current limitation is up to thirty currently listed
option classes and up to twenty series for each expiration date in
an STO class. See Supplementary Material .07(a) of Chapter IV,
Section 6. The Exchange is proposing to include language in the rule
that indicates that the addition of strike prices of STOs that are
more than 50% above or below the current value of the underlying
security (if the price is greater than $20) must comply with the
OLPP. The Exchange notes that the number of classes that may
participate in the STOS Program is aggregated between equity options
and index options and is not apportioned between equity options and
index options.
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Second, the Exchange proposes to indicate under what circumstances,
subsequent to opening initial STO classes, additional STO strike prices
[[Page 45517]]
may be added. Specifically, the Exchange proposes in Supplementary
Material .07(c) to Chapter IV, Section 6 that any initial series listed
by the Exchange shall be reasonably close to the price of the
underlying equity security and within the following parameters: (i) If
the price of the underlying security is less than or equal to $20,
additional strike prices shall be not more than one hundred percent
(100%) above or below the price of the underlying security; and (ii) if
the price of the underlying security is greater than $20, additional
strike prices shall be not more than fifty percent (50%) above or below
the price of the underlying security. This proposal is in line with the
process for adding new series of options found in subsection 3(g)(i) of
the OLPP, and harmonizes the Program internally. The Exchange believes
that this proposal is a reasonable and desirable enhancement to the STO
Program.
Third, the Exchange proposes changes to Supplementary Material
.07(d) to Chapter IV, Section 6 to indicate that any additional strike
prices listed by the Exchange shall be reasonably close to the price of
the underlying equity security and within the following parameters: (i)
If the price of the underlying security is less than or equal to $20,
additional strike prices shall be not more than one hundred percent
(100%) above or below the price of the underlying security; and (ii) if
the price of the underlying security is greater than $20, additional
strike prices shall be not more than fifty percent (50%) above or below
the price of the underlying security. This is done so that the
parameters for opening STOs and adding strike prices are in conformity.
The Exchange proposes additional changes to Supplementary Material
.07(d) to Chapter IV, Section 6 to indicate that if the Exchange has
opened less than thirty (30) Short Term Option Series for a Short Term
Option Expiration Date, the Exchange may also open additional strike
prices of Short Term Option Series that are more than 50% above or
below the current price of the underlying security (if the price is
greater than $20); provided that demonstrated customer interest exists
for such series, as expressed by institutional, corporate or individual
customers or their brokers. Market Makers trading for their own account
are not considered when determining customer interest.\14\ This is done
to conform the additional strike price methodology with the proposed
50% listing standard in the same subsections, and to ensure that the
opening 30 Short Term Option Series language is consistent with other
proposed changes,\15\ while retaining the demonstrated interest
language that may be useful in unforeseen circumstances.
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\14\ Supplementary Material .06(a) to Chapter IV, Section 6
currently states that if the price of the underlying security is
greater than $20, the Exchange shall not list new option series with
an exercise price more than 50% above or below the price of the
underlying security. Immediately before this language, the Exchange
proposes to also add a carve-out that states: ``Except as provided
in Supplementary Material to Section 6 at .07(d) . . .''
\15\ The Exchange believes that the 100% standard proposed for
initial listings where the price of the underlying is below $20 is
adequate and does not need to be repeated for additional series
adds.
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Fourth, the Exchange proposes to add language to provide for
circumstances where the underlying security has moved such that there
are no series that are at least 10% above or below the current price of
the underlying security, the Exchange is proposing to add new language
to Chapter IV, Section 6 at Supplementary Material .07(d) to provide
that in the event that the underlying security has moved such that
there are no series that are at least 10% above or below the current
price of the underlying security, the Exchange will delist any series
with no open interest in both the call and the put series having a: (i)
Strike higher than the highest price with open interest in the put and/
or call series for a given expiration week; and (ii) strike lower than
the lowest strike price with open interest in the put and/or the call
series for a given expiration week. The opening of the new Short Term
Option Series shall not affect the series of options of the same class
previously opened. This language will conform these rules to other
exchange rules.\16\
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\16\ See Securities Exchange Act Release Nos. 70116 (August 5,
2013), 78 FR 48754 (August 9, 2013) (SR-Phlx-2013-79) and 71004
(December 6, 2013), 78 FR 75437 (December 11, 2013) (SR-Phlx-2013-
101). See also Phlx Rule 1012, Commentary .11(d).
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Fifth, the Exchange proposes to indicate that the interval between
strike prices and STOs listed in accordance with the STO Program may be
(i) $0.50 or greater where the strike price is less than $75, and $1 or
greater where the strike price is between $75 and $150 for all classes
that participate in the Short Term Options Series Program;\17\ (ii)
$0.50 for classes that trade in one dollar increments in Related non-
Short Term Options and that participate in the Short Term Option Series
Program; or (iii) $2.50 or greater where the strike price is above
$150. Related non-Short Term Option series shall be opened during the
month prior to the expiration of such Related non-Short Term Option
series in the same manner as permitted in Supplementary Material to
Section 6 at .07 and in the same strike price intervals that are
permitted in Supplementary Material to Section 6 at .07.
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\17\ STO strike price intervals may also be in $1 increments in
Related non-STOs that participate in the STO Program.
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The principal reason for the proposed expansion is in response to
market and customer demand to list actively traded products in more
granular strike price intervals and to provide Exchange members and
their customers increased trading opportunities in the Short Term
Option Program, which is one of the most popular and quickly-expanding
options expiration programs.\18\ The Exchange has observed increased
demand for STO classes and/or series, particularly when market moving
events such as significant market volatility, corporate events, or
large market, sector, or individual issue price swings have occurred.
There are substantial benefits to market participants in the ability to
trade eligible option classes at more granular strike price intervals.
Furthermore, the Exchange supports the objective of responding to
customer demand for harmonized listing between STO and Related non-
Short Term Options and the availability of more granular strike price
intervals.
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\18\ Since the inception of the Short Term Options Series
Program, it has steadily expanded to the point that by the end of
2012, STOs represented 7% of the total options volume on the
Exchange and 13% of the total options volume in the United States.
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For example, assume ABC is trading at $56.54 and the monthly
expiration contract is three weeks to expiration. Assume also that the
Exchange has listed all available STO expirations and thus has STOs
listed on ABC for weeks one, two, four, five, and six. Each of the five
weekly ABC expiration dates can be listed with strike prices in $0.50
intervals, including, for example, the $56.50 at-the-money strike.
Because the monthly expiration contract has three weeks to expiration,
however, the near-the-money strikes must be listed in $5 intervals
unless those options are eligible for one of the Exchange's other
strike price programs. In this instance, that would mean that investors
would be limited to choosing, for example, between the $55 and $60
strike prices instead of the $56.50 at-the-money strike available for
STOs. This is the case even though contracts on the same option class
that expire both several weeks before and several weeks after the
monthly expiration are eligible for finer strike price intervals. Under
the proposed rule change, the Exchange would be permitted to list the
related non-short term option on ABC, which is
[[Page 45518]]
less than a month to expiration, in the same strike price intervals as
allowed for STOs. Thus, the Exchange would be able to list, and
investors would be able to trade, all expirations described above with
the same uniform $0.50 strike price interval.
As proposed, the Exchange would be permitted to begin listing the
monthly expiration contract in these narrower intervals at any time
during the month prior to expiration, which begins on the first trading
day after the prior month's expiration date, subject to the provisions
of Exchange rules. For example, since the August 2014 monthly option
will expire on Saturday, August 16, the proposed rule change will allow
the Exchange to list the August 2014 monthly option in short term
option intervals starting Monday, July 21. This language will conform
these rules to other exchange rules.\19\ The Exchange proposes to amend
Chapter IV, Section 6(d)(vi) to amend the strike price interval setting
parameters for Related non-Short Term Option series. Specifically, the
Exchange proposes to add rule text which states, ``notwithstanding any
other provision regarding strike prices in Chapter IV, Section 6, non-
Short Term Options that are on a class that has been selected to
participate in the Short Term Option Series Program (referred to as a
``Related non-Short Term Option series'') shall be opened during the
month prior to expiration in the same manner as permitted in
Supplementary Material .07 to Chapter IV, Section 6 and in the same
strike price intervals that are permitted in Supplementary Material .07
to Chapter IV, Section 6.'' This language is similar to Phlx rule
text.\20\
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\19\ See Securities Exchange Act Release Nos. 67753 (August 29,
2012), 77FR 54635 (September 5, 2012) (SR-Phlx-2012-78); 69633 (May
23, 2013), 78 FR 32498 (May 30, 2013) (SR-Phlx-2013-55); 71004
(December 6, 2013), 78 FR 75437 (December 11, 2013) (SR-Phlx-2013-
101); and 72504 (July 1, 2014), 79 FR 38628 (July 8, 2014) (SR-Phlx-
2014-41).
\20\ See Rule 1012 at Commentary .11(e).
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Sixth, the Exchange is proposing to amend Supplementary Material
.07 of Chapter IV, Section 6 to open up to five consecutive expirations
under the STO Program for trading on the Exchange to allow for the
Exchange to delist any series in the STOs that do not have open
interest, and to expand the number of series of STOs under limited
circumstances. This proposal seeks to allow the Exchange to open STO
series for up to five consecutive week expirations. However, a STO
expiration will not be added in the same week that a monthly options
series expires or, in the case of a Quarterly Options Series
(``QOS''),\21\ on an expiration that coincides with an expiration of
QOS on the same class. In other words, the total number of consecutive
expirations will be five, including existing monthly or quarterly
expirations.\22\ The Exchange believes that the current proposed
revision to the STO Program will permit the Exchange to meet increased
customer demand. The proposed revision will also provide market
participants with the ability to trade and hedge in a greater number of
option classes and series.
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\21\ See Supplementary Material .04 to Chapter IV, Section 6 for
a discussion of Quarterly Options Series.
\22\ For example, if QOS expire week 1 and monthly options
expire week 3 from now, the proposal would allow the following
expirations: Week 1 QOS, week 2 STOs, week 3 monthly, week 4 STOs,
and week 5 STOs. If QOS expire week 3 and monthly options expire
week 5, the following expirations would be allowed: Week 1 STOs,
week 2 STOs, week 3 QOS, week 4 STOs, and week 5 monthly.
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All options exchanges that have weeklies programs have similar
rules regarding their own programs, and tend to emulate STO changes
that are initiated by other options exchanges. The Exchange recognizes
that while this may result in a potentially increased combined capacity
footprint of exchanges with weeklies programs, the specific beneficial
changes proposed in this filing greatly outweigh any such potential
impact.
The principal reason for the proposed expansion is market demand
for additional STO classes and series and a desire to make the STO
Program more effective. There is continuing strong customer demand for
having the ability to execute hedging and trading strategies via STOs,
particularly in the current fast and volatile multi-faceted trading and
investing environment that extends across numerous markets and
platforms \23\ and includes market moving events such as significant
market volatility, corporate events, or large market, sector, or
individual issue price swings. The Exchange has been requested by
traders and other market participants to expand the STO Program to
allow additional STO offerings and increased efficiency.
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\23\ These include, without limitation, options, equities,
futures, derivatives, indexes, ETFs, exchange traded notes,
currencies, and over the counter instruments.
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In order that the Exchange not exceed the current thirty option
class and twenty option series restriction, the Exchange has on
occasion had to turn away STO customers (traders and investors) because
it could not list, or had to delist, STOs or could not open adequate
STO Series because of restrictions in the STO Program. This has
negatively impacted investors and traders, particularly retail public
customers, who have continued to request the Exchange not to remove STO
classes or add STO classes, or have requested the Exchange to expand
the STO Program so that additional STO classes and series could be
opened that would allow the market participants to execute trading and
hedging strategies.\24\ There are, as discussed, substantial benefits
to market participants having the ability to trade eligible option
classes within the STO Program. Furthermore, the Exchange supports the
objective of responding to customer need to enhance successful programs
to make them more efficient for hedging and trading purposes.
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\24\ Phlx noted, in its STO Program expansion proposal in 2011,
that it was requested by a retail investor to reinstate an STO class
that the Exchange had to remove from trading because of the class
option limitation within the Program. The investor told the Exchange
that he had used the removed class as a powerful tool for hedging a
market sector, and that various strategies that the investor put
into play were disrupted and eliminated when the class was removed.
See Securities Exchange Act Release No. 65776 (November 17, 2011),
76 FR 72482 (November 23, 2011)(SR-Phlx-2011-131)(order approving
opening STO series on 30 option classes).
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The Exchange notes that the STO Program has been well-received by
market participants, in particular by retail investors. The volume of
STO trading has increased by 132% since the beginning of 2011 \25\ and
continues to grow, such that currently STOs represent 20% of trading
volume on the Exchange and 31% of trading volume across all option
exchanges.\26\ The Exchange believes that weekly expiration options
will continue to grow in importance for all market participants,
including institutional and retail investors.\27\
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\25\ Since the STO Program was initiated in 2010 on the Exchange
and other markets (some of which were established after the STO
Program was initiated), STO Program volume has expanded by more than
3000%.
\26\ During the same period of time, however, the volume of
standard monthly options across all exchanges has, on the other
hand, declined by 28%.
\27\ The current STO Program, which is similar across all
options markets that have weeklies programs, is in its current
formulation one of the more challenging industry-wide listings
program to administer. Recognizing the importance of the Program,
the Exchange is seeking to improve the Program for non-index STOs by
making it more uniform and logical.
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The proposed revisions to the STO Program will permit the Exchange
to meet customer demand for better STO Program use and efficiency,
harmonization of OLPP and STO Program rules, internal harmonization of
the STO Program, and a reasonable expansion of strike price intervals
in the Program.
[[Page 45519]]
By way of example, if an investor wants to gain exposure to a
relatively higher priced security like GOOGL, he may invest in GOOGL
stock and/or GOOGL options. Currently, the investor must choose a
strike price that might lack the precision he is looking for in order
to gain or reduce exposure to GOOGL. If the investor is looking to
invest in a long position in GOOGL, for example, he may choose to
execute a covered call strategy by selling calls on GOOGL. Assume GOOGL
is trading at $415. Under the current rules the nearest out of the
money STO call would be the $420.00 strike, which would, with one week
until expiration, trade at or about $2.15. If the $417.50 strike were
available per this proposal, however, the investor could sell calls at
approximately $3.15. This would allow the investor to still execute an
out of the money covered call strategy, but would increase the
potential return by $1, or approximately 46% ($1/$2.15), thus offering
approximately 46% additional risk protection. To the investor writing
covered calls on his GOOGL equity position, this extra risk protection
could be very significant on an annual basis, and costly if not
available.
By way of a second example, if an investor wants to gain exposure
to a lower priced security like Banc of America (BAC), he may invest in
BAC stock and/or options. Assume BAC is trading at $14.60. The investor
may have established a long position in a non-STO BAC option like, for
example, the standard expiration BAC Aug 17th 1.00 calls. To offset
some of the risk the investor possesses in the BAC Aug 17th 1.00 calls,
the investor may wish to make a corresponding trade in the BAC Aug 10th
(STO) 1.00 call. Currently, the investor does not have this risk
reduction strategy available to him, as the current BAC STO does not
have available strikes. The proposal would correct this shortcoming.
By way of further example, in a lower priced stock such as BAC
there may be a need for tighter strike price intervals in case of a
precipitous drop in price. Assume BAC is trading at $14.60. Assume BAC
announces a large loss, and the stock price drops to $6. The Exchange
believes that investors should have the ability to use calls or puts
with a more targeted strike price to attain proper risk protection--one
of the great advantages of options. Because current STO rules do not
allow a strike price below $9.50 in the BAC STO, however, an investor
looking to purchase out of the money put protection for a short period
of time, and at a lower premium than a longer term option, is not able
to do so. BAC $9.50 strike puts would trade at a premium of about $3.50
or more, and would require the investor to sell or exercise his puts by
expiration if they remained in the money. An Aug 10th $5.00 out of the
money STO option in BAC, on the other hand, would trade a much more
affordable premium due to being out of the money, and would only
require the investor to sell or exercise his put if the BAC stock price
continued its precipitous drop. Clearly, the ability to make more
targeted and efficient decisions regarding the protection of
investments is of great importance to investments and market
participants, and should be encouraged.
Following are illustrations of the STO listing process per the
rules as proposed. Assume that the Alcoa Inc. (AA) STO closes at $7.92.
Pursuant to the proposed rule, STOs may be added between $1 and $15.50
(half point strike intervals are currently permitted where the strike
price is below $75). On day one, the maximum number of Short Term
Option Series that may be listed are thirty. If the Exchange opens less
than thirty Short Term Option Series, additional series may be added as
the underlying price moves. If the AA price moves to $10, additional
series can be added as high as $20 (100% above the underlying price).
If the AA price moves to $5, additional lower strikes would not be
added, since the initial strikes go as low as possible ($1). Or, assume
that the McDonald's Corporation (MCD) STO closes at $96.26. Pursuant to
the proposed rule, Short Term Options Series may be added between $49
and $144 (in $0.50 and $1 intervals). On day one, no more than thirty
Short Term Option Series may be listed. If the Exchange opens less than
thirty Short Term Option Series, additional series may be added as the
underlying price moves. If the MCD price moves to $105, additional
series can be added as high as $155 (50% above the underlying price).
If the MCD price moves to $87, additional lower strikes can be added as
low as $43.50. To list strikes above the 50% threshold, however, there
must be demonstrated customer interest for such series, as expressed by
institutional, corporate or individual customers or their brokers.
Following are illustrations of the STO delisting process per the
rules as proposed. Series delisting would occur under the proposed rule
if the stock price moves and there are no series at least 10% above/
below the current price. Assume AA closed at $7.92 and strikes were
listed between $1 and $15. If the AA price moved to $15, and there were
no strikes at $16.50 or above (at least 10% above the current price),
the delisting process would begin. For the delisting process, staff
would simply need to check what, if any, strikes are higher than the
highest strike with open interest, and lower than the lowest strike
with open interest. Unlike the current delisting process, there would
be no need to check whether strikes were within a listing band (e.g.,
10% to 30%). Or, assume that MCD closed at $96.26 and strikes were
listed between $82 and $110. If the MCD price moved to $104, and there
were no strikes at $115 or above (at least 10% above the current
price), the delisting process would begin. For the delisting process,
staff would simply need to check what strikes are higher than the
highest strike with open interest, and lower than the lowest strike
with open interest.
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 any potential additional traffic associated with
this current amendment to the STO Program. The Exchange believes that
its members will not have a capacity issue as a result of this
proposal. The Exchange represents that it will monitor the trading
volume associated with the additional options series listed as a result
of this proposal and the effect (if any) of these additional series on
market fragmentation and on the capacity of the Exchange's automated
systems.\28\
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\28\ As noted previously, because the STO Program is an
industry-wide program, exchanges tend to emulate the rule filings of
one another. The Exchange recognizes that while this may result in a
potentially increased combined capacity footprint of exchanges with
weeklies programs, the Exchange believes that the specific
beneficial changes proposed in this filing greatly outweigh any such
potential impact.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \29\ in general, and furthers the objectives of Section
6(b)(5) of the Act \30\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, 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.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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Expanding the classes and additional series that can be opened in
the STO Program, simplifying the delisting
[[Page 45520]]
process, and allowing $2.50 strike price intervals will result in a
continuing benefit to investors by giving them more flexibility to
closely tailor their investment and hedging decisions in greater number
of securities. Further, the amended rules will allow the Exchange to
initiate strike prices in more granular intervals for STOs, which will
benefit investors by providing them with the flexibility to more
closely tailor their investment and hedging decisions. The Exchange
also believes that it is reasonable to harmonize strike prices between
STOs and Related non-Short Term Options during expiration month for
Related non-Short Term Options, because doing so will ensure conformity
between STOs and Related non-Short Term Options that are on the same
class. While the proposed rule change may generate additional quote
traffic, the Exchange does not believe that any increased traffic will
become unmanageable since the proposal remains limited to a fixed
number of classes. The Exchange also believes that the proposed rule
change will ensure competition because it will allow the Exchange to
initiate series in the same strike intervals as ISE, CBOE and other
options exchanges.\31\
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\31\ See ISE Rule 504, CBOE Rule 5.5 and Phlx Rule 1012.
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The STO Program has been well-received by market participants and
in particular by retail investors and has seen increasing trading
volume. The Exchange believes that the current proposed revisions to
the STO Program will permit the Exchange to meet customer demand for
enhanced STO Program use and efficiency, harmonization of OLPP and STO
Program rules, and a reasonable expansion of strike price intervals in
the Program to the benefit of investors, market participants, and the
marketplace.
With regard to the impact of this proposal on system capacity, the
Exchange believes that it and OPRA have the necessary systems capacity
to handle any potential additional traffic associated with this current
amendment to the STO Program. The Exchange believes that its members
will not have a capacity issue as a result of this proposal. All
exchanges that have STO programs have largely similar STO rules and
tend to emulate STO rule changes proposals initiated by other
exchanges. While the Exchange recognizes that this proposal may be
copied by other exchanges and impact their capacity, the Exchange
believes that any such potential capacity impact will not outweigh (and
does not outweigh for the Exchange) the significant benefits that this
proposal will afford market participants and the market in general in
terms of significantly greater flexibility and increases in efficient
trading and hedging options.
The proposed revisions to the STO Program will permit the Exchange
to meet customer demand for better STO Program use and efficiency,
harmonization of OLPP and STO Program rules, internal harmonization of
the STO Program, and a reasonable expansion of strike price intervals
in the Program.
The Exchange believes that the ability to delist series with no
open interest in both the call and the put series will benefit
investors by devoting the STO cap to those series that are more closely
tailored to the investment decisions and hedging decisions of
investors.
Finally, as noted herein, standard expiration options currently
trade in wider intervals than their weekly counterparts, except during
the week prior to expiration. This creates a situation where contracts
on the same option class that expire both several weeks before and
several weeks after the standard expiration are eligible to trade in
strike price intervals that the standard expiration contract is not.
There is continuing strong customer demand to have the ability to
execute hedging and trading strategies in the finer strike price
intervals available in STOs, and the Exchange believes that the
proposed rule change will increase market efficiency by harmonizing
strike price intervals for contracts that are close to expiration,
whether those contracts happen to be listed pursuant to weekly or
monthly expiration cycles.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
Exchange believes that the proposal is decidedly pro-competitive. The
Exchange believes that the proposed rule change will result in
additional investment options and opportunities to achieve the
investment objectives of market participants seeking efficient trading
and hedging vehicles, to the benefit of investors, market participants,
and the marketplace in general.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest; does not
impose any significant burden on competition; and by its terms does not
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) \32\ of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\33\
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(6)(iii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: Necessary
or appropriate in the public interest; for the protection of investors;
or otherwise in furtherance of the purposes of the Act. If the
Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2014-038 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2014-038. 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
[[Page 45521]]
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-BX-2014-038 and should be
submitted on or before August 26, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18376 Filed 8-4-14; 8:45 am]
BILLING CODE 8011-01-P
