Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Its Rules for the Listing and Trading on the Exchange of Options Settling to the RealVolTM, 6558-6563 [2015-02250]
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Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices
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 or
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of CME and on CME’s Web site at
https://www.cmegroup.com/marketregulation/rule-filings.html.
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–CME–2015–002 and should
be submitted on or before February 26,
2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–02251 Filed 2–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74184; File No. SR–NYSE–
2014–65]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of Longer Period for
Commission Action on Proposed Rule
Change Amending Its Continued
Listing Requirements in Relation to the
Late Filing of a Company’s Annual
Report With the Securities and
Exchange Commission as Set Forth in
Section 802.01E of the Exchange’s
Listed Company Manual
rljohnson on DSK3VPTVN1PROD with NOTICES
January 30, 2015.
On December 4, 2014, New York
Stock Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its continued listing
requirements in relation to the late filing
of a company’s annual report with the
Commission as set forth in Section
802.01E of the Exchange’s Listed
Company Manual (‘‘Late Filer Rule’’).
The proposed rule change was
19 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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published for comment in the Federal
Register on December 17, 2014.3 The
Commission received no comment
letters regarding the proposed rule
change.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether these
proposed rule changes should be
disapproved. The 45th day for this filing
is January 31, 2015.
The Commission is extending the 45day time period for Commission action
on the proposed rule change. The
Commission finds that it is appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, pursuant to Section
19(b)(2) of the Act 5 and for the reasons
stated above, the Commission
designates March 17, 2015, as the date
by which the Commission should either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–02267 Filed 2–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74178; File No. SR–BOX–
2015–06]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing of Proposed Rule Change To
Amend Its Rules for the Listing and
Trading on the Exchange of Options
Settling to the RealVolTM SPY Index
(‘‘Index’’)
January 30, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
3 See Securities Exchange Act Release No. 73821
(December 11, 2014), 79 FR 75217 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 15 U.S.C. 78s(b)(2).
6 17 CFR 200.30–3(a)(31).
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(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
21, 2015, BOX Options Exchange LLC
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rules 6010, 6040, 6090, and 10120 to
allow for the listing and trading on the
Exchange of options settling to the
RealVolTM SPY Index (‘‘Index’’). The
text of the proposed rule change is
available from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s Internet Web site at https://
boxexchange.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
rules to provide for the listing and
trading on the Exchange of options
settling to the RealVolTM SPY Index
(‘‘Index’’). The Index measures the
realized volatility of the SPDR® S&P
500® Exchange Traded Fund (ETF) (this
security is known by its symbol ‘‘SPY’’).
At settlement, the Index is based on the
daily closing values of SPY, over the
previous 21 trading days, as calculated
by the RealVol Daily Formula, and
promulgated by The VolX Group
Corporation (‘‘VolX®’’). Options on the
Index (proposed symbol ‘‘VOLS’’) will
be P.M. cash-settled and will have
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Index Design and Composition
The calculation of the Index is based
on the methodology developed by VolX,
a company that develops propriety [sic]
indices based on realized volatility of
the underlying asset. The Exchange is
only proposing to list options that settle
to the Index at this time; however, the
methodology can be used to create
Where:
• Vol = realized volatility
• n = number of trading days in a period
• Rt = continuously compounded daily
returns as calculated by the formula:
rljohnson on DSK3VPTVN1PROD with NOTICES
Where:
• Ln = natural logarithm
• Pt = Underlying Reference Price at time t
• Pt¥1 = Underlying Reference Price at the
time period immediately preceding
time t
Compared to the normal standard
deviation formula, the standard
deviation formula used to calculate the
Index sets the mean return to zero in
order to provide a measure of movement
regardless of direction, instead of
movement about a trend. Doing so
makes hedging easier for options traders
and corresponds to the formula used for
variance swaps and volatility swaps in
the over-the-counter market. In
addition, the formula for the Index sets
the annualization factor to a constant. A
constant annualization value of 252
represents the number of trading days in
a typical year in the U.S. Because of the
vagaries of the calendar in any
particular year and/or the holiday
schedules in any particular country, the
actual number of trading days may be
slightly higher or lower than 252.
However, it is preferable to have one
3 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 that class
that expire on the Friday of the following business
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indices based on the realized volatility
of any underlying asset. SPY,
historically, has been the largest and
most actively traded ETF in the United
States as measured by its assets under
management and the value of shares
traded.
The Index will be calculated and
maintained by a third-party calculation
agent acting on behalf of VolX. The
Index measures the daily (i.e., close-toclose) realized volatility of SPY. The
Index is based on a 21-trading-day
rolling realized volatility of the daily
closing price of the SPY. Realized
volatility is the ‘‘actual volatility,’’
‘‘statistical volatility,’’ or ‘‘asset
volatility’’ that the underlying asset has
displayed over a specific period. The
term ‘‘realized volatility’’ is very closely
related to ‘‘standard deviation.’’
Realized volatility is a specific form of
standard deviation. If one were to use
daily returns of an underlying (instead
of actual prices) and annualize the
results, standard deviation becomes
realized volatility. The Index uses a
modified version of the standard
deviation formula.
approximate constant than to have a
variety of exact values. ‘‘Degrees of
freedom’’ is a term in statistics used to
extrapolate from a sample of data to the
entire dataset. Since the intent is to
provide the exact realized volatility over
a specific period and not to extrapolate
that sample dataset to the entire history
of trading, the formula sets the degrees
of freedom to zero. Finally, the result is
typically a value less than 1.00. The
result is then multiplied by 100 in order
to bring the values to a more intuitive
‘‘dollars and cents’’ construct. For
example, the realized volatility of an
equity index may be 0.20. Often, traders
will quote this number as 20%, and the
formula would disseminate the index
value as 20.00.
The SPDR® S&P 500® ETF is the
largest and most actively traded ETF in
the U.S.5 According to State Street
Global Advisor, the Trustee of SPY, as
of January 16, 2015 the total net assets
of SPY were approximately $194.8
billion; the weighted average market
capitalization of the portfolio
components was approximately $129
billion; and the largest market
capitalization was approximately $630
billion (Apple Inc., ticker: AAPL).6 For
the three months ending January 16,
2015, the average daily volume in SPY
shares was 125 million, and the average
value of shares traded was $25.3
billion.7 For the same period, the
average daily volume in SPY options
was approximately 2.7 million
contracts.8
Index Calculation and Maintenance
As noted above, the Index will be
maintained and calculated by a
calculation agent acting on behalf of
VolX. The level of the Index will reflect
the current 21-day realized volatility of
SPY. The Index will be updated on each
trading day after the close of trading of
SPY. If the current published value of
SPY is not available, because of a
market disruption event where the
market cannot open and there is no
closing price for SPY, for example, the
Index will continue to be calculated and
disseminated. The calculation of the
Index will compensate for the missing
day’s returns by lowering the value of
‘‘n’’ in the formula by the number of
days that there is no closing price for
SPY.
As mentioned above, the Index that
VOLS will settle to is based only on
daily closing values of SPY. However, a
real-time version based on the current
SPY price will also be calculated and
disseminated during the trading day.
The real-time version will generally be
disseminated at least every 15 seconds
to market data vendors during the
trading day. The real-time version will
provide an estimate of the Index at the
close. The real-time version is
calculated by taking the current day’s
closing price for SPY before the close of
trading (day 22) and weighting it by the
proportion of time through the current
trading day, then using the remaining
weight for the first closing price of SPY
(day 1). In essence, the first day of the
week that is a business day. See IM–6090–2 to Rule
6090.
4 See Rule 6090(b)(1). Long term options series
have up to 180 months to expiration.
5 The SPDR® S&P 500® ETF holds up to 500
securities listed on U.S. securities exchanges.
6 See https://www.spdrs.com/product/
fund.seam?ticker=SPY.
7 Calculated using data from Yahoo as of January
16, 2015.
8 Calculated using data from The Options
Clearing Corp. as of January 16, 2015.
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European-style exercise provisions. In
addition to standard expiration
contracts, Short Term Option (‘‘STO’’ or
‘‘weekly’’) Series 3 and long-term option
series 4 in VOLS may also be traded.
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Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices
period (22 trading days prior to the
current day) and the last day of the
period (the current trading day) will
have a weight of 100% in total, while
the days in between will have a weight
of 100% each. In this way, the 22
returns will be weighted as if there are
only 21 returns and the Index will,
therefore, be updating throughout the
day as the current SPY price changes.
The Exchange notes that after the
market close the real-time formula and
the formula used to calculate the Index
will have exactly the same value.
Values of the Index will also be
disseminated to market information
vendors such as Bloomberg and
ThomsonReuters [sic]. In the event the
Index ceases to be maintained or
calculated, the Exchange will not list
any additional series for trading and
will limit all transactions in such
options to closing transactions only for
the purpose of maintaining a fair and
orderly market and protecting investors.
Exercise and Settlement Value
rljohnson on DSK3VPTVN1PROD with NOTICES
Standard options on the Index will
expire on the third Friday of each
month.9 Trading in expiring options on
the Index will normally cease at 4:15
p.m. (Eastern time) on the business day
of expiration, or, in the case of an option
contract expiring on a day that is not a
business day, on the last business day
before its expiration. The exercise and
settlement value will be calculated
based on the Index value at the close of
the last business day of trading, which
is ultimately based on the closing price
of SPY on the last business day of
trading, for its final input value. The
exercise-settlement amount is equal to
the difference between the settlement
value and the exercise price of the
option, multiplied by $100. Exercise
will result in the delivery of cash on the
business day following expiration.
The following are certain value
characteristics of the Index: (i) The
initial index value was 12.91 on March
2, 1993 (21 trading days after the SPY
security was listed for trading); (ii) the
index value on September 30, 2014 was
9.16; (iii) the lowest index value since
inception was 5.14 and occurred on
August 31, 1995; and (iv) the highest
index value since inception was 91.25
and occurred on October 28, 2008.10
9 Standard options expiring prior to February 1,
2015 will expire on the Saturday immediately
following the third Friday of the expiration month
of such option contract. See Securities Exchange
Act Release No. 70488 (September 24, 2013), 78 FR
59998 (September 30, 2013) (Notice of Filing SR–
BOX–2013–45).
10 Calculated using data from Yahoo.com as of
October 1, 2014.
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Contract Specifications
The contract specifications for VOLS
are set forth in Exhibit 3–1. The Index
is a broad-based index, as defined in
Rule 6010(j). VOLS are European-style
and P.M. cash-settled. The Exchange’s
standard trading hours for index options
(9:30 a.m. to 4:15 p.m., Eastern time)
will apply to VOLS. With respect to
margin requirements 11 for VOLS, the
Exchange proposes to apply margin
requirements for the purchase and sale
of VOLS that are identical to the margin
requirements adopted by the CBOE for
the CBOE Volatility Index. In order to
avoid confusion, the Exchange is
proposing to amend Rule 10120 to make
clear that the margin requirements for
VOLS will be identical to those adopted
by CBOE for the CBOE Volatility
Index.12
The trading of VOLS will be subject
to the trading halt procedures applicable
to other index options traded on the
Exchange.13 VOLS will be quoted and
traded in U.S. dollars.14 Accordingly, all
Exchange and Options Clearing
Corporation members shall be able to
accommodate trading, clearance, and
settlement of VOLS without alteration.
The Exchange is proposing to
establish a strike price setting regime for
VOLS similar to what is permitted for
CBOE Volatility Index (‘‘VIX’’)
options.15 The Exchange proposes to
permit $0.50 strike price (or greater)
intervals for VOLS where the strike
price is less than $75. Fifty cent strike
price (or greater) intervals are currently
permitted for VIX options where the
strike price is less than $75.16 Next, the
Exchange proposes to permit $1 strike
price (or greater) intervals for VOLS
where the strike price is $200 or less.
The Exchange notes that $1 strike price
(or greater) intervals where the strike
price is $200 or less are permitted for
VIX options pursuant to CBOE Rule
24.9.01(l). Finally, the Exchange
proposes to permit $5 strike price (or
greater) intervals for VOLS when the
strike price is greater than $200. The
Exchange notes that $5 strike price (or
greater) intervals where the strike price
11 Options Participants and associated persons are
bound by the initial and maintenance margin
requirements of either the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’) or the New York
Stock Exchange. See Rule 10120.
12 See CBOE Rule 12.3.
13 See Rule 6080(c).
14 See Rule 6090(a)(1).
15 See proposed Rule 6090(c)(7) permitting the
described strike price interval setting regime.
16 VIX options are used to calculate the CBOE
VVIX index (aka ‘‘VIX of VIX’’ index). Because VIX
options are used to calculate a volatility index,
$0.50 strike price intervals are permitted for VIX
options where the strike price is less than $75. See
CBOE Rule 24.9.12.
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is more than $200 are permitted for VIX
options pursuant to CBOE Rule
24.9.01(l). The Exchange believes that
these more granular strike price
intervals will provide investors with
greater flexibility by allowing them to
establish positions that are better
tailored to meet their investment
objectives.
Currently, when new series of index
options with a new expiration date are
opened for trading, or when additional
series of index options in an existing
expiration date are opened for trading as
the current value of the underlying
index moves substantially from the
exercise prices of series already opened,
the exercise prices of such new or
additional series shall be reasonably
related to the current value of the
underlying index at the time such series
are first opened for trading.17 The
Exchange, however, proposes to
eliminate this range limitation that will
limit the number of strikes that may be
listed in VOLS. The Exchange’s
proposal to set minimum strike price
intervals without a range limitation is
identical to strike price intervals
adopted by CBOE for the VIX.18
In accordance with Rule 7050, The
Exchange also proposes to adopt
minimum trading increments for
options on the Index to be $0.05 for
series trading below $3, and $0.10 for
series trading at or above $3.
The Exchange’s rules provide that
index option contracts may expire at
three (3)-month intervals or in
consecutive months.19 The Exchange
may list up to six (6) expiration months
at any one time, but will not list index
options that expire more than twelve
(12) months out. The Exchange proposes
to list VOLS in the six consecutive
expiration months. For example, six
monthly expirations from January
through June may be listed.20
The Exchange proposes that there
shall be no position or exercise limits
for VOLS. As noted above, the Index
will settle using published quotes from
its corresponding security, specifically
SPY. Given that there are currently no
position limits for SPY options,21 the
Exchange believes it is appropriate for
17 See Rule 6090(c)(3). The term ‘‘reasonably
related to the current index value of the underlying
index’’ means that the exercise price is within thirty
percent (30%) of the current index value, as defined
in Rule 6090(c)(4).
18 See Securities Exchange Act Release No. 63155
(October 21, 2010), 75 FR 66402 (October 28, 2010)
(SR–CBOE–2010–096).
19 See Rule 6090(a)(3).
20 Id.
21 See Securities Exchange Act Release No. 67936
(September 27, 2012), 77 FR 60491 (October 3,
2012) (Notice of Filing and Immediate Effectiveness
of SR–BOX–2012–013).
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rljohnson on DSK3VPTVN1PROD with NOTICES
there to be no position or exercise limits
for VOLS. Because the size of the market
underlying SPY is so large, the
Exchange believes that this should
dispel any concerns regarding market
manipulation. By extension, the
Exchange believes that the same
reasoning applies to VOLS since the
value of VOLS is derived from the
realized volatility of SPY. The Exchange
notes that options on CBOE’s Volatility
Index are also not subject to any
position or exercise limits.22
The trading of VOLS shall be subject
to the same rules that presently govern
the trading of Exchange index options,
including sales practice rules, and
trading rules. As mentioned above, the
margin requirements shall be the same
as those adopted by CBOE for the CBOE
Volatility Index. Further, pursuant to
IM–6090–2 to Rule 6090, the Exchange
may also list Short Term Option Series
on the Index. After an option class has
been approved for listing and trading on
the Exchange, the Exchange may open
Short Term Option Series for trading on
any Thursday or Friday that is a
business day and that expire on each of
the next five Fridays that are business
days and are not Fridays in which
monthly options series or Quarterly
Options Series expire. The interval
between strike prices on Short Term
Options Series may be $0.50 or greater
where the strike price is less than $75,
and $1 or greater where the strike price
is between $75 and $150.23 During the
month prior to expiration of an index
option class that is selected for the Short
Term Option Series Program, the strike
price intervals for the related non-Short
Term Option shall be the same as the
strike price intervals for the Short Term
Option.
Section 4000 of the Exchange’s rules
is designed to protect public customer
trading and shall apply to trading in
VOLS. Specifically, Rules 4020(a) and
(b) prohibit Order Flow Providers
(‘‘OFP’’) 24 from accepting a Public
Customer order to purchase or write an
option, including VOLS, unless such
customer’s account has been approved
in writing by a designated Options
Principal of the OFP. Additionally, Rule
4040 regarding suitability is designed to
22 See Securities Exchange Act Release No. 54019
(June 20, 2006), 71 FR 36569 (June 27, 2006) (SR–
CBOE–2006–55). Additionally, the Exchange notes
there are currently a number of actively-traded
broad-based index options, i.e., DJX, NDX, SPX, that
are also not subject to any position or exercise
limits.
23 See IM–6090–2(b)(5) to Rule 6090.
24 See Rule 100(a)(45). The terms ‘‘Order Flow
Provider’’ or ‘‘OFP’’ mean those Options
Participants representing as agent Customer Orders
on BOX and those non-Market Maker Participants
conducting proprietary trading.
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ensure that options, including VOLS,
are sold only to customers capable of
evaluating and bearing the risks
associated with trading in this
instrument. Further, Rule 4050 permits
OFPs to exercise discretionary power
with respect to trading options,
including VOLS, in a Public Customer’s
account only if the OFP has received
prior written authorization from the
customer and the account has been
accepted in writing by a designated
Options Principal. Finally, Rule 4030,
Supervision of Accounts, Rule 4060,
Confirmation to Public Customers, and
Rule 4100, Delivery of Current Options
Disclosure Documents and Prospectus,
will also apply to trading in VOLS.
Surveillance and Capacity
The Exchange has an adequate
surveillance program in place for VOLS
and intends to apply those same
program procedures that it applies to
the Exchange’s other options products.
Index products and their respective
symbols are integrated into the
Exchange’s existing surveillance system
architecture and are thus subject to the
relevant surveillance processes. This is
true for both surveillance system
processing and manual processes that
support the Exchange’s surveillance
program. Additionally, the Exchange is
also a member of the Intermarket
Surveillance Group (‘‘ISG’’) under the
Intermarket Surveillance Group
Agreement dated June 20, 1994. The
members of the ISG include all of the
U.S. registered stock and options
markets: NYSE MKT LLC, NYSE Arca,
Inc., BATS Exchange, Inc., NASDAQ
OMX BX, Chicago Board Options
Exchange, Inc., Chicago Stock Exchange,
Inc., Financial Industry Regulatory
Authority, NASDAQ Stock Market LLC,
National Stock Exchange, Inc., the New
York Stock Exchange LLC, and
NASDAQ OMX PHLX, Inc. The ISG
members work together to coordinate
surveillance and investigative
information sharing in the stock and
options markets.
Per the proposed rule change, the
Index will be settled using a calculation
based on the daily closing prices of the
SPY. The Exchange believes that
manipulating the settlement value will
be difficult based on the size of the
market for SPY shares. The vast
liquidity of SPY shares ensures a
multitude of market participants at any
given time.25 Due to the high level of
participation among market makers that
can enter quotes in SPY shares, the
25 SPY share volume as of June 20, 2013 was
approximately 137 million shares per day. See
supra note 5 [sic].
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6561
Exchange believes it would be very
difficult for a single participant to alter
the closing price in any significant way
without exposing the would-be
manipulator to regulatory scrutiny and
financial costs. In addition, since the
Index is based on 21 trading days of
data, any manipulation in a single
closing value of SPY should have a
muted impact on the Index.
The Exchange reiterates that it is
unlikely that the Index settlement value
could be manipulated. Nonetheless, the
Exchange, in its normal course of
surveillance, will monitor for any
potential manipulation of the Index
settlement value according to the
Exchange’s current procedures.
The Exchange believes that the
surveillance procedures currently in
place will allow the Exchange to
adequately surveil for any potential
manipulation in the trading of VOLS.
The Exchange represents that it has
the necessary system capacity to
support additional quotations and
messages that will result from the listing
and trading of VOLS.
Pilot Program
As proposed, the proposal would
become effective on a pilot program
basis for a period of twelve months. If
the Exchange were to propose an
extension of the program or should the
Exchange propose to make the program
permanent, then the Exchange would
submit a filing proposing such
amendments to the program. The
Exchange notes that any positions
established under the pilot would not be
impacted by the expiration of the pilot.
For example, a position in a VOLS
series that expires beyond the
conclusion of the pilot period could be
established during the 12-month pilot. If
the pilot program were not extended,
then the position could continue to
exist. However, the Exchange notes that
any further trading in the series would
be restricted to transactions where at
least one side of the trade is a closing
transaction.
The Exchange proposes to submit a
pilot program report to the Securities
and Exchange Commission (the
‘‘Commission’’) two months prior to the
expiration date of the Pilot Program (the
‘‘annual report’’). The annual report
would contain an analysis of volume,
open interest, and trading patterns. The
analysis would examine trading in the
proposed option product as well as
trading in SPY. In addition, for series
that exceed certain minimum open
interest parameters, the annual report
would provide analysis of index price
volatility and SPY trading activity. In
addition to the annual report, the
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Exchange would provide the
Commission with periodic interim
reports while the pilot is in effect that
would contain some, but not all, of the
information contained in the annual
report. The annual report would be
provided to the Commission on a
confidential basis.
The annual report would contain the
following volume and open interest
data:
(1) Monthly volume aggregated for all
trades;
(2) monthly volume aggregated by
expiration date;
(3) monthly volume for each
individual series;
(4) month-end open interest
aggregated for all series;
(5) month-end open interest for all
series aggregated by expiration date; and
(6) month-end open interest for each
individual series.
In addition to the annual report, the
Exchange would provide the
Commission with interim reports of the
information listed in Items (1) through
(6) above periodically as required by the
Commission while the pilot is in effect.
These interim reports would also be
provided on a confidential basis.
In addition, the annual report would
contain the following analysis of trading
patterns in VOLS series in the pilot:
(1) A time series analysis of open
interest; and
(2) an analysis of the distribution of
trade sizes.
Also, for series that exceed certain
minimum parameters, the annual report
would contain the following analysis
related to index price changes and SPY
trading volume at the close on
expiration Fridays:
(1) A comparison of index price
changes at the close of trading on a
given expiration Friday with
comparable price changes from a control
sample. The data would include a
calculation of percentage price changes
for various time intervals and compare
that information to the respective
control sample. Raw percentage price
change data as well as percentage price
change data normalized for prevailing
market volatility, as measured by the
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’) Volatility Index
(VIX), would be provided; and
(2) a calculation of trading volume for
a sample set of SPY representing an
upper limit on trading that could be
attributable to expiring in-the-money
series. The data would include a
comparison of the calculated volume for
SPY in the sample set to the average
daily trading volumes of SPY over a
sample period.
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The minimum open interest
parameters, control sample, time
intervals, and sample periods would be
determined by the Exchange and the
Commission.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 26 in general, and furthers the
objectives of Section 6(b)(5) of the Act 27
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. In
particular in that it will permit options
trading in the Index pursuant to rules
designed to prevent fraudulent and
manipulative acts and practices and
promote just and equitable principles of
trade. The Exchange believes the
proposed rule change will further the
Exchange’s goal of introducing new and
innovative products to the marketplace.
The Exchange believes that listing VOLS
will provide an opportunity for
investors to hedge, or speculate on, the
market risk associated with changes in
realized volatility.
Volatility-focused products have
become more prominent over the past
few years, and in a number of different
formats and types, including ETFs,
exchange-traded notes, exchange-traded
options, and exchange-traded futures.
Such products offer investors the
opportunity to manage their volatility
risks associated with an underlying
asset class. Currently, most of the
products focus on underlying equity
indexes or equity-based portfolios. The
Exchange proposes to introduce a cashsettled options contract on a new
volatility index, which focuses on the
volatility of the daily closing price of
the SPY. SPY is the largest and most
liquid ETF in the United States, and the
most actively traded equity option
product. The Exchange believes that
because the Index is derived from
published SPY prices, and given the
immense liquidity found in the
individual portfolio components of SPY,
the concern that the Index will be
subject to market manipulation is
greatly reduced. In addition, because the
Index comprises 21 days of SPY closing
prices, the potential for manipulation is
reduced even further. Therefore, the
Exchange believes that the proposed
rule change to list options on the Index
is appropriate.
26 15
27 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00065
Fmt 4703
Sfmt 4703
The Exchange further notes that Rules
that apply to the trading of other index
options currently traded on the
Exchange would also apply to the
trading of VOLS. Additionally, the
trading of VOLS would be subject to,
among others, Exchange Rules
governing margin requirements and
trading halt procedures.
Finally, the Exchange represents that
it has an adequate surveillance program
in place to detect manipulative trading
in VOLS. The Exchange also represents
that it has the necessary systems
capacity to support the new options
series. And as stated in the filing, the
Exchange has rules in place designed to
protect public customer trading.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that the proposed rule
change will facilitate the listing and
trading of a novel index option product
that will enhance competition among
market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Federal Register / Vol. 80, No. 24 / Thursday, February 5, 2015 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2015–06 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.
rljohnson on DSK3VPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–BOX–2015–06. 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 such
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BOX–
2015–06 and should be submitted on or
before February 26, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–02250 Filed 2–4–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–74180; File No. SR–
NYSEMKT–2015–07]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE
Amex Options Fee Schedule To Make
a Change to the Amex Customer
Engagement Program in Section I.E. of
the Fee Schedule
January 30, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
28, 2015, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘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 the
NYSE Amex Options Fee Schedule
(‘‘Fee Schedule’’) to make a change to
the Amex Customer Engagement
(‘‘ACE’’) Program in section I.E. of the
Fee Schedule. The Exchange proposes
to implement the change on February 2,
2015. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of 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.
1 15
28 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00066
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Sfmt 4703
6563
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to make a
change to the ACE Program in section
I.E. of the Fee Schedule. The Exchange
proposes to implement the change on
February 2, 2015.
Section I.E. of the Fee Schedule
describes the ACE Program,3 which
features four tiers expressed as a
percentage of total industry Customer
equity and ETF option average daily
volume (‘‘ADV’’).4 Specifically, the ACE
Program consists of a four-tiered
schedule of per contract credits payable
to an Order Flow Provider (‘‘OFP’’)
solely for Electronic Customer volume
that the OFP, as agent, submits to the
Exchange.5 The ACE Program offers the
following two methods for OFPs to
receive credits:
1. By calculating, on a monthly basis,
the average daily Customer contract
volume an OFP executes Electronically
on the Exchange as a percentage of total
industry Customer equity and ETF
options ADV; 6 or
2. By calculating, on a monthly basis,
the average daily contract volume an
OFP executes Electronically in all
participant types (i.e., Customer, Firm,
Broker-Dealer, NYSE Amex Options
Market Maker, Non-NYSE Amex
Options Market Maker, and Professional
Customer) on the Exchange, as a
percentage of total industry Customer
equity and ETF options ADV,7 of which
at least 20% must be Customer volume
executed Electronically.
The Exchange has received questions
regarding qualification for credits under
3 See NYSE Amex Options Fee Schedule, dated
January 14, 2015, available here, https://
www.theice.com/publicdocs/nyse/markets/amexoptions/NYSE_Amex_Options_Fee_Schedule.pdf.
4 In calculating ADV, the Exchange will utilize
monthly reports published by the OCC for equity
options and ETF options that show cleared volume
by account type. See OCC Monthly Statistics
Reports, available here, https://www.theocc.com/
webapps/monthly-volume-reports (including for
equity options and ETF options volume, subtotaled
by exchange, along with OCC total industry
volume). The Exchange will calculate the total OCC
volume for equity and ETF options that cleared in
the Customer account type and divide this total by
the number of trading days for that month (i.e., any
day the Exchange is open for business). For
example, in a month having 21 trading days where
there were 252,000,000 equity option and ETF
option contracts that cleared in the Customer
account type, the calculated ADV would be
12,000,000 (252,000,000/21 = 12,000,000).
5 Electronic Customer volume is volume executed
electronically through the Exchange System, on
behalf of an individual or organization that is not
a Broker-Dealer and who does not meet the
definition of a Professional Customer.
6 See supra n. 4.
7 Id.
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]]>Agencies
[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Notices]
[Pages 6558-6563]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-02250]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74178; File No. SR-BOX-2015-06]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing of Proposed Rule Change To Amend Its Rules for the Listing
and Trading on the Exchange of Options Settling to the RealVolTM SPY
Index (``Index'')
January 30, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 21, 2015, BOX Options Exchange LLC (the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to solicit comments on the proposed rule 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 Rules 6010, 6040, 6090, and 10120 to
allow for the listing and trading on the Exchange of options settling
to the RealVolTM SPY Index (``Index''). The text of the
proposed rule change is available from the principal office of the
Exchange, at the Commission's Public Reference Room and also on the
Exchange's Internet Web site at https://boxexchange.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its rules to provide for the listing
and trading on the Exchange of options settling to the
RealVolTM SPY Index (``Index''). The Index measures the
realized volatility of the SPDR[supreg] S&P 500[supreg] Exchange Traded
Fund (ETF) (this security is known by its symbol ``SPY''). At
settlement, the Index is based on the daily closing values of SPY, over
the previous 21 trading days, as calculated by the RealVol Daily
Formula, and promulgated by The VolX Group Corporation
(``VolX[supreg]''). Options on the Index (proposed symbol ``VOLS'')
will be P.M. cash-settled and will have
[[Page 6559]]
European-style exercise provisions. In addition to standard expiration
contracts, Short Term Option (``STO'' or ``weekly'') Series \3\ and
long-term option series \4\ in VOLS may also be traded.
---------------------------------------------------------------------------
\3\ 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 that
class that expire on the Friday of the following business week that
is a business day. See IM-6090-2 to Rule 6090.
\4\ See Rule 6090(b)(1). Long term options series have up to 180
months to expiration.
---------------------------------------------------------------------------
Index Design and Composition
The calculation of the Index is based on the methodology developed
by VolX, a company that develops propriety [sic] indices based on
realized volatility of the underlying asset. The Exchange is only
proposing to list options that settle to the Index at this time;
however, the methodology can be used to create indices based on the
realized volatility of any underlying asset. SPY, historically, has
been the largest and most actively traded ETF in the United States as
measured by its assets under management and the value of shares traded.
The Index will be calculated and maintained by a third-party
calculation agent acting on behalf of VolX. The Index measures the
daily (i.e., close-to-close) realized volatility of SPY. The Index is
based on a 21-trading-day rolling realized volatility of the daily
closing price of the SPY. Realized volatility is the ``actual
volatility,'' ``statistical volatility,'' or ``asset volatility'' that
the underlying asset has displayed over a specific period. The term
``realized volatility'' is very closely related to ``standard
deviation.'' Realized volatility is a specific form of standard
deviation. If one were to use daily returns of an underlying (instead
of actual prices) and annualize the results, standard deviation becomes
realized volatility. The Index uses a modified version of the standard
deviation formula.
[GRAPHIC] [TIFF OMITTED] TN05FE15.000
Where:
Vol = realized volatility
n = number of trading days in a period
Rt = continuously compounded daily returns as
calculated by the formula:
[GRAPHIC] [TIFF OMITTED] TN05FE15.001
Where:
Ln = natural logarithm
Pt = Underlying Reference Price at time t
Pt-1 = Underlying Reference Price at the time
period immediately preceding time t
Compared to the normal standard deviation formula, the standard
deviation formula used to calculate the Index sets the mean return to
zero in order to provide a measure of movement regardless of direction,
instead of movement about a trend. Doing so makes hedging easier for
options traders and corresponds to the formula used for variance swaps
and volatility swaps in the over-the-counter market. In addition, the
formula for the Index sets the annualization factor to a constant. A
constant annualization value of 252 represents the number of trading
days in a typical year in the U.S. Because of the vagaries of the
calendar in any particular year and/or the holiday schedules in any
particular country, the actual number of trading days may be slightly
higher or lower than 252. However, it is preferable to have one
approximate constant than to have a variety of exact values. ``Degrees
of freedom'' is a term in statistics used to extrapolate from a sample
of data to the entire dataset. Since the intent is to provide the exact
realized volatility over a specific period and not to extrapolate that
sample dataset to the entire history of trading, the formula sets the
degrees of freedom to zero. Finally, the result is typically a value
less than 1.00. The result is then multiplied by 100 in order to bring
the values to a more intuitive ``dollars and cents'' construct. For
example, the realized volatility of an equity index may be 0.20. Often,
traders will quote this number as 20%, and the formula would
disseminate the index value as 20.00.
The SPDR[supreg] S&P 500[supreg] ETF is the largest and most
actively traded ETF in the U.S.\5\ According to State Street Global
Advisor, the Trustee of SPY, as of January 16, 2015 the total net
assets of SPY were approximately $194.8 billion; the weighted average
market capitalization of the portfolio components was approximately
$129 billion; and the largest market capitalization was approximately
$630 billion (Apple Inc., ticker: AAPL).\6\ For the three months ending
January 16, 2015, the average daily volume in SPY shares was 125
million, and the average value of shares traded was $25.3 billion.\7\
For the same period, the average daily volume in SPY options was
approximately 2.7 million contracts.\8\
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\5\ The SPDR[supreg] S&P 500[supreg] ETF holds up to 500
securities listed on U.S. securities exchanges.
\6\ See https://www.spdrs.com/product/fund.seam?ticker=SPY.
\7\ Calculated using data from Yahoo as of January 16, 2015.
\8\ Calculated using data from The Options Clearing Corp. as of
January 16, 2015.
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Index Calculation and Maintenance
As noted above, the Index will be maintained and calculated by a
calculation agent acting on behalf of VolX. The level of the Index will
reflect the current 21-day realized volatility of SPY. The Index will
be updated on each trading day after the close of trading of SPY. If
the current published value of SPY is not available, because of a
market disruption event where the market cannot open and there is no
closing price for SPY, for example, the Index will continue to be
calculated and disseminated. The calculation of the Index will
compensate for the missing day's returns by lowering the value of ``n''
in the formula by the number of days that there is no closing price for
SPY.
As mentioned above, the Index that VOLS will settle to is based
only on daily closing values of SPY. However, a real-time version based
on the current SPY price will also be calculated and disseminated
during the trading day. The real-time version will generally be
disseminated at least every 15 seconds to market data vendors during
the trading day. The real-time version will provide an estimate of the
Index at the close. The real-time version is calculated by taking the
current day's closing price for SPY before the close of trading (day
22) and weighting it by the proportion of time through the current
trading day, then using the remaining weight for the first closing
price of SPY (day 1). In essence, the first day of the
[[Page 6560]]
period (22 trading days prior to the current day) and the last day of
the period (the current trading day) will have a weight of 100% in
total, while the days in between will have a weight of 100% each. In
this way, the 22 returns will be weighted as if there are only 21
returns and the Index will, therefore, be updating throughout the day
as the current SPY price changes. The Exchange notes that after the
market close the real-time formula and the formula used to calculate
the Index will have exactly the same value.
Values of the Index will also be disseminated to market information
vendors such as Bloomberg and ThomsonReuters [sic]. In the event the
Index ceases to be maintained or calculated, the Exchange will not list
any additional series for trading and will limit all transactions in
such options to closing transactions only for the purpose of
maintaining a fair and orderly market and protecting investors.
Exercise and Settlement Value
Standard options on the Index will expire on the third Friday of
each month.\9\ Trading in expiring options on the Index will normally
cease at 4:15 p.m. (Eastern time) on the business day of expiration,
or, in the case of an option contract expiring on a day that is not a
business day, on the last business day before its expiration. The
exercise and settlement value will be calculated based on the Index
value at the close of the last business day of trading, which is
ultimately based on the closing price of SPY on the last business day
of trading, for its final input value. The exercise-settlement amount
is equal to the difference between the settlement value and the
exercise price of the option, multiplied by $100. Exercise will result
in the delivery of cash on the business day following expiration.
---------------------------------------------------------------------------
\9\ Standard options expiring prior to February 1, 2015 will
expire on the Saturday immediately following the third Friday of the
expiration month of such option contract. See Securities Exchange
Act Release No. 70488 (September 24, 2013), 78 FR 59998 (September
30, 2013) (Notice of Filing SR-BOX-2013-45).
---------------------------------------------------------------------------
The following are certain value characteristics of the Index: (i)
The initial index value was 12.91 on March 2, 1993 (21 trading days
after the SPY security was listed for trading); (ii) the index value on
September 30, 2014 was 9.16; (iii) the lowest index value since
inception was 5.14 and occurred on August 31, 1995; and (iv) the
highest index value since inception was 91.25 and occurred on October
28, 2008.\10\
---------------------------------------------------------------------------
\10\ Calculated using data from Yahoo.com as of October 1, 2014.
---------------------------------------------------------------------------
Contract Specifications
The contract specifications for VOLS are set forth in Exhibit 3-1.
The Index is a broad-based index, as defined in Rule 6010(j). VOLS are
European-style and P.M. cash-settled. The Exchange's standard trading
hours for index options (9:30 a.m. to 4:15 p.m., Eastern time) will
apply to VOLS. With respect to margin requirements \11\ for VOLS, the
Exchange proposes to apply margin requirements for the purchase and
sale of VOLS that are identical to the margin requirements adopted by
the CBOE for the CBOE Volatility Index. In order to avoid confusion,
the Exchange is proposing to amend Rule 10120 to make clear that the
margin requirements for VOLS will be identical to those adopted by CBOE
for the CBOE Volatility Index.\12\
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\11\ Options Participants and associated persons are bound by
the initial and maintenance margin requirements of either the
Chicago Board Options Exchange, Incorporated (``CBOE'') or the New
York Stock Exchange. See Rule 10120.
\12\ See CBOE Rule 12.3.
---------------------------------------------------------------------------
The trading of VOLS will be subject to the trading halt procedures
applicable to other index options traded on the Exchange.\13\ VOLS will
be quoted and traded in U.S. dollars.\14\ Accordingly, all Exchange and
Options Clearing Corporation members shall be able to accommodate
trading, clearance, and settlement of VOLS without alteration.
---------------------------------------------------------------------------
\13\ See Rule 6080(c).
\14\ See Rule 6090(a)(1).
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The Exchange is proposing to establish a strike price setting
regime for VOLS similar to what is permitted for CBOE Volatility Index
(``VIX'') options.\15\ The Exchange proposes to permit $0.50 strike
price (or greater) intervals for VOLS where the strike price is less
than $75. Fifty cent strike price (or greater) intervals are currently
permitted for VIX options where the strike price is less than $75.\16\
Next, the Exchange proposes to permit $1 strike price (or greater)
intervals for VOLS where the strike price is $200 or less. The Exchange
notes that $1 strike price (or greater) intervals where the strike
price is $200 or less are permitted for VIX options pursuant to CBOE
Rule 24.9.01(l). Finally, the Exchange proposes to permit $5 strike
price (or greater) intervals for VOLS when the strike price is greater
than $200. The Exchange notes that $5 strike price (or greater)
intervals where the strike price is more than $200 are permitted for
VIX options pursuant to CBOE Rule 24.9.01(l). The Exchange believes
that these more granular strike price intervals will provide investors
with greater flexibility by allowing them to establish positions that
are better tailored to meet their investment objectives.
---------------------------------------------------------------------------
\15\ See proposed Rule 6090(c)(7) permitting the described
strike price interval setting regime.
\16\ VIX options are used to calculate the CBOE VVIX index (aka
``VIX of VIX'' index). Because VIX options are used to calculate a
volatility index, $0.50 strike price intervals are permitted for VIX
options where the strike price is less than $75. See CBOE Rule
24.9.12.
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Currently, when new series of index options with a new expiration
date are opened for trading, or when additional series of index options
in an existing expiration date are opened for trading as the current
value of the underlying index moves substantially from the exercise
prices of series already opened, the exercise prices of such new or
additional series shall be reasonably related to the current value of
the underlying index at the time such series are first opened for
trading.\17\ The Exchange, however, proposes to eliminate this range
limitation that will limit the number of strikes that may be listed in
VOLS. The Exchange's proposal to set minimum strike price intervals
without a range limitation is identical to strike price intervals
adopted by CBOE for the VIX.\18\
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\17\ See Rule 6090(c)(3). The term ``reasonably related to the
current index value of the underlying index'' means that the
exercise price is within thirty percent (30%) of the current index
value, as defined in Rule 6090(c)(4).
\18\ See Securities Exchange Act Release No. 63155 (October 21,
2010), 75 FR 66402 (October 28, 2010) (SR-CBOE-2010-096).
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In accordance with Rule 7050, The Exchange also proposes to adopt
minimum trading increments for options on the Index to be $0.05 for
series trading below $3, and $0.10 for series trading at or above $3.
The Exchange's rules provide that index option contracts may expire
at three (3)-month intervals or in consecutive months.\19\ The Exchange
may list up to six (6) expiration months at any one time, but will not
list index options that expire more than twelve (12) months out. The
Exchange proposes to list VOLS in the six consecutive expiration
months. For example, six monthly expirations from January through June
may be listed.\20\
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\19\ See Rule 6090(a)(3).
\20\ Id.
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The Exchange proposes that there shall be no position or exercise
limits for VOLS. As noted above, the Index will settle using published
quotes from its corresponding security, specifically SPY. Given that
there are currently no position limits for SPY options,\21\ the
Exchange believes it is appropriate for
[[Page 6561]]
there to be no position or exercise limits for VOLS. Because the size
of the market underlying SPY is so large, the Exchange believes that
this should dispel any concerns regarding market manipulation. By
extension, the Exchange believes that the same reasoning applies to
VOLS since the value of VOLS is derived from the realized volatility of
SPY. The Exchange notes that options on CBOE's Volatility Index are
also not subject to any position or exercise limits.\22\
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\21\ See Securities Exchange Act Release No. 67936 (September
27, 2012), 77 FR 60491 (October 3, 2012) (Notice of Filing and
Immediate Effectiveness of SR-BOX-2012-013).
\22\ See Securities Exchange Act Release No. 54019 (June 20,
2006), 71 FR 36569 (June 27, 2006) (SR-CBOE-2006-55). Additionally,
the Exchange notes there are currently a number of actively-traded
broad-based index options, i.e., DJX, NDX, SPX, that are also not
subject to any position or exercise limits.
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The trading of VOLS shall be subject to the same rules that
presently govern the trading of Exchange index options, including sales
practice rules, and trading rules. As mentioned above, the margin
requirements shall be the same as those adopted by CBOE for the CBOE
Volatility Index. Further, pursuant to IM-6090-2 to Rule 6090, the
Exchange may also list Short Term Option Series on the Index. After an
option class has been approved for listing and trading on the Exchange,
the Exchange may open Short Term Option Series for trading on any
Thursday or Friday that is a business day and that expire on each of
the next five Fridays that are business days and are not Fridays in
which monthly options series or Quarterly Options Series expire. The
interval between strike prices on Short Term Options Series may be
$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.\23\ During the
month prior to expiration of an index option class that is selected for
the Short Term Option Series Program, the strike price intervals for
the related non-Short Term Option shall be the same as the strike price
intervals for the Short Term Option.
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\23\ See IM-6090-2(b)(5) to Rule 6090.
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Section 4000 of the Exchange's rules is designed to protect public
customer trading and shall apply to trading in VOLS. Specifically,
Rules 4020(a) and (b) prohibit Order Flow Providers (``OFP'') \24\ from
accepting a Public Customer order to purchase or write an option,
including VOLS, unless such customer's account has been approved in
writing by a designated Options Principal of the OFP. Additionally,
Rule 4040 regarding suitability is designed to ensure that options,
including VOLS, are sold only to customers capable of evaluating and
bearing the risks associated with trading in this instrument. Further,
Rule 4050 permits OFPs to exercise discretionary power with respect to
trading options, including VOLS, in a Public Customer's account only if
the OFP has received prior written authorization from the customer and
the account has been accepted in writing by a designated Options
Principal. Finally, Rule 4030, Supervision of Accounts, Rule 4060,
Confirmation to Public Customers, and Rule 4100, Delivery of Current
Options Disclosure Documents and Prospectus, will also apply to trading
in VOLS.
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\24\ See Rule 100(a)(45). The terms ``Order Flow Provider'' or
``OFP'' mean those Options Participants representing as agent
Customer Orders on BOX and those non-Market Maker Participants
conducting proprietary trading.
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Surveillance and Capacity
The Exchange has an adequate surveillance program in place for VOLS
and intends to apply those same program procedures that it applies to
the Exchange's other options products. Index products and their
respective symbols are integrated into the Exchange's existing
surveillance system architecture and are thus subject to the relevant
surveillance processes. This is true for both surveillance system
processing and manual processes that support the Exchange's
surveillance program. Additionally, the Exchange is also a member of
the Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement dated June 20, 1994. The members of the
ISG include all of the U.S. registered stock and options markets: NYSE
MKT LLC, NYSE Arca, Inc., BATS Exchange, Inc., NASDAQ OMX BX, Chicago
Board Options Exchange, Inc., Chicago Stock Exchange, Inc., Financial
Industry Regulatory Authority, NASDAQ Stock Market LLC, National Stock
Exchange, Inc., the New York Stock Exchange LLC, and NASDAQ OMX PHLX,
Inc. The ISG members work together to coordinate surveillance and
investigative information sharing in the stock and options markets.
Per the proposed rule change, the Index will be settled using a
calculation based on the daily closing prices of the SPY. The Exchange
believes that manipulating the settlement value will be difficult based
on the size of the market for SPY shares. The vast liquidity of SPY
shares ensures a multitude of market participants at any given
time.\25\ Due to the high level of participation among market makers
that can enter quotes in SPY shares, the Exchange believes it would be
very difficult for a single participant to alter the closing price in
any significant way without exposing the would-be manipulator to
regulatory scrutiny and financial costs. In addition, since the Index
is based on 21 trading days of data, any manipulation in a single
closing value of SPY should have a muted impact on the Index.
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\25\ SPY share volume as of June 20, 2013 was approximately 137
million shares per day. See supra note 5 [sic].
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The Exchange reiterates that it is unlikely that the Index
settlement value could be manipulated. Nonetheless, the Exchange, in
its normal course of surveillance, will monitor for any potential
manipulation of the Index settlement value according to the Exchange's
current procedures.
The Exchange believes that the surveillance procedures currently in
place will allow the Exchange to adequately surveil for any potential
manipulation in the trading of VOLS.
The Exchange represents that it has the necessary system capacity
to support additional quotations and messages that will result from the
listing and trading of VOLS.
Pilot Program
As proposed, the proposal would become effective on a pilot program
basis for a period of twelve months. If the Exchange were to propose an
extension of the program or should the Exchange propose to make the
program permanent, then the Exchange would submit a filing proposing
such amendments to the program. The Exchange notes that any positions
established under the pilot would not be impacted by the expiration of
the pilot. For example, a position in a VOLS series that expires beyond
the conclusion of the pilot period could be established during the 12-
month pilot. If the pilot program were not extended, then the position
could continue to exist. However, the Exchange notes that any further
trading in the series would be restricted to transactions where at
least one side of the trade is a closing transaction.
The Exchange proposes to submit a pilot program report to the
Securities and Exchange Commission (the ``Commission'') two months
prior to the expiration date of the Pilot Program (the ``annual
report''). The annual report would contain an analysis of volume, open
interest, and trading patterns. The analysis would examine trading in
the proposed option product as well as trading in SPY. In addition, for
series that exceed certain minimum open interest parameters, the annual
report would provide analysis of index price volatility and SPY trading
activity. In addition to the annual report, the
[[Page 6562]]
Exchange would provide the Commission with periodic interim reports
while the pilot is in effect that would contain some, but not all, of
the information contained in the annual report. The annual report would
be provided to the Commission on a confidential basis.
The annual report would contain the following volume and open
interest data:
(1) Monthly volume aggregated for all trades;
(2) monthly volume aggregated by expiration date;
(3) monthly volume for each individual series;
(4) month-end open interest aggregated for all series;
(5) month-end open interest for all series aggregated by expiration
date; and
(6) month-end open interest for each individual series.
In addition to the annual report, the Exchange would provide the
Commission with interim reports of the information listed in Items (1)
through (6) above periodically as required by the Commission while the
pilot is in effect. These interim reports would also be provided on a
confidential basis.
In addition, the annual report would contain the following analysis
of trading patterns in VOLS series in the pilot:
(1) A time series analysis of open interest; and
(2) an analysis of the distribution of trade sizes.
Also, for series that exceed certain minimum parameters, the annual
report would contain the following analysis related to index price
changes and SPY trading volume at the close on expiration Fridays:
(1) A comparison of index price changes at the close of trading on
a given expiration Friday with comparable price changes from a control
sample. The data would include a calculation of percentage price
changes for various time intervals and compare that information to the
respective control sample. Raw percentage price change data as well as
percentage price change data normalized for prevailing market
volatility, as measured by the Chicago Board Options Exchange,
Incorporated (``CBOE'') Volatility Index (VIX), would be provided; and
(2) a calculation of trading volume for a sample set of SPY
representing an upper limit on trading that could be attributable to
expiring in-the-money series. The data would include a comparison of
the calculated volume for SPY in the sample set to the average daily
trading volumes of SPY over a sample period.
The minimum open interest parameters, control sample, time
intervals, and sample periods would be determined by the Exchange and
the Commission.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \26\ in general, and furthers the objectives of Section
6(b)(5) of the Act \27\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. In particular in that it will permit options trading in the
Index pursuant to rules designed to prevent fraudulent and manipulative
acts and practices and promote just and equitable principles of trade.
The Exchange believes the proposed rule change will further the
Exchange's goal of introducing new and innovative products to the
marketplace. The Exchange believes that listing VOLS will provide an
opportunity for investors to hedge, or speculate on, the market risk
associated with changes in realized volatility.
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\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
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Volatility-focused products have become more prominent over the
past few years, and in a number of different formats and types,
including ETFs, exchange-traded notes, exchange-traded options, and
exchange-traded futures. Such products offer investors the opportunity
to manage their volatility risks associated with an underlying asset
class. Currently, most of the products focus on underlying equity
indexes or equity-based portfolios. The Exchange proposes to introduce
a cash-settled options contract on a new volatility index, which
focuses on the volatility of the daily closing price of the SPY. SPY is
the largest and most liquid ETF in the United States, and the most
actively traded equity option product. The Exchange believes that
because the Index is derived from published SPY prices, and given the
immense liquidity found in the individual portfolio components of SPY,
the concern that the Index will be subject to market manipulation is
greatly reduced. In addition, because the Index comprises 21 days of
SPY closing prices, the potential for manipulation is reduced even
further. Therefore, the Exchange believes that the proposed rule change
to list options on the Index is appropriate.
The Exchange further notes that Rules that apply to the trading of
other index options currently traded on the Exchange would also apply
to the trading of VOLS. Additionally, the trading of VOLS would be
subject to, among others, Exchange Rules governing margin requirements
and trading halt procedures.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in VOLS.
The Exchange also represents that it has the necessary systems capacity
to support the new options series. And as stated in the filing, the
Exchange has rules in place designed to protect public customer
trading.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of a novel
index option product that will enhance competition among market
participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
[[Page 6563]]
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BOX-2015-06 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-BOX-2015-06. 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 such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BOX-2015-06 and should be
submitted on or before February 26, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02250 Filed 2-4-15; 8:45 am]
BILLING CODE 8011-01-P
