Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Rule 5.5, 27907-27910 [2017-12585]

Download as PDF Federal Register / Vol. 82, No. 116 / Monday, June 19, 2017 / Notices 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– CHX–2017–11 on the subject line. Paper Comments asabaliauskas on DSKBBXCHB2PROD with NOTICES • 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–CHX–2017–11. 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–CHX– 2017–11, and should be submitted on or before July 10, 2017. 17:09 Jun 16, 2017 [FR Doc. 2017–12588 Filed 6–16–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. Jkt 241001 [Release No. 34–80913; File No SR–CBOE– 2017–048] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Rule 5.5 June 13, 2017. 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 June 9, 2017, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 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 Rule 5.5. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Chicago Board Options Exchange, Incorporated Rules * * * * * Rule 5.5. Series of Option Contracts Open for Trading (a)–(e) No change. . . . Interpretations and Policies: .01–.07 No change. .08 21 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 1 15 PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 27907 (a) No change. (b) Notwithstanding Interpretation and Policy .01 and Interpretation and Policy .08(a) above, the interval between strike prices of series of options on Units of the Standard & Poor’s Depository Receipts Trust (‘‘SPY’’), iShares S&P 500 Index ETF (‘‘IVV’’), and The DIAMONDS Trust (‘‘DIA’’) will be $1 or greater. .09–.23 No change. * * * * * The text of the proposed rule change is also available on the Exchange’s Web site (https://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 5.5 (Series of Option Contracts Open for Trading) by modifying the strike setting regime for IVV options. Specifically, the Exchange proposes to modify the interval setting regime for IVV options to allow $1 strike price intervals above $200. The Exchange believes that the proposed rule change would make IVV options easier for investors and traders to use and more tailored to their investment needs. Additionally, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on units of the Standard & Poor’s Depository Receipts Trust (‘‘SPY’’),5 which is an exchange-traded fund (‘‘ETF’’) that is identical in all material respects to the IVV ETF. The SPY and IVV ETFs are identical in all material respects. The SPY and IVV ETFs are designed to roughly track the performance of the S&P 500 Index 5 See E:\FR\FM\19JNN1.SGM Current Rule 5.5.08. 19JNN1 27908 Federal Register / Vol. 82, No. 116 / Monday, June 19, 2017 / Notices with the price of SPY and IVV designed to roughly approximate 1/10th of the price of the S&P 500 Index. Accordingly, SPY and IVV strike prices—having a multiplier of $100— reflect a value roughly equal to 1/10th of the value of the S&P 500 Index. For example, if the S&P 500 Index is at 1972.56, SPY and IVV options might have a value of approximately 197.26 with a notional value of $19,726. In general, SPY and IVV options provide retail investors and traders with the benefit of trading the broad market in a manageably sized contract. As options with an ETP underlying, SPY and IVV options are listed in the same manner as equity options under the Rules. However, under current Interpretation and Policy .08(a) to Rule 5.5, the interval between strike prices in series of options on ETPs, including IVV options will be $1 or greater where the strike price is $200 or less and $5.00 or greater where the strike price is greater than $200.’’ In addition, under Rule 5.5(d)(5), asabaliauskas on DSKBBXCHB2PROD with NOTICES Strike Interval. The interval between strike prices on Short Term Option Series may be: (i) $0.50 or greater where the strike price is less than $100, and $1 or greater where the strike price is between $100 and $150 for all classes that participate in the Short Term Option Series Program; (ii) $0.50 or greater for classes that trade in one dollar increments in 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. A non-Short Term Option that is on a class that has been selected to participate in the Short Term Option Series Program is referred to as a ‘‘Related non-Short Term Option.’’ The Exchange’s proposal seeks to narrow the strike price intervals to $1 for IVV options above $200, in effect matching the strike setting regime for strike intervals in IVV options below $200 and matching the strike setting regime applied to SPY options. Currently, the S&P 500 Index is above 2000. The S&P 500 Index is widely regarded as the best single gauge of large cap U.S. equities and is widely quoted as an indicator of stock prices and investor confidence in the securities market. As a result, individual investors often use S&P 500 Index-related products to diversify their portfolios and benefit from market trends. Accordingly, the Exchange believes that offering a wide range of S&P 500 Indexbased options affords traders and investors important hedging and trading opportunities. The Exchange believes that not having the proposed $1 strike price intervals above $200 in IVV significantly constricts investors’ hedging and trading possibilities. VerDate Sep<11>2014 17:09 Jun 16, 2017 Jkt 241001 The Exchange proposes to amend Interpretation and Policy .08(b) to Rule 5.5 to allow IVV options to trade in $1 increments above a strike price of $200. Specifically, the Exchange proposes to amend Interpretation and Policy .08(b) to Rule 5.5 to state that notwithstanding other provisions limiting the ability of the Exchange to list $1 increment strike prices on equity and ETF options above $200, the interval between strike prices of series of options on Units of IVV will be $1 or greater. The Exchange believes that by having smaller strike intervals in IVV, investors would have more efficient hedging and trading opportunities due to the lower $1 interval ascension. The proposed $1 intervals, particularly above the $200 strike price, will result in having at-themoney series based upon the underlying IVV moving less than 1%. The Exchange believes that the proposed strike setting regime is in line with the slower movements of broad-based indices. Furthermore, the proposed $1 intervals would allow option trading strategies (such as, for example, risk reduction/ hedging strategies using IVV weekly options), to remain viable. Considering the fact that $1 intervals already exist below the $200 price point and that IVV is above the $200 level, the Exchange believes that continuing to maintain the artificial $200 level (above which intervals increase 500% to $5), would have a negative effect on investing, trading and hedging opportunities, and volume. The Exchange believes that the investing, trading, and hedging opportunities available with IVV options far outweighs any potential negative impact of allowing IVV options to trade in more finely tailored intervals above the $200 price point. The proposed strike setting regime would permit strikes to be set to more closely reflect values in the underlying S&P 500 Index and allow investors and traders to roll open positions from a lower strike to a higher strike in conjunction with the price movement of the underlying. Under the current rule, where the next higher available series would be $5 away above a $200 strike price, the ability to roll such positions is effectively negated. Accordingly, to move a position from a $200 strike to a $205 strike under the current rule, an investor would need for the underlying product to move 2.5%, and would not be able to execute a roll up until such a large movement occurred. With the proposed rule change, however, the investor would be in a significantly safer position of being able to roll his open options position from a $200 to a $201 strike price, which is only a 0.5% PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 move for the underlying. The proposed rule change will allow the Exchange to better respond to customer demand for IVV strike prices more precisely aligned with current S&P 500 Index values. The Exchange believes that the proposed rule change, like the other strike price programs currently offered by the Exchange, will benefit investors by providing investors the flexibility to more closely tailor their investment and hedging decisions using IVV options. By allowing series of IVV options to be listed in $1 intervals between strike prices over $200, the proposal will moderately augment the potential total number of options series available on the Exchange. However, the Exchange believes it and the Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange also believes that Trading Permit Holders will not have a capacity issue due to the proposed rule change. In addition, the Exchange represents that it does not believe that this expansion will cause fragmentation of liquidity. In addition, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on SPY,6 which is an ETF that is identical in all material respects to the IVV ETF. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.7 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 8 requirements that the rules of an exchange be 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 regulating, clearing, settling, processing information with respect to, and 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. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 9 requirement that 6 See Current Rule 5.5.08. U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). 9 Id. 7 15 E:\FR\FM\19JNN1.SGM 19JNN1 asabaliauskas on DSKBBXCHB2PROD with NOTICES Federal Register / Vol. 82, No. 116 / Monday, June 19, 2017 / Notices the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the proposed rule change will allow investors to more easily use IVV options. Moreover, the proposed rule change would allow investors to better trade and hedge positions in IVV options where the strike price is greater than $200, and ensure that IVV options investors are not at a disadvantage simply because of the strike price. The Exchange also believes the proposed rule change is consistent with Section 6(b)(1) of the Act, which provides that the Exchange be organized and have the capacity to be able to carry out the purposes of the Act and the rules and regulations thereunder, and the rules of the Exchange. The rule change proposal allows the Exchange to respond to customer demand to allow IVV options to trade in $1 intervals above a $200 strike price. The Exchange does not believe that the proposed rule would create additional capacity issues or affect market functionality. As noted above, ETF options trade in wider $5 intervals above a $200 strike price, whereby options at or below a $200 strike price trade in $1 intervals. This creates a situation where contracts on the same option class effectively may not be able to execute certain strategies such as, for example, rolling to a higher strike price, simply because of the arbitrary $200 strike price above which options intervals increase by 500%. This proposal remedies the situation by establishing an exception to the current ETF interval regime for IVV options to allow such options to trade in $1 or greater intervals at all strike prices. The Exchange believes that the proposed rule change, like other strike price programs currently offered by the Exchange, will benefit investors by giving them increased flexibility to more closely tailor their investment and hedging decisions. Moreover, the proposed rule change is consistent with changes proposed by other exchanges.10 With regard to the impact of this proposal on system capacity, the Exchange believes it and OPRA have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal. In addition, the interval setting regime the Exchange proposes to apply to IVV 10 See Securities and Exchange Act Release 34– 72664 (July 24, 2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA Options) (SR–Phlx–2014–046). VerDate Sep<11>2014 17:09 Jun 16, 2017 Jkt 241001 options is currently applied to options on SPY,11 which is an ETF that is identical in all material respects to the IVV ETF. 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. Rather, the Exchange believes that the proposed rule change will result in additional investment options and opportunities to achieve the investment and trading objectives of market participants seeking efficient trading and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Specifically, the Exchange believes that IVV options investors and traders will significantly benefit from the availability of finer strike price intervals above a $200 price point. In addition, the interval setting regime the Exchange proposes to apply to IVV options is currently applied to options on SPY,12 which is an ETF that is identical in all material respects to the IVV ETF. Thus, applying the same strike setting regime to SPY and IVV options will help level the playing field for options on similar, competing ETFs. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: A. significantly affect the protection of investors or the public interest; B. impose any significant burden on competition; and C. 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) of the Act 13 and Rule 19b–4(f)(6) 14 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such 11 See Current Rule 5.5.08. Current Rule 5.5.08. 13 15 U.S.C. 78s(b)(3)(A). 14 17 CFR 240.19b–4(f)(6). 12 See PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 27909 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. 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– CBOE–2017–048 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–CBOE–2017–048. 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 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–CBOE– 2017–048 and should be submitted on or before July 10, 2017. E:\FR\FM\19JNN1.SGM 19JNN1 27910 Federal Register / Vol. 82, No. 116 / Monday, June 19, 2017 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–12585 Filed 6–16–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [Release No. 34–80914; File No. SR– PEARL–2017–30] Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX PEARL Fee Schedule June 13, 2017. Pursuant to the provisions of 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 June 7, 2017, MIAX PEARL, LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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. asabaliauskas on DSKBBXCHB2PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX PEARL Fee Schedule (the ‘‘Fee Schedule’’). The Exchange initially filed the proposal on May 31, 2017 (SR–PEARL– 2017–27). That filing was withdrawn and replaced with the current filing (SR–PEARL–2017–30). The text of the proposed rule change is available on the Exchange’s Web site at https://www.miaxoptions.com/rulefilings/pearl at MIAX PEARL’s principal office, 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 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 17:09 Jun 16, 2017 Jkt 241001 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. 1. Purpose The Exchange proposes to amend the Add/Remove Tiered Rebates/Fees set forth in Section 1(a) of the Fee Schedule to decrease the ‘‘Taker’’ fee in all Tiers assessable to all orders submitted by a Member for the account of a Priority Customer 3 in SPY options. The Exchange currently assesses tiered transaction rebates and fees to all market participants which are based upon the total monthly volume executed by the Member 4 on MIAX PEARL in the relevant, respective origin type (not including Excluded Contracts) 5 expressed as a percentage of TCV.6 In addition, the per contract 3 ‘‘Priority Customer’’ means a person or entity that (i) is not a broker or dealer in securities, and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). See Exchange Rule 100, including Interpretations and Policies .01. 4 ‘‘Member’’ means an individual or organization that is registered with the Exchange pursuant to Chapter II of the Exchange Rules for purposes of trading on the Exchange as an ‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’ Members are deemed ‘‘members’’ under the Exchange Act. See the Definitions Section of the Fee Schedule and Exchange Rule 100. 5 ‘‘Excluded Contracts’’ means any contracts routed to an away market for execution. See the Definitions Section of the Fee Schedule. 6 ‘‘TCV’’ means total consolidated volume calculated as the total national volume in those classes listed on MIAX PEARL for the month for which the fees apply, excluding consolidated volume executed during the period of time in which the Exchange experiences an ‘‘Exchange System Disruption’’ (solely in the option classes of the affected Matching Engine (as defined below)). The term Exchange System Disruption, which is defined in the Definitions section of the Fee Schedule, means an outage of a Matching Engine or collective Matching Engines for a period of two consecutive hours or more, during trading hours. The term Matching Engine, which is also defined in the Definitions section of the Fee Schedule, is a part of the MIAX PEARL electronic system that processes options orders and trades on a symbolby-symbol basis. Some Matching Engines will process option classes with multiple root symbols, and other Matching Engines may be dedicated to one single option root symbol (for example, options on SPY may be processed by one single Matching Engine that is dedicated only to SPY). A particular PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 transaction rebates and fees are applied retroactively to all eligible volume for that origin type once the respective threshold tier (‘‘Tier’’) has been reached by the Member. The Exchange aggregates the volume of Members and their Affiliates.7 Members that place resting liquidity, i.e., orders resting on the book of the MIAX PEARL System,8 are paid the specified ‘‘maker’’ rebate (each a ‘‘Maker’’), and Members that execute against resting liquidity are assessed the specified ‘‘taker’’ fee (each a ‘‘Taker’’). For opening transactions and ABBO uncrossing transactions, per contract transaction rebates and fees are waived for all market participants. Finally, Members are assessed lower transaction fees and receive lower rebates for order executions in standard option classes in the Penny Pilot Program 9 (‘‘Penny classes’’) than for order executions in standard option classes which are not in the Penny Pilot Program (‘‘Non-Penny classes’’), where Members are assessed higher transaction fees and receive higher rebates. Transaction rebates and fees applicable to orders submitted by a Member for the account of a Priority Customer are assessed according to the following table as of June 1, 2017: root symbol may only be assigned to a single designated Matching Engine. A particular root symbol may not be assigned to multiple Matching Engines. The Exchange believes that it is reasonable and appropriate to select two consecutive hours as the amount of time necessary to constitute an Exchange System Disruption, as two hours equates to approximately 1.4% of available trading time per month. The Exchange notes that the term ‘‘Exchange System Disruption’’ and its meaning have no applicability outside of the Fee Schedule, as it is used solely for purposes of calculating volume for the threshold tiers in the Fee Schedule. See the Definitions Section of the Fee Schedule. 7 ‘‘Affiliate’’ means (i) an affiliate of a Member of at least 75% common ownership between the firms as reflected on each firm’s Form BD, Schedule A, or (ii) the Appointed Market Maker of an Appointed EEM (or, conversely, the Appointed EEM of an Appointed Market Maker). An ‘‘Appointed Market Maker’’ is a MIAX PEARL Market Maker (who does not otherwise have a corporate affiliation based upon common ownership with an EEM) that has been appointed by an EEM and an ‘‘Appointed EEM’’ is an EEM (who does not otherwise have a corporate affiliation based upon common ownership with a MIAX PEARL Market Maker) that has been appointed by a MIAX PEARL Market Maker, pursuant to the process described in the Fee Schedule. See the Definitions Section of the Fee Schedule. 8 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 9 See Securities Exchange Act Release Nos. 79778 (January 12, 2017), 82 FR 6662 (January 19, 2017) (SR–PEARL–2016–01); 80758 (May 24, 2017), 82 FR 25022 (May 31, 2017) (SR–PEARL–2017–24). E:\FR\FM\19JNN1.SGM 19JNN1

Agencies

[Federal Register Volume 82, Number 116 (Monday, June 19, 2017)]
[Notices]
[Pages 27907-27910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12585]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80913; File No SR-CBOE-2017-048]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Related to Rule 5.5

June 13, 2017.
    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 June 9, 2017, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 5.5. The text of the proposed 
rule change is provided below.
    (additions are italicized; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 5.5. Series of Option Contracts Open for Trading

    (a)-(e) No change.

. . . Interpretations and Policies:

    .01-.07 No change.
    .08
    (a) No change.
    (b) Notwithstanding Interpretation and Policy .01 and 
Interpretation and Policy .08(a) above, the interval between strike 
prices of series of options on Units of the Standard & Poor's 
Depository Receipts Trust (``SPY''), iShares S&P 500 Index ETF 
(``IVV''), and The DIAMONDS Trust (``DIA'') will be $1 or greater.
    .09-.23 No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 5.5 (Series of Option Contracts 
Open for Trading) by modifying the strike setting regime for IVV 
options. Specifically, the Exchange proposes to modify the interval 
setting regime for IVV options to allow $1 strike price intervals above 
$200. The Exchange believes that the proposed rule change would make 
IVV options easier for investors and traders to use and more tailored 
to their investment needs. Additionally, the interval setting regime 
the Exchange proposes to apply to IVV options is currently applied to 
options on units of the Standard & Poor's Depository Receipts Trust 
(``SPY''),\5\ which is an exchange-traded fund (``ETF'') that is 
identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \5\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

    The SPY and IVV ETFs are identical in all material respects. The 
SPY and IVV ETFs are designed to roughly track the performance of the 
S&P 500 Index

[[Page 27908]]

with the price of SPY and IVV designed to roughly approximate 1/10th of 
the price of the S&P 500 Index. Accordingly, SPY and IVV strike 
prices--having a multiplier of $100--reflect a value roughly equal to 
1/10th of the value of the S&P 500 Index. For example, if the S&P 500 
Index is at 1972.56, SPY and IVV options might have a value of 
approximately 197.26 with a notional value of $19,726. In general, SPY 
and IVV options provide retail investors and traders with the benefit 
of trading the broad market in a manageably sized contract. As options 
with an ETP underlying, SPY and IVV options are listed in the same 
manner as equity options under the Rules.
    However, under current Interpretation and Policy .08(a) to Rule 
5.5, the interval between strike prices in series of options on ETPs, 
including IVV options will be $1 or greater where the strike price is 
$200 or less and $5.00 or greater where the strike price is greater 
than $200.'' In addition, under Rule 5.5(d)(5),

    Strike Interval. The interval between strike prices on Short 
Term Option Series may be: (i) $0.50 or greater where the strike 
price is less than $100, and $1 or greater where the strike price is 
between $100 and $150 for all classes that participate in the Short 
Term Option Series Program; (ii) $0.50 or greater for classes that 
trade in one dollar increments in 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. A non-Short Term 
Option that is on a class that has been selected to participate in 
the Short Term Option Series Program is referred to as a ``Related 
non-Short Term Option.''

The Exchange's proposal seeks to narrow the strike price intervals to 
$1 for IVV options above $200, in effect matching the strike setting 
regime for strike intervals in IVV options below $200 and matching the 
strike setting regime applied to SPY options.
    Currently, the S&P 500 Index is above 2000. The S&P 500 Index is 
widely regarded as the best single gauge of large cap U.S. equities and 
is widely quoted as an indicator of stock prices and investor 
confidence in the securities market. As a result, individual investors 
often use S&P 500 Index-related products to diversify their portfolios 
and benefit from market trends. Accordingly, the Exchange believes that 
offering a wide range of S&P 500 Index-based options affords traders 
and investors important hedging and trading opportunities. The Exchange 
believes that not having the proposed $1 strike price intervals above 
$200 in IVV significantly constricts investors' hedging and trading 
possibilities.
    The Exchange proposes to amend Interpretation and Policy .08(b) to 
Rule 5.5 to allow IVV options to trade in $1 increments above a strike 
price of $200. Specifically, the Exchange proposes to amend 
Interpretation and Policy .08(b) to Rule 5.5 to state that 
notwithstanding other provisions limiting the ability of the Exchange 
to list $1 increment strike prices on equity and ETF options above 
$200, the interval between strike prices of series of options on Units 
of IVV will be $1 or greater. The Exchange believes that by having 
smaller strike intervals in IVV, investors would have more efficient 
hedging and trading opportunities due to the lower $1 interval 
ascension. The proposed $1 intervals, particularly above the $200 
strike price, will result in having at-the-money series based upon the 
underlying IVV moving less than 1%. The Exchange believes that the 
proposed strike setting regime is in line with the slower movements of 
broad-based indices. Furthermore, the proposed $1 intervals would allow 
option trading strategies (such as, for example, risk reduction/hedging 
strategies using IVV weekly options), to remain viable. Considering the 
fact that $1 intervals already exist below the $200 price point and 
that IVV is above the $200 level, the Exchange believes that continuing 
to maintain the artificial $200 level (above which intervals increase 
500% to $5), would have a negative effect on investing, trading and 
hedging opportunities, and volume. The Exchange believes that the 
investing, trading, and hedging opportunities available with IVV 
options far outweighs any potential negative impact of allowing IVV 
options to trade in more finely tailored intervals above the $200 price 
point.
    The proposed strike setting regime would permit strikes to be set 
to more closely reflect values in the underlying S&P 500 Index and 
allow investors and traders to roll open positions from a lower strike 
to a higher strike in conjunction with the price movement of the 
underlying. Under the current rule, where the next higher available 
series would be $5 away above a $200 strike price, the ability to roll 
such positions is effectively negated. Accordingly, to move a position 
from a $200 strike to a $205 strike under the current rule, an investor 
would need for the underlying product to move 2.5%, and would not be 
able to execute a roll up until such a large movement occurred. With 
the proposed rule change, however, the investor would be in a 
significantly safer position of being able to roll his open options 
position from a $200 to a $201 strike price, which is only a 0.5% move 
for the underlying. The proposed rule change will allow the Exchange to 
better respond to customer demand for IVV strike prices more precisely 
aligned with current S&P 500 Index values. The Exchange believes that 
the proposed rule change, like the other strike price programs 
currently offered by the Exchange, will benefit investors by providing 
investors the flexibility to more closely tailor their investment and 
hedging decisions using IVV options.
    By allowing series of IVV options to be listed in $1 intervals 
between strike prices over $200, the proposal will moderately augment 
the potential total number of options series available on the Exchange. 
However, the Exchange believes it and the Options Price Reporting 
Authority (``OPRA'') have the necessary systems capacity to handle any 
potential additional traffic associated with this proposed rule change. 
The Exchange also believes that Trading Permit Holders will not have a 
capacity issue due to the proposed rule change. In addition, the 
Exchange represents that it does not believe that this expansion will 
cause fragmentation of liquidity.
    In addition, the interval setting regime the Exchange proposes to 
apply to IVV options is currently applied to options on SPY,\6\ which 
is an ETF that is identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \6\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirements that the rules of an exchange be 
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 regulating, clearing, 
settling, processing information with respect to, and 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ requirement that

[[Page 27909]]

the rules of an exchange not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change will allow investors to 
more easily use IVV options. Moreover, the proposed rule change would 
allow investors to better trade and hedge positions in IVV options 
where the strike price is greater than $200, and ensure that IVV 
options investors are not at a disadvantage simply because of the 
strike price.
    The Exchange also believes the proposed rule change is consistent 
with Section 6(b)(1) of the Act, which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and the rules and regulations thereunder, and the rules of the 
Exchange. The rule change proposal allows the Exchange to respond to 
customer demand to allow IVV options to trade in $1 intervals above a 
$200 strike price. The Exchange does not believe that the proposed rule 
would create additional capacity issues or affect market functionality.
    As noted above, ETF options trade in wider $5 intervals above a 
$200 strike price, whereby options at or below a $200 strike price 
trade in $1 intervals. This creates a situation where contracts on the 
same option class effectively may not be able to execute certain 
strategies such as, for example, rolling to a higher strike price, 
simply because of the arbitrary $200 strike price above which options 
intervals increase by 500%. This proposal remedies the situation by 
establishing an exception to the current ETF interval regime for IVV 
options to allow such options to trade in $1 or greater intervals at 
all strike prices.
    The Exchange believes that the proposed rule change, like other 
strike price programs currently offered by the Exchange, will benefit 
investors by giving them increased flexibility to more closely tailor 
their investment and hedging decisions. Moreover, the proposed rule 
change is consistent with changes proposed by other exchanges.\10\
---------------------------------------------------------------------------

    \10\ See Securities and Exchange Act Release 34-72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options) (SR-Phlx-2014-046).
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, the 
Exchange believes it and OPRA have the necessary systems capacity to 
handle any potential additional traffic associated with this proposed 
rule change. The Exchange believes that its members will not have a 
capacity issue as a result of this proposal.
    In addition, the interval setting regime the Exchange proposes to 
apply to IVV options is currently applied to options on SPY,\11\ which 
is an ETF that is identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \11\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

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. Rather, the Exchange 
believes that the proposed rule change will result in additional 
investment options and opportunities to achieve the investment and 
trading objectives of market participants seeking efficient trading and 
hedging vehicles, to the benefit of investors, market participants, and 
the marketplace in general. Specifically, the Exchange believes that 
IVV options investors and traders will significantly benefit from the 
availability of finer strike price intervals above a $200 price point. 
In addition, the interval setting regime the Exchange proposes to apply 
to IVV options is currently applied to options on SPY,\12\ which is an 
ETF that is identical in all material respects to the IVV ETF. Thus, 
applying the same strike setting regime to SPY and IVV options will 
help level the playing field for options on similar, competing ETFs.
---------------------------------------------------------------------------

    \12\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    A. significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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) of the Act \13\ and 
Rule 19b-4(f)(6) \14\ thereunder.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.
    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-CBOE-2017-048 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-CBOE-2017-048. 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 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-CBOE-2017-048 and should be 
submitted on or before July 10, 2017.


[[Page 27910]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12585 Filed 6-16-17; 8:45 am]
 BILLING CODE 8011-01-P
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