Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend The Nasdaq Options Market LLC (“NOM”) Rules at Supplementary Material to Chapter III, Section 7, Entitled “Position Limits,” and Section 9, Entitled “Exercise Limits”, 28474-28477 [2018-13080]
Download as PDF
<![CDATA[
28474
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
Members to increase their participation
in BYX Equities. Therefore, eliminating
the tier will have a negligible effect on
order flow and market behavior. The
Exchange believes the proposed change
is not unfairly discriminatory because it
will apply equally to all Members.
The Exchange next notes that volumebased discounts such as those currently
maintained on the Exchange have been
widely adopted by exchanges and are
equitable and non-discriminatory
because they are open to all Members on
an equal basis and provide additional
benefits or discounts that are reasonably
related to the value of an exchange’s
market quality associated with higher
levels of market activity, such as higher
levels of liquidity provision and/or
growth patterns, and introduction of
higher volumes of orders into the price
and volume discovery processes. While
the proposed modification to Add/
Remove Volume Tiers 2, 3, 8 and 9
makes such tiers slightly more difficult
to attain, it is intended to incentivize
Members to send additional volume to
the Exchange in an effort to qualify or
continue to qualify for the reduced fees
and enhanced rebates, as applicable,
made available by the tiers. As such, the
Exchange also believes that the
proposed changes are reasonable. The
Exchange notes that increased volume
on the Exchange provides greater
trading opportunities for all market
participants.
daltland on DSKBBV9HB2PROD with NOTICES
(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 does not believe that any of
the proposed change to the Exchange’s
tiered pricing structure burden
competition, but instead, that they
enhance competition as they are
intended to increase the
competitiveness of BYX by modifying
pricing incentives in order to attract
order flow and incentivize participants
to increase their participation on the
Exchange. The Exchange notes that it
operates in a highly competitive market
in which market participants can
readily direct order flow to competing
venues if they deem fee structures to be
unreasonable or excessive. The
Exchange does not believe the proposed
amendments would burden intramarket
competition as they would be available
to all Members uniformly.
VerDate Sep<11>2014
17:55 Jun 18, 2018
Jkt 244001
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 14 and paragraph (f) of Rule
19b–4 thereunder.15 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBYX–2018–007 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–CboeBYX–2018–007. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBYX–2018–007 and
should be submitted on or before July
10, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–13085 Filed 6–18–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83421; File No. SR–
NASDAQ–2018–044]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend The
Nasdaq Options Market LLC (‘‘NOM’’)
Rules at Supplementary Material to
Chapter III, Section 7, Entitled
‘‘Position Limits,’’ and Section 9,
Entitled ‘‘Exercise Limits’’
June 13, 2018.
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 June 11,
2018, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
14 15
U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f).
PO 00000
Frm 00066
Fmt 4703
1 15
Sfmt 4703
E:\FR\FM\19JNN1.SGM
19JNN1
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend The
Nasdaq Options Market LLC (‘‘NOM’’)
Rules at Supplementary Material to
Chapter III, Section 7, entitled ‘‘Position
Limits,’’ and Section 9, entitled
‘‘Exercise Limits,’’ to amend position
limits for options on the SPDR® S&P
500® exchange-traded fund (‘‘SPY ETF’’
or ‘‘SPY’’), which list and trade under
the symbol ‘‘SPY.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.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
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.
daltland on DSKBBV9HB2PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NOM Rules at Supplementary
Material to Chapter III, Section 7,
entitled ‘‘Position Limits’’ and Section
9, entitled ‘‘Exercise Limits’’ indicate
the manner in which positions for
aggregate positions in option contracts
are treated on the Exchange. SPY is
among the certain select underlying
securities listed in each such Rule.
Indicates [sic] the manner in which
positions for aggregate positions in
option contracts are treated on the
Exchange.3 SPY is among the certain
select underlying securities listed in
each such Rule. Currently, these Rules
provide that there are no position limits
and there are no exercise limits on
options overlying SPY pursuant to a
pilot program, which is scheduled to
expire on July 12, 2018 (‘‘SPY Pilot
Program’’).4
3 See Chapter III, Section 9 for applicable exercise
limits.
4 See Securities Exchange Act Release No. 69180
(March 19, 2013), 78 FR 17962 (March 25, 2013)
(SR–NASDAQ–2013–046); 72142 (May 9, 2014), 79
VerDate Sep<11>2014
17:55 Jun 18, 2018
Jkt 244001
The Exchange proposes to amend
Chapter III, Section 7 to allow the SPY
Pilot Program to terminate on July 12,
2018, the current expiration date of the
SPY Pilot Program. In lieu of extending
the SPY Pilot Program for another year,
the Exchange proposes to allow the SPY
Pilot Program to terminate and to
establish position and exercise limits of
1,800,000 contracts, for options on SPY,
with such change becoming operative
on July 12, 2018, so that there is no
lapse in time between termination of the
SPY Pilot Program and the
establishment of the new limits.
Furthermore, as a result of the
termination of the SPY Pilot Program,
the Exchange does not believe it is
necessary to submit a SPY Pilot Program
Report at the end of the SPY Pilot
Program. Based on the prior SPY Pilot
Program Reports provided to the
Commission,5 the Exchange believes it
is appropriate to terminate the SPY Pilot
Program and that permanent position
and exercise limits should be
established for SPY.
Position limits are designed to
address potential manipulative schemes
and adverse market impact surrounding
the use of options, such as disrupting
the market in the security underlying
the options. The potential manipulative
schemes and adverse market impact are
balanced against the potential of setting
the limits so low as to discourage
participation in the options market. The
level of those position limits must be
balanced between curtailing potential
manipulation and the cost of preventing
potential hedging activity that could be
used for legitimate economic purposes.
The SPY Pilot Program was
established in 2013 in order to eliminate
position and exercise limits for
physically-settled SPY options.6 In
2005, the position limits for SPY
options were increased from 75,000
contracts to 300,000 contracts on the
same side of the market.7 In July 2011,
the position limit for these options was
again increased from 300,000 contracts
to 900,000 contracts on the same side of
the market.8 Then, in 2013, the position
FR 27961 (May 15, 2014) (SR–NASDAQ–2014–052);
75413 (July 9, 2015), 80 FR 41519 (July 15, 2015)
(SR–NASDAQ–2015–072); 78123 (June 22, 2016),
81 FR 42030 (June 28, 2016) (SR–NASDAQ–2016–
084); and 81090 (July 7, 2017), 82 FR 32394 (July
13, 2017) (SR–NASDAQ–2017–063).
5 Id.
6 See Securities Exchange Act Release No. 69180
(March 19, 2013), 78 FR 17962 (March 25, 2013)
(SR–NASDAQ–2013–046).
7 See Securities Exchange Act Release No. 51041
(January 14, 2005), 70 FR 3408 (January 24, 2005)
(SR–CBOE–2005–06). NOM’s position limit in SPY
in 2005 was based on The Chicago Board Options
Exchange, Inc.’s current rule.
8 See Securities Exchange Act Release No. 64928
(July 20, 2011), 76 FR 44633 (July 26, 2011) (SR–
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
28475
limits for SPY options were eliminated
as part of the SPY Pilot Program.9
The underlying SPY tracks the
performance of the S&P 500 Index and
the Exchange notes that the SPY and
SPY options have deep, liquid markets
that reduce concerns regarding
manipulation and disruption in the
underlying markets. In support of this
proposed rule change, the Exchange has
collected the following trading statistics
for SPY and SPY Options: (1) The
average daily volume (‘‘ADV’’) to date
(as of May 15, 2018) for SPY is 108.32
million shares; (2) the ADV to date in
2018 for SPY options is 3.9 million
contracts per day; (3) the total shares
outstanding for SPY are 965.43 million;
and (4) the fund market cap for SPY is
261.65 billion. The Exchange represents
further that there is tremendous
liquidity in the securities that make up
the S&P 500 Index.
Accordingly, the Exchange proposes
to amend Chapter III, Section 7 [sic] to
set forth that the position and exercise
limits for options on SPY would be
1,800,000 contracts on the same side of
the market. These position and exercise
limits equal the current position and
exercise limits for options on QQQ,
which the Commission previously
approved to be increased from 900,000
contracts on the same side of the
market, to 1,800,000 contracts on the
same side of the market.10 The Exchange
also notes that SPY is more iquid [sic]
than QQQ.11 The Exchange believes that
establishing position and exercise limits
for the SPY options in the amount of
1,800,000 contracts on the same side of
the market subject to this proposal
would allow for the maintenance of the
liquid and competitive market
environment for these options, which
will benefit customers interested in
these products. Under the proposal, the
reporting requirement for the options
would be unchanged.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,12 in general, and furthers the
CBOE–2011–065). NOM’s position limit in SPY in
2005 was based on The Chicago Board Options
Exchange, Inc.’s current rule.
9 See note 5 above.
10 See Securities Exchange Act Release No. 82770
(February 23, 2018), 83 FR 8907 (March 1, 2018)
(SR–CBOE–2017–057). NOM’s current rule is based
on Cboe Exchange, Inc.’s rule.
11 From the beginning of the year, through May
15, 2018, the ADV for SPY was 108.32 million
shares while the ADV for QQQ was 46.64 million
shares (calculated using data from Yahoo Finance
as of May 15, 2018).
12 15 U.S.C. 78f(b).
E:\FR\FM\19JNN1.SGM
19JNN1
daltland on DSKBBV9HB2PROD with NOTICES
28476
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
objectives of Section 6(b)(5) of the Act,13
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. The
Exchange believes that establishing
permanent position and exercise limits
for SPY options subject to this proposal
will encourage Market Makers to
continue to provide sufficient liquidity
in SPY options on the Exchange, which
will enhance the process of price
discovery conducted on the Exchange.
The proposal will also benefit
institutional investors as well as retail
traders, and public customers, by
continuing to provide them with an
effective trading and hedging vehicle. In
addition, the Exchange believes that the
structure of the SPY options subject to
this proposal and the considerable
liquidity of the market for those options
diminishes the opportunity to
manipulate this product and disrupt the
underlying market that a lower position
limit may protect against.
Increased position limits for select
actively traded options, such as that
proposed herein (increased as compared
to the 900,000 limit in place prior to the
SPY Pilot Program),14 is not novel and
has been previously approved by the
Commission. For example, the
Commission has previously approved a
rule change permitting the Exchange to
double the position and exercise limits
for FXI, EEM, IWM, EFA, EWZ, TLT,
QQQ, and EWJ.15 Furthermore, as
previously mentioned, the Commission
specifically approved a proposal by the
Exchange to increase the position and
exercise limits for options on QQQ from
900,000 contracts on the same side of
the market to 1,800,000 contracts on the
same side of the market; similar to the
current proposal for options on SPY.16
The Exchange also notes that SPY is
more liquid than QQQ.17
Lastly, the Commission expressed the
belief that implementing higher position
and exercise limits may bring additional
depth and liquidity without increasing
concerns regarding intermarket
manipulation or disruption of the
options or the underlying securities.18
The Exchange’s existing surveillance
and reporting safeguards are designed to
deter and detect possible manipulative
behavior which might arise from
13 15
U.S.C. 78f(b)(5).
note 9.
15 See note 11 above.
16 Id.
17 See note 12 above.
18 See note 11 above.
17:55 Jun 18, 2018
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. The
Exchange believes the entire proposal is
consistent with Section (6)(b)(8) of the
Act 20 in that it does not impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. On the
contrary, the Exchange believes the
proposal promotes competition because
it will enable the option exchanges to
attract additional order flow from the
over-the-counter market, who in turn
compete for those orders. The Exchange
believes that the proposed rule change
will result in continued 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. The Exchange believes this
proposed rule change is necessary to
permit fair competition among the
options exchanges and to establish
uniform position limits for additional
multiply listed option classes.
Furthermore, the Exchange believes that
the other options exchanges will file
similar proposals with the Commission.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 21 and
subparagraph (f)(6) of Rule 19b–4
thereunder.22
note 9 above.
U.S.C. 78(f)(b)(8).
21 15 U.S.C. 78s(b)(3)(A)(iii).
22 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2018–044 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ –2018–044. 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 website (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 website 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
19 See
14 See
VerDate Sep<11>2014
increasing position and exercise limits
(increased as compared to the 900,000
limit in place prior to the SPY Pilot
Program).19
20 15
Jkt 244001
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
E:\FR\FM\19JNN1.SGM
19JNN1
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2018–044 and
should be submitted on or before July
10, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–13080 Filed 6–18–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83425; File No. SR–CHX–
2018–001]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Adopt the
Route QCT Cross Routing Option
June 13, 2018.
I. Introduction
On March 6, 2018, the Chicago Stock
Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt the Route
QCT Cross routing option. The proposed
rule change was published for comment
in the Federal Register on March 20,
2018.3 On May 1, 2018, pursuant to
Section 19(b)(2) of the Exchange Act,4
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
The Commission received no comment
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82870
(March 14, 2018), 83 FR 12214 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 83143,
83 FR 20123 (May 7, 2018). The Commission
designated June 18, 2018, as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
daltland on DSKBBV9HB2PROD with NOTICES
1 15
VerDate Sep<11>2014
17:55 Jun 18, 2018
Jkt 244001
letters on the proposed rule change.
This order institutes proceedings under
Section 19(b)(2)(B) of the Exchange Act 6
to determine whether to approve or
disapprove the proposed rule change.
II. Description of the Proposed Rule
Change
Currently, under the Exchange’s rules,
Routable Orders 7 submitted to the CHX
matching system (‘‘Matching System’’) 8
for execution are routed away from the
Matching System automatically if a
Routing Event 9 is triggered. The
Exchange’s current rules provide that all
Routable Orders 10 are limit orders.
Market 11 and cross orders 12 are never
routable. The Exchange does not
currently permit orders to be directly
routed to an away Trading Center 13
without first being submitted to the
Matching System.
Because Qualifed Contingent Trade
(‘‘QCT’’) Crosses 14 are exempt from the
trade-through prohibition of Rule 611 of
Regulation NMS,15 the Matching System
permits QCT Crosses to trade-through
protected quotes of away markets.
Under the Exchange’s current rules,
QCT Crosses are handled IOC 16 and can
never rest on the CHX book. Moreover,
a QCT Cross submitted to the Matching
System will be cancelled back to the
order sender as ‘‘blocked’’ if a precedent
limit order priced at or better than the
QCT Cross is resting on the CHX book,17
except that a QCT Cross priced at the
top of the CHX book (i.e., the bestranked order on the CHX book pursuant
to Article 20, Rule 8(b)) that qualifies for
Cross With Size 18 handling will be
permitted to execute.
The Exchange has proposed to adopt
the Route QCT Cross routing option,
which will permit only Institutional
6 15
U.S.C. 78s(b)(2)(B).
7 See CHX Article 1, Rule 1(oo).
8 The Matching System is part of the Exchange’s
‘‘Trading Facilities,’’ as defined under CHX Article
1, Rule 1(z).
9 See CHX Article 19, Rule 3(a)(1)–(5).
10 See CHX Article 1, Rule 1(oo) defining
‘‘Routable Order.’’
11 See CHX Article 1, Rule 2(a)(3) defining
‘‘market order.’’
12 See CHX Article 1, Rule 2(a)(2) defining ‘‘cross
order.’’
13 See CHX Article 1, Rule 1(nn) defining
‘‘Trading Center.’’
14 QCT Crosses are cross orders that are
component orders to Qualified Contingent Trades
that are submitted by an Institutional Broker. See
CHX Article 1, Rule 2(b)(2)(E) defining ‘‘Qualified
Contingent Trade.’’ See also CHX Article 1, Rule
2(a)(2) defining ‘‘cross order.’’
15 See Securities Exchange Act Release No. 57620
(April 4, 2008), 73 FR 19271 (April 4, 2008).
16 See CHX Article 1, Rule 2(a)(2)
17 See CHX Article 1, Rule 2(a)(2). See also CHX
Article 20, Rule 8(e)(1).
18 See CHX Article 1, Rule 2(g)(1).
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
28477
Brokers (‘‘IBs’’) 19 to directly route a
QCT Cross to a non-affiliated third-party
broker-dealer designated by the IB
(‘‘designated executing broker’’) for
execution. Route QCT Cross orders will
be handled like current Routable
Orders,20 except that the Route QCT
Cross order will never be submitted to
the Matching System for execution.
Specifically, upon receipt of a Route
QCT Cross order, the Exchange will
cause the order to be routed IOC 21 from
the Exchange, through CHXBD, LLC
(‘‘CHXBD’’), the Exchange’s affiliated
routing broker, to the designated
executing broker identified by the IB.22
The Exchange states that the
relationship between a designated
executing broker and CHXBD will be
governed by applicable CHX Rules 23
and customary interbroker agreements,
such as fully-disclosed clearing and
customer agreements. The Exchange
represents that at all times, the use of
Route QCT Cross will be optional.24 The
Exchange also states that Route QCT
Cross is similar to the routing options
available on the Nasdaq Stock Market 25
and Cboe BYX and Cboe BZX
exchanges.26
Specifically, the Exchange has
proposed to adopt proposed Article 19,
Rule 4 (Routing Options) to provide that
routing options may be combined with
all available order types, modifiers and
related terms, except for order types,
modifiers, and related terms that are
inconsistent with the terms of a routing
option, and that the Exchange may
activate or deactivate any routing option
at its discretion and, if practicable, after
notice to Participants.27 Article 19, Rule
4(a)(1) provides that Route QCT Cross is
19 The Exchange states that it has proposed to
limit use of Route QCT Cross to IBs to be consistent
with the fact that only IBs are currently permitted
to submit QCT Crosses to the Matching System. See
CHX Article 1, Rule 2(b)(2)(E).
20 See CHX Article 1, Rule 1(oo).
21 See CHX Article 1, Rule 2(a)(2).
22 The Exchange states that IBs will be permitted
to identify only one designated executing broker to
which all Route QCT Cross orders submitted by the
IB will be routed, subject to additional
requirements, as described below.
23 See e.g., CHX Article 19, Rule 2(a).
24 See Notice, supra note 3 at 12215.
25 See id. The Exchange states that like Route
QCT Cross, the ‘‘Directed Order’’ routing option
offered by the Nasdaq Stock Market (‘‘Nasdaq’’)
permits an order sender to route an order to another
market center while bypassing the Nasdaq’s order
book, which may result in the routed order
executing at a price through Nasdaq’s top of book.
See id.
26 The Exchange states that like Route QCT Cross,
the ‘‘DRT’’ routing option offered by the Cboe BYX
and Cboe BZX exchanges permits an order to be
routed to one or more away alternative trading
systems. See id.
27 See CHX Article 1, Rule 1(s).
E:\FR\FM\19JNN1.SGM
19JNN1
]]>Agencies
[Federal Register Volume 83, Number 118 (Tuesday, June 19, 2018)]
[Notices]
[Pages 28474-28477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13080]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83421; File No. SR-NASDAQ-2018-044]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend The Nasdaq Options Market LLC (``NOM'') Rules at Supplementary
Material to Chapter III, Section 7, Entitled ``Position Limits,'' and
Section 9, Entitled ``Exercise Limits''
June 13, 2018.
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 June 11, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 28475]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend The Nasdaq Options Market LLC
(``NOM'') Rules at Supplementary Material to Chapter III, Section 7,
entitled ``Position Limits,'' and Section 9, entitled ``Exercise
Limits,'' to amend position limits for options on the SPDR[supreg] S&P
500[supreg] exchange-traded fund (``SPY ETF'' or ``SPY''), which list
and trade under the symbol ``SPY.''
The text of the proposed rule change is available on the Exchange's
website at https://nasdaq.cchwallstreet.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 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
NOM Rules at Supplementary Material to Chapter III, Section 7,
entitled ``Position Limits'' and Section 9, entitled ``Exercise
Limits'' indicate the manner in which positions for aggregate positions
in option contracts are treated on the Exchange. SPY is among the
certain select underlying securities listed in each such Rule.
Indicates [sic] the manner in which positions for aggregate positions
in option contracts are treated on the Exchange.\3\ SPY is among the
certain select underlying securities listed in each such Rule.
Currently, these Rules provide that there are no position limits and
there are no exercise limits on options overlying SPY pursuant to a
pilot program, which is scheduled to expire on July 12, 2018 (``SPY
Pilot Program'').\4\
---------------------------------------------------------------------------
\3\ See Chapter III, Section 9 for applicable exercise limits.
\4\ See Securities Exchange Act Release No. 69180 (March 19,
2013), 78 FR 17962 (March 25, 2013) (SR-NASDAQ-2013-046); 72142 (May
9, 2014), 79 FR 27961 (May 15, 2014) (SR-NASDAQ-2014-052); 75413
(July 9, 2015), 80 FR 41519 (July 15, 2015) (SR-NASDAQ-2015-072);
78123 (June 22, 2016), 81 FR 42030 (June 28, 2016) (SR-NASDAQ-2016-
084); and 81090 (July 7, 2017), 82 FR 32394 (July 13, 2017) (SR-
NASDAQ-2017-063).
---------------------------------------------------------------------------
The Exchange proposes to amend Chapter III, Section 7 to allow the
SPY Pilot Program to terminate on July 12, 2018, the current expiration
date of the SPY Pilot Program. In lieu of extending the SPY Pilot
Program for another year, the Exchange proposes to allow the SPY Pilot
Program to terminate and to establish position and exercise limits of
1,800,000 contracts, for options on SPY, with such change becoming
operative on July 12, 2018, so that there is no lapse in time between
termination of the SPY Pilot Program and the establishment of the new
limits. Furthermore, as a result of the termination of the SPY Pilot
Program, the Exchange does not believe it is necessary to submit a SPY
Pilot Program Report at the end of the SPY Pilot Program. Based on the
prior SPY Pilot Program Reports provided to the Commission,\5\ the
Exchange believes it is appropriate to terminate the SPY Pilot Program
and that permanent position and exercise limits should be established
for SPY.
---------------------------------------------------------------------------
\5\ Id.
---------------------------------------------------------------------------
Position limits are designed to address potential manipulative
schemes and adverse market impact surrounding the use of options, such
as disrupting the market in the security underlying the options. The
potential manipulative schemes and adverse market impact are balanced
against the potential of setting the limits so low as to discourage
participation in the options market. The level of those position limits
must be balanced between curtailing potential manipulation and the cost
of preventing potential hedging activity that could be used for
legitimate economic purposes.
The SPY Pilot Program was established in 2013 in order to eliminate
position and exercise limits for physically-settled SPY options.\6\ In
2005, the position limits for SPY options were increased from 75,000
contracts to 300,000 contracts on the same side of the market.\7\ In
July 2011, the position limit for these options was again increased
from 300,000 contracts to 900,000 contracts on the same side of the
market.\8\ Then, in 2013, the position limits for SPY options were
eliminated as part of the SPY Pilot Program.\9\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 69180 (March 19,
2013), 78 FR 17962 (March 25, 2013) (SR-NASDAQ-2013-046).
\7\ See Securities Exchange Act Release No. 51041 (January 14,
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06). NOM's
position limit in SPY in 2005 was based on The Chicago Board Options
Exchange, Inc.'s current rule.
\8\ See Securities Exchange Act Release No. 64928 (July 20,
2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065). NOM's
position limit in SPY in 2005 was based on The Chicago Board Options
Exchange, Inc.'s current rule.
\9\ See note 5 above.
---------------------------------------------------------------------------
The underlying SPY tracks the performance of the S&P 500 Index and
the Exchange notes that the SPY and SPY options have deep, liquid
markets that reduce concerns regarding manipulation and disruption in
the underlying markets. In support of this proposed rule change, the
Exchange has collected the following trading statistics for SPY and SPY
Options: (1) The average daily volume (``ADV'') to date (as of May 15,
2018) for SPY is 108.32 million shares; (2) the ADV to date in 2018 for
SPY options is 3.9 million contracts per day; (3) the total shares
outstanding for SPY are 965.43 million; and (4) the fund market cap for
SPY is 261.65 billion. The Exchange represents further that there is
tremendous liquidity in the securities that make up the S&P 500 Index.
Accordingly, the Exchange proposes to amend Chapter III, Section 7
[sic] to set forth that the position and exercise limits for options on
SPY would be 1,800,000 contracts on the same side of the market. These
position and exercise limits equal the current position and exercise
limits for options on QQQ, which the Commission previously approved to
be increased from 900,000 contracts on the same side of the market, to
1,800,000 contracts on the same side of the market.\10\ The Exchange
also notes that SPY is more iquid [sic] than QQQ.\11\ The Exchange
believes that establishing position and exercise limits for the SPY
options in the amount of 1,800,000 contracts on the same side of the
market subject to this proposal would allow for the maintenance of the
liquid and competitive market environment for these options, which will
benefit customers interested in these products. Under the proposal, the
reporting requirement for the options would be unchanged.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 82770 (February 23,
2018), 83 FR 8907 (March 1, 2018) (SR-CBOE-2017-057). NOM's current
rule is based on Cboe Exchange, Inc.'s rule.
\11\ From the beginning of the year, through May 15, 2018, the
ADV for SPY was 108.32 million shares while the ADV for QQQ was
46.64 million shares (calculated using data from Yahoo Finance as of
May 15, 2018).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\12\ in general, and furthers the
[[Page 28476]]
objectives of Section 6(b)(5) of the Act,\13\ 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. The Exchange believes that
establishing permanent position and exercise limits for SPY options
subject to this proposal will encourage Market Makers to continue to
provide sufficient liquidity in SPY options on the Exchange, which will
enhance the process of price discovery conducted on the Exchange. The
proposal will also benefit institutional investors as well as retail
traders, and public customers, by continuing to provide them with an
effective trading and hedging vehicle. In addition, the Exchange
believes that the structure of the SPY options subject to this proposal
and the considerable liquidity of the market for those options
diminishes the opportunity to manipulate this product and disrupt the
underlying market that a lower position limit may protect against.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Increased position limits for select actively traded options, such
as that proposed herein (increased as compared to the 900,000 limit in
place prior to the SPY Pilot Program),\14\ is not novel and has been
previously approved by the Commission. For example, the Commission has
previously approved a rule change permitting the Exchange to double the
position and exercise limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQ, and
EWJ.\15\ Furthermore, as previously mentioned, the Commission
specifically approved a proposal by the Exchange to increase the
position and exercise limits for options on QQQ from 900,000 contracts
on the same side of the market to 1,800,000 contracts on the same side
of the market; similar to the current proposal for options on SPY.\16\
The Exchange also notes that SPY is more liquid than QQQ.\17\
---------------------------------------------------------------------------
\14\ See note 9.
\15\ See note 11 above.
\16\ Id.
\17\ See note 12 above.
---------------------------------------------------------------------------
Lastly, the Commission expressed the belief that implementing
higher position and exercise limits may bring additional depth and
liquidity without increasing concerns regarding intermarket
manipulation or disruption of the options or the underlying
securities.\18\ The Exchange's existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might arise from increasing position and exercise limits
(increased as compared to the 900,000 limit in place prior to the SPY
Pilot Program).\19\
---------------------------------------------------------------------------
\18\ See note 11 above.
\19\ See note 9 above.
---------------------------------------------------------------------------
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. The Exchange believes the
entire proposal is consistent with Section (6)(b)(8) of the Act \20\ in
that it does not impose any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act. On the
contrary, the Exchange believes the proposal promotes competition
because it will enable the option exchanges to attract additional order
flow from the over-the-counter market, who in turn compete for those
orders. The Exchange believes that the proposed rule change will result
in continued 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. The Exchange believes this proposed rule change
is necessary to permit fair competition among the options exchanges and
to establish uniform position limits for additional multiply listed
option classes. Furthermore, the Exchange believes that the other
options exchanges will file similar proposals with the Commission.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78(f)(b)(8).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \21\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\22\
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78s(b)(3)(A)(iii).
\22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2018-044 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ -2018-044. 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 website (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 website 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
[[Page 28477]]
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2018-044 and should
be submitted on or before July 10, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------
\23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13080 Filed 6-18-18; 8:45 am]
BILLING CODE 8011-01-P
