Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Position Limits and Exercise Limits for Options on the SPDR Exchange-Traded Fund, 28481-28483 [2018-13082]
Download as PDF
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited. As a result of all of these
considerations, the Exchange does not
believe that the proposed changes will
impair the ability of member
organizations or competing order
execution venues to maintain their
competitive standing in the financial
markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 10 of the Act and
subparagraph (f)(2) of Rule 19b–4 11
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 12 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–NYSE–2018–27. 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–NYSE–2018–27 and should
be submitted on or before July 10, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–13083 Filed 6–18–18; 8:45 am]
BILLING CODE 8011–01–P
daltland on DSKBBV9HB2PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2018–27 on the subject line.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
12 15 U.S.C. 78s(b)(2)(B).
17:55 Jun 18, 2018
13 17
Jkt 244001
[Release No. 34–83423; File No. SR–BX–
2018–022]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Position
Limits and Exercise Limits for Options
on the SPDR Exchange-Traded Fund
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 12,
2018, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend BX
Rules at Supplementary Material to
Chapter III, Section 7, entitled ‘‘Position
Limits,’’ and Section 9, entitled
‘‘Exercise Limits,’’ to amend position
limits and exercise limits for options on
the SPDR® S&P 500® exchange-traded
fund (‘‘SPY ETF’’ or ‘‘SPY’’),3 which list
and trade under the symbol ‘‘SPY.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqbx.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
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 ‘‘SPDR®,’’ ‘‘Standard & Poor’s®,’’ ‘‘S&P®,’’
‘‘S&P 500®,’’ and ‘‘Standard & Poor’s 500’’ are
registered trademarks of Standard & Poor’s
Financial Services LLC. The SPY ETF represents
ownership in the SPDR S&P 500 Trust, a unit
investment trust that generally corresponds to the
price and yield performance of the SPDR S&P 500
Index.
2 17
11 17
VerDate Sep<11>2014
SECURITIES AND EXCHANGE
COMMISSION
1 15
10 15
PO 00000
CFR 200.30–3(a)(12).
Frm 00073
Fmt 4703
Sfmt 4703
28481
E:\FR\FM\19JNN1.SGM
19JNN1
28482
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
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
daltland on DSKBBV9HB2PROD with NOTICES
1. Purpose
BX 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. 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
The Exchange proposes to amend
Chapter III, Sections 7 and 9 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
4 See Securities Exchange Act Release No. 69179
(March 19, 2013), 78 FR 17952 (March 25, 2013)
(SR–BX–2013–024); 72143 (May 9, 2014), 79 FR
27963 (May 15, 2014) (SR–BX–2014–025); 75412
(July 9, 2015), 80 FR 41517 (July 15, 2015) (SR–BX–
2015–039); 78125 (June 22, 2016), 81 FR 42009
(June 28, 2016) (SR–BX–2016–030); and 81093 (July
7, 2017), 82 FR 32415 (July 13, 2017) (SR–BX–
2017–030).
5 Id.
VerDate Sep<11>2014
17:55 Jun 18, 2018
Jkt 244001
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 2012, the position
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, Sections 7 and 9
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
6 See Securities Exchange Act Release No. 69179
(March 19, 2013), 78 FR 17952 (March 25, 2013)
(SR–BX–2013–024).
7 See Securities Exchange Act Release No. 51041
(January 14, 2005), 70 FR 3408 (January 24, 2005)
(SR–CBOE–2005–06). At this time BX was not in
existence.
8 See Securities Exchange Act Release No. 64928
(July 20, 2011), 76 FR 44633 (July 26, 2011) (SR–
CBOE–2011–065). At this time BX was not in
existence.
9 See note 4 above.
10 See Securities Exchange Act Release No. 82770
(February 23, 2018), 83 FR 8907 (March 1, 2018)
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
Exchange also notes that SPY is more
liquid 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
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,
(SR–CBOE–2017–057). BX’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).
13 15 U.S.C. 78f(b)(5).
14 See note 8.
E:\FR\FM\19JNN1.SGM
19JNN1
Federal Register / Vol. 83, No. 118 / Tuesday, June 19, 2018 / Notices
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
increasing position and exercise limits
(increased as compared to the 900,000
limit in place prior to the SPY Pilot
Program).19
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 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
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:
note 10 above.
16 Id.
17 See
note 11 above.
18 See note 10 above.
19 See note 8 above.
20 15 U.S.C. 78(f)(b)(8).
VerDate Sep<11>2014
17:55 Jun 18, 2018
Jkt 244001
All submissions should refer to File
Number SR–BX–2018–022. 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–BX–2018–022 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. 2018–13082 Filed 6–18–18; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2018–022 on the subject line.
BILLING CODE 8011–01–P
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Designation
of a Longer Period for Commission
Action on a Proposed Rule Change To
Amend FINRA Rule 6433 To Adopt the
OTC Quotation Tier Size Pilot as
Permanent
21 15
U.S.C. 78s(b)(3)(A)(iii).
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.
22 17
15 See
28483
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83422; File No. SR–FINRA–
2018–015]
June 13, 2018.
On April 20, 2018, Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
23 17
E:\FR\FM\19JNN1.SGM
CFR 200.30–3(a)(12).
19JNN1
Agencies
[Federal Register Volume 83, Number 118 (Tuesday, June 19, 2018)]
[Notices]
[Pages 28481-28483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13082]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83423; File No. SR-BX-2018-022]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Position
Limits and Exercise Limits for Options on the SPDR Exchange-Traded Fund
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 12, 2018, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BX Rules at Supplementary Material
to Chapter III, Section 7, entitled ``Position Limits,'' and Section 9,
entitled ``Exercise Limits,'' to amend position limits and exercise
limits for options on the SPDR[reg] S&P 500[reg] exchange-traded fund
(``SPY ETF'' or ``SPY''),\3\ which list and trade under the symbol
``SPY.''
---------------------------------------------------------------------------
\3\ ``SPDR[reg],'' ``Standard & Poor's[reg],'' ``S&P[reg],''
``S&P 500[reg],'' and ``Standard & Poor's 500'' are registered
trademarks of Standard & Poor's Financial Services LLC. The SPY ETF
represents ownership in the SPDR S&P 500 Trust, a unit investment
trust that generally corresponds to the price and yield performance
of the SPDR S&P 500 Index.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqbx.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
[[Page 28482]]
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
BX 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.
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\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 69179 (March 19,
2013), 78 FR 17952 (March 25, 2013) (SR-BX-2013-024); 72143 (May 9,
2014), 79 FR 27963 (May 15, 2014) (SR-BX-2014-025); 75412 (July 9,
2015), 80 FR 41517 (July 15, 2015) (SR-BX-2015-039); 78125 (June 22,
2016), 81 FR 42009 (June 28, 2016) (SR-BX-2016-030); and 81093 (July
7, 2017), 82 FR 32415 (July 13, 2017) (SR-BX-2017-030).
---------------------------------------------------------------------------
The Exchange proposes to amend Chapter III, Sections 7 and 9 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 2012, the position limits for SPY options were
eliminated as part of the SPY Pilot Program.\9\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 69179 (March 19,
2013), 78 FR 17952 (March 25, 2013) (SR-BX-2013-024).
\7\ See Securities Exchange Act Release No. 51041 (January 14,
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06). At this time
BX was not in existence.
\8\ See Securities Exchange Act Release No. 64928 (July 20,
2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065). At this time
BX was not in existence.
\9\ See note 4 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, Sections 7
and 9 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 liquid 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). BX'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 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,
[[Page 28483]]
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 8.
\15\ See note 10 above.
\16\ Id.
\17\ See note 11 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 10 above.
\19\ See note 8 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-BX-2018-022 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-BX-2018-022. 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-BX-2018-022 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. 2018-13082 Filed 6-18-18; 8:45 am]
BILLING CODE 8011-01-P