Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow $1 Strike Price Intervals Above $200 on Options on the QQQ and IWM Exchange-Traded Funds, 23617-23620 [2019-10639]

Download as PDF Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 28 and Rule 19b–4(f)(6) thereunder.29 Because the 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 prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. 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) 30 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: Commission, 100 F Street NE, Washington, DC 20549–1090. jbell on DSK3GLQ082PROD with NOTICES SECURITIES AND EXCHANGE COMMISSION All submissions should refer to File Number SR–NYSEArca–2019–32. 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–NYSEArca–2019–32 and should be submitted on or before June 12, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–10638 Filed 5–21–19; 8:45 am] BILLING CODE 8011–01–P 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– NYSEArca–2019–32 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange [Release No. 34–85872; File No. SR– NYSEArca–2019–34] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow $1 Strike Price Intervals Above $200 on Options on the QQQ and IWM Exchange-Traded Funds May 16, 2019. 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 May 10, 2019, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 6.4–O. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. 1 15 U.S.C. 78s(b)(3)(A)(iii). 29 17 CFR 240.19b–4(f)(6). 30 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 17:29 May 21, 2019 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 28 15 31 17 Jkt 247001 PO 00000 CFR 200.30–3(a)(12). Frm 00096 Fmt 4703 Sfmt 4703 23617 E:\FR\FM\22MYN1.SGM 22MYN1 23618 Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change jbell on DSK3GLQ082PROD with NOTICES 1. Purpose The purpose of this filing is to amend Rule 6.4–O (Series of Options Open for Trading) to allow for the interval between strike prices of series of options on Exchange-Traded Fund Shares (‘‘ETFs’’) of the PowerShares QQQ Trust (‘‘QQQ’’) and the iShares Russell 2000 Index Fund (‘‘IWM’’) to be $1 or greater where the strike price is greater than $200. This proposal would align the rules of the Exchange with that of other options exchanges.5 Currently, Commentary .05(d) to Rule 6.4–O allows for the interval between strike prices of series of options on SPDR® S&P 500® ETF (‘‘SPY’’), iShares Core S&P 500 ETF (‘‘IVV’’), and the SPDR® Dow Jones® Industrial Average ETF (‘‘DIA’’) to be $1 or greater where the strike price is greater than $200. Per Commentary .05(a) to Rule 6.4–O, the interval between strike prices of series of options on all other ETFs is currently $5.00 or greater where the strike price is greater than $200. Specifically, the Exchange proposes to modify the interval setting regime to allow $1 strike price intervals where the strike price is above $200 for IWM and QQQ options.6 The Exchange believes that the proposed rule change would make QQQ and IWM options easier for investors and traders to use and more tailored to their investment needs. The QQQ and IWM are designed to provide investors different ways to efficiently gain exposure to the equity markets and execute risk management, hedging, asset allocation and income generation strategies. The QQQ is an ETF investment trust designed to closely track the price and performance of a the Nasdaq-100 Index (‘‘NDX’’), which represents the largest and most active nonfinancial domestic and international issues listed on The Nasdaq Stock Market based on market capitalization. Likewise, the IWM is an index ETF designed to closely track the price and performance of the Russell 2000 Index (‘‘RUT’’), which represents the small capitalization sector of the U.S. equity market. In general, QQQ and IWM options provide investors with the 5 See Securities Exchange Act Release No. 85754 (April 30, 2019) (SR–CBOE–2019–15) (Order approving proposal to amend Interpretation and Policy .08(b) to Rule 5.5 to allow strike intervals of $1.00 or more on series of options on QQQ and IWM where the strike price is greater than $200). See also Securities Exchange Act Release No. 85295 (March 12, 2019), 84 FR 9851 (March 18, 2019) (Notice). 6 See proposed Commentary .05(d) to Rule 6.4–O. VerDate Sep<11>2014 17:29 May 21, 2019 Jkt 247001 benefit of trading broader markets in a manageably sized contract. The value of QQQ is designed to approximate 1/40 the value of the underlying NDX. For example, if the NDX price level is 1400, QQQ strike prices generally would be expected to be priced around $35. The value of IWM is designed to approximate 1/10 the value of the underlying, RUT. In the past year, the NDX has climbed above a price level of 7500, and the RUT climbed to a price level of approximately 1700 (both prior to the December 2018 market-wide decline).7 As the value of the underlying ETF (and the index the ETF tracks) and resulting strike prices for each option continues to appreciate, the Exchange has received requests from OTP Holders and OTP Firms (‘‘OTPs’’) to list additional strike prices ($1 increments) in QQQ and IWM options above $200. The QQQ is among the most actively traded ETFs on the market. It is widely quoted as an indicator of technology stock prices and investor confidence in the technology and telecommunication market spaces, a significant indicator of overall economic health. Similarly, IWM is among the most actively traded ETFs on the market and provides investors with an investment tool to gain exposure to small U.S. public companies. Industrywide trade volume in QQQ more than doubled from 2017 to 2018. As a result, QQQ options and IWM options have grown to become two of the largest options contracts in terms of trading volume. Investors use these products to diversify their portfolios and benefit from market trends. Accordingly, the Exchange believes that offering a wider base of QQQ and IWM options affords traders and investors important hedging and trading opportunities, particularly in the midst of current price trends. The Exchange believes that not having the proposed $1 strike price intervals above $200 in QQQ and IWM significantly constricts investors’ hedging and trading possibilities. The Exchange therefore believes that by having smaller strike intervals in QQQ and IWM, investors would have more efficient hedging and trading opportunities due to the lower $1 interval ascension. The proposed $1 7 See Securities Exchange Act Release No. 82094 (November 16, 2017), 82 FR 55686 (November 22, 2017) (SR–NYSEArca–2017–128) (immediately effective filing to align Exchange rules with other exchanges by amending Exchange strike listing rules to modify the interval setting regimes for SPY and DIA to allow $1 strike price intervals above $200, and noting the price levels for their respective underlying ETFs hovered around 2000 and 1700, comparable to the current NDX and RUT price levels at the time other exchanges filed to modify their strike listing rules). PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 intervals above the $200 strike price will result in having at-the-money series based upon the underlying ETFs moving less than 1%. The Exchange believes that the proposed strike setting regime is in line with the slower movements of broad-based indices. Considering the fact that $1 intervals already exist below the $200 price point and that both QQQ and IWM have consistently inclined in price toward the $200 level, the Exchange believes that continuing to maintain the current $200 level (above which intervals increase 500% to $5), may have a negative effect on investing, trading and hedging opportunities, and volume. The Exchange believes that the investing, trading, and hedging opportunities available with QQQ and IWM options far outweighs any potential negative impact of allowing QQQ and IWM 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 the increasing values in the underlying indices and allow investors and traders to roll open positions from a lower strike to a higher strike in conjunction with the price movements of the underlying ETFs. 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. As stated, the NDX and RUT have experienced continued, steady growth. The Exchange believes that with the proposed rule change, 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. As a result, the proposed rule change will allow the Exchange to better respond to customer demand for QQQ and IWM strike prices more precisely aligned with the smaller, longer-term incremental increases in respective underlying ETFs. 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 QQQ and IWM options. Moreover, by allowing series of QQQ and IWM options to be listed in $1 intervals between strike prices over $200, the proposal will moderately augment the E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices jbell on DSK3GLQ082PROD with NOTICES 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 OTPs 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, but rather, believes that finer strike intervals will serve to increase liquidity available as well as price efficiency by providing more trading opportunities for all market participants. 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.8 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 9 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. In particular, the proposed rule change to Commentary .05(d) to Rule 6.4–O would allow investors to more easily use QQQ and IWM options. Moreover, the proposed rule change would allow investors to better trade and hedge positions in QQQ and IWM options where the strike price is greater than $200, and ensure that investors in both options are not at a disadvantage simply because of the strike price. The Exchange 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 QQQ and IWM options to trade in $1 intervals above a $200 strike price. The Exchange 8 15 9 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:29 May 21, 2019 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 $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 QQQ and IWM 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 current strike intervals on options on DIA and SPY and align with rules in place for similarly situated options and their underlying ETFs.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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Rather, the proposed rule change would enable the Exchange to better compete with other options exchanges that have already adopted the proposed strike setting regime.13 Although the Exchange is able to match strikes listed by other exchanges, this proposal would allow the initiate strikes in QQQ and IWM regardless of strikes listed on other exchanges, which should help level the playing field for investors investing in, trading and utilizing hedging strategies on these options. Moreover, the Exchange believes that the proposed rule change would result in additional investment options and opportunities to achieve the investment and trading objectives of market participants seeking efficient trading 10 See Jkt 247001 PO 00000 supra notes 7 and 5, respectively. Frm 00098 Fmt 4703 Sfmt 4703 23619 and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Specifically, the Exchange believes that QQQ and IWM 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 QQQ and IWM options is currently applied to SPY, IVV, and DIA options, which are similarly popular and widely traded ETF products and track indexes at similarly high price levels. Thus, the proposed strike setting regime for QQQ and IWM options would allow options on the most actively traded ETFs with index levels at corresponding price levels to trade pursuant to the same strike setting regime, which would, in turn, enable investors to employ similar investment and hedging strategies for each of these options. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b– 4(f)(6) thereunder.12 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 13 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 14 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the 11 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 13 17 CFR 240.19b–4(f)(6). 14 17 CFR 240.19b–4(f)(6)(iii). 12 17 E:\FR\FM\22MYN1.SGM 22MYN1 23620 Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices proposed rule change may become operative upon filing. The Exchange asserts that waiving the operative delay would be consistent with the protection of investors and the public interest because the proposed rule change would respond to investor demand and allow the Exchange to implement the modified rule, which aligns with the rules of other options exchanges, without delay. The Commission believes that the proposal raises no new or substantive issues and that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.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. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. 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–NYSEArca–2019–34 and should be submitted on or before June 12, 2019. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Deputy Secretary. jbell on DSK3GLQ082PROD 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– NYSEArca–2019–34 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–NYSEArca–2019–34. 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 15 For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 17:29 May 21, 2019 Jkt 247001 [FR Doc. 2019–10639 Filed 5–21–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85873; File No. SR–OCC– 2019–002] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to The Options Clearing Corporation’s Margin Methodology for Volatility Index Futures May 16, 2019. I. Introduction On March 18, 2019, the Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2019– 002 (‘‘Proposed Rule Change’’) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (‘‘Exchange 16 17 PO 00000 CFR 200.30–3(a)(12). Frm 00099 Fmt 4703 Sfmt 4703 Act’’) 1 and Rule 19b–4 2 thereunder to propose changes to OCC’s margin methodology for futures on indices designed to measure volatilities implied by prices of options on a particular underlying interest (such indexes being ‘‘Volatility Indexes’’ and futures contracts on such Volatility Indexes being ‘‘Volatility Index Futures.’’).3 The Proposed Rule Change was published for public comment in the Federal Register on April 3, 2019,4 and the Commission received no comments regarding the Proposed Rule Change. This order approves the Proposed Rule Change. II. Background The System for Theoretical Analysis and Numerical Simulations (‘‘STANS’’) is OCC’s methodology for calculating Clearing Member margin requirements. STANS includes econometric models to forecast price and volatility movements in determining Clearing Member margin requirements, which are calculated at the portfolio level of Clearing Member accounts with positions in marginable securities.5 The STANS methodology measures the exposure of portfolios containing options, futures, and cash instruments. Certain indices are designed to measure the volatility implied by the prices of options on a particular reference index or asset (‘‘Volatility Indexes’’).6 OCC clears futures contracts 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Notice of Filing infra note 4, at 84 FR 13082. 4 Securities Exchange Act Release No. 85440 (Mar. 28, 2019), 84 FR 13082 (Apr. 3, 2019) (SR– OCC–2019–002) (‘‘Notice of Filing’’). OCC also filed a related advance notice (SR–OCC–2019–801) (‘‘Advance Notice’’) with the Commission pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled the Payment, Clearing, and Settlement Supervision Act of 2010 and Rule 19b–4(n)(1)(i) under the Act. 12 U.S.C. 5465(e)(1). 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b–4, respectively. The Advance Notice was published in the Federal Register on April 23, 2019. Securities Exchange Act Release No. 85670 (Apr. 17, 2019), 84 FR 16915 (Ap. 23, 2019) (SR–OCC–2019–801). 5 See Notice of Filing, 84 FR at 13083. 6 For example, the Cboe Volatility Index (‘‘VIX’’) is designed to measure the 30-day expected volatility of the Standard & Poor’s 500 index (‘‘SPX’’). Generally speaking, the implied volatility of an option is a measure of the expected future volatility of the value of the option’s annualized standard deviation of the price of the underlying security, index, or future at exercise, which is reflected in the current option premium in the market. Using the Black-Scholes options pricing model, the implied volatility is the standard deviation of the underlying asset price necessary to arrive at the market price of an option of a given strike, time to maturity, underlying asset price and the current risk-free rate. In effect, the implied volatility is responsible for that portion of the premium that cannot be explained by the thencurrent intrinsic value (i.e., the difference between the price of the underlying and the exercise price 2 17 E:\FR\FM\22MYN1.SGM 22MYN1

Agencies

[Federal Register Volume 84, Number 99 (Wednesday, May 22, 2019)]
[Notices]
[Pages 23617-23620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10639]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85872; File No. SR-NYSEArca-2019-34]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Allow $1 
Strike Price Intervals Above $200 on Options on the QQQ and IWM 
Exchange-Traded Funds

May 16, 2019.
    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 May 10, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
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 6.4-O. The proposed rule change 
is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

[[Page 23618]]

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

1. Purpose
    The purpose of this filing is to amend Rule 6.4-O (Series of 
Options Open for Trading) to allow for the interval between strike 
prices of series of options on Exchange-Traded Fund Shares (``ETFs'') 
of the PowerShares QQQ Trust (``QQQ'') and the iShares Russell 2000 
Index Fund (``IWM'') to be $1 or greater where the strike price is 
greater than $200. This proposal would align the rules of the Exchange 
with that of other options exchanges.\5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 85754 (April 30, 
2019) (SR-CBOE-2019-15) (Order approving proposal to amend 
Interpretation and Policy .08(b) to Rule 5.5 to allow strike 
intervals of $1.00 or more on series of options on QQQ and IWM where 
the strike price is greater than $200). See also Securities Exchange 
Act Release No. 85295 (March 12, 2019), 84 FR 9851 (March 18, 2019) 
(Notice).
---------------------------------------------------------------------------

    Currently, Commentary .05(d) to Rule 6.4-O allows for the interval 
between strike prices of series of options on SPDR[supreg] S&P 
500[supreg] ETF (``SPY''), iShares Core S&P 500 ETF (``IVV''), and the 
SPDR[supreg] Dow Jones[supreg] Industrial Average ETF (``DIA'') to be 
$1 or greater where the strike price is greater than $200. Per 
Commentary .05(a) to Rule 6.4-O, the interval between strike prices of 
series of options on all other ETFs is currently $5.00 or greater where 
the strike price is greater than $200. Specifically, the Exchange 
proposes to modify the interval setting regime to allow $1 strike price 
intervals where the strike price is above $200 for IWM and QQQ 
options.\6\ The Exchange believes that the proposed rule change would 
make QQQ and IWM options easier for investors and traders to use and 
more tailored to their investment needs.
---------------------------------------------------------------------------

    \6\ See proposed Commentary .05(d) to Rule 6.4-O.
---------------------------------------------------------------------------

    The QQQ and IWM are designed to provide investors different ways to 
efficiently gain exposure to the equity markets and execute risk 
management, hedging, asset allocation and income generation strategies. 
The QQQ is an ETF investment trust designed to closely track the price 
and performance of a the Nasdaq-100 Index (``NDX''), which represents 
the largest and most active nonfinancial domestic and international 
issues listed on The Nasdaq Stock Market based on market 
capitalization. Likewise, the IWM is an index ETF designed to closely 
track the price and performance of the Russell 2000 Index (``RUT''), 
which represents the small capitalization sector of the U.S. equity 
market. In general, QQQ and IWM options provide investors with the 
benefit of trading broader markets in a manageably sized contract.
    The value of QQQ is designed to approximate 1/40 the value of the 
underlying NDX. For example, if the NDX price level is 1400, QQQ strike 
prices generally would be expected to be priced around $35. The value 
of IWM is designed to approximate 1/10 the value of the underlying, 
RUT. In the past year, the NDX has climbed above a price level of 7500, 
and the RUT climbed to a price level of approximately 1700 (both prior 
to the December 2018 market-wide decline).\7\ As the value of the 
underlying ETF (and the index the ETF tracks) and resulting strike 
prices for each option continues to appreciate, the Exchange has 
received requests from OTP Holders and OTP Firms (``OTPs'') to list 
additional strike prices ($1 increments) in QQQ and IWM options above 
$200. The QQQ is among the most actively traded ETFs on the market. It 
is widely quoted as an indicator of technology stock prices and 
investor confidence in the technology and telecommunication market 
spaces, a significant indicator of overall economic health. Similarly, 
IWM is among the most actively traded ETFs on the market and provides 
investors with an investment tool to gain exposure to small U.S. public 
companies. Industry-wide trade volume in QQQ more than doubled from 
2017 to 2018. As a result, QQQ options and IWM options have grown to 
become two of the largest options contracts in terms of trading volume. 
Investors use these products to diversify their portfolios and benefit 
from market trends.
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    \7\ See Securities Exchange Act Release No. 82094 (November 16, 
2017), 82 FR 55686 (November 22, 2017) (SR-NYSEArca-2017-128) 
(immediately effective filing to align Exchange rules with other 
exchanges by amending Exchange strike listing rules to modify the 
interval setting regimes for SPY and DIA to allow $1 strike price 
intervals above $200, and noting the price levels for their 
respective underlying ETFs hovered around 2000 and 1700, comparable 
to the current NDX and RUT price levels at the time other exchanges 
filed to modify their strike listing rules).
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    Accordingly, the Exchange believes that offering a wider base of 
QQQ and IWM options affords traders and investors important hedging and 
trading opportunities, particularly in the midst of current price 
trends. The Exchange believes that not having the proposed $1 strike 
price intervals above $200 in QQQ and IWM significantly constricts 
investors' hedging and trading possibilities. The Exchange therefore 
believes that by having smaller strike intervals in QQQ and IWM, 
investors would have more efficient hedging and trading opportunities 
due to the lower $1 interval ascension. The proposed $1 intervals above 
the $200 strike price will result in having at-the-money series based 
upon the underlying ETFs moving less than 1%. The Exchange believes 
that the proposed strike setting regime is in line with the slower 
movements of broad-based indices. Considering the fact that $1 
intervals already exist below the $200 price point and that both QQQ 
and IWM have consistently inclined in price toward the $200 level, the 
Exchange believes that continuing to maintain the current $200 level 
(above which intervals increase 500% to $5), may have a negative effect 
on investing, trading and hedging opportunities, and volume. The 
Exchange believes that the investing, trading, and hedging 
opportunities available with QQQ and IWM options far outweighs any 
potential negative impact of allowing QQQ and IWM 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 the increasing values in the underlying indices 
and allow investors and traders to roll open positions from a lower 
strike to a higher strike in conjunction with the price movements of 
the underlying ETFs. 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. As stated, the NDX and RUT have experienced continued, steady 
growth. The Exchange believes that with the proposed rule change, 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.
    As a result, the proposed rule change will allow the Exchange to 
better respond to customer demand for QQQ and IWM strike prices more 
precisely aligned with the smaller, longer-term incremental increases 
in respective underlying ETFs. 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 QQQ and IWM options. Moreover, by allowing series of 
QQQ and IWM options to be listed in $1 intervals between strike prices 
over $200, the proposal will moderately augment the

[[Page 23619]]

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 OTPs 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, but rather, believes that finer strike intervals will serve 
to increase liquidity available as well as price efficiency by 
providing more trading opportunities for all market participants.
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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.
---------------------------------------------------------------------------

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

    In particular, the proposed rule change to Commentary .05(d) to 
Rule 6.4-O would allow investors to more easily use QQQ and IWM 
options. Moreover, the proposed rule change would allow investors to 
better trade and hedge positions in QQQ and IWM options where the 
strike price is greater than $200, and ensure that investors in both 
options are not at a disadvantage simply because of the strike price.
    The Exchange 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 QQQ and IWM 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 $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 QQQ and IWM 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 current strike intervals on options on DIA 
and SPY and align with rules in place for similarly situated options 
and their underlying ETFs.\10\
---------------------------------------------------------------------------

    \10\ See supra notes 7 and 5, respectively.
---------------------------------------------------------------------------

    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.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, the proposed rule 
change would enable the Exchange to better compete with other options 
exchanges that have already adopted the proposed strike setting 
regime.\13\ Although the Exchange is able to match strikes listed by 
other exchanges, this proposal would allow the initiate strikes in QQQ 
and IWM regardless of strikes listed on other exchanges, which should 
help level the playing field for investors investing in, trading and 
utilizing hedging strategies on these options.
    Moreover, the Exchange believes that the proposed rule change would 
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 QQQ and IWM 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 QQQ and IWM options is 
currently applied to SPY, IVV, and DIA options, which are similarly 
popular and widely traded ETF products and track indexes at similarly 
high price levels. Thus, the proposed strike setting regime for QQQ and 
IWM options would allow options on the most actively traded ETFs with 
index levels at corresponding price levels to trade pursuant to the 
same strike setting regime, which would, in turn, enable investors to 
employ similar investment and hedging strategies for each of these 
options.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \13\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the

[[Page 23620]]

proposed rule change may become operative upon filing. The Exchange 
asserts that waiving the operative delay would be consistent with the 
protection of investors and the public interest because the proposed 
rule change would respond to investor demand and allow the Exchange to 
implement the modified rule, which aligns with the rules of other 
options exchanges, without delay. The Commission believes that the 
proposal raises no new or substantive issues and that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest. The Commission hereby waives the operative delay 
and designates the proposed rule change operative upon filing.\15\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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-NYSEArca-2019-34 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-NYSEArca-2019-34. 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-NYSEArca-2019-34 and should be submitted 
on or before June 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10639 Filed 5-21-19; 8:45 am]
BILLING CODE 8011-01-P
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