Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow $1 or Greater Strike Price Intervals for Options on QQQ and IWM, 25872-25875 [2019-11543]
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25872
Federal Register / Vol. 84, No. 107 / Tuesday, June 4, 2019 / Notices
not meet the requirements of
Commentary .01(a)(1), (b)(1), (b)(4) and
(b)(5) to Rule 8.600–E. The Exchange
notes that, other than Commentary
.01(a)(1), (b)(1), (b)(4) and (b)(5) to Rule
8.600–E, the Fund’s portfolio will meet
all other requirements of Rule 8.600–E.
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 purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the continued listing and
trading Shares of the Fund, and that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
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
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
khammond on DSKBBV9HB2PROD with NOTICES
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2019–38 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.
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All submissions should refer to File
Number SR–NYSEArca–2019–38. 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–2019–38 and
should be submitted on or before June
25, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019–11556 Filed 6–3–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85953; File No. SR–Phlx–
2019–22]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Allow $1 or Greater
Strike Price Intervals for Options on
QQQ and IWM
May 29, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
41 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00143
Fmt 4703
Sfmt 4703
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 17,
2019, Nasdaq PHLX LLC (‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to allow $1 or
greater strike price intervals for options
on certain Exchange-Traded Fund
(‘‘ETF’’) Shares, as described below.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s rules
to allow $1 or greater strike price
intervals for options listed on the
PowerShares QQQ Trust (‘‘QQQ’’) and
the iShares Russell 2000 Index Fund
(‘‘IWM’’), consistent with recent
changes proposed by Cboe Exchange,
1 15
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
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Federal Register / Vol. 84, No. 107 / Tuesday, June 4, 2019 / Notices
Inc. (‘‘CBOE’’) and approved by the
Commission.5
Currently, Commentary .05(a)(iv)(C)
to Rule 1012 allows for the interval
between strike prices of series of options
on SPY, IVV, and DIA to be $1 or greater
where the strike price is greater than
$200. QQQ and IWM options, however,
currently trade on the Exchange with $1
intervals up to a strike price of $200
pursuant to Commentary .05(a)(iv)(A) to
Rule 1012. Above $200, these options
classes trade with significantly wider $5
strike price intervals. The Exchange
now proposes to modify Commentary
.05(a)(iv)(C) to Rule 1012 to allow $1
strike price intervals where the strike
price is above $200 for QQQ and IWM
options, in effect matching the strike
setting regime for these products below
$200 and also for options on SPY, IVV,
and DIA. 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.
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. QQQ is a unit
investment trust designed to closely
track the price and performance of the
Nasdaq-100 Index (‘‘NDX’’), which
represents the largest and most active
non-financial domestic and
international issues listed on The
Nasdaq Stock Market based on market
capitalization. Likewise, 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, NDX has climbed above a price
level of 7500 and RUT climbed to a
price level of approximately 1700 (both
prior to the December 2018 market-wide
decline). The prices for QQQ and IWM
options have correspondingly increased
within the same time period.6 As the
5 See Securities Exchange Act Release No. 85754
(April 30, 2019), 84 FR 19823 (May 6, 2019) (SR–
CBOE–2019–015).
6 For example, by the end of August 2018, QQQ
was trading at more than $185 per share and IWM
was trading at more than $170 per share.
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value of the underlying ETF (and the
index the ETF tracks) and resulting
strike prices for each option appreciates,
investor and member demands to list
additional strike prices ($1 increments)
in QQQ and IWM options above $200
continue to increase. QQQ is among the
most actively traded ETFs on the
market. It is widely quoted as an
indicator of technology stock price 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. 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 options 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 intervals. 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 broadbased 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
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25873
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
discussed above, 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/her
open options position from a $200 to a
$201 strike price, which is only a 0.5%
move for the underlying. The Exchange
believes that the proposed rule change
will benefit investors by providing them
the flexibility to more closely tailor their
investment and hedging decisions using
QQQ and IWM options.
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
potential total number of options series
available on the Exchange. However, the
Exchange believes that it and the
Options Price Reporting Authority
(‘‘OPRA’’) have the necessary system
capacity to handle any potential
additional traffic associated with this
rule change. The Exchange also believes
that members will not have a capacity
issue due to the proposed rule change.
In addition, the Exchange represents
that it does not believe 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 that its
proposal is consistent with Section 6(b)
of the Act,7 in general, and furthers the
objectives of Section 6(b)(5) of the Act,8
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest. In
particular, the proposed rule change to
7 15
8 15
E:\FR\FM\04JNN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 84, No. 107 / Tuesday, June 4, 2019 / Notices
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Commentary .05(a)(iv)(C) to Rule 1012
will allow investors to more easily and
effectively 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 also believes the
proposed rule change is consistent with
Section 6(b)(1) of the Act,9 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, QQQ and IWM
options currently trade in wider $5
intervals above a $200 strike price,
whereas the same products at or below
a $200 strike price trade in $1 intervals.
This creates a situation where contracts
on the same options 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
allowing QQQ and IWM options to trade
in $1 or greater intervals at all strike
prices.
The Exchange believes that the
proposed rule change will benefit
investors by giving them increased
flexibility to more closely tailor their
investment and hedging decisions.
Moreover, the proposal is consistent
with changes adopted by CBOE and
approved by the Commission.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. As discussed above, the
Exchange further 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 will impose
any burden on competition not
9 15
U.S.C. 78f(b)(1).
supra note 5.
10 See
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necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the proposed rule change is a
competitive response to a recent CBOE
filing approved by the Commission.11
The Exchange believes that the
proposed rule change is essential to
ensure fair competition between
markets, and will result in additional
investment options and opportunities to
achieve the investment and trading
objectives of market participants seeking
efficient trading and hedging vehicles,
to the benefit of investors, market
participants, and the marketplace in
general.
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 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 12 and
subparagraph (f)(6) of Rule 19b–4
thereunder.13
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 14 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 15
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 asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange states that waiver
of this requirement will ensure fair
competition among the exchanges by
allowing the Exchange to set the interval
between strike prices of series of options
on ETF shares of QQQ and IWM in a
11 See
supra note 5.
U.S.C. 78s(b)(3)(A).
13 17 CFR 240.19b–4(f)(6). In addition, Rule19b–
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.
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
12 15
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manner consistent with another
exchange. Further, the Exchange states
that because the proposed rule change is
based on the rules of another
exchange,16 it does not introduce any
new or novel regulatory issues. For
these reasons, the Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.17
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 shall 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 rule-comments@
sec.gov. Please include File Number SR–
Phlx–2019–22 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–Phlx–2019–22. 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
16 See
supra note 5.
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).
17 For
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Federal Register / Vol. 84, No. 107 / Tuesday, June 4, 2019 / Notices
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–Phlx–2019–22 and should
be submitted on or before June 25, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019–11543 Filed 6–3–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–85950; File No. SR–BX–
2019–015]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Allow $1 or Greater
Strike Price Intervals for Options on
QQQ and IWM
khammond on DSKBBV9HB2PROD with NOTICES
May 29, 2019.
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 May 17,
2019, Nasdaq BX, Inc. (‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
17:16 Jun 03, 2019
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s rules
to allow $1 or greater strike price
intervals for options listed on the
PowerShares QQQ Trust (‘‘QQQ’’) and
the iShares Russell 2000 Index Fund
(‘‘IWM’’), consistent with recent
changes proposed by Cboe Exchange,
Inc. (‘‘CBOE’’) and approved by the
Commission.5
Currently, Chapter IV, Supplementary
Material .01(c) to Section 6, allows for
the interval between strike prices of
series of options on SPY, IVV, and DIA
to be $1 or greater where the strike price
is greater than $200. QQQ and IWM
options, however, currently trade on the
Exchange with $1 intervals up to a
strike price of $200 pursuant to
Supplementary Material .01(b) to
Section 6. Above $200, these options
classes trade with significantly wider $5
CFR 240.19b–4(f)(6).
Securities Exchange Act Release No. 85754
(April 30, 2019), 84 FR 19823 (May 6, 2019) (SR–
CBOE–2019–015).
strike price intervals. The Exchange
now proposes to modify Supplementary
Material .01(c) to Section 6 to allow $1
strike price intervals where the strike
price is above $200 for QQQ and IWM
options, in effect matching the strike
setting regime for these products below
$200 and also for options on SPY, IVV,
and DIA. 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.
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. QQQ is a unit
investment trust designed to closely
track the price and performance of the
Nasdaq-100 Index (‘‘NDX’’), which
represents the largest and most active
non-financial domestic and
international issues listed on The
Nasdaq Stock Market based on market
capitalization. Likewise, 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, NDX has climbed above a price
level of 7500 and RUT climbed to a
price level of approximately 1700 (both
prior to the December 2018 market-wide
decline). The prices for QQQ and IWM
options have correspondingly increased
within the same time period.6 As the
value of the underlying ETF (and the
index the ETF tracks) and resulting
strike prices for each option appreciates,
investor and member demands to list
additional strike prices ($1 increments)
in QQQ and IWM options above $200
continue to increase. QQQ is among the
most actively traded ETFs on the
market. It is widely quoted as an
indicator of technology stock price 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
4 17
1 15
VerDate Sep<11>2014
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to a proposal
[sic] to allow $1 or greater strike price
intervals for options on certain
Exchange-Traded Fund (‘‘ETF’’) Shares,
as described below.
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
18 17
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
25875
5 See
Jkt 247001
PO 00000
Frm 00146
Fmt 4703
Sfmt 4703
6 For example, by the end of August 2018, QQQ
was trading at more than $185 per share and IWM
was trading at more than $170 per share.
E:\FR\FM\04JNN1.SGM
04JNN1
]]>Agencies
[Federal Register Volume 84, Number 107 (Tuesday, June 4, 2019)]
[Notices]
[Pages 25872-25875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11543]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85953; File No. SR-Phlx-2019-22]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Allow $1 or
Greater Strike Price Intervals for Options on QQQ and IWM
May 29, 2019.
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 May 17, 2019, Nasdaq PHLX LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the 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.
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\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 allow $1 or greater strike price intervals
for options on certain Exchange-Traded Fund (``ETF'') Shares, as
described below.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
rules to allow $1 or greater strike price intervals for options listed
on the PowerShares QQQ Trust (``QQQ'') and the iShares Russell 2000
Index Fund (``IWM''), consistent with recent changes proposed by Cboe
Exchange,
[[Page 25873]]
Inc. (``CBOE'') and approved by the Commission.\5\
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\5\ See Securities Exchange Act Release No. 85754 (April 30,
2019), 84 FR 19823 (May 6, 2019) (SR-CBOE-2019-015).
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Currently, Commentary .05(a)(iv)(C) to Rule 1012 allows for the
interval between strike prices of series of options on SPY, IVV, and
DIA to be $1 or greater where the strike price is greater than $200.
QQQ and IWM options, however, currently trade on the Exchange with $1
intervals up to a strike price of $200 pursuant to Commentary
.05(a)(iv)(A) to Rule 1012. Above $200, these options classes trade
with significantly wider $5 strike price intervals. The Exchange now
proposes to modify Commentary .05(a)(iv)(C) to Rule 1012 to allow $1
strike price intervals where the strike price is above $200 for QQQ and
IWM options, in effect matching the strike setting regime for these
products below $200 and also for options on SPY, IVV, and DIA. 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.
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.
QQQ is a unit investment trust designed to closely track the price and
performance of the Nasdaq-100 Index (``NDX''), which represents the
largest and most active non-financial domestic and international issues
listed on The Nasdaq Stock Market based on market capitalization.
Likewise, 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, NDX has climbed above a price level of 7500 and RUT
climbed to a price level of approximately 1700 (both prior to the
December 2018 market-wide decline). The prices for QQQ and IWM options
have correspondingly increased within the same time period.\6\ As the
value of the underlying ETF (and the index the ETF tracks) and
resulting strike prices for each option appreciates, investor and
member demands to list additional strike prices ($1 increments) in QQQ
and IWM options above $200 continue to increase. QQQ is among the most
actively traded ETFs on the market. It is widely quoted as an indicator
of technology stock price 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. 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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\6\ For example, by the end of August 2018, QQQ was trading at
more than $185 per share and IWM was trading at more than $170 per
share.
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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 options 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 intervals. 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 discussed above, 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/her open options position from a $200 to a $201
strike price, which is only a 0.5% move for the underlying. The
Exchange believes that the proposed rule change will benefit investors
by providing them the flexibility to more closely tailor their
investment and hedging decisions using QQQ and IWM options.
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 potential total number of options series available on the
Exchange. However, the Exchange believes that it and the Options Price
Reporting Authority (``OPRA'') have the necessary system capacity to
handle any potential additional traffic associated with this rule
change. The Exchange also believes that members will not have a
capacity issue due to the proposed rule change. In addition, the
Exchange represents that it does not believe 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 that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest.
In particular, the proposed rule change to
[[Page 25874]]
Commentary .05(a)(iv)(C) to Rule 1012 will allow investors to more
easily and effectively 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.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange also believes the proposed rule change is consistent
with Section 6(b)(1) of the Act,\9\ 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.
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\9\ 15 U.S.C. 78f(b)(1).
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As noted above, QQQ and IWM options currently trade in wider $5
intervals above a $200 strike price, whereas the same products at or
below a $200 strike price trade in $1 intervals. This creates a
situation where contracts on the same options 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 allowing QQQ and IWM options to trade in $1 or greater
intervals at all strike prices.
The Exchange believes that the proposed rule change will benefit
investors by giving them increased flexibility to more closely tailor
their investment and hedging decisions. Moreover, the proposal is
consistent with changes adopted by CBOE and approved by the
Commission.\10\
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\10\ See supra note 5.
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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. As discussed above, the Exchange further 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 will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the proposed
rule change is a competitive response to a recent CBOE filing approved
by the Commission.\11\ The Exchange believes that the proposed rule
change is essential to ensure fair competition between markets, and
will result in additional investment options and opportunities to
achieve the investment and trading objectives of market participants
seeking efficient trading and hedging vehicles, to the benefit of
investors, market participants, and the marketplace in general.
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\11\ See supra note 5.
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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 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 \12\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \14\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ 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 asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The Exchange
states that waiver of this requirement will ensure fair competition
among the exchanges by allowing the Exchange to set the interval
between strike prices of series of options on ETF shares of QQQ and IWM
in a manner consistent with another exchange. Further, the Exchange
states that because the proposed rule change is based on the rules of
another exchange,\16\ it does not introduce any new or novel regulatory
issues. For these reasons, the Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and
the public interest. Accordingly, the Commission hereby waives the
operative delay and designates the proposed rule change operative upon
filing.\17\
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ See supra note 5.
\17\ 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 shall 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-Phlx-2019-22 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-Phlx-2019-22. 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
[[Page 25875]]
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-Phlx-2019-22 and should be submitted on
or before June 25, 2019.
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\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-11543 Filed 6-3-19; 8:45 am]
BILLING CODE 8011-01-P
