Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 6.72-O To Conform the Rule to Section 3.1 of the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options, 33255-33258 [2020-11648]
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
[FR Doc. 2020–11657 Filed 5–29–20; 8:45 am]
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–
NYSE–2020–48 on the subject line.
Paper comments:
jbell on DSKJLSW7X2PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2020–48. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2020–48 and should
be submitted on or before June 22, 2020.
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19:40 May 29, 2020
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88943; File No. SR–
NYSEArca–2020–50]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 6.72–O
To Conform the Rule to Section 3.1 of
the Plan for the Purpose of Developing
and Implementing Procedures
Designed to Facilitate the Listing and
Trading of Standardized Options
May 26, 2020.
Pursuant to Section 19(b)(1)1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’)2 and Rule 19b–4 thereunder,3
notice is hereby given that, on May 22,
2020, 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 self-regulatory organization. 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 6.72–O to conform the rule to
Section 3.1 of the Plan for the Purpose
of Developing and Implementing
Procedures Designed to Facilitate the
Listing and Trading of Standardized
Options (the ‘‘OLPP’’) and add new Rule
6.72A–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
20 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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33255
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this rule change is to
amend Rule 6.72–O (Trading
Differentials) to align the rule with the
recently approved amendment to the
OLPP.
Background
On January 23, 2007, the Commission
approved on a limited basis a Penny
Pilot in option classes in certain issues
(‘‘Penny Pilot’’). The Penny Pilot was
designed to determine whether
investors would benefit from options
being quoted in penny increments, and
in which classes the benefits were most
significant. The Penny Pilot was
expanded and extended numerous times
over the last 13 years.4 In each instance,
these approvals relied upon the
consideration of data periodically
provided by the Exchanges that
analyzed how quoting options in penny
4 See Securities Exchange Act Release Nos. 55156
(January 23, 2007) 72 FR 4759 (February 1, 2007)
(NYSEArca–2006–73); 56150 (July 26, 2007) 72 FR
42460 (August 2, 2007) (NYSEArca–2007–56);
56568 (September 27, 2007) 72 FR 56422 (October
3, 2007) (NYSEArca–2007–88); 59628 (March 26,
2009) 74 FR 15025 (NYSEArca–2009–26); 60224
(July 1, 2009) 74 FR 32991 (July 9, 2009)
(NYSEArca–2009–61); 60711 (September 23, 2009)
74 FR 49419 (September 28, 2009) (NYSEArca–
2009–44); 61061 (November 24, 2009) 74 FR 62857
(December 1, 2009) (NYSEArca–2009–44); 63376
(November 24, 2010) 75 FR 75527 (December 3,
2010) (NYSEArca–2010–104); 65977 (December 15,
2011) 76 FR 79234 (NYSEArca–2011–93); 67307
(June 28, 2012), 77 FR 40110 (July 6, 2012)
(NYSEArca–2012–65); 68426 (December 13, 2012)
77 FR 75224 (December 19, 2012) (NYSEArca–
2012–135); 69106 (March 11, 2013) 78 FR 16552
(March 15, 2013) (NYSEArca–2013–22); 69790
(June 18, 2013) 78 FR 37853 (June 24, 2013) (NYSE
Arca–2013–59); 71159 (December 20, 2013), 78 FR
71163 (December 27, 2013) (NYSEArca–2013–145);
72192 (May 20, 2014) 79 FR 30209 (May 27, 2014)
(NYSE Arca–2014–60); 73777 (December 8, 2014)
79 FR 73913 (December 12, 2014) (NYSEArca–
2014–136); 75280 (June 24, 2015) 80 FR 37331 (June
30, 2015) (NYSEArca–2015–51); 78174 (June 28,
2016) 81 FR 43332 (July 1, 2016) (NYSEArca–2016–
88); 79524 (December 12, 2016) 81 FR 91220
(December 16, 2016) (NYSEArca–2016–156); 80988
(June 21, 2017) 82 FR 29128 (June 27, 2017)
(NYSEArca–2017–68); 82366 (December 19, 2017)
82 FR 61052 (December 26, 2017) (NYSEArca–
2017–141); 83512 (June 25, 2018) 83 FR 30793 (June
29, 2018) (NYSEArca–2018–49); 84873 (December
19, 2018) 83 FR 66798 (December 27, 2018)
(NYSEArca–2018–96); 86062 (June 7, 2019) 84 FR
27669 (June 13, 2019) (NYSEArca–2019–41).
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increments affects spreads, liquidity,
quote traffic, and volume. Today, the
Penny Pilot includes 363 option classes,
which are among the most actively
traded, multiply listed option classes.
The Penny Pilot is scheduled to expire
by its own terms on June 30, 2020.5
In light of the imminent expiration of
the Penny Pilot on June 30, 2020, the
Exchange, together with other
participating exchanges, filed, on July
18, 2019 a proposal to amend the
OLPP.6 On April 1, 2020 the
Commission approved the amendment
to the OLPP to make permanent the
Pilot Program (the ‘‘OLPP Program’’).7
The OLPP Program replaces the
Penny Pilot by instituting a permanent
program that would permit quoting in
penny increments for certain option
classes. Under the terms of the OLPP
Program, designated option classes
would continue to be quoted in $0.01
and $0.05 increments according to the
same parameters for the Penny Pilot. In
addition, the OLPP Program would: (i)
Establish an annual review process to
add option classes to, or to remove
option classes from, the OLPP Program;
(ii) to allow an option class to be added
to the OLPP Program if it is a newly
listed option class and it meets certain
criteria; (iii) to allow an option class to
be added to the OLPP Program if it is
an option class that has seen a
significant growth in activity; (iv) to
provide that if a corporate action
involves one or more option classes in
the OLPP Program, all adjusted and
unadjusted series and classes emerging
as a result of the corporate action will
be included in the OLPP Program; and
(v) to provide that any series in an
option class participating in the OLPP
Program that have been delisted, or are
identified by OCC as ineligible for
opening Customer transactions, will
continue to trade pursuant to the OLPP
Program until they expire.
To conform its Rules to the OLPP
Program, the Exchange proposes to
delete Commentary .02 to Rule 6.72–O
(the ‘‘Penny Pilot Rule’’), which will be
‘‘Reserved,’’ and replace it with new
Rule 6.72A–O (Requirements for Penny
Interval Program), which is described
below, and to replace references to
‘‘Penny Pilot’’ in the Exchange rules
5 See Securities Exchange Act Release No. 87610
(November 25, 2019) 84 FR 66047 (December 2,
2019) (NYSEArca–2019–83).
6 See Securities Exchange Act Release No. 87681
(December 9, 2019), 84 FR 68960 (December 17,
2019) (‘‘Notice’’).
7 See Securities Exchange Act Release No. 88532
(April 1, 2020), 85 FR 19545 (April 7, 2020) (File
No. 4–443) (‘‘Approval Order’’).
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19:40 May 29, 2020
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with ‘‘Penny Interval Program.’’ 8 The
Exchange also proposes to delete the
superfluous operational language in
Commentary .01 regarding the process
for modifying trading differentials by
rule filing because such requirement
remains the case today, as the Exchange
must submit proposed rule changes—
including for Rule 6.72–O—to the
Commission; the Exchange will hold
this Commentary as Reserved.9
Penny Interval Program
The Exchange proposes to codify the
OLPP Program in new Rule 6.72A–O
(Requirements for Penny Interval
Program) (the ‘‘Penny Program’’), which
will replace the Penny Pilot Rule and
permanently permit the Exchange to
quote certain option classes in
minimum increments of one cents
($0.01) and five cents ($0.05) (‘‘penny
increments’’). The penny increments
that currently apply under the Penny
Pilot will continue to apply for option
classes included in the Penny Program.
Specifically, (i) the minimum quoting
increment for all series in the QQQ,
SPY, and IWM would continue to be
$0.01, regardless of price; 10 (ii) all series
of an option class included in the Penny
Program with a price of less than $3.00
would be quoted in $0.01 increments;
and (iii) all series of an option class
included in the Penny Program with a
price of $3.00 or higher would be
quoted in $0.05 increments.
The Penny Program would initially
apply to the 363 most actively traded
multiply listed option classes, based on
National Cleared Volume at The
Options Clearing Corporation (‘‘OCC’’)
in the six full calendar months ending
in the month of approval (i.e.,
November 2019—April 2020) that
currently quote in penny increments, or
overlie securities priced below $200, or
any index at an index level below $200.
Eligibility for inclusion in the Penny
Program will be determined at the close
of trading on the monthly Expiration
Friday of the second full month
following April 1, 2020 (i.e., June 19,
2020).
Once in the Penny Program, an option
class will remain included until it is no
longer among the 425 most actively
traded option classes at the time the
annual review is conducted (described
8 This proposed rule change will become
operative on July 1, 2020, upon expiration of the
current Penny Pilot on June 30, 2020.
9 See Commentary .01 to Rule 6.72–O (providing
that ‘‘[t]he Exchange may only change the trading
differentials for option contracts traded on the
Exchange by filing a rule change proposal with the
SEC, pursuant to Section 19(b)(3)(A) of the
Securities Exchange Act of 1934 (effective upon
filing)’’).
10 See Rule 6.72–O(a)(3)(A)–(C).
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below), at which point it will be
removed from the Penny Program. As
described in more detail below, the
removed class will be replaced by the
next most actively traded multiply
listed option class overlying securities
priced below $200 per share, or any
index at an index level below $200, and
not yet in the Penny Program. Advanced
notice regarding the option classes
included, added, or removed from the
Penny Program will be provided to the
Exchange’s membership via Trader
Update and published by the Exchange
on its website.
Annual Review
The Penny Program would include an
annual review process that applies
objective criteria to determine option
classes to be added to, or removed from,
the Penny Program. Specifically, on an
annual basis beginning in December
2020 and occurring ever December
thereafter, the Exchange will review and
rank all multiply listed option classes
based on National Cleared Volume at
OCC for the six full calendar months
from June 1st through November 30th
for determination of the most actively
traded option classes. Any option
classes not yet in the Penny Program
may be added to the Penny Program if
the class is among the 300 most actively
traded multiply listed option classes
and priced below $200 per share or any
index at an index level below $200.
Following the annual review, option
classes to be added to the Penny
Program would begin quoting in penny
increments (i.e., $0.01 if trading at less
than $3; and $0.05 if trading at $3 and
above) on the first trading day of
January.11 In addition, following the
annual review, any option class in the
Penny Program that falls outside of the
425 most actively traded option classes
would be removed from the Penny
Program. After the annual review,
option classes that are removed from the
Penny Program will be subject to the
minimum trading increments set forth
in Rule 6.72–O, effective on the first
trading day of April.
Changes to the Composition of the
Penny Program Outside of the Annual
Review Newly Listed Option Classes
and Option Classes With Significant
Growth in Activity
The Penny Program would specify a
process and parameters for including
option classes in the Program outside
the annual review process in two
circumstances. These provisions are
11 See id. (providing that the minimum quoting
increment for all series in the QQQ, SPY, and IWM
would continue to be $0.01, regardless of price).
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
designed to provide objective criteria to
add to the Penny Program new option
classes in issues with the most
demonstrated trading interest from
market participants and investors on an
expedited basis prior to the annual
review, with the benefit that market
participants and investors will then be
able to trade these new option classes
based upon quotes expressed in finer
trading increments.
First, the Penny Program provides for
certain newly listed option classes to be
added to the Penny Program outside of
the annual review process, provided
that (i) the class is among the 300 most
actively traded, multiply listed option
classes, as ranked by National Cleared
Volume at OCC, in its first full calendar
month of trading; and (ii) the underlying
security is priced below $200 or the
underlying index is at an index level
below $200. Such newly listed option
classes added to the Penny Program
pursuant to this process would remain
in the Penny Program for one full
calendar year and then would be subject
to the annual review process.
Second, the Penny Program would
allow an option class to be added to the
Penny Program outside of the annual
review process if it is an option class
that meets certain specific criteria.
Specifically, new option classes may be
added to the Penny Program if: (i) the
option class is among the 75 most
actively traded multiply listed option
classes, as ranked by National Cleared
Volume at OCC, in the prior six full
calendar months of trading and (ii) the
underlying security is priced below
$200 or the underlying index is at an
index level below $200. Any option
class added under this provision will be
added on the first trading day of the
second full month after it qualifies and
will remain in the Penny Program for
the rest of the calendar year, after which
it will be subject to the annual review
process.
the trading volume threshold, nor the
initial price test would apply to option
classes added to the Penny Program as
a result of the corporate action. Finally,
the newly added adjusted and
unadjusted series of the option class
would remain in the Penny Program for
one full calendar year and then would
become subject to the annual review
process.
Corporate Actions
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’),13 in general, and furthers
the objectives of Section 6(b)(5) of the
Act,14 in particular, in that it is designed
to prevent fraudulent and manipulative
acts and practices, 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
The Penny Program would also
specify a process to address option
classes in the Penny Program that
undergo a corporate action and is
designed to ensure continuous liquidity
in the affected option classes.
Specifically, if a corporate action
involves one or more option classes in
the Penny Program, all adjusted and
unadjusted series of an option class
would continue to be included in the
Penny Program.12 Furthermore, neither
12 For
example, if Company A acquires Company
B and Company A is not in the Penny Program but
Company B is in the Penny Program, once the
merger is consummated and an options contract
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Delisted or Ineligible Option Classes
Finally, the Penny Program would
provide a mechanism to address option
classes that have been delisted or those
that are no longer eligible for listing.
Specifically, any series in an option
class participating in the Penny Program
in which the underlying has been
delisted, or is identified by OCC as
ineligible for opening customer
transactions, would continue to quote
pursuant to the terms of the Penny
Program until all options series have
expired.
Technical Changes
The Exchange proposes to replace
reference to the Penny Pilot with
reference to the Penny Interval Program
in Rules 6.72–O(a), 6.80–O(a) and
Commentary .01 thereto, 6.4–O,
Commentary .14. The Exchange believes
these technical changes would add
clarity, transparency and internal
consistency to Exchange rules making
them easier to navigate.
Implementation
This proposed rule change will
become operative on July 1, 2020, upon
expiration of the current Penny Pilot on
June 30, 2020. The Exchange proposes
to implement the Penny Program on
July 1, 2020, which is the first trading
day of the third month following the
Approval Order issued on April 1,
2020—i.e., July 1, 2020.
2. Statutory Basis
adjustment is effective, then Company A would be
added to the Penny Program and remain in the
Penny Program for one calendar year.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
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33257
general, to protect investors and the
public interest.
In particular, the proposed rule
change, which conforms the Exchange
rules to the recently adopted OLPP
Program, allows the Exchange to
provide market participants with a
permanent Penny Program for quoting
options in penny increments, which
maximizes the benefit of quoting in a
finer quoting increment to investors
while minimizing the burden that a
finer quoting increment places on quote
traffic.
Accordingly, the Exchange believes
that the proposal is consistent with the
Act because, in conforming the
Exchange rules to the OLPP Program,
the Penny Program would employ
processes, based upon objective criteria,
that would rebalance the composition of
the Penny Program, thereby helping to
ensure that the most actively traded
option classes are included in the Penny
Program, which helps facilitate the
maintenance of a fair and orderly
market.
Technical Changes
The Exchange notes that the proposed
change to Rules 6.72–O, 6.80–O and
6.4–O to replace references to the Penny
Pilot with references to the Penny
Interval Program would provide clarity
and transparency to the Exchange rules
and would promote just and equitable
principles of trade and remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system. The
proposed rule changes would also
provide internal consistency within
Exchange rules and operate to protect
investors and the investing public by
making the Exchange rules easier to
navigate and comprehend.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed Penny Program, which
modifies the exchange’s rules to align
them with the Commission approved
OLPP Program, is not designed to be a
competitive filing nor does it impose an
undue burden on intermarket
competition as the Exchange anticipates
that the options exchanges will adopt
substantially identical rules. Moreover,
the Exchange believes that by
conforming Exchange rules to the OLPP
Program, the Exchange would promote
regulatory clarity and consistency,
thereby reducing burdens on the
marketplace and facilitating investor
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Federal Register / Vol. 85, No. 105 / Monday, June 1, 2020 / Notices
protection. To the extent that there is a
competitive burden on those option
classes that do not qualify for the Penny
Program, the Exchange believes that it is
appropriate because the proposal should
benefit all market participants and
investors by maximizing the benefit of
a finer quoting increment in those
option classes with the most trading
interest while minimizing the burden of
greater quote traffic in option classes
with less trading interest. The Exchange
believes that adopting rules, which it
anticipates will likewise be adopted by
all option exchanges that are
participants in the OLPP, would allow
for continued competition between
Exchange market participants trading
similar products as their counterparts
on other exchanges, while at the same
time allowing the Exchange to continue
to compete for order flow with other
exchanges.
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 15 and Rule
19b–4(f)(6) thereunder.16 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.17
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
jbell on DSKJLSW7X2PROD with NOTICES
15 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
17 15 U.S.C. 78s(b)(3)(A)(iii). 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 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 Commission notes that the
Exchange satisfied this requirement.
16 17
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19:40 May 29, 2020
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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) 18 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:
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–2020–50 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-2020–50. 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–2020–50 and
should be submitted on or before June
22, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–11648 Filed 5–29–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88949; File No. SR–BOX–
2020–16]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing of
Proposed Rule Change in Connection
With the Proposed Commencement of
Operations of Boston Security Token
Exchange LLC (‘‘BSTX’’) as a Facility of
the Exchange
May 26, 2020.
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 12,
2020, BOX Exchange LLC (the
‘‘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 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 is submitting this
Proposed Rule Change to the
Commission in connection with the
proposed commencement of operations
of BSTX. In this Proposed Rule Change,
the proposed Amended and Restated
Limited Liability Company Agreement
of the Company dated December 24,
2019 (the ‘‘LLC Agreement’’), is attached
as Exhibit 5A hereto [sic]. The text of
the proposed rule change is available
from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s internet website at https://
boxoptions.com.
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
18 15
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00180
Fmt 4703
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]]>Agencies
[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33255-33258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11648]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88943; File No. SR-NYSEArca-2020-50]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule
6.72-O To Conform the Rule to Section 3.1 of the Plan for the Purpose
of Developing and Implementing Procedures Designed to Facilitate the
Listing and Trading of Standardized Options
May 26, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'')\2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on May 22, 2020, 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 self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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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 6.72-O to conform the rule to
Section 3.1 of the Plan for the Purpose of Developing and Implementing
Procedures Designed to Facilitate the Listing and Trading of
Standardized Options (the ``OLPP'') and add new Rule 6.72A-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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule change is to amend Rule 6.72-O (Trading
Differentials) to align the rule with the recently approved amendment
to the OLPP.
Background
On January 23, 2007, the Commission approved on a limited basis a
Penny Pilot in option classes in certain issues (``Penny Pilot''). The
Penny Pilot was designed to determine whether investors would benefit
from options being quoted in penny increments, and in which classes the
benefits were most significant. The Penny Pilot was expanded and
extended numerous times over the last 13 years.\4\ In each instance,
these approvals relied upon the consideration of data periodically
provided by the Exchanges that analyzed how quoting options in penny
[[Page 33256]]
increments affects spreads, liquidity, quote traffic, and volume.
Today, the Penny Pilot includes 363 option classes, which are among the
most actively traded, multiply listed option classes. The Penny Pilot
is scheduled to expire by its own terms on June 30, 2020.\5\
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\4\ See Securities Exchange Act Release Nos. 55156 (January 23,
2007) 72 FR 4759 (February 1, 2007) (NYSEArca-2006-73); 56150 (July
26, 2007) 72 FR 42460 (August 2, 2007) (NYSEArca-2007-56); 56568
(September 27, 2007) 72 FR 56422 (October 3, 2007) (NYSEArca-2007-
88); 59628 (March 26, 2009) 74 FR 15025 (NYSEArca-2009-26); 60224
(July 1, 2009) 74 FR 32991 (July 9, 2009) (NYSEArca-2009-61); 60711
(September 23, 2009) 74 FR 49419 (September 28, 2009) (NYSEArca-
2009-44); 61061 (November 24, 2009) 74 FR 62857 (December 1, 2009)
(NYSEArca-2009-44); 63376 (November 24, 2010) 75 FR 75527 (December
3, 2010) (NYSEArca-2010-104); 65977 (December 15, 2011) 76 FR 79234
(NYSEArca-2011-93); 67307 (June 28, 2012), 77 FR 40110 (July 6,
2012) (NYSEArca-2012-65); 68426 (December 13, 2012) 77 FR 75224
(December 19, 2012) (NYSEArca-2012-135); 69106 (March 11, 2013) 78
FR 16552 (March 15, 2013) (NYSEArca-2013-22); 69790 (June 18, 2013)
78 FR 37853 (June 24, 2013) (NYSE Arca-2013-59); 71159 (December 20,
2013), 78 FR 71163 (December 27, 2013) (NYSEArca-2013-145); 72192
(May 20, 2014) 79 FR 30209 (May 27, 2014) (NYSE Arca-2014-60); 73777
(December 8, 2014) 79 FR 73913 (December 12, 2014) (NYSEArca-2014-
136); 75280 (June 24, 2015) 80 FR 37331 (June 30, 2015) (NYSEArca-
2015-51); 78174 (June 28, 2016) 81 FR 43332 (July 1, 2016)
(NYSEArca-2016-88); 79524 (December 12, 2016) 81 FR 91220 (December
16, 2016) (NYSEArca-2016-156); 80988 (June 21, 2017) 82 FR 29128
(June 27, 2017) (NYSEArca-2017-68); 82366 (December 19, 2017) 82 FR
61052 (December 26, 2017) (NYSEArca-2017-141); 83512 (June 25, 2018)
83 FR 30793 (June 29, 2018) (NYSEArca-2018-49); 84873 (December 19,
2018) 83 FR 66798 (December 27, 2018) (NYSEArca-2018-96); 86062
(June 7, 2019) 84 FR 27669 (June 13, 2019) (NYSEArca-2019-41).
\5\ See Securities Exchange Act Release No. 87610 (November 25,
2019) 84 FR 66047 (December 2, 2019) (NYSEArca-2019-83).
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In light of the imminent expiration of the Penny Pilot on June 30,
2020, the Exchange, together with other participating exchanges, filed,
on July 18, 2019 a proposal to amend the OLPP.\6\ On April 1, 2020 the
Commission approved the amendment to the OLPP to make permanent the
Pilot Program (the ``OLPP Program'').\7\
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\6\ See Securities Exchange Act Release No. 87681 (December 9,
2019), 84 FR 68960 (December 17, 2019) (``Notice'').
\7\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545 (April 7, 2020) (File No. 4-443) (``Approval
Order'').
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The OLPP Program replaces the Penny Pilot by instituting a
permanent program that would permit quoting in penny increments for
certain option classes. Under the terms of the OLPP Program, designated
option classes would continue to be quoted in $0.01 and $0.05
increments according to the same parameters for the Penny Pilot. In
addition, the OLPP Program would: (i) Establish an annual review
process to add option classes to, or to remove option classes from, the
OLPP Program; (ii) to allow an option class to be added to the OLPP
Program if it is a newly listed option class and it meets certain
criteria; (iii) to allow an option class to be added to the OLPP
Program if it is an option class that has seen a significant growth in
activity; (iv) to provide that if a corporate action involves one or
more option classes in the OLPP Program, all adjusted and unadjusted
series and classes emerging as a result of the corporate action will be
included in the OLPP Program; and (v) to provide that any series in an
option class participating in the OLPP Program that have been delisted,
or are identified by OCC as ineligible for opening Customer
transactions, will continue to trade pursuant to the OLPP Program until
they expire.
To conform its Rules to the OLPP Program, the Exchange proposes to
delete Commentary .02 to Rule 6.72-O (the ``Penny Pilot Rule''), which
will be ``Reserved,'' and replace it with new Rule 6.72A-O
(Requirements for Penny Interval Program), which is described below,
and to replace references to ``Penny Pilot'' in the Exchange rules with
``Penny Interval Program.'' \8\ The Exchange also proposes to delete
the superfluous operational language in Commentary .01 regarding the
process for modifying trading differentials by rule filing because such
requirement remains the case today, as the Exchange must submit
proposed rule changes--including for Rule 6.72-O--to the Commission;
the Exchange will hold this Commentary as Reserved.\9\
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\8\ This proposed rule change will become operative on July 1,
2020, upon expiration of the current Penny Pilot on June 30, 2020.
\9\ See Commentary .01 to Rule 6.72-O (providing that ``[t]he
Exchange may only change the trading differentials for option
contracts traded on the Exchange by filing a rule change proposal
with the SEC, pursuant to Section 19(b)(3)(A) of the Securities
Exchange Act of 1934 (effective upon filing)'').
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Penny Interval Program
The Exchange proposes to codify the OLPP Program in new Rule 6.72A-
O (Requirements for Penny Interval Program) (the ``Penny Program''),
which will replace the Penny Pilot Rule and permanently permit the
Exchange to quote certain option classes in minimum increments of one
cents ($0.01) and five cents ($0.05) (``penny increments''). The penny
increments that currently apply under the Penny Pilot will continue to
apply for option classes included in the Penny Program. Specifically,
(i) the minimum quoting increment for all series in the QQQ, SPY, and
IWM would continue to be $0.01, regardless of price; \10\ (ii) all
series of an option class included in the Penny Program with a price of
less than $3.00 would be quoted in $0.01 increments; and (iii) all
series of an option class included in the Penny Program with a price of
$3.00 or higher would be quoted in $0.05 increments.
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\10\ See Rule 6.72-O(a)(3)(A)-(C).
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The Penny Program would initially apply to the 363 most actively
traded multiply listed option classes, based on National Cleared Volume
at The Options Clearing Corporation (``OCC'') in the six full calendar
months ending in the month of approval (i.e., November 2019--April
2020) that currently quote in penny increments, or overlie securities
priced below $200, or any index at an index level below $200.
Eligibility for inclusion in the Penny Program will be determined at
the close of trading on the monthly Expiration Friday of the second
full month following April 1, 2020 (i.e., June 19, 2020).
Once in the Penny Program, an option class will remain included
until it is no longer among the 425 most actively traded option classes
at the time the annual review is conducted (described below), at which
point it will be removed from the Penny Program. As described in more
detail below, the removed class will be replaced by the next most
actively traded multiply listed option class overlying securities
priced below $200 per share, or any index at an index level below $200,
and not yet in the Penny Program. Advanced notice regarding the option
classes included, added, or removed from the Penny Program will be
provided to the Exchange's membership via Trader Update and published
by the Exchange on its website.
Annual Review
The Penny Program would include an annual review process that
applies objective criteria to determine option classes to be added to,
or removed from, the Penny Program. Specifically, on an annual basis
beginning in December 2020 and occurring ever December thereafter, the
Exchange will review and rank all multiply listed option classes based
on National Cleared Volume at OCC for the six full calendar months from
June 1st through November 30th for determination of the most actively
traded option classes. Any option classes not yet in the Penny Program
may be added to the Penny Program if the class is among the 300 most
actively traded multiply listed option classes and priced below $200
per share or any index at an index level below $200.
Following the annual review, option classes to be added to the
Penny Program would begin quoting in penny increments (i.e., $0.01 if
trading at less than $3; and $0.05 if trading at $3 and above) on the
first trading day of January.\11\ In addition, following the annual
review, any option class in the Penny Program that falls outside of the
425 most actively traded option classes would be removed from the Penny
Program. After the annual review, option classes that are removed from
the Penny Program will be subject to the minimum trading increments set
forth in Rule 6.72-O, effective on the first trading day of April.
---------------------------------------------------------------------------
\11\ See id. (providing that the minimum quoting increment for
all series in the QQQ, SPY, and IWM would continue to be $0.01,
regardless of price).
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Changes to the Composition of the Penny Program Outside of the Annual
Review Newly Listed Option Classes and Option Classes With Significant
Growth in Activity
The Penny Program would specify a process and parameters for
including option classes in the Program outside the annual review
process in two circumstances. These provisions are
[[Page 33257]]
designed to provide objective criteria to add to the Penny Program new
option classes in issues with the most demonstrated trading interest
from market participants and investors on an expedited basis prior to
the annual review, with the benefit that market participants and
investors will then be able to trade these new option classes based
upon quotes expressed in finer trading increments.
First, the Penny Program provides for certain newly listed option
classes to be added to the Penny Program outside of the annual review
process, provided that (i) the class is among the 300 most actively
traded, multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading; and (ii)
the underlying security is priced below $200 or the underlying index is
at an index level below $200. Such newly listed option classes added to
the Penny Program pursuant to this process would remain in the Penny
Program for one full calendar year and then would be subject to the
annual review process.
Second, the Penny Program would allow an option class to be added
to the Penny Program outside of the annual review process if it is an
option class that meets certain specific criteria. Specifically, new
option classes may be added to the Penny Program if: (i) the option
class is among the 75 most actively traded multiply listed option
classes, as ranked by National Cleared Volume at OCC, in the prior six
full calendar months of trading and (ii) the underlying security is
priced below $200 or the underlying index is at an index level below
$200. Any option class added under this provision will be added on the
first trading day of the second full month after it qualifies and will
remain in the Penny Program for the rest of the calendar year, after
which it will be subject to the annual review process.
Corporate Actions
The Penny Program would also specify a process to address option
classes in the Penny Program that undergo a corporate action and is
designed to ensure continuous liquidity in the affected option classes.
Specifically, if a corporate action involves one or more option classes
in the Penny Program, all adjusted and unadjusted series of an option
class would continue to be included in the Penny Program.\12\
Furthermore, neither the trading volume threshold, nor the initial
price test would apply to option classes added to the Penny Program as
a result of the corporate action. Finally, the newly added adjusted and
unadjusted series of the option class would remain in the Penny Program
for one full calendar year and then would become subject to the annual
review process.
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\12\ For example, if Company A acquires Company B and Company A
is not in the Penny Program but Company B is in the Penny Program,
once the merger is consummated and an options contract adjustment is
effective, then Company A would be added to the Penny Program and
remain in the Penny Program for one calendar year.
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Delisted or Ineligible Option Classes
Finally, the Penny Program would provide a mechanism to address
option classes that have been delisted or those that are no longer
eligible for listing. Specifically, any series in an option class
participating in the Penny Program in which the underlying has been
delisted, or is identified by OCC as ineligible for opening customer
transactions, would continue to quote pursuant to the terms of the
Penny Program until all options series have expired.
Technical Changes
The Exchange proposes to replace reference to the Penny Pilot with
reference to the Penny Interval Program in Rules 6.72-O(a), 6.80-O(a)
and Commentary .01 thereto, 6.4-O, Commentary .14. The Exchange
believes these technical changes would add clarity, transparency and
internal consistency to Exchange rules making them easier to navigate.
Implementation
This proposed rule change will become operative on July 1, 2020,
upon expiration of the current Penny Pilot on June 30, 2020. The
Exchange proposes to implement the Penny Program on July 1, 2020, which
is the first trading day of the third month following the Approval
Order issued on April 1, 2020--i.e., July 1, 2020.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\13\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\14\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, 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.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change, which conforms the
Exchange rules to the recently adopted OLPP Program, allows the
Exchange to provide market participants with a permanent Penny Program
for quoting options in penny increments, which maximizes the benefit of
quoting in a finer quoting increment to investors while minimizing the
burden that a finer quoting increment places on quote traffic.
Accordingly, the Exchange believes that the proposal is consistent
with the Act because, in conforming the Exchange rules to the OLPP
Program, the Penny Program would employ processes, based upon objective
criteria, that would rebalance the composition of the Penny Program,
thereby helping to ensure that the most actively traded option classes
are included in the Penny Program, which helps facilitate the
maintenance of a fair and orderly market.
Technical Changes
The Exchange notes that the proposed change to Rules 6.72-O, 6.80-O
and 6.4-O to replace references to the Penny Pilot with references to
the Penny Interval Program would provide clarity and transparency to
the Exchange rules and would promote just and equitable principles of
trade and remove impediments to, and perfect the mechanism of, a free
and open market and a national market system. The proposed rule changes
would also provide internal consistency within Exchange rules and
operate to protect investors and the investing public by making the
Exchange rules easier to navigate and comprehend.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed Penny Program,
which modifies the exchange's rules to align them with the Commission
approved OLPP Program, is not designed to be a competitive filing nor
does it impose an undue burden on intermarket competition as the
Exchange anticipates that the options exchanges will adopt
substantially identical rules. Moreover, the Exchange believes that by
conforming Exchange rules to the OLPP Program, the Exchange would
promote regulatory clarity and consistency, thereby reducing burdens on
the marketplace and facilitating investor
[[Page 33258]]
protection. To the extent that there is a competitive burden on those
option classes that do not qualify for the Penny Program, the Exchange
believes that it is appropriate because the proposal should benefit all
market participants and investors by maximizing the benefit of a finer
quoting increment in those option classes with the most trading
interest while minimizing the burden of greater quote traffic in option
classes with less trading interest. The Exchange believes that adopting
rules, which it anticipates will likewise be adopted by all option
exchanges that are participants in the OLPP, would allow for continued
competition between Exchange market participants trading similar
products as their counterparts on other exchanges, while at the same
time allowing the Exchange to continue to compete for order flow with
other exchanges.
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 \15\ and Rule 19b-4(f)(6) thereunder.\16\
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.\17\
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\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 17 CFR 240.19b-4(f)(6).
\17\ 15 U.S.C. 78s(b)(3)(A)(iii). 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 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
Commission notes that the Exchange satisfied this requirement.
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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) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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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-2020-50 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-2020-50. 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-2020-50 and should be submitted
on or before June 22, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11648 Filed 5-29-20; 8:45 am]
BILLING CODE 8011-01-P
