Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Proposed Rule Change To Amend BOX Rule 5050 (Series of Options Contracts Open for Trading) To Limit Short Term Options Series Intervals, 29856-29861 [2021-11691]
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Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 14 and paragraph (f) of Rule
19b–4 15 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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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–
C2–2021–009 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–C2–2021–009. 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–C2–2021–009 and should
be submitted on or before June 24, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–11609 Filed 6–2–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92072; File No. SR–BOX–
2021–12]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing of
Proposed Rule Change To Amend BOX
Rule 5050 (Series of Options Contracts
Open for Trading) To Limit Short Term
Options Series Intervals
May 28, 2021.
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 18,
2021, 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 self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
BOX Rule 5050 (Series of Options
Contracts Open for Trading). This
proposal seeks to limit Short Term
Options Series intervals between strikes
which are available for quoting and
trading on BOX. The text of the
proposed rule change is available from
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
14 15
U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f).
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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.
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization 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 Exchange proposes to amend
Rule 5050, ‘‘Series of Options Contracts
Open for Trading.’’ Specifically, this
proposal seeks to limit the intervals
between strikes for multiply listed
equity options classes within the Short
Term Options Series program that have
an expiration date more than twentyone days from the listing.
Background
Today, BOX’s listing rules within
Rule 5050 permits the Exchange, after a
particular class of options (call option
contracts or put option contracts
relating to a specific underlying stock,
Exchange-Traded Fund Share,3 or
3 Exchange-Traded Fund Share shall include
shares or other securities that are traded on a
national securities exchange and are defined as an
‘‘NMS stock’’ under Rule 600 of Regulation NMS,
and that (i) represent interests in registered
investment companies (or series thereof) organized
as open-end management investment companies,
unit investment trusts or similar entities, that hold
portfolios of securities and/or financial instruments
including, but not limited to, stock index futures
contracts, options on futures, options on securities
and indexes, equity caps, collars and floors, swap
agreements, forward contracts, repurchase
agreements and reverse repurchase agreements
comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money
Market Instruments (the ‘‘Money Market
Instruments’’) (comprising or otherwise based on or
representing investments in broad-based indexes or
portfolios of securities and/or Financial Instruments
and Money Market Instruments (or that hold
securities in one or more other registered
investment companies that themselves hold such
portfolios of securities and/or Financial Instruments
and Money Market Instruments); or (ii) represent
interests in a trust that holds a specified non-U.S.
currency deposited with the trust or similar entity
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ETN 4) has been approved for listing and
trading on the Exchange, to open for
trading series of options therein. The
Exchange may list series of options for
trading on a weekly,5 monthly 6 or
when aggregated in some specified minimum
number may be surrendered to the trust by the
beneficial owner to receive the specified non-U.S.
currency or currencies and pays the beneficial
owner interest and other distributions on the
deposited non-U.S. currency or currencies, if any,
declared and paid by the trust (‘‘Currency Trust
Shares’’); or (iii) represent commodity pool interests
principally engaged, directly or indirectly, in
holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward
contracts and/or options on physical commodities
and/or non-U.S. currency (‘‘Commodity Pool
ETFs’’) or (iv) represent interests in the SPDR® Gold
Trust, the iShares COMEX Gold Trust, the iShares
Silver Trust, the ETFS Gold Trust, the ETFS Silver
trust, the ETFS Palladium Trust, the ETFS Platinum
Trust or the Sprott Physical Gold Trust; provided
the conditions within BOX Rule 5050(h)(1) and (2)
are met. See BOX Rule 5020(h).
4 Securities deemed appropriate for options
trading shall include shares or other securities
(‘‘Equity Index-Linked Securities,’’ ‘‘CommodityLinked Securities,’’ ‘‘Currency-Linked Securities,’’
‘‘Fixed Income Index-Linked Securities,’’ ‘‘FuturesLinked Securities,’’ and ‘‘Multifactor Index-Linked
Securities,’’ collectively known as ‘‘Index- Linked
Securities’’ or ‘‘ETNs’’) that are principally traded
on a national securities exchange and an ‘‘NMS
Stock’’ (as defined in Rule 600 of Regulation NMS
under the Securities Exchange Act of 1934), and
represent ownership of a security that provides for
the payment at maturity, as described within BOX
Rule 5020(k)(1)(A)–(F). See BOX Rule 5020(k).
5 The weekly listing program is known as the
Short Term Options Series Program and is
described within IM–5050–6.
6 The Exchange will open a minimum of one
expiration month and series for each class of
options open for trading on BOX. See BOX Rule
5050(b). The monthly expirations are subject to
certain listing criteria for underlying securities
described within Rule 5020. Monthly listings expire
the third Friday of the month. The term ‘‘expiration
date’’ when used in respect of a series of binary
options other than event options means the last day
on which the options may be automatically
exercised. In the case of a series of event options
(other than credit default options or credit default
basket options) that are be automatically exercised
prior to their expiration date upon receipt by the
Corporation of an event confirmation, the
expiration date is the date specified by the listing
Exchange; provided, however, that when an event
confirmation is deemed to have been received by
the Corporation with respect to such series of
options, the expiration date will be accelerated to
the date on which such event confirmation is
deemed to have been received by the Corporation
or such later date as the Corporation may specify.
In the case of a series of credit default options or
credit default basket options, the expiration date is
the fourth business day after the last trading day for
such series as such trading day is specified by the
Exchange on which the series of options is listed;
provided, however, that when an event
confirmation is deemed to have been received by
the Corporation with respect to a series of credit
default options or single payout credit default
basket options prior to the last trading day for such
series, the expiration date for options of that series
will be accelerated to the second business day
following the day on which such event
confirmation is deemed to have been received by
the Corporation. ‘‘Expiration date’’ means, in
respect of a series of range options expiring prior
to February 1, 2015, the Saturday immediately
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quarterly 7 basis. BOX Rule 5050(d) sets
forth the intervals between strike prices
of series of options on individual
stocks.8 In addition to those intervals,
the Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,9 the $0.50 Strike Program,10
the $2.50 Strike Price Program,11 and
the $5 Strike Program.12
The Exchange’s proposal seeks to
amend the listing of weekly series of
options as proposed within new
Supplementary Material .03(f) of
Options 4, Section 5, by limiting the
intervals between strikes in multiply
listed equity options, excluding
Exchange-Traded Fund Shares and
ETNs, that have an expiration date more
than twenty-one days from the listing
date. This proposal does not amend
monthly or quarterly listing rules nor
does it amend the $1 Strike Price
Interval Program, the $0.50 Strike
Program, the $2.50 Strike Price Program,
or the $5 Strike Program.
Short Term Options Series Program
Today, IM–5050–6 permits BOX to
open for trading on any Thursday or
Friday that is a business day (‘‘Short
following the third Friday of the expiration month
of such series, and, in respect of a series of range
options expiring on or after February 1, 2015 means
the third Friday of the expiration month of such
series, or if such Friday is a day on which the
Exchange on which such series is listed is not open
for business, the preceding day on which such
Exchange is open for business. See The Options
Clearing Corporation (‘‘OCC’’) By-Laws at Section 1.
7 The quarterly listing program is known as the
Quarterly Options Series Program and is described
within IM–6090–1.
8 Except as otherwise provided in IM–5050–6, the
interval between strike prices of series of options
on individual stocks will be: (1) $2.50 or greater
where the strike price is $25.00 or less; (2) $5.00
or greater where the strike price is greater than
$25.00; and (3) $10.00 or greater where the strike
price is greater than $200.00. The interval between
strike prices of series of options on ExchangeTraded Fund Shares approved for options trading
pursuant to BOX Rule 5020(h) shall be fixed at a
price per share which is reasonably close to the
price per share at which the underlying security is
traded in the primary market at or about the same
time such series of options is first open for trading
on the Exchange, or at such intervals as may have
been established on another options exchange prior
to the initiation of trading on the Exchange.
Pursuant to IM–5050–1(b), notwithstanding any
other provision regarding the interval of strike
prices of series of options on Exchange-Traded
Fund Shares in this rule, the interval of strike prices
on SPDR® S&P 500® ETF (‘‘SPY’’), iShares Core
S&P 500 ETF (‘‘IVV’’), PowerShares QQQ Trust
(‘‘QQQ’’), iShares Russell 2000 Index Fund
(‘‘IWM’’), and the SPDR® Dow Jones® Industrial
Average ETF (‘‘DIA’’) options will be $1 or greater.
9 The $1 Strike Interval Program is described
within IM–5050–2.
10 The $0.50 Strike Interval Program is described
within IM–5050–5.
11 The $2.50 Strike Interval Program is described
within IM–5050–3.
12 The $5.00 Strike Interval Program is described
within Rule 5050(d)(5).
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29857
Term Option Opening Date’’) series of
options on an option class that expires
at the close of business on each of the
next five Fridays that are business days
and are not Fridays in which monthly
options series or Quarterly Options
Series expire (‘‘Short Term Option
Expiration Dates’’), provided an option
class has been approved for listing and
trading on the Exchange.13 Today, the
Exchange may open up to thirty initial
series for each option class that
participates in the Short Term Option
Series Program.14 Further, if the
Exchange opens less than thirty (30)
Short Term Option Series for a Short
Term Option Expiration Date, additional
series may be opened for trading on the
Exchange when the Exchange deems it
necessary to maintain an orderly
market, to meet customer demand or
when the market price of the underlying
security moves substantially from the
exercise price or prices of the series
already opened.15
The Exchange may open for trading
Short Term Option Series on the Short
Term Option Opening Date that expire
on the Short Term Option Expiration
Date at strike price intervals of (i) $0.50
or greater where the strike price is less
than $100, and $1 or greater where the
strike price is between $100 and $150
for all option classes that participate in
the Short Term Options Series Program;
(ii) $0.50 for option classes that trade in
one dollar increments and are in the
Short Term Option Series Program; or
13 The Exchange may have no more than a total
of five Short Term Option Expiration Dates, not
including any Monday or Wednesday SPY
Expirations as provided below. If the Exchange is
not open for business on the respective Thursday
or Friday, the Short Term Option Opening Date will
be the first business day immediately prior to that
respective Thursday or Friday. Similarly, if the
Exchange is not open for business on a Friday, the
Short Term Option Expiration Date will be the first
business day immediately prior to that Friday. With
respect to Wednesday SPY Expirations, the
Exchange may open for trading on any Tuesday or
Wednesday that is a business day series of options
on the SPDR S&P 500 ETF Trust (SPY) to expire on
any Wednesday of the month that is a business day
and is not a Wednesday in which Quarterly Options
Series expire (‘‘Wednesday SPY Expirations’’). With
respect to Monday SPY Expirations, the Exchange
may open for trading on any Friday or Monday that
is a business day series of options on the SPY to
expire on any Monday of the month that is a
business day and is not a Monday in which
Quarterly Options. Series expire (‘‘Monday SPY
Expirations’’), provided that Monday SPY
Expirations that are listed on a Friday must be
listed at least one business week and one business
day prior to the expiration. The Exchange may list
up to five consecutive Wednesday SPY Expirations
and five consecutive Monday SPY Expirations at
one time; the Exchange may have no more than a
total of five Wednesday SPY Expirations and a total
of five Monday SPY Expirations. Monday and
Wednesday SPY Expirations will be subject to the
provisions of this Rule. See IM–5050–6(c) and (d).
14 See IM–5050–6(b)(3).
15 See IM–5050–6(b)(4).
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Federal Register / Vol. 86, No. 105 / Thursday, June 3, 2021 / Notices
(iii) $2.50 or greater where the strike
price is above $150. During the month
prior to expiration of an option class
that is selected for the Short Term
Option Series Program (‘‘Short Term
Option’’), the strike price intervals for
the related non-Short Term Option
(‘‘Related non-Short Term Option’’)
shall be the same as the strike price
intervals for the Short Term Option.16
The Exchange may select up to fifty
currently listed option classes on which
Short Term Option Series may be
opened on any Short Term Option
Opening Date. In addition to the fifty
option class restriction, the Exchange
may also list Short Term Option Series
on any option classes that are selected
by other securities exchanges that
employ a similar program under their
respective rules. For each option class
eligible for participation in the Short
Term Option Series Program, the
Exchange may open up to thirty Short
Term Option Series for each expiration
date in that class. The Exchange may
also open Short Term Option Series that
are opened by other securities
exchanges in option classes selected by
such exchanges under their respective
short term option rules.17
The Exchange notes that listings in
the weekly program comprise a
significant part of the standard listing in
options markets and that the industry
has observed a notable increase over
approximately the last five years in
compound annual growth rate
(‘‘CAGR’’) of weekly strikes as compared
to CAGR for standard third-Friday
expirations.18
Proposal
The Exchange proposes to widen the
intervals between strikes in order to
limit the number of strikes listed for
equity options (excluding options on
ETFs and ETNs) listed as part of the
Short Term Option Series Program that
have an expiration date more than 21
days from the listing date, by adopting
proposed Rule 4.5(d)(6). The Exchange
notes that this proposal is substantively
identical to the strike interval proposal
recently submitted by Nasdaq BX, Inc.
(‘‘BX’’) and approved by the Securities
and Exchange Commission
(‘‘Commission’’).19
The proposal widens intervals
between strikes for expiration dates of
equity option series (excluding options
on ETFs and ETNs) beyond 21 days
utilizing the three-tiered table in
proposed IM–5050–11 (presented
below) which considers both the Share
Price and Average Daily Volume for the
option series. The table indicates the
applicable strike intervals and
supersedes IM–6090–2(b)(4), which
currently permits 10 additional series to
be opened for trading on the Exchange
when the Exchange deems it necessary
to maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. As
a result of the proposal, IM–6090–
2(b)(4) would not permit an additional
series of an equity option to have an
expiration date more than 21 days from
the listing date to be opened for trading
on the Exchange despite the noted
circumstances in subparagraph (b)(4)
when such additional series may
otherwise be added.
Share Price
Tier
Average daily volume
Less than $25
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1 ...........................
2 ...........................
3 ...........................
Greater than 5,000 ............................
Greater than 1,000 to 5,000 ..............
0 to 1,000 ..........................................
The Share Price would be the closing
price on the primary market on the last
day of the calendar quarter. This value
would be used to derive the column
from which to apply strike intervals
throughout the next calendar quarter.
The Average Daily Volume would be the
total number of options contracts traded
in a given security for the applicable
calendar quarter divided by the number
of trading days in the applicable
calendar quarter. Beginning on the
second trading day in the first month of
each calendar quarter, the Average Daily
Volume shall be calculated by utilizing
data from the prior calendar quarter
based on Customer-cleared volume at
OCC. For options listed on the first
trading day of a given calendar quarter,
the Average Daily Volume shall be
calculated using the calendar quarter
16 See
IM–5050–1(b).
IM–5050–6(b)(1).
18 See Securities Exchange Act Release No. 91125
(February 12, 2021), 86 FR 10375 (February 19,
2021) (SR–BX–2020–032) (‘‘BX Strike Interval
Approval Order’’); and SR–2020–BX–032 as
amended by Amendment No. 1 (February 10, 2021)
available at: https://www.sec.gov/comments/sr-bx17 See
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$25 to less
than $75
$0.50
1.00
2.50
$75 to less
than $150
$1.00
1.00
5.00
$1.00
1.00
5.00
$150 to less
than $500
$5.00
5.00
5.00
$500 or
greater
$5.00
10.00
10.00
prior to the last trading calendar
quarter.20 Under current rules, if the
Exchange is not open for business on
the respective Thursday or Friday, the
Short Term Option Opening Date will
be the first business day immediately
prior to that respective Thursday or
Friday, as is the case today for STOs as
specified within IM–5050–6.
The Exchange proposes that Short
Term Options Series that are newly
eligible for listing pursuant to Rule
5020(a) will not be subject to this
proposed IM–5050–11 until after the
end of the first full calendar quarter
following the date the option class was
first listed for trading on any options
market.21 The Exchange would be
permitted to list options on newly
eligible listings, without any
curtailment in strike intervals, until the
end of the first full quarter after they
were listed. BOX’s proposal would
thereby permit BOX to add strikes to
meet customer demand in the options
class. By deferring the curtailment until
after the end of the first full calendar
quarter, additional information on the
underlying security would be available
to market participants and public
investors. During this period of
deferment the price of the underlying
would have an opportunity to settle
based on the price discovery that has
occurred in the primary market. An
options class that represents a newly
listed primary security may fluctuate in
price after its initial listing; such
volatility reflects a natural uncertainty
about the security. Also, BOX would
have the ability to list as many strikes
as are permissible for the Short Term
2020-032/srbx2020032-8359799-229182.pdf (‘‘BX
proposal’’); see also BX Options Strike Proliferation
Proposal (February 25, 2021) available at: https://
www.nasdaq.com/solutions/bxoptions-strikeproliferation-proposal).
19 See BX Strike Interval Approval Order, id.
20 For example, options listed as of January 4,
2021 would be calculated on January 5, 2021 using
the Average Daily Volume from July 1, 2020 to
September 30, 2020.
21 For example, if an options became newly
eligible for listing pursuant to Rule 5020 on March
1, 2021, the first full quarterly lookback would be
available on July 1, 2021. This option would
become subject to the curtailment on July 2, 2021.
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Options Series once the expiry is within
twenty-one days. Short Term Options
Series which have an expiration date
less than twenty-one days from the
listing date are not subject to the
curtailment, thereby allowing BOX to
list additional, and potentially
narrower, strikes in the event of market
volatility or other market events.
In the event of a corporate action, the
Share Price of the surviving company
would be utilized. These metrics are
intended to align expectations for
determining which strike intervals will
be utilized. Finally, notwithstanding the
limitations imposed by proposed IM–
5050–11, this Strike Interval Proposal
does not amend the range of strikes that
may be listed pursuant to IM–5050–6,
regarding the Short Term Option Series
Program.
By way of example, if the Share Price
for a symbol was $142 at the end of a
calendar quarter, with an Average Daily
Volume greater than 5,000, thereby,
requiring strike intervals to be listed
$1.00 apart, that strike interval would
apply for the calendar quarter,
regardless of whether the Share Price
changed to greater than $150 during that
calendar quarter.22
The proposed table within IM–5050–
11 takes into account the notional value
of a security, as well as Average Daily
Volume in the underlying stock, in
order to limit the intervals between
strikes in the Short Term Options listing
program. BOX would utilize OCC
Customer-cleared volume, as customer
volume is an appropriate proxy for
demand. The OCC Customer-cleared
volume represents the majority of
options volume executed on the
Exchange that, in turn, reflects the
demand in the marketplace. The options
series listed on BOX are intended to
meet customer demand by offering an
appropriate number of strikes. NonCustomer cleared OCC volume
represents the supply side. The strike
intervals for listing strikes in certain
options are intended to remove
repetitive and unnecessary strike
listings across the weekly expiries.
BOX’s Strike Interval Proposal seeks to
reduce the number of strikes in the
furthest weeklies, where there exist
wider markets and therefore lower
market quality.
The proposed table within IM–5050–
11 is intended to distribute strike
intervals in multiply listed equity
options where there is less volume as
measured by the Average Daily Volume
22 The Exchange notes that any limits on intervals
imposed by the Exchange’s Rules will continue to
apply. In this example, the strikes would be in $1
intervals up to $150, which is the upper limit
imposed by IM–5050–6(b)(5).
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tiers. Therefore, the lower the Average
Daily Volume, the greater the proposed
spread between strike intervals. Options
classes with higher volume contain the
most liquid symbols and strikes,
therefore the finer the proposed spread
between strike intervals. Additionally,
lower-priced shares have finer strike
intervals than higher-priced shares
when comparing the proposed spread
between strike intervals.
Today, weeklies are available on 16%
of underlying products. The Exchange’s
Strike Interval Proposal curtails the
density of strike intervals listed in series
of options, without reducing the classes
of options available for trading on BX.
Short Term Options Series with an
expiration date greater than twenty-one
days from the listing date equates to
7.5% of the total number of strikes in
the options market, which equals 81,000
strikes.23 The Exchange expects this
proposal to results in the limitation of
approximately 20,000 strikes within the
Short Term Options Series which is 2%
of the total strikes in the options
markets.24 The Exchange understands
there has been an inconsistency of
demand for series of options beyond 21
calendar days.25 The proposal takes into
account customer demand for certain
options classes, by considering both the
Share Price and the Average Daily
Volume, in order to remove certain
strike intervals where there exist
clusters of strikes whose characteristics
closely resemble one another and,
therefore, do not serve different trading
needs,26 rendering these strikes less
useful. The Exchange also notes that the
proposal focuses on strikes in multiply
listed equity options, and excludes ETFs
and ETNs, as the majority of strikes
reside within equity options.
This Strike Interval Proposal serves to
respond to comments received from
industry members with respect to the
increasing number of strikes that are
required to be quoted by market makers
in the options industry. BOX requires
Market Makers to quote a certain
amount of time in the trading day in
their assigned options series to maintain
liquidity in the market.27 With an
increasing number of strikes being listed
across options exchanges, Market
23 The Exchange notes that this proposal is an
initial attempt at reducing strikes and anticipates
filing additional proposals to continue reducing
strikes. The above referenced data, specifically the
percentage of underlying products and percentage
of and total number of strikes, are approximations
and may vary slightly at the time of this filing.
24 From information drawn from time period
between January 2020 and May 2020. See BX
proposal, supra note 19.
25 See BX proposal, supra note 19.
26 See BX proposal, supra note 19.
27 See Rule 8050.
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29859
Makers must expend their capital to
ensure that they have the appropriate
infrastructure to meet their quoting
obligations on all options markets in
which they are assigned in options
series. The Exchange believes that this
Strike Interval Proposal would limit the
intervals between strikes, reducing the
number of strikes listed on BOX, and
thereby allow Market Makers to expend
their capital in the options market in a
more efficient manner. Due to this
increased efficiency, the Exchange
believes that this Strike Interval
Proposal would improve overall market
quality on BOX by limiting the intervals
between strikes in multiply listed equity
options that have an expiration date
more than twenty-one days, from the
listing date.
Implementation
The Exchange proposes to implement
the proposed changes on July 1, 2021.
The Exchange will issue a notice to its
Participants with the date of
implementation. Lastly, the Exchange
will issue a notice to its Participants
whenever the Exchange is the first
exchange to list an eligible Short Term
Option Series.28
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),29 in general, and Section 6(b)(5)
of the Act,30 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest. The Strike Proposal
seeks to limit the intervals between
strikes listed in the Short Term Options
Series program that have an expiration
date more than twenty-one days. While
the current listing rules permit BOX to
list a number of weekly strikes on its
market, the Exchange’s Strike Interval
Proposal removes impediments to and
28 When the Exchange is the first exchange to list
an option class under IM–5050–11 the Exchange
shall provide a notice to its Participants regarding
the Short Term Option Series to be listed. Such
notice will include for each eligible option class:
The closing price of the underlying, the Average
Daily Volume of the option class; and the eligible
strike category (per the proposed table) in which the
eligible option class falls under as a result of the
closing price and the Average Daily Volume.
29 15 U.S.C. 78f(b).
30 15 U.S.C. 78f(b)(5).
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perfects the mechanism of a free and
open market and a national market
system by encouraging Market Makers
to deploy capital more efficiently and
improving market quality overall on
BOX through limiting the intervals
between strikes when applying the
strike interval table to multiply listed
equity options that have an expiration
date more than twenty-one days from
the listing date. Also, as BOX’s Strike
Interval Proposal seeks to reduce the
number of weekly options that would be
listed on its market in later weeks,
Market Makers would be required to
quote in fewer weekly strikes as a result
of the Strike Interval Proposal.
Amending BOX’s listing rules to limit
the intervals between strikes for
multiply listed equity options that have
an expiration date more than twentyone days causes less disruption in the
market as the majority of the volume
traded in weekly options exists in
options series which have an expiration
date of twenty-one days or less. The
Exchange’s Strike Interval Proposal
curtails the number of strike intervals
listed in series of options without
reducing the number of classes of
options available for trading on BOX.
The Strike Interval Proposal takes into
account customer demand for certain
options classes by considering both the
Share Price and the Average Daily
Volume in the underlying security to
arrive at the manner in which weekly
strike intervals would be listed in the
later weeks for each multiply listed
equity options class. The Exchange
utilizes OCC Customer-cleared volume,
as customer volume is an appropriate
proxy for demand. The OCC Customercleared volume represents the majority
of options volume executed on the
Exchange that, in turn, reflects the
demands in the marketplace. The
options series listed on BOX is intended
to meet customer demand by offering an
appropriate number of strikes. NonCustomer cleared OCC volume
represents the supply side.
The Strike Interval Proposal for listing
strikes in certain multiply listed equity
options is intended to remove certain
strikes where there exist clusters of
strikes whose characteristics closely
resemble one another and, therefore, do
not serve different trading needs that
renders the strikes less useful and
thereby protects investors and the
general public by removing an
abundance of unnecessary choices for
an options series, while also improving
market quality. BOX’s Strike Interval
Proposal seeks to reduce the number of
strikes in the furthest weeklies, where
there exist wider markets, and,
therefore, lower market quality. The
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implementation of the proposed table is
intended to spread strike intervals in
multiply listed equity options, where
there is less volume that is measured by
the average daily volume tiers.
Therefore, the lower the average daily
volume, the greater the proposed spread
between strike intervals. Options classes
with higher volume contain the most
liquid symbols and strikes, therefore the
finer the proposed spread between
strike intervals. Additionally, lowerpriced shares have finer strike intervals
than higher-priced shares when
comparing the proposed spread between
strike intervals.
Beginning on the second trading day
in the first month of each calendar
quarter, the Average Daily Volume shall
be calculated by utilizing data from the
prior calendar quarter based on OCC
Customer-cleared volume. Utilizing the
second trading day allows the Exchange
to accumulate data regarding OCC
Customer-cleared volume from the
entire prior quarter. Beginning on the
second trading day would allow trades
executed on the last day of the previous
calendar quarter to have settled 31 and
be accounted for in the calculation of
Average Daily Volume. Utilizing the
previous three months is appropriate
because this time period would help
reduce the impact of unusual trading
activity as a result of unique market
events, such as a corporate action (i.e.,
it would result in a more reliable
measure of average daily trading volume
than would a shorter period).
As stated, the proposal is
substantively identical to the strike
interval proposal recently submitted by
BX and approved by the Commission.32
The Exchange believes that varied strike
intervals will continue to offer market
participants the ability to select the
appropriate strike interval to meet that
market participants’ investment
objectives.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
as the proposed rule change limits the
number of Short Term Option Series
31 Options contracts settle one business day after
trade date. Strike listing determinations are made
the day prior to the start of trading in each series.
32 See BX Strike Interval Approval Order, supra
note 19.
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strikes available for quoting and trading
on the Exchange for all market
participants. Therefore, all market
participants will equally be able to
transact in options series in the strikes
listed for trading on the Exchange. The
proposal is intended to reduce the
number of strikes for weekly options
listed in later weeks without reducing
the number of classes of options
available for trading on the Exchange
while also continuing to offer an
appropriate number of strikes the
Exchange believes will meet market
participants’ investment objectives.
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
as it only impacts the permissible strike
intervals for certain options series listed
on the Exchange. Additionally, another
options exchange has recently
implemented a substantively identical
to the strike interval proposal recently
submitted by BX and approved by the
Commission.33 The proposal is a
competitive response that will permit
the Exchange to list the same series in
multiply listed options as another
options exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received comments on 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) 34 of the Act and Rule
19b–4(f)(6) thereunder.35 Because the
foregoing proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act and
subparagraph (f)(6) of Rule 19b–4
thereunder.36
33 See BX Strike Interval Approval Order, supra
note 19.
34 15 U.S.C. 78s(b)(3)(A)(iii).
35 17 CFR 240.19b–4(f)(6).
36 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange 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
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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
should be approved or disapproved.
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–BOX–2021–12, and should
be submitted on or before June 24, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to
delegated authority.37
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:
J. Matthew DeLesDernier,
Assistant Secretary.
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–
BOX–2021–12 on the subject line.
[Release No. 34–92038; File No. SR–OCC–
2021–003]
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–BOX–2021–12. 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
May 27, 2021.
designated by the Commission. The Exchange has
satisfied this requirement.
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[FR Doc. 2021–11691 Filed 6–2–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Approving Proposed Rule Change To
Establish OCC’s Persistent Minimum
Skin-In-The-Game
I. Introduction
On February 10, 2021, the Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–OCC–2021–
003, (‘‘Proposed Rule Change’’)
pursuant to Section 19(b) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4 2
thereunder to establish a persistent
minimum level of skin-in-the-game that
OCC would contribute to cover default
losses or liquidity shortfalls.3 The
Proposed Rule Change was published
for public comment in the Federal
Register on March 2, 2021.4 The
37 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Notice of Filing infra note 4, 86 FR at 12237.
4 Securities Exchange Act Release No. 91199 (Feb.
24, 2021), 86 FR 12237 (Mar. 2, 2021) (File No. SR–
OCC–2021–003) (‘‘Notice of Filing’’). OCC also filed
a related advance notice (SR–OCC–2021–801)
(‘‘Advance Notice’’) with the Commission pursuant
to Section 806(e)(1) of Title VIII of the Dodd-Frank
Wall Street Reform and Consumer Protection Act,
entitled the Payment, Clearing, and Settlement
Supervision Act of 2010 and Rule 19b–4(n)(1)(i)
under the Exchange Act. 12 U.S.C. 5465(e)(1). 15
U.S.C. 78s(b)(1) and 17 CFR 240.19b–4,
respectively. The Advance Notice was published in
the Federal Register on March 1, 2021. Securities
Exchange Act Release No. 91184 (Feb. 23, 2021), 86
FR 12057 (Mar. 1, 2021) (File No. SR–OCC–2021–
801). A Notice of No Objection to the Advance
Notice was published in the Federal Register on
April 12, 2021. See Securities Exchange Act Release
1 15
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29861
Commission has received comments
regarding the proposal described in the
Proposed Rule Change.5 This Order
approves the Proposed Rule Change.
II. Background 6
‘‘Skin-in-the-game,’’ as a component
of financial risk management, entails a
covered clearing agency choosing, upon
the occurrence of a default or series of
defaults and application of all available
assets of the defaulting participant(s), to
apply its own capital contribution to the
relevant clearing or guaranty fund in
full to satisfy any remaining losses prior
to the application of any (a)
contributions by non-defaulting
members to the clearing or guaranty
fund, or (b) assessments that the covered
clearing agency require non-defaulting
participants to contribute following the
exhaustion of such participant’s funded
contributions to the relevant clearing or
guaranty fund.7
OCC’s skin-in-the-game component of
its financial risk management regime is
described in its current rules, which
provide for the use of OCC’s own capital
to mitigate losses arising out of a
Clearing Member default.8 Specifically,
OCC’s rules provide for the offsetting of
default losses remaining after the
application of a defaulted Clearing
Member’s margin deposits and Clearing
Fund contributions with OCC’s capital
in excess of 110 percent of the Target
Capital Requirement at the time of the
default.9 OCC’s rules also provide for
charging losses remaining after the
application of OCC’s excess capital to
OCC senior management’s deferred
No. 91491 (Apr. 7, 2021), 86 FR 19061 (Apr. 12,
2021) (File No. SR–OCC–2021–801).
5 Comments on the Proposed Rule Change are
available at https://www.sec.gov/comments/sr-occ2021-003/srocc2021003.htm.
Since the proposal contained in the Proposed
Rule Change was also filed as an advance notice,
all public comments received on the proposal are
considered regardless of whether the comments are
submitted on the Proposed Rule Change or the
Advance Notice. Comments on the Advance Notice
are available at https://www.sec.gov/comments/srocc-2021-801/occ2021801.htm.
6 Capitalized terms used but not defined herein
have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/
publications/bylaws.jsp.
7 See Securities Exchange Act Release No. 78961
(Sep. 28, 2016), 81 FR 70786, 70806 (Oct. 13, 2016)
(S7–03–14) (‘‘Covered Clearing Agency Standards’’).
8 See Securities Exchange Release No. 88029 (Jan.
24, 2020), 85 FR 5500, 5502 (Jan. 30, 2020) (File No.
SR–OCC–2019–007) (‘‘CMP Approval Order’’).
9 See OCC Rule 1006(e), available at https://
www.theocc.com/getmedia/9d3854cd-b782-450fbcf7-33169b0576ce/occ_rules.pdf (last visited Mar.
16, 2021). See also CMP Approval Order at 5502.
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]]>Agencies
[Federal Register Volume 86, Number 105 (Thursday, June 3, 2021)]
[Notices]
[Pages 29856-29861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11691]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92072; File No. SR-BOX-2021-12]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change To Amend BOX Rule 5050 (Series of Options
Contracts Open for Trading) To Limit Short Term Options Series
Intervals
May 28, 2021.
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 18, 2021, 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 self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BOX Rule 5050 (Series of Options
Contracts Open for Trading). This proposal seeks to limit Short Term
Options Series intervals between strikes which are available for
quoting and trading on BOX. 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.
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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
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 Exchange proposes to amend Rule 5050, ``Series of Options
Contracts Open for Trading.'' Specifically, this proposal seeks to
limit the intervals between strikes for multiply listed equity options
classes within the Short Term Options Series program that have an
expiration date more than twenty-one days from the listing.
Background
Today, BOX's listing rules within Rule 5050 permits the Exchange,
after a particular class of options (call option contracts or put
option contracts relating to a specific underlying stock, Exchange-
Traded Fund Share,\3\ or
[[Page 29857]]
ETN \4\) has been approved for listing and trading on the Exchange, to
open for trading series of options therein. The Exchange may list
series of options for trading on a weekly,\5\ monthly \6\ or quarterly
\7\ basis. BOX Rule 5050(d) sets forth the intervals between strike
prices of series of options on individual stocks.\8\ In addition to
those intervals, the Exchange may list series of options pursuant to
the $1 Strike Price Interval Program,\9\ the $0.50 Strike Program,\10\
the $2.50 Strike Price Program,\11\ and the $5 Strike Program.\12\
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\3\ Exchange-Traded Fund Share shall include shares or other
securities that are traded on a national securities exchange and are
defined as an ``NMS stock'' under Rule 600 of Regulation NMS, and
that (i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities, that hold
portfolios of securities and/or financial instruments including, but
not limited to, stock index futures contracts, options on futures,
options on securities and indexes, equity caps, collars and floors,
swap agreements, forward contracts, repurchase agreements and
reverse repurchase agreements comprising or otherwise based on or
representing investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money Market Instruments
(the ``Money Market Instruments'') (comprising or otherwise based on
or representing investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money Market Instruments
(or that hold securities in one or more other registered investment
companies that themselves hold such portfolios of securities and/or
Financial Instruments and Money Market Instruments); or (ii)
represent interests in a trust that holds a specified non-U.S.
currency deposited with the trust or similar entity when aggregated
in some specified minimum number may be surrendered to the trust by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or (iv) represent interests in the SPDR[supreg] Gold Trust,
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS
Gold Trust, the ETFS Silver trust, the ETFS Palladium Trust, the
ETFS Platinum Trust or the Sprott Physical Gold Trust; provided the
conditions within BOX Rule 5050(h)(1) and (2) are met. See BOX Rule
5020(h).
\4\ Securities deemed appropriate for options trading shall
include shares or other securities (``Equity Index-Linked
Securities,'' ``Commodity-Linked Securities,'' ``Currency-Linked
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,''
collectively known as ``Index- Linked Securities'' or ``ETNs'') that
are principally traded on a national securities exchange and an
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the
Securities Exchange Act of 1934), and represent ownership of a
security that provides for the payment at maturity, as described
within BOX Rule 5020(k)(1)(A)-(F). See BOX Rule 5020(k).
\5\ The weekly listing program is known as the Short Term
Options Series Program and is described within IM-5050-6.
\6\ The Exchange will open a minimum of one expiration month and
series for each class of options open for trading on BOX. See BOX
Rule 5050(b). The monthly expirations are subject to certain listing
criteria for underlying securities described within Rule 5020.
Monthly listings expire the third Friday of the month. The term
``expiration date'' when used in respect of a series of binary
options other than event options means the last day on which the
options may be automatically exercised. In the case of a series of
event options (other than credit default options or credit default
basket options) that are be automatically exercised prior to their
expiration date upon receipt by the Corporation of an event
confirmation, the expiration date is the date specified by the
listing Exchange; provided, however, that when an event confirmation
is deemed to have been received by the Corporation with respect to
such series of options, the expiration date will be accelerated to
the date on which such event confirmation is deemed to have been
received by the Corporation or such later date as the Corporation
may specify. In the case of a series of credit default options or
credit default basket options, the expiration date is the fourth
business day after the last trading day for such series as such
trading day is specified by the Exchange on which the series of
options is listed; provided, however, that when an event
confirmation is deemed to have been received by the Corporation with
respect to a series of credit default options or single payout
credit default basket options prior to the last trading day for such
series, the expiration date for options of that series will be
accelerated to the second business day following the day on which
such event confirmation is deemed to have been received by the
Corporation. ``Expiration date'' means, in respect of a series of
range options expiring prior to February 1, 2015, the Saturday
immediately following the third Friday of the expiration month of
such series, and, in respect of a series of range options expiring
on or after February 1, 2015 means the third Friday of the
expiration month of such series, or if such Friday is a day on which
the Exchange on which such series is listed is not open for
business, the preceding day on which such Exchange is open for
business. See The Options Clearing Corporation (``OCC'') By-Laws at
Section 1.
\7\ The quarterly listing program is known as the Quarterly
Options Series Program and is described within IM-6090-1.
\8\ Except as otherwise provided in IM-5050-6, the interval
between strike prices of series of options on individual stocks will
be: (1) $2.50 or greater where the strike price is $25.00 or less;
(2) $5.00 or greater where the strike price is greater than $25.00;
and (3) $10.00 or greater where the strike price is greater than
$200.00. The interval between strike prices of series of options on
Exchange-Traded Fund Shares approved for options trading pursuant to
BOX Rule 5020(h) shall be fixed at a price per share which is
reasonably close to the price per share at which the underlying
security is traded in the primary market at or about the same time
such series of options is first open for trading on the Exchange, or
at such intervals as may have been established on another options
exchange prior to the initiation of trading on the Exchange.
Pursuant to IM-5050-1(b), notwithstanding any other provision
regarding the interval of strike prices of series of options on
Exchange-Traded Fund Shares in this rule, the interval of strike
prices on SPDR[supreg] S&P 500[supreg] ETF (``SPY''), iShares Core
S&P 500 ETF (``IVV''), PowerShares QQQ Trust (``QQQ''), iShares
Russell 2000 Index Fund (``IWM''), and the SPDR[supreg] Dow
Jones[supreg] Industrial Average ETF (``DIA'') options will be $1 or
greater.
\9\ The $1 Strike Interval Program is described within IM-5050-
2.
\10\ The $0.50 Strike Interval Program is described within IM-
5050-5.
\11\ The $2.50 Strike Interval Program is described within IM-
5050-3.
\12\ The $5.00 Strike Interval Program is described within Rule
5050(d)(5).
---------------------------------------------------------------------------
The Exchange's proposal seeks to amend the listing of weekly series
of options as proposed within new Supplementary Material .03(f) of
Options 4, Section 5, by limiting the intervals between strikes in
multiply listed equity options, excluding Exchange-Traded Fund Shares
and ETNs, that have an expiration date more than twenty-one days from
the listing date. This proposal does not amend monthly or quarterly
listing rules nor does it amend the $1 Strike Price Interval Program,
the $0.50 Strike Program, the $2.50 Strike Price Program, or the $5
Strike Program.
Short Term Options Series Program
Today, IM-5050-6 permits BOX to open for trading on any Thursday or
Friday that is a business day (``Short Term Option Opening Date'')
series of options on an option class that expires at the close of
business on each of the next five Fridays that are business days and
are not Fridays in which monthly options series or Quarterly Options
Series expire (``Short Term Option Expiration Dates''), provided an
option class has been approved for listing and trading on the
Exchange.\13\ Today, the Exchange may open up to thirty initial series
for each option class that participates in the Short Term Option Series
Program.\14\ Further, if the Exchange opens less than thirty (30) Short
Term Option Series for a Short Term Option Expiration Date, additional
series may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying security moves
substantially from the exercise price or prices of the series already
opened.\15\
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\13\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates, not including any Monday or Wednesday
SPY Expirations as provided below. If the Exchange is not open for
business on the respective Thursday or Friday, the Short Term Option
Opening Date will be the first business day immediately prior to
that respective Thursday or Friday. Similarly, if the Exchange is
not open for business on a Friday, the Short Term Option Expiration
Date will be the first business day immediately prior to that
Friday. With respect to Wednesday SPY Expirations, the Exchange may
open for trading on any Tuesday or Wednesday that is a business day
series of options on the SPDR S&P 500 ETF Trust (SPY) to expire on
any Wednesday of the month that is a business day and is not a
Wednesday in which Quarterly Options Series expire (``Wednesday SPY
Expirations''). With respect to Monday SPY Expirations, the Exchange
may open for trading on any Friday or Monday that is a business day
series of options on the SPY to expire on any Monday of the month
that is a business day and is not a Monday in which Quarterly
Options. Series expire (``Monday SPY Expirations''), provided that
Monday SPY Expirations that are listed on a Friday must be listed at
least one business week and one business day prior to the
expiration. The Exchange may list up to five consecutive Wednesday
SPY Expirations and five consecutive Monday SPY Expirations at one
time; the Exchange may have no more than a total of five Wednesday
SPY Expirations and a total of five Monday SPY Expirations. Monday
and Wednesday SPY Expirations will be subject to the provisions of
this Rule. See IM-5050-6(c) and (d).
\14\ See IM-5050-6(b)(3).
\15\ See IM-5050-6(b)(4).
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The Exchange may open for trading Short Term Option Series on the
Short Term Option Opening Date that expire on the Short Term Option
Expiration Date at strike price intervals of (i) $0.50 or greater where
the strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or
[[Page 29858]]
(iii) $2.50 or greater where the strike price is above $150. During the
month prior to expiration of an option class that is selected for the
Short Term Option Series Program (``Short Term Option''), the strike
price intervals for the related non-Short Term Option (``Related non-
Short Term Option'') shall be the same as the strike price intervals
for the Short Term Option.\16\
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\16\ See IM-5050-1(b).
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The Exchange may select up to fifty currently listed option classes
on which Short Term Option Series may be opened on any Short Term
Option Opening Date. In addition to the fifty option class restriction,
the Exchange may also list Short Term Option Series on any option
classes that are selected by other securities exchanges that employ a
similar program under their respective rules. For each option class
eligible for participation in the Short Term Option Series Program, the
Exchange may open up to thirty Short Term Option Series for each
expiration date in that class. The Exchange may also open Short Term
Option Series that are opened by other securities exchanges in option
classes selected by such exchanges under their respective short term
option rules.\17\
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\17\ See IM-5050-6(b)(1).
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The Exchange notes that listings in the weekly program comprise a
significant part of the standard listing in options markets and that
the industry has observed a notable increase over approximately the
last five years in compound annual growth rate (``CAGR'') of weekly
strikes as compared to CAGR for standard third-Friday expirations.\18\
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\18\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (``BX Strike
Interval Approval Order''); and SR-2020-BX-032 as amended by
Amendment No. 1 (February 10, 2021) available at: https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf
(``BX proposal''); see also BX Options Strike Proliferation Proposal
(February 25, 2021) available at: https://www.nasdaq.com/solutions/bxoptions-strike-proliferation-proposal).
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Proposal
The Exchange proposes to widen the intervals between strikes in
order to limit the number of strikes listed for equity options
(excluding options on ETFs and ETNs) listed as part of the Short Term
Option Series Program that have an expiration date more than 21 days
from the listing date, by adopting proposed Rule 4.5(d)(6). The
Exchange notes that this proposal is substantively identical to the
strike interval proposal recently submitted by Nasdaq BX, Inc. (``BX'')
and approved by the Securities and Exchange Commission
(``Commission'').\19\
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\19\ See BX Strike Interval Approval Order, id.
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The proposal widens intervals between strikes for expiration dates
of equity option series (excluding options on ETFs and ETNs) beyond 21
days utilizing the three-tiered table in proposed IM-5050-11 (presented
below) which considers both the Share Price and Average Daily Volume
for the option series. The table indicates the applicable strike
intervals and supersedes IM-6090-2(b)(4), which currently permits 10
additional series to be opened for trading on the Exchange when the
Exchange deems it necessary to maintain an orderly market, to meet
customer demand or when the market price of the underlying security
moves substantially from the exercise price or prices of the series
already opened. As a result of the proposal, IM-6090-2(b)(4) would not
permit an additional series of an equity option to have an expiration
date more than 21 days from the listing date to be opened for trading
on the Exchange despite the noted circumstances in subparagraph (b)(4)
when such additional series may otherwise be added.
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Share Price
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Tier Average daily volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
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1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000. 1.00 1.00 1.00 5.00 10.00
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Share Price would be the closing price on the primary market on
the last day of the calendar quarter. This value would be used to
derive the column from which to apply strike intervals throughout the
next calendar quarter. The Average Daily Volume would be the total
number of options contracts traded in a given security for the
applicable calendar quarter divided by the number of trading days in
the applicable calendar quarter. Beginning on the second trading day in
the first month of each calendar quarter, the Average Daily Volume
shall be calculated by utilizing data from the prior calendar quarter
based on Customer-cleared volume at OCC. For options listed on the
first trading day of a given calendar quarter, the Average Daily Volume
shall be calculated using the calendar quarter prior to the last
trading calendar quarter.\20\ Under current rules, if the Exchange is
not open for business on the respective Thursday or Friday, the Short
Term Option Opening Date will be the first business day immediately
prior to that respective Thursday or Friday, as is the case today for
STOs as specified within IM-5050-6.
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\20\ For example, options listed as of January 4, 2021 would be
calculated on January 5, 2021 using the Average Daily Volume from
July 1, 2020 to September 30, 2020.
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The Exchange proposes that Short Term Options Series that are newly
eligible for listing pursuant to Rule 5020(a) will not be subject to
this proposed IM-5050-11 until after the end of the first full calendar
quarter following the date the option class was first listed for
trading on any options market.\21\ The Exchange would be permitted to
list options on newly eligible listings, without any curtailment in
strike intervals, until the end of the first full quarter after they
were listed. BOX's proposal would thereby permit BOX to add strikes to
meet customer demand in the options class. By deferring the curtailment
until after the end of the first full calendar quarter, additional
information on the underlying security would be available to market
participants and public investors. During this period of deferment the
price of the underlying would have an opportunity to settle based on
the price discovery that has occurred in the primary market. An options
class that represents a newly listed primary security may fluctuate in
price after its initial listing; such volatility reflects a natural
uncertainty about the security. Also, BOX would have the ability to
list as many strikes as are permissible for the Short Term
[[Page 29859]]
Options Series once the expiry is within twenty-one days. Short Term
Options Series which have an expiration date less than twenty-one days
from the listing date are not subject to the curtailment, thereby
allowing BOX to list additional, and potentially narrower, strikes in
the event of market volatility or other market events.
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\21\ For example, if an options became newly eligible for
listing pursuant to Rule 5020 on March 1, 2021, the first full
quarterly lookback would be available on July 1, 2021. This option
would become subject to the curtailment on July 2, 2021.
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In the event of a corporate action, the Share Price of the
surviving company would be utilized. These metrics are intended to
align expectations for determining which strike intervals will be
utilized. Finally, notwithstanding the limitations imposed by proposed
IM-5050-11, this Strike Interval Proposal does not amend the range of
strikes that may be listed pursuant to IM-5050-6, regarding the Short
Term Option Series Program.
By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to greater than $150 during that
calendar quarter.\22\
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\22\ The Exchange notes that any limits on intervals imposed by
the Exchange's Rules will continue to apply. In this example, the
strikes would be in $1 intervals up to $150, which is the upper
limit imposed by IM-5050-6(b)(5).
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The proposed table within IM-5050-11 takes into account the
notional value of a security, as well as Average Daily Volume in the
underlying stock, in order to limit the intervals between strikes in
the Short Term Options listing program. BOX would utilize OCC Customer-
cleared volume, as customer volume is an appropriate proxy for demand.
The OCC Customer-cleared volume represents the majority of options
volume executed on the Exchange that, in turn, reflects the demand in
the marketplace. The options series listed on BOX are intended to meet
customer demand by offering an appropriate number of strikes. Non-
Customer cleared OCC volume represents the supply side. The strike
intervals for listing strikes in certain options are intended to remove
repetitive and unnecessary strike listings across the weekly expiries.
BOX's Strike Interval Proposal seeks to reduce the number of strikes in
the furthest weeklies, where there exist wider markets and therefore
lower market quality.
The proposed table within IM-5050-11 is intended to distribute
strike intervals in multiply listed equity options where there is less
volume as measured by the Average Daily Volume tiers. Therefore, the
lower the Average Daily Volume, the greater the proposed spread between
strike intervals. Options classes with higher volume contain the most
liquid symbols and strikes, therefore the finer the proposed spread
between strike intervals. Additionally, lower-priced shares have finer
strike intervals than higher-priced shares when comparing the proposed
spread between strike intervals.
Today, weeklies are available on 16% of underlying products. The
Exchange's Strike Interval Proposal curtails the density of strike
intervals listed in series of options, without reducing the classes of
options available for trading on BX. Short Term Options Series with an
expiration date greater than twenty-one days from the listing date
equates to 7.5% of the total number of strikes in the options market,
which equals 81,000 strikes.\23\ The Exchange expects this proposal to
results in the limitation of approximately 20,000 strikes within the
Short Term Options Series which is 2% of the total strikes in the
options markets.\24\ The Exchange understands there has been an
inconsistency of demand for series of options beyond 21 calendar
days.\25\ The proposal takes into account customer demand for certain
options classes, by considering both the Share Price and the Average
Daily Volume, in order to remove certain strike intervals where there
exist clusters of strikes whose characteristics closely resemble one
another and, therefore, do not serve different trading needs,\26\
rendering these strikes less useful. The Exchange also notes that the
proposal focuses on strikes in multiply listed equity options, and
excludes ETFs and ETNs, as the majority of strikes reside within equity
options.
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\23\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The above referenced data, specifically
the percentage of underlying products and percentage of and total
number of strikes, are approximations and may vary slightly at the
time of this filing.
\24\ From information drawn from time period between January
2020 and May 2020. See BX proposal, supra note 19.
\25\ See BX proposal, supra note 19.
\26\ See BX proposal, supra note 19.
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This Strike Interval Proposal serves to respond to comments
received from industry members with respect to the increasing number of
strikes that are required to be quoted by market makers in the options
industry. BOX requires Market Makers to quote a certain amount of time
in the trading day in their assigned options series to maintain
liquidity in the market.\27\ With an increasing number of strikes being
listed across options exchanges, Market Makers must expend their
capital to ensure that they have the appropriate infrastructure to meet
their quoting obligations on all options markets in which they are
assigned in options series. The Exchange believes that this Strike
Interval Proposal would limit the intervals between strikes, reducing
the number of strikes listed on BOX, and thereby allow Market Makers to
expend their capital in the options market in a more efficient manner.
Due to this increased efficiency, the Exchange believes that this
Strike Interval Proposal would improve overall market quality on BOX by
limiting the intervals between strikes in multiply listed equity
options that have an expiration date more than twenty-one days, from
the listing date.
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\27\ See Rule 8050.
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Implementation
The Exchange proposes to implement the proposed changes on July 1,
2021. The Exchange will issue a notice to its Participants with the
date of implementation. Lastly, the Exchange will issue a notice to its
Participants whenever the Exchange is the first exchange to list an
eligible Short Term Option Series.\28\
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\28\ When the Exchange is the first exchange to list an option
class under IM-5050-11 the Exchange shall provide a notice to its
Participants regarding the Short Term Option Series to be listed.
Such notice will include for each eligible option class: The closing
price of the underlying, the Average Daily Volume of the option
class; and the eligible strike category (per the proposed table) in
which the eligible option class falls under as a result of the
closing price and the Average Daily Volume.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\29\ in general, and Section 6(b)(5) of the Act,\30\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest. The Strike Proposal seeks to limit the intervals
between strikes listed in the Short Term Options Series program that
have an expiration date more than twenty-one days. While the current
listing rules permit BOX to list a number of weekly strikes on its
market, the Exchange's Strike Interval Proposal removes impediments to
and
[[Page 29860]]
perfects the mechanism of a free and open market and a national market
system by encouraging Market Makers to deploy capital more efficiently
and improving market quality overall on BOX through limiting the
intervals between strikes when applying the strike interval table to
multiply listed equity options that have an expiration date more than
twenty-one days from the listing date. Also, as BOX's Strike Interval
Proposal seeks to reduce the number of weekly options that would be
listed on its market in later weeks, Market Makers would be required to
quote in fewer weekly strikes as a result of the Strike Interval
Proposal. Amending BOX's listing rules to limit the intervals between
strikes for multiply listed equity options that have an expiration date
more than twenty-one days causes less disruption in the market as the
majority of the volume traded in weekly options exists in options
series which have an expiration date of twenty-one days or less. The
Exchange's Strike Interval Proposal curtails the number of strike
intervals listed in series of options without reducing the number of
classes of options available for trading on BOX.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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The Strike Interval Proposal takes into account customer demand for
certain options classes by considering both the Share Price and the
Average Daily Volume in the underlying security to arrive at the manner
in which weekly strike intervals would be listed in the later weeks for
each multiply listed equity options class. The Exchange utilizes OCC
Customer-cleared volume, as customer volume is an appropriate proxy for
demand. The OCC Customer-cleared volume represents the majority of
options volume executed on the Exchange that, in turn, reflects the
demands in the marketplace. The options series listed on BOX is
intended to meet customer demand by offering an appropriate number of
strikes. Non-Customer cleared OCC volume represents the supply side.
The Strike Interval Proposal for listing strikes in certain
multiply listed equity options is intended to remove certain strikes
where there exist clusters of strikes whose characteristics closely
resemble one another and, therefore, do not serve different trading
needs that renders the strikes less useful and thereby protects
investors and the general public by removing an abundance of
unnecessary choices for an options series, while also improving market
quality. BOX's Strike Interval Proposal seeks to reduce the number of
strikes in the furthest weeklies, where there exist wider markets, and,
therefore, lower market quality. The implementation of the proposed
table is intended to spread strike intervals in multiply listed equity
options, where there is less volume that is measured by the average
daily volume tiers. Therefore, the lower the average daily volume, the
greater the proposed spread between strike intervals. Options classes
with higher volume contain the most liquid symbols and strikes,
therefore the finer the proposed spread between strike intervals.
Additionally, lower-priced shares have finer strike intervals than
higher-priced shares when comparing the proposed spread between strike
intervals.
Beginning on the second trading day in the first month of each
calendar quarter, the Average Daily Volume shall be calculated by
utilizing data from the prior calendar quarter based on OCC Customer-
cleared volume. Utilizing the second trading day allows the Exchange to
accumulate data regarding OCC Customer-cleared volume from the entire
prior quarter. Beginning on the second trading day would allow trades
executed on the last day of the previous calendar quarter to have
settled \31\ and be accounted for in the calculation of Average Daily
Volume. Utilizing the previous three months is appropriate because this
time period would help reduce the impact of unusual trading activity as
a result of unique market events, such as a corporate action (i.e., it
would result in a more reliable measure of average daily trading volume
than would a shorter period).
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\31\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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As stated, the proposal is substantively identical to the strike
interval proposal recently submitted by BX and approved by the
Commission.\32\ The Exchange believes that varied strike intervals will
continue to offer market participants the ability to select the
appropriate strike interval to meet that market participants'
investment objectives.
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\32\ See BX Strike Interval Approval Order, supra note 19.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act as the proposed rule change limits the number of
Short Term Option Series strikes available for quoting and trading on
the Exchange for all market participants. Therefore, all market
participants will equally be able to transact in options series in the
strikes listed for trading on the Exchange. The proposal is intended to
reduce the number of strikes for weekly options listed in later weeks
without reducing the number of classes of options available for trading
on the Exchange while also continuing to offer an appropriate number of
strikes the Exchange believes will meet market participants' investment
objectives.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as it only
impacts the permissible strike intervals for certain options series
listed on the Exchange. Additionally, another options exchange has
recently implemented a substantively identical to the strike interval
proposal recently submitted by BX and approved by the Commission.\33\
The proposal is a competitive response that will permit the Exchange to
list the same series in multiply listed options as another options
exchange.
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\33\ See BX Strike Interval Approval Order, supra note 19.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on 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) \34\ of the Act and Rule 19b-4(f)(6) thereunder.\35\
Because the foregoing proposed rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act and subparagraph (f)(6) of Rule
19b-4 thereunder.\36\
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\34\ 15 U.S.C. 78s(b)(3)(A)(iii).
\35\ 17 CFR 240.19b-4(f)(6).
\36\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of its intent to file the
proposed rule change at least five business days prior to the date
of filing of the proposed rule change, or such shorter time as
designated by the Commission. The Exchange has satisfied this
requirement.
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[[Page 29861]]
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 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-BOX-2021-12 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-BOX-2021-12. 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-BOX-2021-12, and should be submitted on
or before June 24, 2021. For the Commission, by the Division of Trading
and Markets, pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11691 Filed 6-2-21; 8:45 am]
BILLING CODE 8011-01-P
