Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Short Term Options Program
Federal Register, Volume 79 Issue 1 (Thursday, January 2, 2014)
Federal Register Volume 79, Number 1 (Thursday, January 2, 2014)
Notices
Pages 163-166
From the Federal Register Online via the Government Printing Office www.gpo.gov
FR Doc No: 2013-31371
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-71189; File No. SR-BOX-2013-60
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Short Term Options Program
December 26, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
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(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, on December 20, 2013, BOX Options 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend interpretive material to Rule 5050 (Series of Options Contracts Open for Trading) and Rule 6090 (Terms of Index Options Contracts) to allow the Exchange to list five Short Term Option Series at one time, and to specify that new series of Short Term Option Series may be listed up to, and including on, the expiration date. 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 Web site at http://boxexchange.com.
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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.
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Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
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Purpose
The Exchange proposes to amend IM-5050-6 to Rule 5050 (Series of Options Contracts Open for Trading) and IM-6090-2 to Rule 6090 (Terms of Index Options Contracts) to allow the Exchange to list five Short Term Option Series at one time, and to specify that new series of Short Term Option Series may be listed up to, and including on, the expiration date. This is a competitive filing that is based on a proposal recently submitted by the Chicago Board Options Exchange, Inc. (``CBOE'') and approved by the Commission.\3\
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\3\ See Securities Exchange Act Release No. 71005 (December 6, 2013), 78 FR 75395 (December 11, 2013) (SR-CBOE-2013-096) (Order Granting Approval of Proposed Rule Change).
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Currently the Exchange's Rules allow it to list options in the Short Term Option (``STO'' or ``weekly'') Program ``on each of the next five consecutive Fridays that are business days.'' \4\ The filing which gave the Exchange authority to list five STO expirations specifically states that ``the total number of consecutive expirations will be five, including any existing monthly or quarterly expirations.'' \5\ The Exchange is now proposing to amend its rules so that the next five STOs may be listed at one time, not including the monthly or quarterly options. The Exchange is also proposing to codify an existing practice by adding language stating that strikes may be listed up until and on the day of expiration.
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\4\ See IM-5050-6 to Rule 5050 and IM-6090-2 to Rule 6090.
\5\ See Securities Exchange Act Release No. 68361 (December 5, 2012), 77 FR 73729 (December 11, 2012) (Notice of Filing and Immediate Effectiveness of SR-BOX-2012-020 which was a rule filing based on approved filings submitted by NYSE Arca, Inc. and NYSE MKT, LLC).
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As proposed, the Exchange will have the ability to list a total of five STO expirations and that count of five would not include monthly or quarterly option expirations. The Exchange notes that this proposal would restrict the five listed STOs to those closest to the STO opening date. For example, if a class of options has five STOs listed with expiration dates in July, the other two listed expiration dates may not be in December. The Exchange believes that allowing otherwise would undermine the purpose of the STO Program.
As examples of how this would work in practice, consider a situation in which a quarterly option expires week 1 and a monthly option expires week 3 from now, the proposal would allow the following expirations: Week 1 quarterly option, week 2 weekly option, week 3 monthly option, week 4 weekly option, week 5 weekly option, week 6 weekly option, and week 7 weekly option.\6\ As another example, if a quarterly option expires week 3 and a monthly option expires week 5, the following expirations would be allowed: Week 1 weekly option, week 2 weekly option, week 3 quarterly option, week 4 weekly option, week 5 monthly option, week 6 weekly option, week 7 weekly option.
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\6\ The proposal would not allow, for example, for nothing to be listed week 7 but week 8 a weekly option.
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Next, the Exchange is proposing to add language to IM-5050-6(b)(4) and IM-6090-2(b)(4) to state that additional STO series may be added up to, and including on, the expiration date of the series.\7\ Currently, Exchange rules state that the Exchange may open up to 20 initial series, and up to 10 additional series, for each option class that participates in the STO Program.\8\ The Exchange's rules, however, are silent on when series may be added. In practice, however, the Exchange, along with the other exchanges, list additional series until the expiration day.\9\ The Exchange believes that codifying this practice will clarify authority that is not currently explicitly stated in its rules to add series up until the day of expiration. Given the short lifespan of STOs, the Exchange believes that the ability to list new series of options intraday is appropriate.
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\7\ The Exchange is also proposing to add language stating that the proposed provisions in IM-5050-6 and IM-6090-2 will not contradict current provisions in the Exchange's Rules. More specifically, the proposed provisions would not contradict Rules 5050(c) and 6090(c)(2) respectively. The Exchange believes this addition will eliminate any confusion about when additional series may be added in the STO Program in comparison to other Exchange listing programs.
\8\ See IM-5050-6(b)(3) and (4) to Rule 5050, and IM-6090-
2(b)(3) and (4) to Rule 6090.
\9\ The Exchange notes that the Options Clearing Corporation (``OCC'') has the ability to accommodate series in the STO Program added intraday.
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The Exchange notes that the STO Program has been very well-received by market participants, in particular by retail investors. The Exchange believes that the current proposed revision to the STO Program will permit the Exchange to meet increased customer demand and provide market participants with the ability to hedge in a greater number of option classes and series. In addition, the proposed changes will codify an existing practice in the Exchange's rules.
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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''),\10\ in general, and Section 6(b)(5) of the Act,\11\ 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
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and a national market system, and, in general to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \12\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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In particular, the Exchange believes that expanding the STO Program will result in a continuing benefit to investors by giving them more flexibility to closely tailor their investment decisions. The Exchange also believes that expanding the STO Program will provide the investing public and other market participants with additional opportunities to hedge their investments, thus allowing these investors to better manage their risk exposure.
With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and the Options Price Reporting Authority (``OPRA'') have the necessary systems capacity to handle any potential additional traffic associated with this current amendment to the STO Program. The Exchange believes that its Participants will not have a capacity issue as a result of this proposal. The Exchange also represents that it does not believe this expansion will cause fragmentation of liquidity.
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Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes the proposal is pro-competitive. In this regard and as indicated above, the Exchange notes that the rule change is being proposed as a competitive response to a filing submitted by the CBOE that was recently approved by the Commission.\13\ The Exchange believes that the proposed rule change is necessary to permit fair competition among the options exchanges with respect to STO Programs. Moreover, the Exchange believes this proposed rule change will benefit investors by providing additional methods to trade options on liquid securities, and by providing greater ability to mitigate risk in managing large portfolios. Specifically, the Exchange believes that investors would benefit from the introduction and availability of additional series for investment, and as an additional tool for hedging risk in highly liquid securities. For all the reasons stated, 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, and believes the proposed change will enhance competition.
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\13\ See supra, note 3.
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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.
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Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission.
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The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange stated that waiver of this requirement will promote fair competition among the exchanges by allowing the Exchange to list additional STO expirations in the same manner as the CBOE, and by clarifying that, like the CBOE, the Exchange may list new STO series up to, and including on, the expiration date. The Exchange also stated that it would be at a competitive disadvantage if it were not allowed to adopt the proposed rule changes contemporaneously with other exchanges. For these reasons, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because it will allow the Exchange to remain competitive with other exchanges. Therefore, the Commission designates the proposed rule change to be operative upon filing.\16\
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\16\ For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include File Number SR-BOX-2013-60 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2013-60. 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 Web site (http://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 Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official
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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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BOX-2013-60 and should be submitted on or before January 23, 2014.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\
Lynn Powalski,
Deputy Secretary.
FR Doc. 2013-31371 Filed 12-31-13; 8:45 am
BILLING CODE 8011-01-P
