[Federal Register Volume 79, Number 175 (Wednesday, September 10, 2014)]
[Notices]
[Pages 53805-53808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21528]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72994; File No. SR-BX-2014-044]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
to SPY and DIA Options
September 4, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that, on September 2, 2014, NASDAQ OMX BX, Inc. (``Exchange'' or
``BX'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
BX is filing with the Commission a proposal to amend Chapter IV,
Section 6 (Series of Options Contracts Open for Trading) to allow $1 or
greater strike price intervals for options on the SPDR[supreg] S&P
500[supreg] Exchange Traded Fund (``SPY'') and the SPDR[supreg] Dow
Jones[supreg] Industrial Average Exchange Traded Fund (``DIA'').\3\
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\3\ S&P[supreg], S&P 500[supreg], Standard & Poor's[supreg], and
SPDR[supreg] are registered trademarks of Standard & Poor's[supreg]
Financial Services LLC. Dow Jones[supreg], DJIA\SM\, and Dow Jones
Industrial Average\SM\ are registered trade and service marks of Dow
Jones[supreg] Trademark Holdings LLC.
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The text of the proposed rule change is also available on the
Exchange's Web site at http://nasdaqomxbx.cchwallstreet.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Chapter IV,
Section 6 by modifying the interval setting regime for SPY and DIA
options listed on the SPDR S&P 500 Exchange Traded Fund (``ETF'') and
the SPDR Dow Jones Industrial Average ETF, respectively, to allow $1 or
greater strike price intervals.\4\ Through this filing, the Exchange
intends to make SPY and DIA options more tailored and easier for
investors and traders to use.
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\4\ The SPDR S&P 500 ETF is based on the broad-based S&P 500
Index, and the SPDR Dow Jones Industrial Average ETF is based on the
Dow Jones Industrial Average.
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The proposed rule change is based on the recent Commission approval
of a proposal to amend Commentary.05 to NASDAQ OMX PHLX LLC (``Phlx'')
[[Page 53806]]
Rule 1012 to allow SPY and DIA options to trade in $1 or greater
increments.\5\
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\5\ See Securities Exchange Act Release No. 72949 (August 29,
2014) (SR-Phlx-2014-46) (approval order).
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Under current Chapter IV, Supplementary Material .01 to Section 6,
the interval of strike prices of series of options on ETFs is $1 or
greater where the strike price is 200 or less and $5 or greater where
the strike price is more than 200.\6\ The Proposal seeks to narrow
those strike intervals to $1 apart for SPY and DIA options, in effect
matching the interval for these products to ETF option strike prices at
or below 200.
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\6\ See Chapter IV, Supplementary Material .01(b) to Section 6.
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The prices for SPY and DIA options [sic] are approaching the 200
price point. By the end of June 2014, for example, SPY was trading at
more than $195 per share and DIA was trading at more than $168 per
share.\7\ As the option strike prices continue to appreciate, investor
and member demands to list additional SPY and DIA option series
continue to increase. SPY is the most heavily traded and liquid
exchange-traded product in the U.S., and SPY options represent 13% of
the total option volume in the U.S. and 1% of the options volume on the
Exchange. DIA options represent 1% of the options volume on the
Exchange and less than 1% of the options volume in the U.S. Moreover,
the popularity of DIA and SPY options is reflected in the fact that
they have options contracts reflecting monthly, quarterly, and weekly
expiration cycles.\8\ Not having the proposed $1 intervals above a 200
strike price will significantly limit investors' hedging and trading
possibilities, particularly when it comes to executing strategies that
are effective in $1 intervals; and may, as a result, constrict trading
and hedging activity. The Exchange therefore proposes to amend Chapter
IV, Supplementary Material .01 to Section 6 to allow SPY and DIA
options to trade in $1 increments.
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\7\ On August 25, 2014, SPY traded and closed above $200 for the
first time. The SPY closing price on August 25th was $200.20.
\8\ For rules regarding quarterly options and weekly options
(also known as Short Term Options), see Chapter IV, Supplementary
Material .04 and Supplementary Material .07 to Section 6,
respectively.
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Specifically, the Exchange proposes to add Chapter IV,
Supplementary Material .01(c) to Section 6 \9\ to state that
notwithstanding any other provision regarding the interval of strike
prices of series of options on ETFs in the rule, the interval of strike
prices on SPY and DIA options will be $1 or greater. By having smaller
strike intervals in SPY and DIA, investors will have more efficient
hedging and trading opportunities due to the higher $1 interval
ascension. The proposed $1 intervals, particularly above a 200 strike
price, will result in having at-the-money series based upon the
underlying SPY or DIA moving less than 1%, which falls in line with
slower price movements of a broad-based index. Furthermore, the
proposed $1 intervals will allow currently employed option trading
strategies (such as, for example, risk reduction/hedging strategies
using SPY weekly options) to remain in play. Considering that $1
intervals already exist below the 200 price point and that SPY and DIA
are approaching the 200 level, continuing to maintain the artificial
200 level (above which intervals increase 500%, to $5), will have a
negative effect on investing, trading and hedging opportunities and
volume. The continued demand for highly liquid options such as SPY and
DIA, and the investing, trading, and hedging opportunities they
represent, far outweighs any potential negative impact of allowing SPY
and DIA options to trade in more finely tailored intervals above a 200
price point.
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\9\ Current Supplementary Material .01(c), (d), (e) to Section 6
would be re-numbered as Supplementary Material .01(d), (e), (f) to
Section 6, respectively.
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With the proposal, for example, investors and traders would be able
to roll open positions from a lower strike to a higher strike in
conjunction with the price movement of the underlying. Under the
current rule, where the next higher available series would be $5 away
above a 200 strike price, the ability to roll such positions is
effectively negated. Thus, to move a position from a 200 strike to a
205 strike under the current rule, an investor would need for the
underlying product to move 2.5%, and would not be able to execute a
roll up until such a large movement occurred. With the proposed rule
change, however, the investor would be in a significantly safer
position of being able to roll his open options position from a 200 to
a 201 strike price, which is only a 0.5% move for the underlying.
By allowing SPY and DIA options in $1 intervals over a 200 strike
price, the proposal will moderately augment the total number of options
series available on the Exchange. However, 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 proposed rule change.
The Exchange believes that its members 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. The
Exchange's beliefs are supported by the limited nature of the proposal,
which applies to two symbols rather than to all ETF products. Moreover,
while under the current rule-set there is ample liquidity, it is
constricted above 200. This proposal only enhances liquidity at more
rational strike intervals necessary to benefit investors as the stock
market improves in value. The Exchange believes that the proposed rule
change, like the other strike price programs currently offered by the
Exchange, will benefit investors by giving them more flexibility to
more closely tailor their investment and hedging decisions by allowing
SPY and DIA options to trade in finer $1 intervals.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange, and,
in particular, with the requirements of Section 6(b) of the Act.\10\ In
particular, the proposal is consistent with Section 6(b)(5) of the
Act,\11\ because it is designed to promote just and equitable
principles of trade, remove impediments to and perfect the mechanisms
of a free and open market and a national market system and, in general,
to protect investors and the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change would add consistency to
the SPY and DIA options markets and allow investors to use SPY and DIA
options more easily and effectively. Moreover, the proposed rule change
would allow investors and traders, whether big or small, to better
trade and hedge positions in SPY and DIA options where the strike price
is greater than 200, and ensure that SPY and DIA options investors and
traders are not at a disadvantage simply because of the strike price.
The Exchange also believes the proposed rule change is consistent
with Section 6(b)(1) of the Act,\12\ which provides that the Exchange
be organized and have the capacity to be able to carry out the purposes
of the Act and the rules and regulations thereunder, and the rules of
the Exchange. The rule change proposal allows the Exchange to respond
to customer demand to allow SPY and DIA options to trade in $1
intervals above a 200 strike price. The
[[Page 53807]]
Exchange does not believe that the proposed rule would create
additional capacity issues or affect market functionality.
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\12\ 15 U.S.C. 78f(b)(1).
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As noted above, ETF options trade in wider $5 intervals above a 200
strike price, whereby options at or below a 200 strike price trade in
$1 intervals. This creates a situation where contracts on the same
option class, namely SPY and DIA options, effectively may not be able
to execute certain strategies such as, for example, rolling to a higher
strike price, simply because of the arbitrary 200 strike price above
which options intervals increase by 500%. This proposal remedies the
situation by establishing an exception to the current ETF interval
regime, for SPY and DIA options only, to allow such options to trade in
$1 or greater intervals at all strike prices.
The Exchange believes that the proposed rule change, like other
strike price programs currently offered by the Exchange, will benefit
investors by giving them increased flexibility to more closely tailor
their investment and hedging decisions. Moreover, the proposed rule
change is consistent with changes proposed by at least one other
exchange.\13\
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\13\ See Securities Exchange Act Release No. 72949 (August 29,
2014) (SR-Phlx-2014-46) (approval order). Moreover, the Exchange has
noted that other options markets have filed similar proposals to
modify the strike price (intervals) regime for specific options.
See, e.g., Securities Exchange Act Release No. 72482 (June 26,
2014), 79 FR 37825 (July 2, 2014) (SR-CBOE-2014-051) (notice of
filing and immediate effectiveness modifying the strike price regime
for Mini-S&P 500 Index (XSP) options).
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and OPRA have
the necessary systems capacity to handle any potential additional
traffic associated with this proposed rule change. The Exchange
believes that its members will not have a capacity issue as a result of
this proposal.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the contrary, the
Exchange believes that the proposed rule change will result in
additional investment options and opportunities to achieve the
investment and trading objectives of market participants seeking
efficient trading and hedging vehicles, to the benefit of investors,
market participants, and the marketplace in general. Specifically, the
Exchange believes that SPY and DIA option investors and traders will
significantly benefit from the availability of finer strike price
intervals above a 200 price point.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, 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 would allow
the Exchange to implement the proposed rule change as soon as possible
and thereby harmonize its rules regarding SPY and DIA options intervals
with the rules of other markets. The Exchange also stated that waiver
would allow market participants to more effectively tailor their
investing, trading, and hedging decisions in respect of SPY and DIA
options by using finer $1 increments. For these reasons, the Commission
believes that the proposed rule change presents no novel issues and
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest; and 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.
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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2014-044 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-BX-2014-044. 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 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
[[Page 53808]]
available publicly. All submissions should refer to File Number SR-BX-
2014-044 and should be submitted on or before October 1, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21528 Filed 9-9-14; 8:45 am]
BILLING CODE 8011-01-P