[Federal Register Volume 82, Number 133 (Thursday, July 13, 2017)]
[Notices]
[Pages 32392-32394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14663]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81094; File No. SR-ISE-2017-72]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Extend the SPY 
Pilot Program

July 7, 2017.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 5, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to mend its rules to extend the pilot program 
that eliminated position and exercise limits for physically-settled 
options on the SPDR S&P ETF Trust (``SPY'') (``SPY Pilot Program'').
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.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

[[Page 32393]]

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 Exchange proposes to amend Supplementary Material .01 to ISE 
Rule 412 and Supplementary Material .01 to ISE Rule 414 to extend the 
duration of the SPY Pilot Program through July 12, 2018. This filing 
does not propose any substantive changes to the SPY Pilot Program. In 
proposing to extend the SPY Pilot Program the Exchange reaffirms its 
consideration of several factors that supported the original proposal 
of the SPY Pilot Program, including (1) the liquidity of the option and 
the underlying security, (2) the market capitalization of the 
underlying security and the related index, (3) the reporting of large 
positions and requirements surrounding margin, and (4) financial 
requirements imposed by ISE and the Commission.
    With this proposal, the Exchange submits the SPY report to the 
Commission, which report reflects, during the time period from May 2016 
through May 2017, the trading of standardized SPY options with no 
position limits consistent with option exchange provisions.\3\ The 
report was prepared in the manner specified in the Exchange's prior 
rule filing extending the SPY Pilot Program.\4\ The Exchange notes that 
it is unaware of any problems created by the SPY Pilot Program and does 
not foresee any as a result of the proposed extension. The proposed 
extension will allow the Exchange and the Commission to further 
evaluate the SPY Pilot Program and the effect it has on the market.
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    \3\ The report is attached as Exhibit 3 [sic].
    \4\ See Securities Exchange Act Release No. 78295 (July 18, 
2016), 81 FR 46728 (July 12, 2016) (SR-ISE-2016-16).
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    The Exchange represents that, should the Exchange propose to extend 
the pilot program, adopt on a permanent basis the pilot program or 
terminate the pilot program, it will submit a new pilot report at least 
thirty (30) days before the end of the extended SPY Pilot Program, 
which will cover the extended pilot period. The Pilot Report will 
detail the size and different types of strategies employed with respect 
to positions established as a result of the elimination of position 
limits in SPY. In addition, the Pilot Report will note whether any 
problems resulted due to the no limit approach and any other 
information that may be useful in evaluating the effectiveness of the 
SPY Pilot Program. The Pilot Report will compare the impact of the SPY 
Pilot Program, if any, on the volumes of SPY options and the volatility 
in the price of the underlying SPY shares, particularly at expiration. 
In preparing the report the Exchange will utilize various data elements 
such as volume and open interest. In addition the Exchange will make 
available to Commission staff data elements relating to the 
effectiveness of the SPY Pilot Program.
    Conditional on the findings in the SPY Pilot Report, the Exchange 
will file with the Commission a proposal to extend the pilot program, 
adopt the pilot program on a permanent basis or terminate the pilot. If 
the SPY Pilot Program is not extended or adopted on a permanent basis 
by the expiration of the Extended Pilot, the position limits for SPY 
options would revert to limits in effect prior to the commencement of 
the SPY Pilot Program.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would be 
beneficial to market participants, including market makers, 
institutional investors and retail investors, by permitting them to 
establish greater positions when pursuing their investment goals and 
needs. The Exchange also believes that economically equivalent products 
should be treated in an equivalent manner so as to avoid regulatory 
arbitrage, especially with respect to position limits. Treating SPY and 
SPX options differently by virtue of imposing different position limits 
is inconsistent with the notion of promoting just and equitable 
principles of trade and removing impediments to perfect the mechanisms 
of a free and open market. At the same time, the Exchange believes that 
the elimination of position limits for SPY options would not increase 
market volatility or facilitate the ability to manipulate the market.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. In this regard, the Exchange notes that the rule change is 
being proposed as a competitive response to similar filings that the 
Exchange expects to be filed by other options exchanges. The Exchange 
believes this proposed rule change is necessary to permit fair 
competition among the options exchanges and to establish uniform 
position limits for a multiply listed options class.

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 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) of the Act and Rule 19b-
4(f)(6) thereunder.\7\
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    \7\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \8\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \9\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may

[[Page 32394]]

become operative immediately upon filing. The Exchange believes that 
waiver of the operative delay is consistent with the protection of 
investors and the public interest because it will allow the SPY Pilot 
Program to continue without interruption. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\10\
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    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule 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-ISE-2017-72 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2017-72. 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 such 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-ISE-2017-72, and should be 
submitted on or before August 3, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-14663 Filed 7-12-17; 8:45 am]
 BILLING CODE 8011-01-P