[Federal Register Volume 82, Number 159 (Friday, August 18, 2017)]
[Notices]
[Pages 39466-39469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17436]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81391; File No. SR-BOX-2017-27]


Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend BOX Rule 5050 (Series of Options Contracts Open for Trading), IM-
5050-1, To Include the iShares S&P 500 Index ETF in the List of 
Exchange-Traded Funds Eligible for $1 Strike Price Intervals

August 14, 2017.
    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 August 10, 2017, BOX Options Exchange LLC (``BOX'' or 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 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

    The Exchange proposes to amend BOX Rule 5050 (Series of Options 
Contracts Open for Trading), IM-5050-1, to include the iShares S&P 500 
Index ETF (``IVV'') in the list of Exchange-Traded Funds (``ETFs'') 
that are eligible for $1 strike price intervals. 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.

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 BOX Rule 5050 (Series of Options 
Contracts Open for Trading), to modify the strike setting regime for 
IVV options by including IVV in the list of ETFs that are eligible for 
$1 strike price intervals under IM-5050-1(b). This is a competitive 
filing that is based on an immediately effective filing recently 
submitted by the Chicago Board Options Exchange, Incorporated 
(``CBOE'').\3\
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    \3\ See Securities Exchange Act Release No. 80913 (June 13, 
2017), 82 FR 27907 (June 19, 2017) (SR-CBOE-2017-048).
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    Specifically, the Exchange proposes to modify the interval setting 
regime for IVV options to allow $1 strike price intervals above $200. 
The Exchange believes that the proposed rule change would make IVV 
options easier for investors and traders to use and more tailored to 
their investment needs. Additionally, the interval setting regime the 
Exchange proposes to apply to IVV options is currently applied to 
options on units of the Standard & Poor's Depository Receipts Trust 
(``SPY''),\4\ which is an ETF that is identical in all material 
respects to the IVV ETF.
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    \4\ See IM-5050-1(b).
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    The SPY and IVV ETFs are identical in all material respects. The 
SPY and IVV ETFs are designed to roughly track the performance of the 
S&P 500 Index with the price of SPY and IVV designed to roughly 
approximate 1/10th of the price of the S&P 500 Index. Accordingly, SPY 
and IVV strike prices having a multiplier of $100 reflect a value 
roughly equal to 1/10th of the value of the S&P 500 Index. For example, 
if the S&P 500 Index is at 1972.56, SPY and IVV options might have a 
value of approximately 197.26 with a notional value of $19,726. In 
general, SPY and IVV options provide retail investors and traders with 
the benefit of trading the broad market in a manageably sized contract. 
As options with an ETF underlying, SPY and IVV options are listed in 
the same manner as equity options under the Rules.
    However, under current IM-5050-1(d), the interval between strike 
prices in series of options on Index-Linked Securities,\5\ as defined 
in Rule 5020(k), will be $1 or greater where the strike price is $200 
or less and $5 or greater where the strike price is greater than

[[Page 39467]]

$200. In addition, under IM-5050-6(b)(5),
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    \5\ The Exchange notes that IVV is treated as an Index-Linked 
Security under current Exchange rules.

    The interval between strike prices on Short Term Option Series 
may be (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 in Related non-short Term Options and are in 
the Short Term Option Series Program; or (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 pursuant to this rule (Short Term Option), the 
strike price intervals for the related non- Short Term Option shall 
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be the same as the strike price intervals for the Short Term Option.

    The Exchange's proposal seeks to narrow the strike price intervals 
to $1 for IVV options above $200, in effect matching the strike setting 
regime for strike intervals in IVV options below $200 and matching the 
strike setting regime applied to SPY options.
    Currently, the S&P 500 Index is above 2000. The S&P 500 Index is 
widely regarded as the best single gauge of large cap U.S. equities and 
is widely quoted as an indicator of stock prices and investor 
confidence in the securities market. As a result, individual investors 
often use S&P 500 Index-related products to diversify their portfolios 
and benefit from market trends. Accordingly, the Exchange believes that 
offering a wider range of S&P 500 Index-based option strikes affords 
traders and investors important hedging and trading opportunities. The 
Exchange believes that not having the proposed $1 strike price 
intervals above $200 in IVV significantly constricts investors' hedging 
and trading possibilities.
    The Exchange proposes to amend IM-5050-1(b) to allow IVV options to 
trade in $1 increments above a strike price of $200. Specifically, the 
Exchange proposes to amend IM-5050-1(b) to state that, 
``[n]otwithstanding 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 S&P 500 Index ETF (``IVV''), and the SPDR Dow Jones Industrial 
Average ETF (``DIA'') options will be $1 or greater.'' The Exchange 
believes that by having smaller strike intervals in IVV, investors 
would have more efficient hedging and trading opportunities due to the 
lower $1 interval ascension. The proposed $1 intervals, particularly 
above the $200 strike price, will result in having at-the-money series 
based upon the underlying moving less than 1%. The Exchange believes 
that the proposed strike setting regime is in line with the slower 
movements of broad-based indices. Furthermore, the proposed $1 
intervals would allow option trading strategies (such as, for example, 
risk reduction/hedging strategies using IVV weekly options), to remain 
viable. Considering the fact that $1 intervals already exist below the 
$200 price point and that IVV is above the $200 level, the Exchange 
believes that continuing to maintain the artificial $200 level (above 
which intervals increase 500% to $5), would have a negative effect on 
investing, trading and hedging opportunities, and volume. The Exchange 
believes that the investing, trading, and hedging opportunities 
available with IVV options far outweighs any potential negative impact 
of allowing IVV options to trade in more finely tailored intervals 
above the $200 price point.
    The proposed strike setting regime would permit strikes to be set 
to more closely reflect values in the underlying S&P 500 Index and 
allow investors and traders 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. Accordingly, 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. The proposed rule change will allow the Exchange to 
better respond to customer demand for IVV strike prices more precisely 
aligned with current S&P 500 Index values. The Exchange believes that 
the proposed rule change, like the other strike price programs 
currently offered by the Exchange, will benefit investors by providing 
investors the flexibility to more closely tailor their investment and 
hedging decisions using IVV options.
    By allowing series of IVV options to be listed in $1 intervals 
between strike prices over $200, the proposal will moderately augment 
the potential total number of option series available on the Exchange. 
However, the Exchange believes 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 also believes that Participants will not have a capacity 
issue due to the proposed rule change. In addition, the Exchange 
represents that it does not believe that this expansion will cause 
fragmentation of liquidity.
    In addition, the interval setting regime the Exchange proposes to 
apply to IVV options is currently applied to options on SPY \6\ 7 [sic] 
which is an ETF that is identical in all material respects to the IVV 
ETF.
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    \6\ See IM-5050-1(b).
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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''),\7\ in general, and Section 6(b)(5) of the Act,\8\ 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. Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) \9\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
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    In particular, the proposed rule change will allow investors to 
more easily use IVV options. Moreover, the proposed rule change would 
allow investors to better trade and hedge positions in IVV options 
where the strike price is greater than $200, and ensure that IVV 
options investors 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, 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 IVV options to trade in $1 intervals above a 
$200 strike price. The Exchange does not believe that the proposed rule 
would create additional capacity issues or affect market functionality.

[[Page 39468]]

    As noted above, some 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 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 this situation by 
establishing an exception to the current interval regime for IVV 
options 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 the rules of other exchanges.\10\
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    \10\ See Nasdaq Phlx Rule 1012.05(a)(iv)(C) and CBOE Rule 
5.5.08(b).
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    With regard to the impact of this proposal on system capacity, the 
Exchange believes 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. In addition, the interval 
setting regime the Exchange proposes to apply to IVV options is 
currently applied to options on SPY,\11\ which is an ETF that is 
identical in all material respects to the IVV ETF.
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    \11\ See IM-5050-1(b).
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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. Rather, 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 participant, and the 
marketplace in general. Specifically, the Exchange believes that IVV 
options investors and traders will significantly benefit from the 
availability of finer strike price intervals above a $200 price point. 
In addition, the interval setting regime the Exchange proposes to apply 
to IVV options is currently applied to options on SPY,\12\ which is an 
ETF that is identical in all material respects to the IVV ETF. Thus, 
applying the same strike setting regime to SPY and IVV options will 
help level the playing field for options on similar, competing ETFs.
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    \12\ Id.
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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

    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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\13\ and Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
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. The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ 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 because 
this proposal permits listing IVV options in a manner permitted by the 
Chicago Board Options Exchange, Incorporated,\17\ and will provide 
investors with an alternative venue for trading IVV options. The 
Commission also notes that the proposed rule change is consistent with 
the strike price intervals in IVV options that is permitted on other 
exchanges and thus raises no new novel or substantive issues.\18\ 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\19\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ See supra note 3.
    \18\ See supra note 10. See also Miami International Securities 
Exchange, LLC Rule 404, Interpretations and Policies .10; The Nasdaq 
Options Market LLC Rules, Chapter IV, Section 6, Supplementary 
Material .01(c).
    \19\ 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-BOX-2017-27 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-2017-27. 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

[[Page 39469]]

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-BOX-2017-27 and should be submitted on or before 
September 8, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17436 Filed 8-17-17; 8:45 am]
BILLING CODE 8011-01-P