
[Federal Register Volume 79, Number 146 (Wednesday, July 30, 2014)]
[Notices]
[Pages 44231-44233]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17878]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72664; File No. SR-Phlx-2014-46]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to SPY and DIA Options

July 24, 2014.
    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 July 9, 2014, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. On July 
22, 2014, the Exchange filed Amendment No. 1 to the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange modified Exhibit 1 to the 
proposed rule change to make certain technical corrections and to 
add additional explanation of the proposed rule change to Section 
II.A.1.
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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 Commentary .05 to Rule 1012 (Series 
of Options 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'').\4\
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    \4\ 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 available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
at the principal office of the Exchange, and at

[[Page 44232]]

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 Commentary .05 
to Rule 1012 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.\5\ 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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    \5\ 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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    Under current Rule 1012, 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 Commentary .05(a)(iv)(A) to Rule 1012.
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    The strike prices for SPY and DIA options 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. 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 12% of the options volume on the Exchange. DIA 
options represent 11% 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.\7\ 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 
Commentary .05 to Rule 1012 to allow SPY and DIA options to trade in $1 
increments.
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    \7\ For rules regarding quarterly options and weekly options 
(also known as Short Term Options), see Commentaries .08 and .11, 
respectively, to Rule 1012.
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    Specifically, the Exchange proposes to add Commentary .05(a)(iv)(C) 
to state that notwithstanding any other provision regarding the 
interval of strike prices of series of options on ETFs in Rule 1012, 
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.
    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.\8\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\9\ 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

[[Page 44233]]

and a national market system and, in general, to protect investors and 
the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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,\10\ 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 Exchange does not believe that 
the proposed rule would create additional capacity issues or affect 
market functionality
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    \10\ 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.\11\
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    \11\ 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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, as modified by Amendment No. 1, 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-Phlx-2014-46 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-Phlx-2014-46. 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 available publicly. All 
submissions should refer to File Number SR-Phlx-2014-46 and should be 
submitted on or before August 20, 2014.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17878 Filed 7-29-14; 8:45 am]
BILLING CODE 8011-01-P


