
[Federal Register Volume 82, Number 147 (Wednesday, August 2, 2017)]
[Notices]
[Pages 36020-36023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16266]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81246; File No. SR-Phlx-2017-57]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 1012

July 28, 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 21, 2017, NASDAQ PHLX LLC (``Phlx'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (the ``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 1012, entitled ``Series of 
Options Open for Trading.''
    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deleted text is in brackets.
* * * * *

NASDAQ PHLX Rules

* * * * *

Options Rules

* * * * *

Rule 1012. Series of Options Open for Trading

    (a)-(d) No change.
       Commentary: ------------------
    .01-.04 No change
    .05
    (a)
    (i)-(iii) No change.
    (iv) (A) and (B) No change.
    (C) Notwithstanding 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[supreg] S&P 
500[supreg] ETF (``SPY''), iShares Core S&P 500 ETF (``IVV''), and the 
SPDR[supreg] Dow Jones[supreg] Industrial Average ETF (``DIA'') options 
will be $1 or greater.
    (v)-(vii) No change.
    (b) and (c) No change.
    .06-.13 No change.
* * * * *

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 Exchange proposes to amend Rule 1012, entitled ``Series of 
Options Open for Trading'' by modifying the strike setting regime for 
the iShares Core S&P 500 ETF (``IVV'') options. 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''),\3\ which is an exchange-traded fund (``ETF'') that is 
identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \3\ See Commentary .05(a)(iv)(C) to Rule 1012. See also 
Securities Exchange Act Release No. 80913 (June 13, 2017), 82 FR 
27907 (June 19, 2017) (SR-CBOE-2017-048) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Related to Rule 
5.5).
---------------------------------------------------------------------------

    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

[[Page 36021]]

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 ETP underlying, SPY and IVV options are listed in the same 
manner as equity options under the Rules.
    However, pursuant to current Commentary .05(a) to Rule 1012, the 
interval between strike prices in series of options on ETPs, including 
IVV options will be $1 or greater where the strike price is $200 or 
less and $5.00 or greater where the strike price is greater than $200. 
In addition, pursuant to Commentary .11(e) to Rule 1012,

    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 classes that participate in the Short Term Options 
Series Program; (ii) $0.50 for classes that trade in one dollar 
increments in Related non-Short Term Options and that participate in 
the Short Term Option Series Program; or (iii) $2.50 or greater 
where the strike price is above $150. Related non-Short Term Option 
series shall be opened during the month prior to expiration of such 
Related non-Short Term Option series in the same manner as permitted 
in Commentary .11 to this Rule 1012 and in the same strike price 
intervals that are permitted in Commentary .11 to this Rule 1012.

    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 wide range of S&P 500 Index-based options 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 Commentary .05(a)(iv)(C) of Rule 
1012 to allow IVV options to trade in $1 increments above a strike 
price of $200. Specifically, the Exchange proposes to amend Commentary 
.05(a)(iv)(C) of Rule 1012 to state that notwithstanding other 
provisions limiting the ability of the Exchange to list $1 increment 
strike prices on equity and ETF options above $200, the interval 
between strike prices of series of options on Units of IVV 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 IVV 
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% [sic] by $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.
    Pursuant to Rule 1012, 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 pursuant to 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 options 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 members 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,\4\ which is an ETF that is 
identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \4\ See note 4 [sic] above.
---------------------------------------------------------------------------

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, the requirements of Section 6(b) 
of the Act [sic].\7\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(5) \8\ requirements 
that the rules of an exchange be 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 regulating, clearing, settling, processing 
information with respect to, and 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

[[Page 36022]]

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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
---------------------------------------------------------------------------

    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.
    As noted above, ETF options trade in wider $5 intervals above a 
$200 strike price, whereas 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 $5. This proposal remedies the situation by 
establishing an exception to the current ETF 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 a prior rule change.\10\
---------------------------------------------------------------------------

    \10\ See Securities and Exchange Act Release 34-72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options) (SR-Phlx-2014-046).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \11\ See note 4 [sic] above.
---------------------------------------------------------------------------

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 participants, 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.
---------------------------------------------------------------------------

    \12\ See note 4 [sic] above.
---------------------------------------------------------------------------

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \13\ of the Act and Rule 19b-4(f)(6) \14\ 
thereunder. 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 if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\15\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 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 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission 
may 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,\18\ and will provide 
investors with an alternative venue for trading IVV options. The 
Commission believes that waiver of the 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.\19\
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ See Securities Exchange Act Release No. 80913 (June 13, 
2017), 82 FR 27907 (June 19, 2017) (SR-CBOE-2017-048).
    \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).
---------------------------------------------------------------------------

    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 under 
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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

[[Page 36023]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-57 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-2017-57. 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-Phlx-2017-57, and should be 
submitted on or before August 23, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16266 Filed 8-1-17; 8:45 am]
 BILLING CODE 8011-01-P


