
[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 rule-comments@sec.gov. 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




