[Federal Register Volume 83, Number 117 (Monday, June 18, 2018)]
[Notices]
[Pages 28293-28295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12932]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83416; File No. SR-ISE-2018-53]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Position 
and Exercise Limits for Options on the SPY Exchange Traded Fund

June 12, 2018.
    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 June 4, 2018, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 412, entitled ``Position 
Limits'' at Supplementary Material .01 and Rule 414, entitled 
``Exercise Limits'' at Supplementary Material .01, to amend position 
and exercise limits for options on the SPDR[reg] S&P 500[reg] exchange-
traded fund (``SPY ETF'' or ``SPY''),\3\ which list and trade under the 
symbol ``SPY.''
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    \3\ ``SPDR[reg],'' ``Standard & Poor's[reg],'' ``S&P[reg],'' 
``S&P 500[reg],'' and ``Standard & Poor's 500'' are registered 
trademarks of Standard & Poor's Financial Services LLC. The SPY ETF 
represents ownership in the SPDR S&P 500 Trust, a unit investment 
trust that generally corresponds to the price and yield performance 
of the SPDR S&P 500 Index.
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    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.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 
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
    ISE Rule 412, entitled ``Position Limits'' at Supplementary 
Material .01 and Rule 414, entitled ``Exercise Limits'' at 
Supplementary Material .01 establish positions for aggregate positions 
in option contracts traded on the Exchange. The rule lists specific 
position and exercise limits for certain select underlying securities. 
SPY is among the certain select underlying securities listed in each 
such Rule. Currently, these Rules provide that there are no position 
limits and there are no exercise limits on options overlying SPY 
pursuant to a pilot program, which is scheduled to expire on July 12, 
2018 (``SPY Pilot Program'').\4\
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    \4\ See Securities Exchange Act Release No. 68000 (October 5, 
2012), 77 FR 62300 (October 12, 2012) (SR-ISE-2012-81); 70967 
(December 3, 2013), 78 FR 73912 (December 9, 2013) (SR-ISE-2013-62); 
74224 (February 6, 2015), 80 FR 7892 (February 12, 2015 (SR-ISE-
2015-05); 75411 (July 9, 2015), 80 FR 41543 (July 15, 2015) (SR-ISE-
2015-22); 78295 (July 12, 2016), 81 FR 46728 (July 18, 2016) (SR-
ISE-2016-16); and 81094 (July 7, 2017), 82 FR 32392 (July 13, 2017) 
(SR-ISE-2017-72).
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    The Exchange proposes to amend Rule 412 at Supplementary Material 
.01 and Rule 414 at Supplementary Material .01 to allow the SPY Pilot 
Program to terminate on July 12, 2018, the current expiration date of 
the SPY Pilot Program. In lieu of extending the SPY Pilot Program for 
another year, the Exchange proposes to allow the SPY Pilot Program to 
terminate and to establish position and exercise limits of 1,800,000 
contracts, for options on SPY, with such change becoming operative on 
July 12, 2018, so that there is no lapse in time between termination of 
the SPY Pilot Program and the establishment of the new limits. 
Furthermore, as a result of the termination of the SPY Pilot Program, 
the Exchange does not believe it is necessary to submit a SPY Pilot 
Program Report at the end of the SPY Pilot Program. Based on the prior 
SPY Pilot Program Reports provided to the Commission,\5\ the Exchange 
believes it is appropriate to terminate the SPY Pilot Program and that 
permanent position and exercise limits should be established for SPY.
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    \5\ Id.
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    Position limits are designed to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. The 
potential manipulative schemes and adverse market impact are balanced 
against the potential of setting the limits so low as to discourage 
participation in the options market. The level of those position limits 
must be balanced between curtailing potential manipulation and the cost 
of preventing potential hedging activity that could be used for 
legitimate economic purposes.
    The SPY Pilot Program was established in 2012 in order to eliminate 
position and exercise limits for physically-settled SPY options.\6\ In 
2005, the position limits for SPY options were increased from 75,000 
contracts to 300,000 contracts on the same side of the market.\7\ In 
July 2011, the position limit for these options was again increased 
from 300,000 contracts to 900,000 contracts on the same side of the 
market.\8\ Then, in 2012, the position and exercise limits for SPY 
options were eliminated as part of the SPY Pilot Program.\9\
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    \6\ See Securities Exchange Act Release No. 68000 (October 5, 
2012), 77 FR 62300 (October 12, 2012) (SR-ISE-2012-81).
    \7\ See Securities Exchange Act Release No. 51042 (January 14, 
2005), 70 FR 3412 (January 24, 2005) (SR-ISE-2005-05).
    \8\ See Securities Exchange Act Release No. 64760 (June 28, 
2011), 76 FR 39143 (July 5, 2011) (SR-ISE-2011-34).
    \9\ See note 4 above.
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    The underlying SPY tracks the performance of the S&P 500 Index and 
the Exchange notes that the SPY and SPY options have deep, liquid 
markets that reduce concerns regarding manipulation and disruption in 
the underlying markets. In support of this proposed rule change, the 
Exchange has collected the following trading statistics for SPY and SPY 
Options: (1) The average daily volume (``ADV'') to date (as of May 15, 
2018) for SPY is 108.32 million shares; (2) the ADV to date in 2018 for 
SPY options is 3.9 million contracts per day; (3) the total shares 
outstanding for SPY are 965.43 million; and (4) the fund market cap for 
SPY is 261.65 billion. The Exchange represents further that there is 
tremendous liquidity in the securities that make up the S&P 500 Index.
    Accordingly, the Exchange proposes to amend Rule 412 at 
Supplementary Material .01 and Rule 414 at Supplementary Material .01 
to set forth that the position and exercise limits for options on SPY 
would be 1,800,000 contracts on the same side of the market. These 
position and exercise

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limits equal the current position and exercise limits for options on 
QQQQ, which the Commission previously approved to be increased from 
900,000 contracts on the same side of the market, to 1,800,000 
contracts on the same side of the market.\10\ The Exchange also notes 
that SPY is more liquid than QQQQ.\11\ The Exchange believes that 
establishing position and exercise limits for the SPY options in the 
amount of 1,800,000 contracts on the same side of the market subject to 
this proposal would allow for the maintenance of the liquid and 
competitive market environment for these options, which will benefit 
customers interested in these products. Under the proposal, the 
reporting requirement for the options would be unchanged.
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    \10\ See Securities Exchange Act Release No. 83156 (May 2, 
2018), 83 FR 20875 (May 8, 2018) (SR-ISE-2018-39).
    \11\ From the beginning of the year, through May 15, 2018, the 
ADV for SPY was 108.32 million shares while the ADV for QQQQ was 
46.64 million shares (calculated using data from Yahoo Finance as of 
May 15, 2018).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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. The Exchange believes that establishing permanent position 
and exercise limits for SPY options subject to this proposal will 
encourage Market Makers to continue to provide sufficient liquidity in 
SPY options on the Exchange, which will enhance the process of price 
discovery conducted on the Exchange. The proposal will also benefit 
institutional investors as well as retail traders, and public 
customers, by continuing to provide them with an effective trading and 
hedging vehicle. In addition, the Exchange believes that the structure 
of the SPY options subject to this proposal and the considerable 
liquidity of the market for those options diminishes the opportunity to 
manipulate this product and disrupt the underlying market that a lower 
position limit may protect against.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Increased position limits for select actively traded options, such 
as that proposed herein (increased as compared to the 900,000 limit in 
place prior to the SPY Pilot Program),\14\ is not novel and has been 
previously approved by the Commission. For example, the Commission has 
previously approved a rule change permitting the Exchange to double the 
position and exercise limits for FXI, EEM, IWM, EFA, EWZ, TLT, QQQQ, 
and EWJ.\15\ Furthermore, as previously mentioned, the Commission 
specifically approved a proposal by the Exchange to increase the 
position and exercise limits for options on QQQQ from 900,000 contracts 
on the same side of the market to 1,800,000 contracts on the same side 
of the market; similar to the current proposal for options on SPY.\16\ 
The Exchange also notes that SPY is more liquid than QQQQ.\17\
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    \14\ See note 8.
    \15\ See note 10 above.
    \16\ Id.
    \17\ See note 11 above.
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    Lastly, the Commission expressed the belief that implementing 
higher position and exercise limits may bring additional depth and 
liquidity without increasing concerns regarding intermarket 
manipulation or disruption of the options or the underlying 
securities.\18\ The Exchange's existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from increasing position and exercise limits 
(increased as compared to the 900,000 limit in place prior to the SPY 
Pilot Program).\19\
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    \18\ See note 10 above.
    \19\ See note 8 above
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
entire proposal is consistent with Section (6)(b)(8) of the Act \20\ in 
that it does not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. On the 
contrary, the Exchange believes the proposal promotes competition 
because it will enable the option exchanges to attract additional order 
flow from the over-the-counter market, who in turn compete for those 
orders. The Exchange believes that the proposed rule change will result 
in continued 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. The Exchange believes this proposed rule change 
is necessary to permit fair competition among the options exchanges and 
to establish uniform position and exercise limits for additional 
multiply listed option classes. Furthermore, the Exchange believes that 
the other options exchanges will file similar proposals with the 
Commission.
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    \20\ 15 U.S.C. 78(f)(b)(8).
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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)(iii) of the Act \21\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 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.
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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

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     Send an email to [email protected]. Please include 
File Number SR-ISE-2018-53 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-2018-53. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2018-53 and should be submitted on 
or before July 9, 2018.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12932 Filed 6-15-18; 8:45 am]
 BILLING CODE 8011-01-P


