[Federal Register Volume 83, Number 117 (Monday, June 18, 2018)]
[Notices]
[Pages 28279-28281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12933]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83417; File No. SR-NYSEAMER-2018-26]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Commentary .07 to Rule 904

June 12, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on June 8, 2018, NYSE American LLC (the ``Exchange'' or 
``NYSE American'') 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\ 15 U.S.C. 78a.
    \3\ 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 Commentary .07 to Rule 904 to amend 
the position limits for options on SPDR S&P 500 ETF (``SPY''). The 
proposed rule change is available on the Exchange's website at 
www.nyse.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 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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 904 (Position Limits) establishes position limits for 
aggregate positions in option contracts traded on the Exchange. 
Commentary .07 to Rule 904 lists specific position limits for certain 
select underlying securities. SPY is among the certain select 
underlying securities listed in the Rule. Currently, Rule 904 provides 
that there are no position 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. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012). The SPY Pilot Program was 
subsequently extended. See Securities Exchange Release Nos. 70734 
(October 22, 2013), 78 FR 64255 (October 28, 2013); 73847 (December 
16, 2014), 79 FR 76426 (December 22, 2014); 75416 (July 9, 2015), 80 
FR 41521 (July 15, 2015); 78241 (July 7, 2016), 81 FR 45325 (July 
13, 2016); and 81130 (July 12, 2017), 82 FR 32906 (July 18, 2017).
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    The Exchange proposes to amend Rule 904, Commentary .07, 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, the Exchange proposes to allow the SPY Pilot Program to 
terminate and to establish position 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.\5\ 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,\6\ the Exchange believes it is 
appropriate to terminate the SPY Pilot Program and establish permanent 
position limits for SPY.
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    \5\ Pursuant to Rule 905, the exercise limit for options on SPY 
is equivalent to the position limit for SPY options and would also 
be amended pursuant to this proposal.
    \6\ See supra, note 4.
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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

[[Page 28280]]

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.\7\ 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.\8\ 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.\9\ Then, in 2012, the position limits for SPY options were 
eliminated as part of the SPY Pilot Program.\10\
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    \7\ See Securities Exchange Act Release Nos. 67672 (August 15, 
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29); and 
67937 (September 27, 2012), 77 FR 60489 (October 3, 2012) (SR-CBOE-
2012-091).
    \8\ See Securities Exchange Act Release No. 51041 (January 14, 
2005), 70 FR 3408 (January 24, 2005) (SR-CBOE-2005-06).
    \9\ See Securities Exchange Act Release No. 64928 (July 20, 
2011), 76 FR 44633 (July 26, 2011) (SR-CBOE-2011-065).
    \10\ See supra, note 7.
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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'') (as of May 15, 2018) 
for SPY is 108.32 million shares; (2) the ADV 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 Commentary .07 to Rule 
904 to set forth that the position limit for options on SPY would be 
1,800,000 contracts on the same side of the market. This position limit 
equals the current position limit for options on the PowerShares QQQ 
Trust (``QQQ''), 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.\11\ The Exchange 
also notes that SPY is more liquid than QQQ.\12\ The Exchange believes 
that establishing position limits for SPY options in the amount of 
1,800,000 contracts on the same side of the market 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 SPY options would be 
unchanged.
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    \11\ See Securities Exchange Act Release No. 83065 (April 19, 
2018), 83 FR 18093 (April 25, 2018) (SR-NYSEAMER-2018-14); See also 
Securities Exchange Act Release No. 82770 (February 23, 2018), 83 FR 
8907 (March 1, 2018) (SR-CBOE-2017-057).
    \12\ From the beginning of the year, through May 15, 2018, the 
ADV for SPY was 108.32 million shares while the ADV for QQQ was 
46.64 million shares (calculated using data from Yahoo Finance).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \14\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, 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 limits for SPY 
options 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 SPY options 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 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),\15\ 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 iShares China Large-Cap ETF (``FXI''), 
iShares MSCI EAFE ETF (``EFA''), iShares MSCI Emerging Markets ETF 
(``EEM''), iShares Russell 2000 ETF (``IWM''), iShares MSCI Brazil 
Capped ETF (``EWZ''), iShares 20+ Year Treasury Bond Fund ETF 
(``TLT''), iShares MSCI Japan ETF (``EWJ'') and QQQ.\16\ Furthermore, 
as previously mentioned, the Commission specifically approved a 
proposal by the Exchange to increase the position and exercise limits 
for options on QQQ 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.\17\ The Exchange also notes 
that SPY is more liquid than QQQ.\18\
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    \15\ See supra, note 9.
    \16\ See supra, note 11.
    \17\ Id.
    \18\ See supra, note 12.
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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.\19\ The Exchange's existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from increasing position limits (increased 
as compared to the 900,000 limit in place prior to the SPY Pilot 
Program).\20\
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    \19\ See supra, note 11.
    \20\ See supra, note 9.
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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. The proposed rule change is not 
designed to address any aspect of competition, whether between the 
Exchange and its competitors, or among market participants. Instead, 
the proposed rule change promotes competition because it will enable 
the options 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 limits for additional multiply listed option classes.

[[Page 28281]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6) 
\22\ thereunder.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \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 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-NYSEAMER-2018-26 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-NYSEAMER-2018-26. 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-NYSEAMER-2018-26 and should be submitted 
on or before July 9, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12933 Filed 6-15-18; 8:45 am]
 BILLING CODE 8011-01-P


