[Federal Register Volume 84, Number 112 (Tuesday, June 11, 2019)]
[Notices]
[Pages 27173-27176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12188]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86035; File No. SR-BOX-2019-18]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend BOX Rule 
IM-5050-1 Allow $1 Strike Price Intervals Above $200 on Options on the 
QQQ and IWM Exchange-Traded Funds

June 5, 2019.
    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 May 30, 2019, BOX Exchange LLC (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 Exchange filed the proposal as 
a ``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The Exchange proposes to amend BOX Rule IM-5050-1 (Strike Price 
Intervals) to allow for $1 strike prices above $200 on additional 
options on Units of certain exchange-traded fund (``ETF'') products. 
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 website at http://boxoptions.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 IM-5050-1 to allow for $1 
strike prices above $200 on additional options on Units of certain 
exchange-traded fund (``ETF'') products. This is a competitive filing 
that is based on a proposal recently submitted by Cboe Exchange, Inc. 
(``Cboe'') and approved by the Commission.\5\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 85754 (April 30, 
2019), 84 FR 19823 (May 6, 2019) (SR-CBOE-2019-015).
---------------------------------------------------------------------------

    Currently, IM-5050-1(b) to Rule 5050 allows for the interval 
between strike prices of series of options on Units of SPY, IVV, and 
DIA to be $1 or greater where the strike price is greater than $200. 
Under IM-5050-1(b), for all other series of options on Exchange Traded 
Fund Shares that satisfy the criteria set forth in Rule 5020(h), the 
interval of strike prices may be $1 or greater where the strike price 
is $200 or less or $5 or greater where the strike price is over $200. 
The Exchange now proposes to modify the interval setting regime to 
allow $1 strike price intervals where the strike price is above $200 
for IWM and QQQ options. The Exchange believes that the proposed rule 
change would make QQQ and IWM options easier for investors and traders 
to use and more tailored to their investment needs.
    The QQQ and IWM are designed to provide investors different ways to 
efficiently gain exposure to the equity markets and execute risk 
management, hedging, asset allocation and income generation strategies. 
The QQQ is a Unit investment trust designed to closely track the price 
and performance of a the Nasdaq-100 Index (``NDX''), which represents 
the largest and most active non-financial domestic and international 
issues listed on The Nasdaq Stock Market based on market 
capitalization. Likewise, the IWM is an index ETF designed to closely 
track the price and performance of the Russell 2000 Index (``RUT''), 
which represents the small capitalization sector of the U.S. equity 
market. In general, QQQ and

[[Page 27174]]

IWM options provide investors with the benefit of trading broader 
markets in a manageably sized contract.
    The value of QQQ is designed to approximate 1/40 the value of the 
underlying NDX. For example, if the NDX price level is 1400, QQQ strike 
prices generally would be expected to be priced around $35. The value 
of IWM is designed to approximate 1/10 the value of the underlying RUT. 
In the past year, the NDX has climbed above a price level of 7500, and 
the RUT climbed to a price level of approximately 1700 (both prior to 
the December 2018 market-wide decline). As the value of the underlying 
ETF (and the index the ETF tracks) and resulting strike prices for each 
option continues to appreciate, market participants have requested the 
listing of additional strike prices ($1 increments) in QQQ and IWM 
options above $200. The QQQ is among the most actively traded ETFs on 
the market. It is widely quoted as an indicator of technology stock 
prices and investor confidence in the technology and telecommunication 
market spaces, a significant indicator of overall economic health. 
Similarly, IWM is among the most actively traded ETFs on the market and 
provides investors with an investment tool to gain exposure to small 
U.S. public companies. Industry-wide trade volume in QQQ more than 
doubled from 2017 to 2018. As a result, QQQ options and IWM options 
have grown to become two of the largest options contracts in terms of 
trading volume. Investors use these products to diversify their 
portfolios and benefit from market trends.
    Accordingly, the Exchange believes that offering a wider base of 
QQQ and IWM options affords traders and investors important hedging and 
trading opportunities, particularly in the midst of current price 
trends. The Exchange believes that not having the proposed $1 strike 
price intervals above $200 in QQQ and IWM significantly constricts 
investors' hedging and trading possibilities. The Exchange therefore 
believes that by having smaller strike intervals in QQQ and IWM, 
investors would have more efficient hedging and trading opportunities 
due to the lower $1 interval ascension. The proposed $1 intervals above 
the $200 strike price will result in having at-the-money series based 
upon the underlying ETFs moving less than 1%. The Exchange believes 
that the proposed strike setting regime is in line with the slower 
movements of broad-based indices. Considering the fact that $1 
intervals already exist below the $200 price point and that both QQQ 
and IWM have consistently inclined in price toward the $200 level, the 
Exchange believes that continuing to maintain the current $200 level 
(above which intervals increase 500% to $5), may have a negative effect 
on investing, trading and hedging opportunities, and volume. The 
Exchange believes that the investing, trading, and hedging 
opportunities available with QQQ and IWM options far outweighs any 
potential negative impact of allowing QQQ and IWM 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 the increasing values in the underlying indices 
and allow investors and traders to roll open positions from a lower 
strike to a higher strike in conjunction with the price movements of 
the underlying ETFs. 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. As stated, the NDX and RUT have experienced continued, steady 
growth. The Exchange believes that with the proposed rule change, 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. As a result, the proposed 
rule change will allow the Exchange to better respond to customer 
demand for QQQ and IWM strike prices more precisely aligned with the 
smaller, longer-term incremental increases in respective underlying 
ETFs. 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 QQQ and IWM 
options. Moreover, by allowing series of QQQ and IWM 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 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, but rather, believes 
that finer strike intervals will serve to increase liquidity available 
as well as price efficiency by providing more trading opportunities for 
all market participants.
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''),\6\ in general, and Section 6(b)(5) of the Act,\7\ 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.
---------------------------------------------------------------------------

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

    In particular, the proposed rule change to IM-5050-1(b) will allow 
investors to more easily use QQQ and IWM options. Moreover, the 
proposed rule change would allow investors to better trade and hedge 
positions in QQQ and IWM options where the strike price is greater than 
$200, and ensure that investors in both options are not at a 
disadvantage simply because of the strike price.
    The Exchange 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 QQQ and IWM 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, 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 $200 strike price above which options intervals 
increase by 500%. This proposal remedies the situation by

[[Page 27175]]

establishing an exception to the current ETF interval regime for QQQ 
and IWM 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 changes adopted by Cboe.\8\
---------------------------------------------------------------------------

    \8\ See supra note 5.
---------------------------------------------------------------------------

    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 Participants 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 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 QQQ 
and IWM 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 QQQ and IWM options is currently applied to SPY, IVV, and 
DIA options, which are similarly popular and widely traded ETF products 
and track indexes at similarly high price levels. Thus, the proposed 
strike setting regime for QQQ and IWM options will allow options on the 
most actively traded ETFs with index levels at corresponding price 
levels to trade pursuant to the same strike setting regime. This will 
permit investors to employ similar investment and hedging strategies 
for each of these options.

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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
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 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \11\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \12\ 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 requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange asserts that waiving the operative delay would be consistent 
with the protection of investors and the public interest because the 
proposed rule change would ensure fair competition among the exchanges 
(because the proposed rule change is modelled after a rule of another 
exchange, and allow more investors to immediately start trading options 
on QQQ and IWM at the proposed strike price intervals. The Commission 
believes that the proposal raises no new or substantive issues and that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. The Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission also has 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 will institute proceedings to 
determine whether the proposed rule change 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-2019-18 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-2019-18. 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

[[Page 27176]]

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-BOX-2019-18 
and should be submitted on or before July 2, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12188 Filed 6-10-19; 8:45 am]
 BILLING CODE 8011-01-P


