[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Notices]
[Pages 7835-7837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02301]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68759; File No. SR-BOX-2013-06]
Self-Regulatory Organizations; BOX Options Exchange LLC; Notice
of Filing of Proposed Rule Change to List and Trade Option Contracts
Overlying 1,000 Shares of the SPDR S&P 500 Exchange-Traded Fund
January 29, 2013.
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 January 18, 2013, BOX Options Exchange LLC (``Exchange'' or ``BOX'')
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 its rules to define certain contract
terms for trading option contracts overlying 1,000 SPDR[supreg] S&P
500[supreg] exchange-traded fund (``SPY ETF''),\3\ (``SPY'') Shares.
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.
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\3\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],''
``S&P[supreg],'' ``S&P 500[supreg],'' 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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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 Rule 5050 (Series of Contracts Open
for Trading) to define certain contract terms for trading option
contracts overlying 1,000 SPDR[supreg] S&P 500[supreg] exchange-traded
fund (``SPY ETF''),\4\ (``SPY'') Shares. In
[[Page 7836]]
order to list these option contracts overlying 1,000 SPY Shares
(``Jumbo options'') the Exchange is initially proposing to restrict the
listing of Jumbo options to the SPY ETF, and also proposing to define
how strike prices and bids and offers will be expressed for Jumbo
option contracts by further amending Rule 5050.
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\4\ ``SPDR[supreg],'' ``Standard & Poor's[supreg],''
``S&P[supreg],'' ``S&P 500[supreg],'' 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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First, the Exchange proposes to add to Rule 5050(e) a provision to
permit BOX to list Jumbo contracts on SPY for all expirations
applicable to options overlying 100 shares of SPY. Note that SPY
options are currently the most actively traded option class in terms of
average daily volume (``ADV'').\5\ The Exchange proposes to designate
this most active ETF as eligible for 1,000 share contracts, and
restrict Jumbo contracts to SPY, for which the Securities and Exchange
Commission (the ``Commission'') has approved the elimination of any
Position Limit.
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\5\ SPY ADV was 2,156,482 contracts in April 2012. ADV for the
same period for the next four most actively traded options was:
Apple Inc. (option symbol AAPL)--1,074,351; S&P 500 Index (option
symbol SPX)--656,250; PowerShares QQQ Trust\SM\, Series 1 (option
symbol QQQ)--573,790; and iShares[supreg] Russell 2000[supreg] Index
Fund (option symbol IWM)--550,316. The Exchange notes that any
expansion of the program would require that a subsequent proposed
rule change be submitted to the Commission.
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Contract Terms
To avoid investor confusion with SPY options that overly [sic]100
shares, the Exchange further proposes to amend Rule 5050 to define how
strike prices will be set and how bids and offers will be defined for
Jumbo options. The Exchange proposes that bids and offers shall be
expressed in terms of dollars per 1/1000th part of the total value of
the contract.
Rule 5050(e)(2) proposes that strike prices be set at the same
level as for regular options. Thus, a Jumbo option contract to deliver
an ETF at $145 per share would carry a total deliverable value of
$145,000, and the strike price would be set at $145. Proposed Rule
5050(e)(3) provides that bids and offers in Jumbo option contracts
shall be expressed in terms of dollars per 1/1000th part of the total
value of the contract. Thus, if an ETF with a Jumbo option strike price
of $145 was trading at $146 per share, the intrinsic $1 per share value
would denote a total contract value of $1,000, and be expressed as a
bid or offer quote around such intrinsic value.
The table below demonstrates the difference between a Jumbo option
contract and a standard option contract to call or put shares at $45
per share, with a bid or offer of $3.20 per share:
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Standard Jumbo
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Shares Deliverable Upon Exercise 100 shares........ 1,000 shares
Strike Price if underlying is 45................ 45
$45 per share.
Bid or Offer.................... 3.20.............. 3.20
Premium Multiplier.............. $100.............. $1,000
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Total Value of Deliverable.. $4,500............ $45,000
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Total Value of Contract..... $320.............. $3,200
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Additionally, the Exchange believes that price protection would not
apply across standard and Jumbo SPY options on an intramarket basis, as
these are separate products. While the Exchange recognizes that trading
different options products that overlie the same security or index
could disperse trading interest across the products to some extent,
with highly-liquid options on the liquid SPY, there generally exists a
critical mass of willing buyers and sellers for both the options and
the underlying securities to mitigate the price protection concerns.
Further, the Exchange believes that because of the liquidity in SPY and
options on SPY, existing market forces should keep the prices between
standard contracts and Jumbo SPY options contracts consistent. With
respect to the related arbitrage, the Exchange understands that the
OCC's portfolio margining process will be set to have positions in a
standard contract and a Jumbo options contract set against each other,
and that consistent cross margining will be available between standard
contracts and Jumbo options contracts. Accordingly, the Exchange
believes that the availability of Jumbo SPY options contracts is likely
to result in more efficient pricing through arbitrage with standard
contracts.
Additionally, the Exchange will designate Jumbo SPY options
contracts with a different trading symbol (SPYJ) than the related
standard contract. Moreover, the Exchange believes the terms of Jumbo
SPY options contracts are consistent with the terms of the Options
Disclosure Document.
With regard to the impact of this proposal on system capacity, BOX
has analyzed its capacity and represents that it and the Options Price
Reporting Authority have the necessary systems capacity to handle the
potential additional traffic associated with the listing and trading of
Jumbo SPY options contracts. The Exchange has further discussed the
proposed listing and trading of Jumbo SPY options contracts with the
OCC, which has represented that it is able to accommodate the proposal.
2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\6\ in general, and Section
6(b)(5) of the Act,\7\ in particular, that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, to remove impediments to and to
perfect the mechanism for a free and open market and a national market
system, and, in general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is also consistent
with Section 6(b)(8) of the Act in that it does not impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Act.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes this proposed rule change will
benefit investors by providing additional methods to trade highly
liquid options on SPY, and providing greater ability to mitigate risk
in managing large portfolios. Specifically, the Exchange believes that
investors would benefit from the introduction and availability of Jumbo
SPY options by making options on large blocks of the SPY ETF more
available as an investing tool, particularly for institutional
investors. As noted above, the proposed rule change intends to adopt a
different
[[Page 7837]]
trading symbol to distinguish Jumbo SPY options from the related
regular option contracts and therefore, ease any investor confusion as
to the product they are trading.
The Exchange also believes Jumbo SPY options will provide investors
with an additional tool for hedging risk in the highly liquid ETF.
Further, the proposed rule change is limited to just the SPY ETF, a
single, high-priced, highly liquid security.
Finally, the Exchange notes that the Commission previously approved
option contracts on ETFs that overly [sic] 1,000 shares for NYSE
Amex.\8\
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\8\ See Exchange Act Release No. 40157 (July 1, 1998), 63 FR
37426 (July 10, 1998) (Order Approving SR-Amex-96-44).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes this proposed rule change will benefit
investors by providing additional methods to trade options on the
liquid SPY, and providing greater ability to mitigate risk in managing
large portfolios. Specifically, the Exchange believes that investors
would benefit from the introduction and availability of Jumbo SPY
options by making options on large blocks of the SPY ETF more available
as an investing tool, particularly for institutional investors. The
Exchange also believes Jumbo SPY options will provide investors with an
additional tool for hedging risk in the highly liquid ETF. Further, the
proposed rule change is limited to just the SPY ETF, a single, high-
priced, highly liquid security. Finally, the Exchange is not proposing
any limitations regarding market participants that will be able to
trade Jumbo SPY options if they choose.
For all the reasons stated, 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, and
believes the proposed change will enhance competition.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be 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-BOX-2013-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BOX-2013-06. 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 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; 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-2013-06 and should be
submitted on or before February 25, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02301 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P