Document ID: SEC-2017-1023-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-06-19T04:00Z

[Federal Register Volume 82, Number 116 (Monday, June 19, 2017)]
[Notices]
[Pages 27907-27910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12585]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80913; File No SR-CBOE-2017-048]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Related to Rule 5.5

June 13, 2017.
    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 June 9, 2017, Chicago Board Options Exchange, Incorporated (the 
``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III 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 Rule 5.5. The text of the proposed 
rule change is provided below.
    (additions are italicized; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 5.5. Series of Option Contracts Open for Trading

    (a)-(e) No change.

. . . Interpretations and Policies:

    .01-.07 No change.
    .08
    (a) No change.
    (b) Notwithstanding Interpretation and Policy .01 and 
Interpretation and Policy .08(a) above, the interval between strike 
prices of series of options on Units of the Standard & Poor's 
Depository Receipts Trust (``SPY''), iShares S&P 500 Index ETF 
(``IVV''), and The DIAMONDS Trust (``DIA'') will be $1 or greater.
    .09-.23 No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, 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
    The Exchange proposes to amend Rule 5.5 (Series of Option Contracts 
Open for Trading) by modifying the strike setting regime for IVV 
options. 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''),\5\ which is an exchange-traded fund (``ETF'') that is 
identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \5\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

    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

[[Page 27908]]

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 ETP underlying, SPY and IVV options are listed in the same 
manner as equity options under the Rules.
    However, under current Interpretation and Policy .08(a) to Rule 
5.5, the interval between strike prices in series of options on ETPs, 
including IVV options will be $1 or greater where the strike price is 
$200 or less and $5.00 or greater where the strike price is greater 
than $200.'' In addition, under Rule 5.5(d)(5),

    Strike Interval. 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 classes that participate in the Short 
Term Option Series Program; (ii) $0.50 or greater for classes that 
trade in one dollar increments in non-Short Term Options and that 
participate in the Short Term Option Series Program; or (iii) $2.50 
or greater where the strike price is above $150. A non-Short Term 
Option that is on a class that has been selected to participate in 
the Short Term Option Series Program is referred to as a ``Related 
non-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 wide range of S&P 500 Index-based options 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 Interpretation and Policy .08(b) to 
Rule 5.5 to allow IVV options to trade in $1 increments above a strike 
price of $200. Specifically, the Exchange proposes to amend 
Interpretation and Policy .08(b) to Rule 5.5 to state that 
notwithstanding other provisions limiting the ability of the Exchange 
to list $1 increment strike prices on equity and ETF options above 
$200, the interval between strike prices of series of options on Units 
of IVV 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 IVV 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 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 Trading Permit Holders 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\ which 
is an ETF that is identical in all material respects to the IVV ETF.
---------------------------------------------------------------------------

    \6\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\7\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \8\ requirements that the rules of an exchange be 
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 regulating, clearing, 
settling, processing information with respect to, and 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

[[Page 27909]]

the rules of an exchange not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Id.
---------------------------------------------------------------------------

    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.
    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 arbitrary $200 strike price above which options 
intervals increase by 500%. This proposal remedies the situation by 
establishing an exception to the current ETF 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 changes proposed by other exchanges.\10\
---------------------------------------------------------------------------

    \10\ See Securities and Exchange Act Release 34-72664 (July 24, 
2014), 79 FR 44231 (July 30, 2014) (Notice of Filing of Proposed 
Rule Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options) (SR-Phlx-2014-046).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \11\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

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. 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 
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.
---------------------------------------------------------------------------

    \12\ See Current Rule 5.5.08.
---------------------------------------------------------------------------

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

    The Exchange 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:
    A. significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \13\ and 
Rule 19b-4(f)(6) \14\ thereunder.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.
    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-CBOE-2017-048 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-CBOE-2017-048. 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 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-CBOE-2017-048 and should be 
submitted on or before July 10, 2017.

[[Page 27910]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12585 Filed 6-16-17; 8:45 am]
 BILLING CODE 8011-01-P