Document ID: SEC-2013-1821-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange, LLC
Posted Date: 2013-10-22T04:00Z

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62771-62774]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24660]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70668; File No. SR-BOX-2013-48]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Interpretive Material to Rule 5050 and Rule 6090

October 11, 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 October 4, 2013, BOX Options Exchange LLC (``BOX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change as described in Items I and II, 
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 interpretive material to Rule 5050 
(Series of Options Contracts Open for Trading) and Rule 6090 (Terms of 
Index Options Contracts) to give the Exchange the ability to initiate 
strike prices in more granular intervals for Short Term Options 
(``STOs'') in the same manner as on other options exchanges. The text 
of the proposed rule change is available from the principal office of 
the Exchange, at the Commission's Public

[[Page 62772]]

Reference Room and also on the Exchange's Internet Web site at http://boxexchange.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 IM-5050-6 to Rule 5050 (Series of 
Options Contracts Open for Trading) and IM-6090-2 to Rule 6090 (Terms 
of Index Options Contracts) to give the Exchange the ability to 
initiate strike prices in more granular intervals for Short Term 
Options (``STOs''). This is a competitive filing being proposed as a 
response to immediately effective fillings recently submitted by the 
Chicago Board Options Exchange, Inc. (``CBOE''), NASDAQ OMX PHLX, LLC 
(``Phlx''), NYSE Arca, Inc. (``Arca''), NYSE MKT LLC (``MKT''), MIAX 
Options Exchange (``MIAX'') and the International Securities Exchange, 
LLC (``ISE'').\3\
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    \3\ See Securities Exchange Act Release Nos. 68074 (October 19, 
2012), 77 FR 65241 (October 25, 2012) (SR-CBOE-2012-92); 69633 (May 
23, 2013), 78 FR 32498 (May 30, 2013) (SR-Phlx-2013-55); 68194 
(November 8, 2012), 77 FR 68172 (November 15, 2012) (SR-NYSEArca-
2012-114); 68193 (November 8, 2012), 77 FR 68177 (November 15, 2012) 
(NYSEMKT-2012-53); 69809 (June 20, 2013), 78 FR 38416 (June 26, 
2013) (SR-MIAX-2013-30); 70335 (September 6, 2013), 78 FR 56253 
(September 12, 2013) (SR-ISE-2013-47).
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    The Commission recently approved filings submitted by ISE and Phlx 
that amended the strike price interval setting parameters for their 
Short Term Option Series (``STOS'') Programs, but the revisions to 
their respective rules differ.\4\ Specifically, the ISE filing permits 
$0.50 strike price intervals for STOs for option classes that trade in 
one dollar increments in Related non-short Term Options and are in the 
STOS Program. The Phlx filing permits $0.50 strike price intervals when 
the strike price is below $75, and $1 strike price intervals when the 
strike price is between $75 and $150. Subsequent to the approval of 
these two competing methodologies, CBOE, Phlx, Arca, MKT, MIAX, and ISE 
filed immediately effective rule changes that integrated the two prior 
methodologies for establishing strike price intervals for STOs.\5\
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    \4\ See Securities Exchange Act Release Nos. 67754 (August 29, 
2012), 77 FR 54629 (September 5, 20120 [sic]) (order approving SR-
ISE-2012-33) (``ISE filing'') and 67753 (August 29, 2012) 77 FR 
54635 (September 5, 2012) (order approving SR-Phlx-2012-78) (``Phlx 
filing'').
    \5\ See supra, note 3.
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    The Exchange recently amended the strike price interval setting 
parameters for its STOS Program, however, the Exchange did not adopt a 
consolidated methodology and instead elected to adopt changes based on 
the Phlx filing.\6\ In order to remain competitive, the Exchange is now 
proposing to adopt a consolidated methodology for strike price interval 
setting parameters for the STOS Program similar to the other exchanges. 
Specifically, the Exchange is proposing that the strike price interval 
for STOs may be $0.50 for option classes that trade in one dollar 
increments in Related non-short Term Options and are in the STOS 
Program.
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    \6\ See Securities Exchange Act Release No. 67870 (September 17, 
2012), 77 FR 58600 (September 21, 2012) (Notice of Filing and 
Immediate Effectiveness of SR-BOX-2012-012).
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    The STOS Program is codified in the BOX Rules 5050 and 6090. These 
rules state that after an option class has been approved for listing 
and trading on the Exchange, the Exchange may open for trading on any 
Thursday or Friday that is a business day, series of options on no more 
than thirty option classes that expire on each of the next five 
consecutive Fridays that are business days. In addition to the thirty 
option class limitation, there is also a limitation that no more than 
twenty series for each expiration date in those classes may be opened 
for trading.\7\ Furthermore, the strike price of each STO series has to 
be fixed with approximately the same number of strike prices being 
opened above and below the value of the underlying security at about 
the time that the STOs are initially opened for trading on the 
Exchange, and with strike prices being within thirty percent (30%) 
above or below the closing price of the underlying security from the 
preceding day. The Exchange does not propose any changes to the current 
program limitations. The Exchange only proposes to amend IM-5050-6 and 
IM- 6090-2 to specify that the strike price interval for STOs may be 
$0.50 for option classes that trade in one dollar increments in Related 
non-short Term Options and are in the STOS Program.\8\ Like the other 
options exchanges, the Exchanges rules will continue to permit strike 
price intervals to be $0.50 or greater where the strike price is less 
than $75, and $1 or greater where the strike price is between $75 and 
$150.
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    \7\ However, the Exchange may open up to 10 additional series 
for each option class that participates in the Short Term Option 
Series Program when deemed necessary to maintain an orderly market, 
to meet customer demand or when the market price of the underlying 
security moves substantially from the exercise price or prices of 
the series already opened. Any additional strike prices listed by 
the Exchange shall be within thirty percent (30%) above or below the 
current price of the underlying security. The Exchange may also open 
additional strike prices of Short Term Option Series that are more 
than 30% above or below the current price of the underlying security 
provided that demonstrated customer interest exists for such series, 
as expressed by institutional, corporate or individual customers or 
their brokers. Market Makers trading for their own account shall not 
be considered when determining customer interest under this 
provision. In the event that the underlying security has moved such 
that there are no series that are at least 10% above or below the 
current price of the underlying security, the Exchange will delist 
any series with no open interest in both the call and the put series 
having a: (i) Strike higher than the highest strike price with open 
interest in the put and/or call series for a given expiration month; 
and (ii) strike lower than the lowest strike price with open 
interest in the put and/or the call series for a given expiration 
month, so as to list series that are at least 10% but not more than 
30% above or below the current price of the underlying security. In 
the event that the underlying security has moved such that there are 
no series that are at least 10% above or below the current price of 
the underlying security and all existing series have open interest, 
the Exchange may list additional series, in excess of the 30 allowed 
under IM-5050-6(b), that are between 10% and 30% above or below the 
price of the underlying security. The opening of the new Short Term 
Option Series shall not affect the series of options of the same 
class previously opened. IM-5050-6(b)(4) and IM-6090-2(b)(4).
    \8\ The Exchange also proposes to add the word ``index'' to the 
last sentence of IM-6060-2(b)(5) to clarify that the provision is 
referring to the expiration week of the index option class.
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    The Exchange notes that while it believes that there is substantial 
overlap between the two strike price interval setting parameters, the 
Exchange believes there are gaps that would enable one of the options 
exchanges listed above to initiate a series that the Exchange would not 
be able to initiate.\9\ Since strict inter-exchange rule uniformity is 
not required for the STOS

[[Page 62773]]

Programs that have been adopted by the various options exchanges, the 
Exchange proposes to revise its strike price intervals setting 
parameters so that it has the ability to initiate strike prices in the 
same manner (i.e., intervals) as CBOE, PHLX, Arca, MKT, MIAX, and ISE. 
Accordingly, the Exchange proposes to adopt rule text language 
substantially similar in all material respects to that adopted by the 
other exchanges, and in this way consolidate the two different 
approaches regarding strike price intervals for STOs.
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    \9\ The Exchange is making a distinction between initiating 
series and cloning series. The Exchange and the majority, if not 
all, of the other options exchanges that have adopted a STOS Program 
have a rule similar to the Exchange's that permits the listing of 
series that are opened by other exchanges. See IM-5050-6(b)(1) and 
IM-6090-2(b)(1). This filing is concerned with the ability to 
initiate series. For example, the strike price interval for ETF 
options is generally $1 or greater where the strike price is $200 or 
less. If an ETF class is selected to participate in the Short Term 
Option Program, the Exchange believes that the other exchanges would 
be permitted to initiate $0.50 strike price intervals where the 
strike price is between $151 and $200, but the Exchange would not 
be.
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    In support of this proposal, the Exchange states that the principal 
reason for the proposed expansion is in response to market and customer 
demand to list actively traded products in more granular strike price 
intervals and to provide Participants \10\ and their customers 
increased trading opportunities in the STOS Program, which is one of 
the most popular and quickly-expanding options expiration programs. The 
Exchange has observed increased demand for STO classes and/or series, 
particularly when market moving events such as significant market 
volatility, corporate events, or large market, sector, or individual 
issue price swings have occurred. There are substantial benefits to 
market participants in the ability to trade eligible option classes at 
more granular strike price intervals. The Exchange notes that the STOS 
Program has been well-received by market participants, in particular by 
retail investors. The Exchange believes that the current proposed 
revisions to the STOS Program will permit the Exchange to meet 
increased customer demand for more granular strike prices.
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    \10\ See Rule 100(40).
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it and the 
Options Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle any potential additional traffic associated with 
this current amendment to the STOS Program. The Exchange believes that 
its Participants will not have a capacity issue as a result of this 
proposal. The Exchange represents that it will monitor the trading 
volume associated with the additional options series listed as a result 
of this proposal and the effect (if any) of these additional series on 
market fragmentation and on the capacity of the Exchange's automated 
systems.
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''),\11\ in general, and Section 6(b)(5) of the Act,\12\ 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. In particular, the Exchange believes that giving it 
the ability to initiate strike prices in $0.50 intervals for option 
classes that trade in one dollar increments in Related non-short Term 
Options and are in the STOS Program, as provided in the proposed rule 
text, is reasonable because it will benefit investors by providing them 
with the flexibility to more closely tailor their investment and 
hedging decisions. While the proposed rule change may generate 
additional quote traffic, the Exchange does not believe that any 
increased traffic will become unmanageable since the proposal remains 
limited to a fixed number of classes. The Exchange also believes that 
the proposed rule change will ensure competition because it will allow 
the Exchange to initiate series in the same strike intervals as other 
options exchanges, including CBOE, PHLX, Arca, MKT, MIAX and ISE.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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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 Exchangebelieves that the 
proposed rule change will in fact relieve any burden on, or otherwise 
promote, competition. In this regard and as indicated above, the 
Exchange notes that the rule change is being proposed as a competitive 
response to immediately effective filings recently submitted by CBOE, 
PHLX, Arca, MKT, MIAX and ISE.\13\ The Exchange believes this proposed 
rule change is necessary to permit fair competition among the options 
exchanges with respect to STOS Programs.
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    \13\ See supra, note 3.
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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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the 30-day 
operative delay will allow BOX to initiate strikes prices in more 
granular intervals for STOs in the same manner as other options 
exchanges. In sum, the proposed rule change presents no novel issues, 
and waiver will allow the Exchange to remain competitive with other 
exchanges. Therefore, the Commission designates the proposal operative 
upon filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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

[[Page 62774]]

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-2013-48 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-2013-48. 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-2013-48 and should be 
submitted on or before November 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24660 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P