Document ID: SEC-2014-1095-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Options Exchange, LLC
Posted Date: 2014-07-02T04:00Z

[Federal Register Volume 79, Number 127 (Wednesday, July 2, 2014)]
[Notices]
[Pages 37820-37822]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15476]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72483; File No. SR-BOX-2014-18]

Self-Regulatory Organizations; BOX Options Exchange LLC; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Interpretive Material to Rule 5050 (Series of Options Contracts Open 
for Trading) and Rule 6090 (Terms of Index Options Contracts) To 
Introduce Finer Strike Price Intervals for Standard Expiration 
Contracts in Option Classes That Also Have Short Term Options Listed on 
Them

June 26, 2014.
    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 June, 25, 2014, BOX Options Exchange LLC (the ``Exchange'') 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 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 introduce finer strike price intervals for 
standard expiration contracts in option classes that also have short 
term options listed on them (``related non-short term options''). 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.

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 interpretive material to Rule 5050 
and Rule 6090 to introduce finer strike price intervals for related 
non-short term options. In particular, the Exchange proposes to amend 
its rules to permit the listing of related non-short term options 
during the month prior to expiration in the same strike price intervals 
as allowed for short term option series. This is a competitive filing 
that is based on a proposal recently submitted by the International 
Securities Exchange, LLC (``ISE'').\3\
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    \3\ See Securities Exchange Act Release No. 72098 (May 6, 2014), 
79 FR 27006 (May 12, 2014) (Notice of Filing SR-ISE-2014-23).
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    Under the Exchange's current rules, the Exchange may list options 
in the Short Term Option (``STO'' or ``weekly'') Program in up to fifty 
option classes,\4\ including up to thirty index option classes,\5\ in 
addition to option classes that are selected by other securities 
exchanges that employ a similar program under their respective rules. 
For each of these option classes, the Exchange may list five short term 
option expiration dates at any given time, not counting monthly or 
quarterly expirations.\6\ Specifically, on any Thursday or Friday that 
is a business day, the Exchange may list short term option series in 
designated option classes that expire at the close of business on each 
of the next five Fridays that are business days and are not Fridays in 
which monthly or quarterly options expire.\7\ These short term option 
series, which can be several weeks or more from expiration, may be 
listed in strike price intervals of $0.50, $1, or $2.50, with the finer 
strike price intervals being offered for lower priced securities, and 
for options that trade in the Exchange's dollar strike program.\8\ More 
specifically, the Exchange may list short term options in $0.50 
intervals for strike prices less than $75, or for option classes that 
trade in one dollar increments in the related non-short term option, $1 
intervals for strike prices that are between $75 and $150, and $2.50 
intervals for strike prices above $150.\9\
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    \4\ See IM-5050-6(b)(1) to Rule 5050.
    \5\ See IM-6090-2(b)(1) to Rule 6090.
    \6\ See IM-5050-6(a) to Rule 5050 and IM-6090-2(a) to Rule 6090.
    \7\ Id.
    \8\ See IM-5050-6(b)(5) to Rule 5050 and IM-6090-2(b)(5) to Rule 
6090.
    \9\ Id. Strike price intervals of $2.50 are only available for 
non-index options. Short term index option contracts are subject to 
the same strike price intervals as non-short term options for strike 
prices above $150. See Securities Exchange Act Release No. 71188 
(December 26, 2013), 79 FR 166 (January 2, 2014) (Notice of Filing 
SR-BOX-2013-59).
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    The Exchange may also list standard expiration contracts, which are 
listed in accordance with the regular monthly expiration cycle. These 
standard expiration contracts must be listed in wider strike price 
intervals of $2.50, $5, or $10,\10\ though the Exchange also operates 
strike price programs, such as the dollar strike program mentioned 
above,\11\ that allow the Exchange to list a limited number of option 
classes in finer strike price intervals. In general, the Exchange must 
list standard expiration contracts in $2.50 intervals for strike prices 
of $25 or less, $5 intervals for strike prices greater than $25, and 
$10 intervals for strike prices greater than $200.\12\ During the week 
prior to expiration only, the Exchange is permitted to list related 
non-short term option contracts in the narrower strike price intervals 
available for short term option series.\13\ Since this exception to the 
standard strike price intervals is available only during the week prior 
to expiration, however, standard expiration contracts regularly trade 
at significantly wider intervals than their weekly counterparts, as 
illustrated below.
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    \10\ See Rule 5050(d).
    \11\ See IM-5050-2 to Rule 5050, which allows the Exchange to 
designate up to 150 option classes on individual stocks to be traded 
in $1 strike price intervals where the strike price is between $50 
and $1. See also IM-5050-3 to Rule 5050 ($2.50 Strike Price Program) 
and IM-5050-5 to Rule 5050 ($0.50 Strike Program).
    \12\ See Rule 5050(d).
    \13\ See IM-5050-6(b)(5) to Rule 5050 and IM-6090-2(b)(5) to 
Rule 6090.
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    For example, assume ABC is trading at $56.54 and the monthly 
expiration contract is three weeks to expiration. Assume also that the 
Exchange has listed all available short term option expirations and 
thus has short term option series listed on ABC for weeks one, two, 
four, five, and six. Each of the

[[Page 37821]]

five weekly ABC expiration dates can be listed with strike prices in 
$0.50 intervals, including, for example, the $56.50 at-the- money 
strike. Because the monthly expiration contract has three weeks to 
expiration, however, the near-the-money strikes must be listed in $5 
intervals unless those options are eligible for one of the Exchange's 
other strike price programs. In this instance, that would mean that 
investors would be limited to choosing, for example, between the $55 
and $60 strike prices instead of the $56.50 at-the-money strike 
available for short term options. This is the case even though 
contracts on the same option class that expire both several weeks 
before and several weeks after the monthly expiration are eligible for 
finer strike price intervals. Under the proposed rule change, the 
Exchange would be permitted to list the related non-short term option 
on ABC, which is less than a month to expiration, in the same strike 
price intervals as allowed for short term option series. Thus, the 
Exchange would be able to list, and investors would be able to trade, 
all expirations described above with the same uniform $0.50 strike 
price interval.
    As proposed, the Exchange would be permitted to begin listing the 
monthly expiration contract in these narrower intervals at any time 
during the month prior to expiration, which begins on the first trading 
day after the prior month's expiration date, subject to the provisions 
of Rule 5050(c). For example, since the April 2014 monthly option 
expired on Saturday, April 19, the proposed rule change would allow the 
Exchange to list the May 2014 monthly option in short term option 
intervals starting Monday, April 21.
    The Exchange believes that introducing consistent strike price 
intervals for short term options and related non-short term options 
during the month prior to expiration will benefit investors by giving 
them more flexibility to closely tailor their investment decisions. The 
Exchange also believes that the proposed rule change will provide the 
investing public and other market participants with additional 
opportunities to hedge their investments, thus allowing these investors 
to better manage their risk exposure.
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''),\14\ in general, and Section 6(b)(5) of the Act,\15\ 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. Additionally, the Exchange believes the proposed rule 
change is consistent with the Section 6(b)(5) \16\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers. Allowing finer strike 
price intervals for related non-short term options will result in a 
continuing benefit to investors by giving them more flexibility to 
closely tailor their investment and hedging decisions.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    As noted above, standard expiration options currently trade in 
wider intervals than their weekly counterparts, except during the week 
prior to expiration. This creates a situation where contracts on the 
same option class that expire both several weeks before and several 
weeks after the standard expiration are eligible to trade in strike 
price intervals that the standard expiration contract is not. When the 
Exchange originally filed to list related non-short term options in the 
same intervals as short term options in the same option class during 
the week prior to expiration,\17\ the Exchange was limited to listing 
one short term option expiration date at a time. Thus, there was no 
inconsistency between standard expiration contracts, which traded in 
finer intervals in the week prior to expiration, and short term 
options, which were only listed on the week prior to expiration. The 
STO Program has since grown in response to customer demand, and the 
Exchange is now permitted to list up to five short term option 
expiration dates in addition to standard expiration options.\18\ There 
is continuing strong customer demand to have the ability to execute 
hedging and trading strategies in the finer strike price intervals 
available in short term options, and the Exchange believes that the 
proposed rule change will increase market efficiency by harmonizing 
strike price intervals for contracts that are close to expiration, 
whether those contracts happen to be listed pursuant to weekly or 
monthly expiration cycles.
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    \17\ See Securities Exchange Act Release No. 67870 (September 
17, 2012), 77 FR 58600 (September 21, 2012) (Notice of Filing SR-
BOX-2012-012).
    \18\ See Securities Exchange Act Release Nos. 68361 (December 5, 
2012), 77 FR 73729 (December 11, 2012) (Notice of Filing SR-BOX-
2012-020); 71189 (December 26, 2013), 79 FR 163 (January 2, 2014) 
(Notice of Filing SR-BOX-2013-60).
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    The Exchange notes that, in addition to listing standard expiration 
contracts in short term option intervals during the expiration week, it 
already operates several programs that allow for strike price intervals 
for standard expiration contracts that range from $0.50 to $2.50.\19\ 
The Exchange believes that each of these programs has been successful 
but notes that limitations on the number of option classes that may be 
selected for each of these programs means that many standard expiration 
contracts must still be listed in wider intervals than their short term 
option counterparts. For example, the $0.50 strike price program, which 
offers the narrowest strike price interval, only permits the Exchange 
to designate up to 20 option classes to trade in $0.50 intervals in 
addition to option classes selected by other exchanges that employ a 
similar program.\20\ Thus, the proposed rules are necessary to fill the 
gap between strike price intervals allowed for short term options and 
related non-short term options. The Exchange believes that the proposed 
rule change, like the other strike price programs currently offered by 
the Exchange, will benefit investors by giving them more flexibility to 
closely tailor their investment and hedging decisions.
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    \19\ See supra note 11.
    \20\ See IM-5050-5 to Rule 5050.
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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 proposed rule change. The Exchange believes that its Participants 
will not have a capacity issue as a result of this proposal. The 
Exchange also represents that it does not believe this expansion will 
cause fragmentation of liquidity.
    As explained above, this proposal will afford significant benefits 
to market participants, and the market in general, in terms of 
significantly greater flexibility and increases in efficient trading 
and hedging options. It will also allow the Exchange to compete on 
equal footing with STO Programs adopted by other options exchanges, and 
in particular ISE, which has recently adopted substantially similar 
rules to those proposed here.

[[Page 37822]]

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. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to a filing submitted by ISE.\21\ The Exchange 
believes that the proposed rule change is necessary to permit fair 
competition among the options exchanges with respect to STO Programs. 
The Exchange believes that the proposed rule change will result in 
additional investment options and opportunities to achieve the 
investment 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 investors will benefit from the availability of strike price 
intervals in standard expiration contracts that match the intervals 
currently permitted for short term options with a similar time to 
expiration.
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    \21\ 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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-4(f)(6) 
thereunder.\23\
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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 
Commission deems this requirement to have been met.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will permit 
fair competition among the options exchanges with respect to STO 
Programs. For this reason, the Commission believes that the proposed 
rule change presents no novel issues and that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest; and will allow the Exchange to remain competitive with 
other exchanges. Therefore, the Commission designates the proposed rule 
change to be operative upon filing.\24\
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    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 
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-2014-18 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-2014-18. 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 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-2014-18 and should be 
submitted on or before July 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15476 Filed 7-1-14; 8:45 am]
BILLING CODE 8011-01-P