Document ID: SEC-2018-1796-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BOX Exchange LLC
Posted Date: 2018-11-23T05:00Z

[Federal Register Volume 83, Number 226 (Friday, November 23, 2018)]
[Notices]
[Pages 59429-59431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25469]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84612; File No. SR-BOX-2018-35]

Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Permit Up to Ten 
Expiration Months for Long-Term Options on the SPDR[supreg] S&P[supreg] 
500 Exchange-Traded Fund Shares (``SPY'')

November 16, 2018.
    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 November 16, 2018, BOX Exchange LLC (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend BOX Rule 5070 (Long-term Options 
Contracts) to permit up to ten (10) expiration months for long-term 
options on SPY. 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 5070 (Long-term Options 
Contracts) to permit up to ten (10) long-term options (``LEAPS'') 
expiration months for options on SPY.\3\ BOX Rule 5070 currently 
provides that the Exchange may list LEAPS that expire from twelve (12) 
to one hundred eighty (180) months from the time they are listed; and 
there may be up to six (6) expiration months.\4\ The Exchange believes 
the proposal will add liquidity to the SPY options market by allowing 
market participants to hedge risks relating to SPY positions over a 
longer time period with a known and limited cost. This is a filing that 
is based on a proposal recently submitted by Nasdaq PHLX LLC 
(``Phlx'').\5\
---------------------------------------------------------------------------

    \3\ In contrast to Rule 5070, Exchange Rule 6090(b)(1)(i), which 
applies to index options, permits the Exchange to list LEAPS on any 
class of index options, adding up to ten expiration months. The 
Exchange seeks to list ten expiration months of LEAPS on SPY, just 
as it now may list ten LEAPS expiration months on index options, in 
order to provide investors with a wider choice of investments.
    \4\ Strike price interval, bid/ask differential and continuity 
rules shall not apply to such options series until the time to 
expiration is less than nine (9) months. See BOX Rule 5070(a).
    \5\ See Securities Exchange Act Release No. 34-84449 (October 
18, 2018), 83 FR 53699 (SR-Phlx-2018-64).
---------------------------------------------------------------------------

    The SPY options market today is characterized by its tremendous 
daily and annual liquidity. As a consequence, the Exchange believes 
that the listing of additional SPY LEAPS expiration months would be 
well received by investors. This proposal to expand the number of 
permitted SPY long-term expiration months would not apply to LEAPS on 
any other class of stock or Exchange-Traded Fund Shares.\6\
---------------------------------------------------------------------------

    \6\ Historically, SPY is the largest and most actively traded 
ETF in the United States as measured by its assets under management 
and the value of shares traded.
---------------------------------------------------------------------------

    Finally, BOX Rule 5070(a) currently states that there may be ``up 
to six (6) additional expiration months.'' Because the rule does not 
specify which expiration months the six months are in addition to, and 
thus is ambiguous, the Exchange proposes to delete the word 
``additional.'' As amended, the rule would clearly and simply provide 
that the Exchange may list six expiration months having from twelve 
(12) to one

[[Page 59430]]

hundred eighty (180) months from the time they are listed until 
expiration.\7\
---------------------------------------------------------------------------

    \7\ The Exchange notes other exchanges have amended their 
rulebook to also clarify this language. See Securities Exchange Act 
Release No. 34-80769 (May 25, 2017), 82 FR 25472 (SR-Phlx-2017-41).
---------------------------------------------------------------------------

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''),\8\ in general, and Section 6(b)(5) of the Act,\9\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, 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 by offering market 
participants additional LEAPS on SPY options for their investment and 
risk management purposes. The proposal is intended simply to provide 
additional trading opportunities, thereby facilitating transactions in 
options and contributing to the protection of investors and the 
maintenance of fair and orderly markets.\10\ The proposed rule change 
seeks to fulfill the needs of market participants, particularly 
portfolio managers and other institutional customers, by providing 
protection from long-term market moves and by offering an alternative 
to hedging portfolios with futures positions or off-exchange customized 
derivatives instruments.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ As previously mentioned, the Exchange notes that this 
filing is based on a proposal recently submitted by Phlx, in which 
Phlx states the reason for filing is, in part, customer demand.
---------------------------------------------------------------------------

    The Exchange believes that additional expiration months for SPY 
LEAPS does not represent a proliferation of expiration months, but is 
instead a very modest expansion of LEAPS options. Significantly, the 
proposal would feature new LEAPS expiration months in only a single 
class of options that are very liquid and heavily traded, as discussed 
above. Additionally, the Exchange notes by way of precedent that ten 
expiration months are already permitted for index LEAPS options. 
Further, the Exchange has the necessary systems capacity to support the 
new SPY expiration months.

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 proposal merely provides 
investors additional investment and risk management opportunities by 
providing flexibility to the Exchange to list additional long term 
options expiration series, expanding the number of SPY LEAPS offered on 
the Exchange from six expiration months to ten expiration months. As 
indicated above, the Exchange notes that this filing is based on a 
proposal recently submitted by Phlx.\11\
---------------------------------------------------------------------------

    \11\ See supra, note 5.
---------------------------------------------------------------------------

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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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 under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative upon filing, to coincide with the effective date 
of Phlx's proposed rule change on which the proposal is partially 
based.\16\ The Exchange's proposal would clarify ambiguous rule text 
and would conform the Exchange's rules relating to the permitted number 
of SPY LEAPS expiration months to those of Phlx. Accordingly, the 
Commission believes that the proposal raises no new or novel regulatory 
issues, and waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission 
therefore waives the 30-day operative delay and designates the proposal 
operative upon filing.\17\
---------------------------------------------------------------------------

    \14\ Id.
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See supra, note 5.
    \17\ 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).
---------------------------------------------------------------------------

    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.

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-2018-35 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-2018-35. 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

[[Page 59431]]

business days between the hours of 10 a.m. and 3 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. 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-
2018-35 and should be submitted on or before December 14, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25469 Filed 11-21-18; 8:45 am]
BILLING CODE 8011-01-P