Notice2021-11691
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Proposed Rule Change To Amend BOX Rule 5050 (Series of Options Contracts Open for Trading) To Limit Short Term Options Series Intervals
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 3, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 105 (Thursday, June 3, 2021)</title>
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[Federal Register Volume 86, Number 105 (Thursday, June 3, 2021)]
[Notices]
[Pages 29856-29861]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-11691]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92072; File No. SR-BOX-2021-12]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change To Amend BOX Rule 5050 (Series of Options
Contracts Open for Trading) To Limit Short Term Options Series
Intervals
May 28, 2021.
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 May 18, 2021, BOX 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 BOX Rule 5050 (Series of Options
Contracts Open for Trading). This proposal seeks to limit Short Term
Options Series intervals between strikes which are available for
quoting and trading on BOX. 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 <a href="http://boxoptions.com">http://boxoptions.com</a>.
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 Options
Contracts Open for Trading.'' Specifically, this proposal seeks to
limit the intervals between strikes for multiply listed equity options
classes within the Short Term Options Series program that have an
expiration date more than twenty-one days from the listing.
Background
Today, BOX's listing rules within Rule 5050 permits the Exchange,
after a particular class of options (call option contracts or put
option contracts relating to a specific underlying stock, Exchange-
Traded Fund Share,\3\ or
[[Page 29857]]
ETN \4\) has been approved for listing and trading on the Exchange, to
open for trading series of options therein. The Exchange may list
series of options for trading on a weekly,\5\ monthly \6\ or quarterly
\7\ basis. BOX Rule 5050(d) sets forth the intervals between strike
prices of series of options on individual stocks.\8\ In addition to
those intervals, the Exchange may list series of options pursuant to
the $1 Strike Price Interval Program,\9\ the $0.50 Strike Program,\10\
the $2.50 Strike Price Program,\11\ and the $5 Strike Program.\12\
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\3\ Exchange-Traded Fund Share shall include shares or other
securities that are traded on a national securities exchange and are
defined as an ``NMS stock'' under Rule 600 of Regulation NMS, and
that (i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities, that hold
portfolios of securities and/or financial instruments including, but
not limited to, stock index futures contracts, options on futures,
options on securities and indexes, equity caps, collars and floors,
swap agreements, forward contracts, repurchase agreements and
reverse repurchase agreements comprising or otherwise based on or
representing investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money Market Instruments
(the ``Money Market Instruments'') (comprising or otherwise based on
or representing investments in broad-based indexes or portfolios of
securities and/or Financial Instruments and Money Market Instruments
(or that hold securities in one or more other registered investment
companies that themselves hold such portfolios of securities and/or
Financial Instruments and Money Market Instruments); or (ii)
represent interests in a trust that holds a specified non-U.S.
currency deposited with the trust or similar entity when aggregated
in some specified minimum number may be surrendered to the trust by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or (iv) represent interests in the SPDR[supreg] Gold Trust,
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS
Gold Trust, the ETFS Silver trust, the ETFS Palladium Trust, the
ETFS Platinum Trust or the Sprott Physical Gold Trust; provided the
conditions within BOX Rule 5050(h)(1) and (2) are met. See BOX Rule
5020(h).
\4\ Securities deemed appropriate for options trading shall
include shares or other securities (``Equity Index-Linked
Securities,'' ``Commodity-Linked Securities,'' ``Currency-Linked
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,''
collectively known as ``Index- Linked Securities'' or ``ETNs'') that
are principally traded on a national securities exchange and an
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the
Securities Exchange Act of 1934), and represent ownership of a
security that provides for the payment at maturity, as described
within BOX Rule 5020(k)(1)(A)-(F). See BOX Rule 5020(k).
\5\ The weekly listing program is known as the Short Term
Options Series Program and is described within IM-5050-6.
\6\ The Exchange will open a minimum of one expiration month and
series for each class of options open for trading on BOX. See BOX
Rule 5050(b). The monthly expirations are subject to certain listing
criteria for underlying securities described within Rule 5020.
Monthly listings expire the third Friday of the month. The term
``expiration date'' when used in respect of a series of binary
options other than event options means the last day on which the
options may be automatically exercised. In the case of a series of
event options (other than credit default options or credit default
basket options) that are be automatically exercised prior to their
expiration date upon receipt by the Corporation of an event
confirmation, the expiration date is the date specified by the
listing Exchange; provided, however, that when an event confirmation
is deemed to have been received by the Corporation with respect to
such series of options, the expiration date will be accelerated to
the date on which such event confirmation is deemed to have been
received by the Corporation or such later date as the Corporation
may specify. In the case of a series of credit default options or
credit default basket options, the expiration date is the fourth
business day after the last trading day for such series as such
trading day is specified by the Exchange on which the series of
options is listed; provided, however, that when an event
confirmation is deemed to have been received by the Corporation with
respect to a series of credit default options or single payout
credit default basket options prior to the last trading day for such
series, the expiration date for options of that series will be
accelerated to the second business day following the day on which
such event confirmation is deemed to have been received by the
Corporation. ``Expiration date'' means, in respect of a series of
range options expiring prior to February 1, 2015, the Saturday
immediately following the third Friday of the expiration month of
such series, and, in respect of a series of range options expiring
on or after February 1, 2015 means the third Friday of the
expiration month of such series, or if such Friday is a day on which
the Exchange on which such series is listed is not open for
business, the preceding day on which such Exchange is open for
business. See The Options Clearing Corporation (``OCC'') By-Laws at
Section 1.
\7\ The quarterly listing program is known as the Quarterly
Options Series Program and is described within IM-6090-1.
\8\ Except as otherwise provided in IM-5050-6, the interval
between strike prices of series of options on individual stocks will
be: (1) $2.50 or greater where the strike price is $25.00 or less;
(2) $5.00 or greater where the strike price is greater than $25.00;
and (3) $10.00 or greater where the strike price is greater than
$200.00. The interval between strike prices of series of options on
Exchange-Traded Fund Shares approved for options trading pursuant to
BOX Rule 5020(h) shall be fixed at a price per share which is
reasonably close to the price per share at which the underlying
security is traded in the primary market at or about the same time
such series of options is first open for trading on the Exchange, or
at such intervals as may have been established on another options
exchange prior to the initiation of trading on the Exchange.
Pursuant to IM-5050-1(b), notwithstanding any other provision
regarding the interval of strike prices of series of options on
Exchange-Traded Fund Shares in this rule, the interval of strike
prices on SPDR[supreg] S&P 500[supreg] ETF (``SPY''), iShares Core
S&P 500 ETF (``IVV''), PowerShares QQQ Trust (``QQQ''), iShares
Russell 2000 Index Fund (``IWM''), and the SPDR[supreg] Dow
Jones[supreg] Industrial Average ETF (``DIA'') options will be $1 or
greater.
\9\ The $1 Strike Interval Program is described within IM-5050-
2.
\10\ The $0.50 Strike Interval Program is described within IM-
5050-5.
\11\ The $2.50 Strike Interval Program is described within IM-
5050-3.
\12\ The $5.00 Strike Interval Program is described within Rule
5050(d)(5).
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The Exchange's proposal seeks to amend the listing of weekly series
of options as proposed within new Supplementary Material .03(f) of
Options 4, Section 5, by limiting the intervals between strikes in
multiply listed equity options, excluding Exchange-Traded Fund Shares
and ETNs, that have an expiration date more than twenty-one days from
the listing date. This proposal does not amend monthly or quarterly
listing rules nor does it amend the $1 Strike Price Interval Program,
the $0.50 Strike Program, the $2.50 Strike Price Program, or the $5
Strike Program.
Short Term Options Series Program
Today, IM-5050-6 permits BOX to open for trading on any Thursday or
Friday that is a business day (``Short Term Option Opening Date'')
series of options on an option class that expires at the close of
business on each of the next five Fridays that are business days and
are not Fridays in which monthly options series or Quarterly Options
Series expire (``Short Term Option Expiration Dates''), provided an
option class has been approved for listing and trading on the
Exchange.\13\ Today, the Exchange may open up to thirty initial series
for each option class that participates in the Short Term Option Series
Program.\14\ Further, if the Exchange opens less than thirty (30) Short
Term Option Series for a Short Term Option Expiration Date, additional
series may be opened for trading on the Exchange when the Exchange
deems it 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.\15\
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\13\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates, not including any Monday or Wednesday
SPY Expirations as provided below. If the Exchange is not open for
business on the respective Thursday or Friday, the Short Term Option
Opening Date will be the first business day immediately prior to
that respective Thursday or Friday. Similarly, if the Exchange is
not open for business on a Friday, the Short Term Option Expiration
Date will be the first business day immediately prior to that
Friday. With respect to Wednesday SPY Expirations, the Exchange may
open for trading on any Tuesday or Wednesday that is a business day
series of options on the SPDR S&P 500 ETF Trust (SPY) to expire on
any Wednesday of the month that is a business day and is not a
Wednesday in which Quarterly Options Series expire (``Wednesday SPY
Expirations''). With respect to Monday SPY Expirations, the Exchange
may open for trading on any Friday or Monday that is a business day
series of options on the SPY to expire on any Monday of the month
that is a business day and is not a Monday in which Quarterly
Options. Series expire (``Monday SPY Expirations''), provided that
Monday SPY Expirations that are listed on a Friday must be listed at
least one business week and one business day prior to the
expiration. The Exchange may list up to five consecutive Wednesday
SPY Expirations and five consecutive Monday SPY Expirations at one
time; the Exchange may have no more than a total of five Wednesday
SPY Expirations and a total of five Monday SPY Expirations. Monday
and Wednesday SPY Expirations will be subject to the provisions of
this Rule. See IM-5050-6(c) and (d).
\14\ See IM-5050-6(b)(3).
\15\ See IM-5050-6(b)(4).
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The Exchange may open for trading Short Term Option Series on the
Short Term Option Opening Date that expire on the Short Term Option
Expiration Date at strike price intervals of (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 option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or
[[Page 29858]]
(iii) $2.50 or greater where the strike price is above $150. During the
month prior to expiration of an option class that is selected for the
Short Term Option Series Program (``Short Term Option''), the strike
price intervals for the related non-Short Term Option (``Related non-
Short Term Option'') shall be the same as the strike price intervals
for the Short Term Option.\16\
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\16\ See IM-5050-1(b).
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The Exchange may select up to fifty currently listed option classes
on which Short Term Option Series may be opened on any Short Term
Option Opening Date. In addition to the fifty option class restriction,
the Exchange may also list Short Term Option Series on any option
classes that are selected by other securities exchanges that employ a
similar program under their respective rules. For each option class
eligible for participation in the Short Term Option Series Program, the
Exchange may open up to thirty Short Term Option Series for each
expiration date in that class. The Exchange may also open Short Term
Option Series that are opened by other securities exchanges in option
classes selected by such exchanges under their respective short term
option rules.\17\
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\17\ See IM-5050-6(b)(1).
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The Exchange notes that listings in the weekly program comprise a
significant part of the standard listing in options markets and that
the industry has observed a notable increase over approximately the
last five years in compound annual growth rate (``CAGR'') of weekly
strikes as compared to CAGR for standard third-Friday expirations.\18\
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\18\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (``BX Strike
Interval Approval Order''); and SR-2020-BX-032 as amended by
Amendment No. 1 (February 10, 2021) available at: <a href="https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf">https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf</a>
(``BX proposal''); see also BX Options Strike Proliferation Proposal
(February 25, 2021) available at: <a href="https://www.nasdaq.com/solutions/bxoptions-strike-proliferation-proposal">https://www.nasdaq.com/solutions/bxoptions-strike-proliferation-proposal</a>).
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Proposal
The Exchange proposes to widen the intervals between strikes in
order to limit the number of strikes listed for equity options
(excluding options on ETFs and ETNs) listed as part of the Short Term
Option Series Program that have an expiration date more than 21 days
from the listing date, by adopting proposed Rule 4.5(d)(6). The
Exchange notes that this proposal is substantively identical to the
strike interval proposal recently submitted by Nasdaq BX, Inc. (``BX'')
and approved by the Securities and Exchange Commission
(``Commission'').\19\
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\19\ See BX Strike Interval Approval Order, id.
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The proposal widens intervals between strikes for expiration dates
of equity option series (excluding options on ETFs and ETNs) beyond 21
days utilizing the three-tiered table in proposed IM-5050-11 (presented
below) which considers both the Share Price and Average Daily Volume
for the option series. The table indicates the applicable strike
intervals and supersedes IM-6090-2(b)(4), which currently permits 10
additional series to be opened for trading on the Exchange when the
Exchange deems it 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. As a result of the proposal, IM-6090-2(b)(4) would not
permit an additional series of an equity option to have an expiration
date more than 21 days from the listing date to be opened for trading
on the Exchange despite the noted circumstances in subparagraph (b)(4)
when such additional series may otherwise be added.
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Share Price
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Tier Average daily volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
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1......................................... Greater than 5,000.......... $0.50 $1.00 $1.00 $5.00 $5.00
2......................................... Greater than 1,000 to 5,000. 1.00 1.00 1.00 5.00 10.00
3......................................... 0 to 1,000.................. 2.50 5.00 5.00 5.00 10.00
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The Share Price would be the closing price on the primary market on
the last day of the calendar quarter. This value would be used to
derive the column from which to apply strike intervals throughout the
next calendar quarter. The Average Daily Volume would be the total
number of options contracts traded in a given security for the
applicable calendar quarter divided by the number of trading days in
the applicable calendar quarter. Beginning on the second trading day in
the first month of each calendar quarter, the Average Daily Volume
shall be calculated by utilizing data from the prior calendar quarter
based on Customer-cleared volume at OCC. For options listed on the
first trading day of a given calendar quarter, the Average Daily Volume
shall be calculated using the calendar quarter prior to the last
trading calendar quarter.\20\ Under current rules, if the Exchange is
not open for business on the respective Thursday or Friday, the Short
Term Option Opening Date will be the first business day immediately
prior to that respective Thursday or Friday, as is the case today for
STOs as specified within IM-5050-6.
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\20\ For example, options listed as of January 4, 2021 would be
calculated on January 5, 2021 using the Average Daily Volume from
July 1, 2020 to September 30, 2020.
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The Exchange proposes that Short Term Options Series that are newly
eligible for listing pursuant to Rule 5020(a) will not be subject to
this proposed IM-5050-11 until after the end of the first full calendar
quarter following the date the option class was first listed for
trading on any options market.\21\ The Exchange would be permitted to
list options on newly eligible listings, without any curtailment in
strike intervals, until the end of the first full quarter after they
were listed. BOX's proposal would thereby permit BOX to add strikes to
meet customer demand in the options class. By deferring the curtailment
until after the end of the first full calendar quarter, additional
information on the underlying security would be available to market
participants and public investors. During this period of deferment the
price of the underlying would have an opportunity to settle based on
the price discovery that has occurred in the primary market. An options
class that represents a newly listed primary security may fluctuate in
price after its initial listing; such volatility reflects a natural
uncertainty about the security. Also, BOX would have the ability to
list as many strikes as are permissible for the Short Term
[[Page 29859]]
Options Series once the expiry is within twenty-one days. Short Term
Options Series which have an expiration date less than twenty-one days
from the listing date are not subject to the curtailment, thereby
allowing BOX to list additional, and potentially narrower, strikes in
the event of market volatility or other market events.
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\21\ For example, if an options became newly eligible for
listing pursuant to Rule 5020 on March 1, 2021, the first full
quarterly lookback would be available on July 1, 2021. This option
would become subject to the curtailment on July 2, 2021.
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In the event of a corporate action, the Share Price of the
surviving company would be utilized. These metrics are intended to
align expectations for determining which strike intervals will be
utilized. Finally, notwithstanding the limitations imposed by proposed
IM-5050-11, this Strike Interval Proposal does not amend the range of
strikes that may be listed pursuant to IM-5050-6, regarding the Short
Term Option Series Program.
By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to greater than $150 during that
calendar quarter.\22\
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\22\ The Exchange notes that any limits on intervals imposed by
the Exchange's Rules will continue to apply. In this example, the
strikes would be in $1 intervals up to $150, which is the upper
limit imposed by IM-5050-6(b)(5).
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The proposed table within IM-5050-11 takes into account the
notional value of a security, as well as Average Daily Volume in the
underlying stock, in order to limit the intervals between strikes in
the Short Term Options listing program. BOX would utilize OCC Customer-
cleared volume, as customer volume is an appropriate proxy for demand.
The OCC Customer-cleared volume represents the majority of options
volume executed on the Exchange that, in turn, reflects the demand in
the marketplace. The options series listed on BOX are intended to meet
customer demand by offering an appropriate number of strikes. Non-
Customer cleared OCC volume represents the supply side. The strike
intervals for listing strikes in certain options are intended to remove
repetitive and unnecessary strike listings across the weekly expiries.
BOX's Strike Interval Proposal seeks to reduce the number of strikes in
the furthest weeklies, where there exist wider markets and therefore
lower market quality.
The proposed table within IM-5050-11 is intended to distribute
strike intervals in multiply listed equity options where there is less
volume as measured by the Average Daily Volume tiers. Therefore, the
lower the Average Daily Volume, the greater the proposed spread between
strike intervals. Options classes with higher volume contain the most
liquid symbols and strikes, therefore the finer the proposed spread
between strike intervals. Additionally, lower-priced shares have finer
strike intervals than higher-priced shares when comparing the proposed
spread between strike intervals.
Today, weeklies are available on 16% of underlying products. The
Exchange's Strike Interval Proposal curtails the density of strike
intervals listed in series of options, without reducing the classes of
options available for trading on BX. Short Term Options Series with an
expiration date greater than twenty-one days from the listing date
equates to 7.5% of the total number of strikes in the options market,
which equals 81,000 strikes.\23\ The Exchange expects this proposal to
results in the limitation of approximately 20,000 strikes within the
Short Term Options Series which is 2% of the total strikes in the
options markets.\24\ The Exchange understands there has been an
inconsistency of demand for series of options beyond 21 calendar
days.\25\ The proposal takes into account customer demand for certain
options classes, by considering both the Share Price and the Average
Daily Volume, in order to remove certain strike intervals where there
exist clusters of strikes whose characteristics closely resemble one
another and, therefore, do not serve different trading needs,\26\
rendering these strikes less useful. The Exchange also notes that the
proposal focuses on strikes in multiply listed equity options, and
excludes ETFs and ETNs, as the majority of strikes reside within equity
options.
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\23\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The above referenced data, specifically
the percentage of underlying products and percentage of and total
number of strikes, are approximations and may vary slightly at the
time of this filing.
\24\ From information drawn from time period between January
2020 and May 2020. See BX proposal, supra note 19.
\25\ See BX proposal, supra note 19.
\26\ See BX proposal, supra note 19.
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This Strike Interval Proposal serves to respond to comments
received from industry members with respect to the increasing number of
strikes that are required to be quoted by market makers in the options
industry. BOX requires Market Makers to quote a certain amount of time
in the trading day in their assigned options series to maintain
liquidity in the market.\27\ With an increasing number of strikes being
listed across options exchanges, Market Makers must expend their
capital to ensure that they have the appropriate infrastructure to meet
their quoting obligations on all options markets in which they are
assigned in options series. The Exchange believes that this Strike
Interval Proposal would limit the intervals between strikes, reducing
the number of strikes listed on BOX, and thereby allow Market Makers to
expend their capital in the options market in a more efficient manner.
Due to this increased efficiency, the Exchange believes that this
Strike Interval Proposal would improve overall market quality on BOX by
limiting the intervals between strikes in multiply listed equity
options that have an expiration date more than twenty-one days, from
the listing date.
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\27\ See Rule 8050.
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Implementation
The Exchange proposes to implement the proposed changes on July 1,
2021. The Exchange will issue a notice to its Participants with the
date of implementation. Lastly, the Exchange will issue a notice to its
Participants whenever the Exchange is the first exchange to list an
eligible Short Term Option Series.\28\
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\28\ When the Exchange is the first exchange to list an option
class under IM-5050-11 the Exchange shall provide a notice to its
Participants regarding the Short Term Option Series to be listed.
Such notice will include for each eligible option class: The closing
price of the underlying, the Average Daily Volume of the option
class; and the eligible strike category (per the proposed table) in
which the eligible option class falls under as a result of the
closing price and the Average Daily Volume.
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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''),\29\ in general, and Section 6(b)(5) of the Act,\30\ 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. The Strike Proposal seeks to limit the intervals
between strikes listed in the Short Term Options Series program that
have an expiration date more than twenty-one days. While the current
listing rules permit BOX to list a number of weekly strikes on its
market, the Exchange's Strike Interval Proposal removes impediments to
and
[[Page 29860]]
perfects the mechanism of a free and open market and a national market
system by encouraging Market Makers to deploy capital more efficiently
and improving market quality overall on BOX through limiting the
intervals between strikes when applying the strike interval table to
multiply listed equity options that have an expiration date more than
twenty-one days from the listing date. Also, as BOX's Strike Interval
Proposal seeks to reduce the number of weekly options that would be
listed on its market in later weeks, Market Makers would be required to
quote in fewer weekly strikes as a result of the Strike Interval
Proposal. Amending BOX's listing rules to limit the intervals between
strikes for multiply listed equity options that have an expiration date
more than twenty-one days causes less disruption in the market as the
majority of the volume traded in weekly options exists in options
series which have an expiration date of twenty-one days or less. The
Exchange's Strike Interval Proposal curtails the number of strike
intervals listed in series of options without reducing the number of
classes of options available for trading on BOX.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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The Strike Interval Proposal takes into account customer demand for
certain options classes by considering both the Share Price and the
Average Daily Volume in the underlying security to arrive at the manner
in which weekly strike intervals would be listed in the later weeks for
each multiply listed equity options class. The Exchange utilizes OCC
Customer-cleared volume, as customer volume is an appropriate proxy for
demand. The OCC Customer-cleared volume represents the majority of
options volume executed on the Exchange that, in turn, reflects the
demands in the marketplace. The options series listed on BOX is
intended to meet customer demand by offering an appropriate number of
strikes. Non-Customer cleared OCC volume represents the supply side.
The Strike Interval Proposal for listing strikes in certain
multiply listed equity options is intended to remove certain strikes
where there exist clusters of strikes whose characteristics closely
resemble one another and, therefore, do not serve different trading
needs that renders the strikes less useful and thereby protects
investors and the general public by removing an abundance of
unnecessary choices for an options series, while also improving market
quality. BOX's Strike Interval Proposal seeks to reduce the number of
strikes in the furthest weeklies, where there exist wider markets, and,
therefore, lower market quality. The implementation of the proposed
table is intended to spread strike intervals in multiply listed equity
options, where there is less volume that is measured by the average
daily volume tiers. Therefore, the lower the average daily volume, the
greater the proposed spread between strike intervals. Options classes
with higher volume contain the most liquid symbols and strikes,
therefore the finer the proposed spread between strike intervals.
Additionally, lower-priced shares have finer strike intervals than
higher-priced shares when comparing the proposed spread between strike
intervals.
Beginning on the second trading day in the first month of each
calendar quarter, the Average Daily Volume shall be calculated by
utilizing data from the prior calendar quarter based on OCC Customer-
cleared volume. Utilizing the second trading day allows the Exchange to
accumulate data regarding OCC Customer-cleared volume from the entire
prior quarter. Beginning on the second trading day would allow trades
executed on the last day of the previous calendar quarter to have
settled \31\ and be accounted for in the calculation of Average Daily
Volume. Utilizing the previous three months is appropriate because this
time period would help reduce the impact of unusual trading activity as
a result of unique market events, such as a corporate action (i.e., it
would result in a more reliable measure of average daily trading volume
than would a shorter period).
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\31\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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As stated, the proposal is substantively identical to the strike
interval proposal recently submitted by BX and approved by the
Commission.\32\ The Exchange believes that varied strike intervals will
continue to offer market participants the ability to select the
appropriate strike interval to meet that market participants'
investment objectives.
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\32\ See BX Strike Interval Approval Order, supra note 19.
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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 Exchange does not believe
that the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act as the proposed rule change limits the number of
Short Term Option Series strikes available for quoting and trading on
the Exchange for all market participants. Therefore, all market
participants will equally be able to transact in options series in the
strikes listed for trading on the Exchange. The proposal is intended to
reduce the number of strikes for weekly options listed in later weeks
without reducing the number of classes of options available for trading
on the Exchange while also continuing to offer an appropriate number of
strikes the Exchange believes will meet market participants' investment
objectives.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as it only
impacts the permissible strike intervals for certain options series
listed on the Exchange. Additionally, another options exchange has
recently implemented a substantively identical to the strike interval
proposal recently submitted by BX and approved by the Commission.\33\
The proposal is a competitive response that will permit the Exchange to
list the same series in multiply listed options as another options
exchange.
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\33\ See BX Strike Interval Approval Order, supra note 19.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) \34\ of the Act and Rule 19b-4(f)(6) thereunder.\35\
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)(iii) of the Act and subparagraph (f)(6) of Rule
19b-4 thereunder.\36\
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\34\ 15 U.S.C. 78s(b)(3)(A)(iii).
\35\ 17 CFR 240.19b-4(f)(6).
\36\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of its intent to file 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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[[Page 29861]]
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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f88a8d949dd59b9795959d968c8bb88b9d9bd69f978e"><span class="__cf_email__" data-cfemail="2351564f460e404c4e4e464d5750635046400d444c55">[email protected]</span></a>. Please include
File Number SR-BOX-2021-12 on the subject line.
Paper Comments
<bullet> 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-2021-12. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 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. 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-2021-12, and should be submitted on
or before June 24, 2021. For the Commission, by the Division of Trading
and Markets, pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11691 Filed 6-2-21; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.