Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
BX is filing with the Commission a proposal to amend Chapter IV, Section 6 (Series of Options Contracts Open for Trading) to allow $1 or greater strike price intervals for options on the SPDR® S&P 500® Exchange Traded Fund (“SPY”) and the SPDR® Dow Jones® Industrial Average Exchange Traded Fund (“DIA”).
The text of the proposed rule change is also available on the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The purpose of this proposed rule change is to amend Chapter IV, Section 6 by modifying the interval setting regime for SPY and DIA options listed on the SPDR S&P 500 Exchange Traded Fund (“ETF”) and the SPDR Dow Jones Industrial Average ETF, respectively, to allow $1 or greater strike price intervals.
The proposed rule change is based on the recent Commission approval of a proposal to amend Commentary.05 to NASDAQ OMX PHLX LLC (“Phlx”)
Under current Chapter IV, Supplementary Material .01 to Section 6, the interval of strike prices of series of options on ETFs is $1 or greater where the strike price is 200 or less and $5 or greater where the strike price is more than 200.
The prices for SPY and DIA options [sic] are approaching the 200 price point. By the end of June 2014, for example, SPY was trading at more than $195 per share and DIA was trading at more than $168 per share.
Specifically, the Exchange proposes to add Chapter IV, Supplementary Material .01(c) to Section 6
With the proposal, for example, investors and traders would be able to roll open positions from a lower strike to a higher strike in conjunction with the price movement of the underlying. Under the current rule, where the next higher available series would be $5 away above a 200 strike price, the ability to roll such positions is effectively negated. Thus, to move a position from a 200 strike to a 205 strike under the current rule, an investor would need for the underlying product to move 2.5%, and would not be able to execute a roll up until such a large movement occurred. With the proposed rule change, however, the investor would be in a significantly safer position of being able to roll his open options position from a 200 to a 201 strike price, which is only a 0.5% move for the underlying.
By allowing SPY and DIA options in $1 intervals over a 200 strike price, the proposal will moderately augment the total number of options series available on the Exchange. However, 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 members 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. The Exchange's beliefs are supported by the limited nature of the proposal, which applies to two symbols rather than to all ETF products. Moreover, while under the current rule-set there is ample liquidity, it is constricted above 200. This proposal only enhances liquidity at more rational strike intervals necessary to benefit investors as the stock market improves in value. 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 more closely tailor their investment and hedging decisions by allowing SPY and DIA options to trade in finer $1 intervals.
The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.
In particular, the proposed rule change would add consistency to the SPY and DIA options markets and allow investors to use SPY and DIA options more easily and effectively. Moreover, the proposed rule change would allow investors and traders, whether big or small, to better trade and hedge positions in SPY and DIA options where the strike price is greater than 200, and ensure that SPY and DIA options investors and traders are not at a disadvantage simply because of the strike price.
The Exchange also believes the proposed rule change is consistent with Section 6(b)(1) of the Act,
As noted above, ETF options trade in wider $5 intervals above a 200 strike price, whereby options at or below a 200 strike price trade in $1 intervals. This creates a situation where contracts on the same option class, namely SPY and DIA options, effectively may not be able to execute certain strategies such as, for example, rolling to a higher strike price, simply because of the arbitrary 200 strike price above which options intervals increase by 500%. This proposal remedies the situation by establishing an exception to the current ETF interval regime, for SPY and DIA options only, to allow such options to trade in $1 or greater intervals at all strike prices.
The Exchange believes that the proposed rule change, like other strike price programs currently offered by the Exchange, will benefit investors by giving them increased flexibility to more closely tailor their investment and hedging decisions. Moreover, the proposed rule change is consistent with changes proposed by at least one other exchange.
With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and OPRA have the necessary systems capacity to handle any potential additional traffic associated with this proposed rule change. The Exchange believes that its members will not have a capacity issue as a result of this proposal.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes that the proposed rule change will result in additional investment options and opportunities to achieve the investment and trading objectives of market participants seeking efficient trading and hedging vehicles, to the benefit of investors, market participants, and the marketplace in general. Specifically, the Exchange believes that SPY and DIA option investors and traders will significantly benefit from the availability of finer strike price intervals above a 200 price point.
No written comments were either solicited or received.
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
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 would allow the Exchange to implement the proposed rule change as soon as possible and thereby harmonize its rules regarding SPY and DIA options intervals with the rules of other markets. The Exchange also stated that waiver would allow market participants to more effectively tailor their investing, trading, and hedging decisions in respect of SPY and DIA options by using finer $1 increments. For these reasons, 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.
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.
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:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.