[Federal Register Volume 87, Number 108 (Monday, June 6, 2022)]
[Notices]
[Pages 34330-34332]
[FR Doc No: 2022-12018]

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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-604, OMB Control No. 3235-0657]

Submission for OMB Review; Comment Request; Extension: Form N-MFP
and Rule 30b1-7

Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736

    Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (the ``Commission'') has submitted to the Office of
Management and Budget (``OMB'') a request for extension of the
previously approved collection of information discussed below.
    Section 30(b) of the Investment Company Act of 1940 (``Investment
Company Act'') \1\ provides that ``[e]very registered investment
company shall file with the Commission . . . such information,
documents, and reports (other than financial statements), as the
Commission may require to keep reasonably current the information and
documents contained in the registration statement of such company. . .
.'' \2\ Rule 30b1-7 under the Investment Company Act, entitled
``Monthly Report for Money Market Funds,'' provides that every
registered investment company, or

series thereof, that is regulated as a money market funds under rule
2a-7 \3\ must file with the Commission a monthly report of portfolio
holdings on Form N-MFP \4\ no later than the fifth business day of each
month.\5\ Form N-MFP sets forth the specific disclosure items that
money market funds must provide. Filers must submit this report
electronically using the Commission's electronic filing system
(``EDGAR'') in Extensible Markup Language (``XML'').
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    \1\ 15 U.S.C. 80a-1 et seq.
    \2\ 15 U.S.C. 80a-29(b).
    \3\ 17 CFR 270.2a-7.
    \4\ 17 CFR 274.201.
    \5\ 17 CFR 270.30b1-7.
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    Compliance with rule 30b1-7 is mandatory for any fund that holds
itself out as a money market fund in reliance on rule 2a-7. Responses
to the disclosure requirements will not be kept confidential. An agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless it displays a currently valid OMB
control number.
    The following estimates of average burden hours and costs are made
solely for purposes of the Paperwork Reduction Act and are not derived
from a comprehensive or even representative survey or study of the cost
of Commission rules and forms.
    The Commission calculates there are currently 353 \6\ money market
funds that report information on Form N-MFP, with approximately 8 \7\
of them being new money market funds that are filing reports on Form N-
MFP for the first time.
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    \6\ This calculation is based on staff review of reports on Form
N-MFP filed with the Commission for the month ended December 31,
2021 and includes both feeder and non-feeder money market funds.
    \7\ This estimate is based on staff review of reports on Form N-
MFP filed with the Commission for 2019 (16 new funds), 2020 (5 new
funds) and 2021 (2 new funds). Averaging those numbers over three
years provides an estimate of 8 new funds per year.
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    We estimate that 35% of money market funds (or 124 money market
funds, broken down into 121 existing funds and 3 new funds) \8\ license
a software solution and file reports on Form N-MFP in house; we further
estimate that each fund that files reports on Form N-MFP in house
requires an average of approximately 47 burden hours to compile
(including review of the information), tag, and electronically file the
Form N-MFP for the first time and an average of approximately 13 burden
hours for subsequent filings.\9\ Therefore, we estimate the per fund
average annual hour burden is 156 hours \10\ for existing funds and 190
hours \11\ for new money market funds. Based on an estimate of 121
existing funds and 3 new funds each year, we estimate that filing
reports on Form N-MFP in house takes 19,446 hours and costs funds, in
aggregate, $6,319,950 per year.\12\
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    \8\ The estimate is based on the following calculation: (353
money market funds x 35% = 124 money market funds. Of that amount,
we estimate that 2 are new money market funds (8 new money market
funds each year x 35% = 2.8 funds, rounded to 3). Therefore, 124
money market funds-3 new money market funds = 121 existing money
market funds.
    \9\ We understand that the required information is currently
maintained by money market funds pursuant to other regulatory
requirements or in the ordinary course of business. Accordingly, for
the purposes of our analysis, we do not ascribe any time to
producing the required information.
    \10\ This estimate is based on the following calculation: 12
filings per year x 13 burden hours per filing = 156 burden hours per
year.
    \11\ This estimate is based on the following calculation: (First
month's initial filing x 47 burden hours) + (11 subsequent month
filings x 13 burden hours per filing) = 190 burden hours per year.
    \12\ These estimates are based on the following calculations:
existing funds: (156 hours x blended hourly rate of $325 for a
financial reporting manager ($318 per hour), senior accountant ($327
per hour), senior database administrator ($373 per hour), senior
portfolio manager ($360 per hour) and compliance manager ($339 per
hour)) = $50,700. The blended hourly rate was calculated as ($318 +
$237 + $373 + $360 + $339/5 = $325. There are 121 existing money
market funds who use in house solutions x 156 hours with an internal
time cost of $50,700 per fund = 18,876 hours with an internal time
cost of $6,134,700.
    New money market funds: (190 hours x blended hourly rate of $325
for a financial reporting manager ($318 per hour), senior accountant
($237 per hour), senior database administrator ($373 per hour),
senior portfolio manager ($360 per hour) and compliance manager
($339 per hour)) = $61,750. The blended hourly rate was calculated
as ($318 + $237 + $373 + $360 + $339/5 = $325. Three new money
market funds x 190 hours with an internal time cost of $61,750 per
fund = 570 hours with an internal time cost of $185,250.
    Aggregate annual hourly burden for all funds filing reports on
Form N-MFP in house: 18,876 hours + 570 hours = 19,446 hours.
    Aggregate annual costs for all funds filing reports on Form N-
MFP in house: $6,134,700 + $185,250 = $6,319,950.
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    We estimate that 65% of money market funds (or 229 money market
funds, broken down into 224 existing funds and 5 new funds) \13\ retain
the services of a third party to provide data aggregation and
validation services as part of the preparation and filing of reports on
Form N-MFP on the fund's behalf; we further estimate that each fund
requires an average of approximately 26 burden hours to compile and
review the information with the service provider prior to
electronically filing the report for the first time and an average of
approximately 9 burden hours for subsequent filings. Therefore, we
estimate the per fund average annual hour burden is 108 hours \14\ for
existing funds and 125 hours \15\ for new money market funds. Based on
an estimate of 224 existing funds and 5 new funds each year, we
estimate that filing reports on Form N-MFP using a service provider
takes 24,817 hours and costs funds, in aggregate, $8,065,525 per
year.\16\ In sum, we estimate that filing reports on Form N-MFP imposes
a total annual hour burden of 44,263 hours,\17\ at an aggregate cost of
$14,385,475 on all money market funds.\18\
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    \13\ The estimate is based on the following calculation: (353
money market funds x 65% = 229 money market funds. Of that amount,
we estimate that 5 are new money market funds (8 new money market
funds each year x 65% = 5.2 funds, rounded to 5). Therefore, 229
money market funds - 5 new money market funds = 224 existing money
market funds.
    \14\ This estimate is based on the following calculation: 12
filings per year x 9 burden hours per filing = 108 burden hours per
year.
    \15\ This estimate is based on the following calculation: (First
month's initial filing x 26 burden hours) + (11 subsequent month
filings x 9 burden hours per filing) = 125 burden hours per year.
    \16\ These estimates are based on the following calculations:
Existing funds: (108 hours x blended hourly rate of $325 for a
financial reporting manager ($318 per hour), senior accountant ($237
per hour), senior database administrator ($373 per hour), senior
portfolio manager ($360 per hour) and compliance manager ($339 per
hour)) = $35,100. The blended hourly rate was calculated as ($318 +
$237 + $373 + $360 + $339/5 = $325. There are 224 existing money
market funds who use a third-party service provider x 148 hours with
an internal time cost of $35,100 per fund = 24,192 hours with an
internal time cost of $7,862,400.
    New money market funds: (125 hours x blended hourly rate of $325
for a financial reporting manager ($318 per hour), senior accountant
($237 per hour), senior database administrator ($373 per hour),
senior portfolio manager ($360 per hour) and compliance manager
($339 per hour)) = $40,625. The blended hourly rate was calculated
as ($318 + $237 + $373 + $360 + $339/5 = $325. Five new money market
funds x 125 hours with an internal time cost of $40,625 per fund =
625 hours with an internal time cost of $203,125.
    Aggregate annual hourly burden for all funds filing reports on
Form N-MFP using a third party service provider: 24,192 hours + 625
hours = 24,817 hours.
    Aggregate annual costs for all funds filing reports on Form N-
MFP using a third party service provider: $7,862,400 + $203,125 =
$8,065,525.
    \17\ This estimate is based on the following calculation: 19,446
hours for filers licensing a software solution and filing in-house +
24,817 hours for filers using a third-party service provider =
44,263 hours in total.
    \18\ This estimate is based on the following calculation:
$6,319,950 (in-house filers) + $6,319,950 (filers using a service
provider) = $14,385,475.
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    Cost burden is the cost of goods and services purchased in
connection with complying with the collection of information
requirements of rule 30b1-7 and Form N-MFP. The cost burden does not
include the cost of the hour burden discussed above.
    Based on discussions with industry participants, we estimate that
money market funds that file reports on Form N-MFP in house license a
third-party software solution to assist in filing their reports at an
average cost of $3,900 per

fund per year. In addition, we estimate that money market funds that
use a service provider to prepare and file reports on Form N-MFP pay an
average fee of $9,300 per fund per year. In sum, we estimate that all
money market funds incur on average, in the aggregate, external annual
costs of $2,613,300.\19\
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    \19\ This estimate is based on the following calculation: (124
money market funds (121 existing funds + 3 new funds) that file
reports on Form N-MFP in house x $3,900 per fund, per year) + (229
money market funds (224 existing funds + 5 new funds) that file
reports on Form N-MFP using a service provider x $9,300 per fund,
per year) = $2,613,300.
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    The public may view background documentation for this information
collection at the following website: www.reginfo.gov. Find this
particular information collection by selecting ``Currently under 30-day
Review--Open for Public Comments'' or by using the search function.
Written comments and recommendations for the proposed information
collection should be sent within 30 days of publication of this notice
by July 6, 2022 to (i) [email protected] and
(ii) David Bottom, Director/Chief Information Officer, Securities and
Exchange Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC
20549, or by sending an email to: [email protected].

    Dated: May 31, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-12018 Filed 6-3-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 72 (Tuesday, April 15, 2014)]
[Notices]
[Pages 21331-21332]
[FR Doc No: 2014-08422]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71920; File No. SR-ICEEU-2014-04]

Self-Regulatory Organizations; ICE Clear Europe Limited; Order
Approving Proposed Rule Change To Clear New Sovereign Contracts

April 9, 2014.

I. Introduction

    On February 11, 2014, ICE Clear Europe Limited (``ICE Clear
Europe'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-ICEEU-2014-04 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The proposed rule change was published
for comment in the Federal Register on February 25, 2014.\3\ The
Commission did not receive any comments on the proposed rule change.
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 34-71574 (Feb. 19, 2014), 79 FR
10578 (Feb. 25, 2014) (SR-ICEEU-2014-04).
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II. Description of the Proposed Rule Change

    ICE Clear Europe proposes to adopt rules to provide for the
clearance of new credit default swap (``CDS'') contracts that are
Western European Sovereign CDS contracts referencing the Republic of
Ireland, Italian Republic, Portuguese Republic, and Kingdom of Spain
(the ``New Sovereign Contracts''). ICE Clear Europe has identified
Western European Sovereign CDS Contracts as a product that has become
increasingly important for market participants to manage risk and
express views with respect to the European sovereign credit markets.
ICE Clear Europe believes clearance of the New Sovereign Contracts will
benefit the markets for CDS on Western European sovereigns by offering
to market participants the benefits of clearing, including reduction in
counterparty risk and safeguarding of margin assets pursuant to
clearing house rules. The terms of the New Sovereign Contracts will be
governed by Paragraph 12 of ICE Clear Europe's CDS Procedures. ICE
Clear Europe has stated that clearing of the New Sovereign Contracts
will not require any changes to ICE Clear Europe's existing Clearing
Rules and CDS Procedures, although ICE Clear Europe has updated its
risk management framework (including relevant policies) and margin
model as discussed herein.
    ICE Clear Europe proposes to enhance its CDS risk management
framework, including the margin methodology (the ``CDS Model''),\4\ to
include several features designed to address particular risks of the
New Sovereign Contracts. To address so-called general wrong way risk
(``General Wrong Way Risk'') involving correlation between the risk of
default of an underlying sovereign and the risk of default of a
clearing member that has written credit protection through a New
Sovereign Contract on such sovereign, ICE Clear Europe proposes to
establish additional jump-to-default requirements for initial margin
for portfolios that present such risk.
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    \4\ ICE Clear Europe has performed a variety of empirical
analyses related to clearing of the New Sovereign Contracts under
its margin methodology, including back tests and stress tests.
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    ICE Clear Europe proposes to adopt a combination of qualitative and
quantitative approaches to capture General Wrong Way Risk. Under the
enhanced CDS Model, an additional contribution to initial margin will
be required when the seller of protection exhibits a high degree of
association with an underlying Western European Sovereign reference
entity by virtue of domicile (qualitative approach) or high spread
return correlation (quantitative approach). To address General Wrong
Way Risk arising from clearing member domicile, ICE Clear Europe
proposes to require full collateralization of the jump-to-default loss
for a protection seller under a contract referencing the sovereign
where the protection seller is domiciled.
    Under the proposed quantitative approach, which will apply where
the protection seller is not domiciled in the jurisdiction of the
underlying sovereign, two types of thresholds will be introduced: a
loss threshold and a correlation threshold. Additional General Wrong
Way Risk collateralization will be collected if both thresholds are
exceeded. If the spread return correlation between the member and the
sovereign is above the correlation threshold and the sovereign CDS
jump-to-default loss is above the loss threshold, General Wrong Way
Risk collateralization is assessed as a function of the spread return
correlation and amount by which the loss threshold is exceeded. The
charge becomes more conservative as the spread return correlation
increases. The application of additional initial margin requirements
under the quantitative approach is not subject to discretion, although
the thresholds will be subject to review by the CDS Risk Committee as
part of its periodic review of ICE Clear Europe's margin methodology.
    ICE Clear Europe's proposal also addresses other forms of wrong way
risk arising from currency risk. To mitigate the currency risk between
a sovereign reference entity and a New Sovereign Contract involving
that entity, and to facilitate greater market liquidity, the New
Sovereign Contracts (and related margin and guaranty fund requirements)
will be denominated in U.S. dollars, rather than Euro. In addition, ICE
Clear Europe's rules contain prohibitions on self-referencing trades
(i.e., trades where the clearing member is an affiliate of the
underlying sovereign reference entity). Such trades may not be
submitted for clearing, and if a clearing member subsequently becomes
affiliated with the underlying reference entity, the rules applicable
to New Sovereign Contracts provide for the termination of relevant
positions.
    ICE Clear Europe proposes to apply its existing margin methodology
to the New Sovereign Contracts, with the enhancements to address
General Wrong Way Risk discussed above. ICE Clear Europe believes that
this model,

including the additional initial margin that may be required to address
General Wrong Way Risk, will provide sufficient margin to cover its
credit exposure to its clearing members from clearing such contracts.
Furthermore, ICE Clear Europe believes that its CDS Guaranty Fund,
under its existing methodology, will, together with the required
margin, provide sufficient financial resources to support the clearing
of New Sovereign Contracts.
    ICE Clear Europe believes it will have the operational and
managerial capacity to clear the New Sovereign Contracts as of the
commencement of clearing, and that its existing systems are
appropriately scalable to handle the additional New Sovereign
Contracts, which are generally similar from an operational perspective
to the CDS contracts currently cleared by ICE Clear Europe.
    ICE Clear Europe has stated that the revised margin methodology
operates without the need for the CDS Risk Committee, ICE Clear Europe
Board or management to exercise discretion concerning particular
clearing members or the margin levels applicable to them. ICE Clear
Europe has also stated that the qualitative and quantitative components
to the methodology do not contain discretionary elements, and once the
relevant threshold is exceeded, the clearing house is required under
the policy to assess an additional initial margin charge based on the
margin methodology. ICE Clear Europe believes this approach should
minimize any potential conflicts of interest.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \5\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. Section 17A(b)(3)(F) of the Act \6\
requires, among other things, that the rules of a clearing agency are
designed to promote the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivative
agreements, contracts, and transactions, to assure the safeguarding of
securities and funds which are in the custody or control of the
clearing agency or for which it is responsible, and in general, to
protect investors and the public interest.
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    \5\ 15 U.S.C. 78s(b)(2)(C).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    After careful review, the Commission finds that the proposed rule
change is consistent with Section 17A of the Act \7\ and the rules
thereunder applicable to ICE Clear Europe. Specifically, the Commission
believes that ICE Clear Europe's proposal to clear the New Sovereign
Contracts in accordance with its existing Clearing Rules and procedures
applicable to CDS contracts is designed to promote the prompt and
accurate clearance and settlement of securities transactions and to
assure the safeguarding of securities and funds which are in the
custody or control of the clearing agency or for which it is
responsible, consistent with Section 17A(b)(3)(F) of the Act.\8\
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    \7\ 15 U.S.C. 78q-1.
    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    Additionally, the Commission believes that the proposed
enhancements to ICE Clear Europe's CDS risk management framework to
address the General Wrong Way Risks associated with clearing New
Sovereign Contracts, including the correlation and currency risks
discussed above, are designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible, and in general, to protect investors and
the public interest, consistent with Section 17A(b)(3)(F) of the
Act.\9\ The proposal will require additional contributions to initial
margin when the seller of protection exhibits a high degree of
association with an underlying Western European Sovereign reference
entity by virtue of domicile (qualitative approach) or high spread
return correlation (quantitative approach). These proposed margin model
enhancements will provide additional resources to ICE Clear Europe to
address the potential risks associated with the correlation between the
risk of default of an underlying sovereign and the risk of default of a
clearing member that has written credit protection through a New
Sovereign Contract on such sovereign. The Commission also believes that
the enhanced risk management framework, in combination with ICE Clear
Europe's existing rules and procedures related to margin and guaranty
fund, is reasonably designed to meet the requirements of Rules 17Ad-
22(b)(1)--(3) \10\ related to the measurement and management of credit
exposures, margin requirements, and the maintenance of sufficient
financial resources required for a registered clearing agency acting as
a central counterparty for security-based swaps.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
    \10\ 17 CFR 240.17Ad-22(b)(1)--(3).
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    As noted above, ICE Clear Europe's proposed revised margin
methodology operates without the need for the CDS Risk Committee, ICE
Clear Europe Board, or management to exercise discretion concerning
particular clearing members or the margin levels applicable to them.
ICE Clear Europe has stated that the qualitative and quantitative
components to the methodology do not contain discretionary elements,
and once the relevant thresholds are exceeded, the clearing house is
required under the policy to assess an additional initial margin charge
based on the margin methodology. The Commission does not believe that
these proposed changes will result in unfair discrimination among
clearing members within the meaning of Section 17A(b)(3)(F) of the Act
\11\ and believes that these proposed changes are consistent with the
requirements of Rule 17Ad-22(d)(8).\12\
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 17 CFR 240.17Ad-22(d)(8).
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    Finally, the Commission believes that ICE Clear Europe's proposal
to clear New Sovereign Contracts in accordance with its existing rules,
procedures, and operational framework is reasonably designed to
identify sources of operational risk and minimize them through the
development of appropriate systems, controls, and procedures, and to
implement systems that are reliable, resilient and secure, and have
adequate, scalable capacity consistent with Rule 17Ad-22(d)(4).\13\
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    \13\ 17 CFR 240.17Ad-22(d)(4).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act\14\ and the
rules and regulations thereunder.
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    \14\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-ICEEU-2014-04) be, and
hereby is, approved.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08422 Filed 4-14-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9886-9891]
[FR Doc No: 2017-02541]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79936; File No. SR-BOX-2016-50]

Self-Regulatory Organizations; BOX Options Exchange LLC; Order
Granting Approval of a Proposed Rule Change To Amend Rule 5050 Series
of Options Contracts Open for Trading To Provide for the Listing and
Trading on the Exchange of RealDay\TM\ Options Pursuant to a Pilot
Program

February 2, 2017.

I. Introduction

    On October 26, 2016, BOX Options Exchange LLC (the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
provide for the listing and trading on the Exchange of RealDay\TM\
Options (``RealDay Options'') on a pilot basis. The proposed rule
change was published for comment in the Federal Register on November
15, 2016.\3\ The Commission received one comment letter on the proposed
rule change.\4\ On December 20, 2016, pursuant to Section 19(b)(2) of
the Act,\5\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to approve or disapprove
the proposed rule change.\6\ This order approves the proposed rule
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79258 (November 8,
2016), 81 FR 80125 (``Notice'').
    \4\ See Letter from Edward T. Tilly, Chief Executive Officer,
Chicago Board Options Exchange (``CBOE''), Incorporated, to Brent J.
Fields, Secretary, Commission, dated December 6, 2016 (``CBOE
Letter'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 79613, 81 FR 95206
(December 27, 2016). The Commission designated February 13, 2017 as
the date by which the Commission would either approve or disapprove,
or institute proceedings to determine whether to approve of
disapprove, the proposed rule change.

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II. Description of the Proposed Rule Change

General Description \7\
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    \7\ For additional details, including examples provided by the
Exchange with respect to the proposed operation of RealDay Options,
see Notice, supra note 3.
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    Pursuant to a twelve-month pilot program, the Exchange proposes to
amend its rules to list and trade on the Exchange RealDay Options on
the SPDR[supreg] S&P 500[supreg] Exchange Traded Fund (``SPY''). The
Exchange states that RealDay Options are designed and exclusively
licensed by the RealDay Options Corporation, and would be exclusively
listed on BOX. RealDay Options would share many characteristics of
existing standardized options with some distinct variations. Most
notably, at the commencement of trading of a particular RealDay Option
and until the close of trading on the last trading day before its
expiration, the numerical value of the strike price would not be known.
However, the formula used to calculate the strike price would be fixed
and known from the time of listing.\8\
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    \8\ The Exchange describes RealDay Options as true, or real,
one-day options because they are forward start (or delayed start)
options with strike increments and a strike price setting formula
that are fixed from the time of listing, but with numerical strike
prices determined based on the formula using the closing price of
SPY from the last trading day before expiration.
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    The trading of RealDay Options would in essence be divided into two
periods: The anticipatory period and the active period. The
anticipatory period would be the period of time from the day the option
is listed up until the close of trading on the last trading day before
expiration. The active period would be the expiration day of the
option. During the anticipatory period, the strike intervals and strike
price setting formula would be known, but not the numerical value of
the strike prices, because they would depend on the closing price of
SPY from the last trading day before expiration. RealDay Options could
still be traded in the anticipatory period in the same manner as
standard options on SPY. During the active period, the numerical value
of the strike prices would be known. Although the active period is only
one trading day, RealDay Options could be listed for up to nine months
in advance of the expiration date, but at least two weeks prior to
their expiration.\9\
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    \9\ See Proposed Rule 5050(f).
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    The Exchange has only proposed to list RealDay Options on SPY, but
the Exchange states that it may seek to list RealDay Options on
additional securities in the future.\10\ According to the Exchange, it
has proposed to list RealDay Options initially on SPY due to the vast
liquidity in the security, which the Exchange states to be the largest
and most actively traded Exchange Traded Fund (``ETF'') in the United
States.\11\
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    \10\ See Notice, supra note 3, at 80126 (representing that, if
it were to seek to list RealDay Options on additional securities,
the Exchange would use the approval process under Form 19b-4).
    \11\ See Notice, supra note 3, at 80126.
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Strike Price, Strike Intervals, Settlement and Exercise Price

    While the numerical value of the strike prices for RealDay Options
would not be known until the close of trading on the last trading day
before expiration, the strike intervals and strike price setting
formula would be fixed from inception.\12\ The formula would involve
multiplying the closing price of SPY from the last trading day before
expiration (``Strike Setting Price'') by the Strike Multiplier.\13\ In
effect, the strike price would stay at the same percentage relationship
to the price of SPY from the time of listing. The Exchange proposes to
only list up to a maximum of seven strike prices for each expiration
date, consisting of up to three strike prices with a price greater than
the Strike Setting Price, three strike prices with a price less than
the Strike Setting Price, and one strike price equal to the Strike
Setting Price.\14\ The Exchange proposes to have discretion in
determining the number of strike prices that would be listed per
expiration, provided that the strike prices satisfy these restrictions.
Additionally, the Exchange would be required to always list the strike
price that is equal to the Strike Setting Price for each RealDay
Options expiration. The Exchange proposes to have the discretion to
determine not to list in-the-money (``ITM'') put or call options for
any of the seven strike prices,\15\ as the Exchange believes the value
of RealDay Options is in the instruments that are at-the-money and out-
of-the-money. Similar to other options products listed by the Exchange,
the Exchange proposes to allow for the addition of strike prices after
the initial listing of a RealDay Option, provided that the Exchange
does not list more than the seven strike prices permitted by the
guidelines described above.\16\
---------------------------------------------------------------------------

    \12\ See proposed Rule 5050(f)(8).
    \13\ The ``Strike Multiplier'' is the decimal equivalent of the
percentage strike of the specific option. The Strike Multiplier
would be expressed with three decimal places. For example, an option
that is equal to the Strike Setting price would be 100%, making the
Strike Multiplier 1.000.
    \14\ See proposed Rule 5050(f)(2).
    \15\ See proposed Rule 5050(f)(2)(ii). The ITM puts that the
Exchange may decide to not list are those corresponding to the three
strike prices that are greater than the Strike Setting Price and the
ITM call options are those corresponding to the three strike prices
that are less than the Strike Setting Price.
    \16\ See Notice, supra note 3, at 80127.
---------------------------------------------------------------------------

    The Exchange also proposes additional procedures in determining the
exact number of strike prices that may be listed for a RealDay
Option.\17\ Specifically, if the underlying security is priced at or
above $25.00 per share, the Exchange would be permitted to list up to
all seven permitted strike prices. If the underlying security is priced
at or below $10.00 per share, the Exchange would not list any RealDay
Options on the underlying security. If the underlying security is
priced between $10.00 and $25.00 per share, the Exchange would only
list one strike price, which would be equal to the Strike Setting
Price.
---------------------------------------------------------------------------

    \17\ See proposed Rule 5050(f)(2).
---------------------------------------------------------------------------

    The strike price formula would be used after the close of trading
on the last trading day before expiration in order to calculate the
numerical values of the strike prices. Specifically, the strike prices
would be determined by multiplying the Strike Setting Price by the
Strike Multiplier. Rather than applying the Exchange's general strike
price interval rules, the strike prices for RealDay Options would have
fixed strike intervals of 0.50%.\18\ The strike prices would be rounded
to the nearest minimum trading increment, if necessary. If SPY does not
open for trading on the trading day before the expiration date, the
Exchange proposes to use the last available closing price for SPY as
the Strike Setting Price.
---------------------------------------------------------------------------

    \18\ See Proposed Rule 5050(f)(3). There would be one strike
price equal to 100% of the Strike Setting Price (with a Strike
Multiplier of 1.000), three strike prices greater than then Strike
Setting Price determined by adding 0.5%, 1.0%, and 1.5%,
respectively, to the Strike Setting Price (with Strike Multipliers
of 1.005, 1.010, and 1.015, respectively), and three strike prices
lower than the Strike Setting Price determined by subtracting 0.5%,
1.0%, and 1.5%, respectively, from the Strike Setting Price (with
Strike Multipliers of 0.995, 0.990, and 0.985, respectively).
---------------------------------------------------------------------------

    The Exchange proposes to calculate the exercise and settlement
price of RealDay Options based on the closing price of SPY on the
trading day of expiration. The exercise-settlement amount would be
equal to the difference between the settlement price and the exercise
price of the option multiplied by 100. Exercise would result in the
delivery of cash on the business day following expiration. If SPY does
not open for trading on the trading day of expiration, at the close of
trading on expiration, RealDay Options would have an exercise price
that is equal to the

closing price from the last trading day before expiration.

Other Characteristics

    The Exchange proposes that RealDay Options be P.M. cash-settled and
have European-style exercise provisions.\19\ These options may expire
every trading day, including days on which monthly options series,
Short Term Options Series, and Quarterly Options Series on SPY expire.
---------------------------------------------------------------------------

    \19\ See Proposed Rule 5050(f)(4). See also Notice, supra note
3, at 80126-27 and 80129-30 (discussing the Exchange's
representations with respect to the appropriateness of its proposed
settlement and exercise methodologies for RealDay Options).
---------------------------------------------------------------------------

    The Exchange proposes to list RealDay Options on SPY with the
symbol ``SPYZ.'' During the anticipatory period, the Exchange proposes
to list the strike prices as the Strike Multiplier because the
numerical value of the strike price would not yet be known. The
Exchange proposes to use three decimal places to indicate the strike
prices as the Strike Multiplier during the anticipatory period.\20\
According to the Exchange, using three decimal places is unique and not
a practice currently used for options, which the Exchange believes
would put investors on notice and aware that the Strike Multiplier does
not represent a strike price of a typical standard option.\21\ The
Exchange represents that it has explained what the three decimal places
would represent to data vendors, the Options Clearing Corporation, and
various market participants, and the Exchange represents that they have
confirmed that they would be able to handle the three decimal places
when RealDay Options are launched.\22\ The Exchange also represents
that it will provide information and education to market participants
via circular prior to the launch of RealDay Options to further minimize
any potential investor confusion.\23\
---------------------------------------------------------------------------

    \20\ See Notice, supra note 3, at 80128 (providing an example of
strike prices for RealDay Options during the anticipatory period).
    \21\ See id. at 80128.
    \22\ See id. at 80128 n.24.
    \23\ See id. at 80128.
---------------------------------------------------------------------------

    After the close of trading on the last trading day before
expiration, the decimal would be converted into the numerical strike
price by multiplying the Strike Setting Price by the Strike
Multiplier.\24\
---------------------------------------------------------------------------

    \24\ See id. at 80129 (providing an example of the conversion
into the numerical strike prices). The Exchange notes that an
adjustment to the Strike Setting Price may be needed in order to
remove the effects of corporate actions, such as cash dividends. If
a dividend is declared, the Exchange would adjust the Strike Setting
Price by subtracting the declared dividend before multiplying it by
the Strike Multiplier. See id. at 80128 n.25.
---------------------------------------------------------------------------

    The Exchange proposes for RealDay Options to overlie 100 shares of
SPY in the same manner as standard options on SPY. The Exchange's
standard trading hours for SPY options would also apply to trading in
RealDay Options. The Exchange proposes to apply margin requirements for
the purchase and sale of RealDay Options that are identical to the
margin requirements for standard options on SPY.\25\ The Exchange
proposes to calculate margin requirements for RealDay Options in the
same manner as margins for standard options on SPY. The Exchange notes
that margins would be calculated in the same manner during both the
anticipatory and active periods. The Exchange states that the strike
price used for calculating the margin would be the numerical value of
the strike price using the current price of SPY for the strike setting
formula.\26\ The Exchange proposes to apply the same minimum trading
increment of $0.01 to RealDay Options as applicable to standard options
on SPY.\27\ The Exchange further proposes that the position limits for
RealDay Options would be the same as the position limits for standard
options, such that there would be no position or exercise limits for
RealDay Options on SPY, as with standard options on SPY.\28\ In
addition, positions in RealDay Options would be aggregated with
positions in all other options on SPY.
---------------------------------------------------------------------------

    \25\ See Proposed Rule 5050(f)(6). The Exchange notes that
Options Participants and associated persons are bound by the initial
and maintenance margin requirements of either CBOE or the New York
Stock Exchange. See Exchange Rule 10120; see also CBOE Rule 12.3.
    \26\ See Notice, supra note 3, at 80129.
    \27\ See Proposed Rule 5050(f)(5).
    \28\ See Proposed Rule 5050(f)(10). See also Securities Exchange
Act Release No. 67936 (September 27, 2012), 77 FR 60491 (October 3,
2012) (SR-BOX-2012-013). The Exchange noted that since the removal
of any position limits on SPY is subject to a pilot program, if such
pilot is discontinued and SPY becomes subject to position limits,
then RealDay Options would become subject to the same position
limits as SPY options. See Notice, supra note 3, at 80130.
---------------------------------------------------------------------------

    The Exchange proposes to apply Section 4000 of its rules, which is
designed to protect public customer trading, to trading in RealDay
Options. Specifically, Exchange Rules 4020(a) and (b) prohibit Order
Flow Providers (``OFPs'') \29\ from accepting a Public Customer order
to purchase or write an option, including RealDay Options, unless such
customer's account has been approved in writing by a designated Options
Principal of the OFP. Additionally, Exchange Rule 4040 regarding
suitability is designed to ensure that options, including RealDay
Options, are sold only to customers capable of evaluating and bearing
the risks associated with trading in the instrument. Further, Exchange
Rule 4050 permits OFPs to exercise discretionary power with respect to
trading options, including RealDay Options, in a Public Customer's
account only if the OFP has received prior written authorization from
the customer and the account has been accepted in writing by a
designated Options Principal. Finally, the Exchange states that
Exchange Rules 4030 (Supervision of Accounts), 4060 (Confirmation to
Public Customers), and 4100 (Delivery of Current Options Disclosure
Documents and Prospectus) would also apply to trading in RealDay
Options.
---------------------------------------------------------------------------

    \29\ See Rule 100(a)(45). The term OFP means those Options
Participants representing as agent Customer Orders on BOX and those
non-Market Maker Participants conducting proprietary trading.
---------------------------------------------------------------------------

    The Exchange represents that it has an adequate surveillance
program in place for RealDay Options and intends to apply the same
program procedures that it applies to the Exchange's other options
products, which the Exchange believes would adequately monitor trading
in RealDay Options.\30\ The Exchange stated that it is also a member of
the Intermarket Surveillance Group (``ISG''), the members of which work
together to coordinate surveillance and investigative information
sharing in the stock and options markets.
---------------------------------------------------------------------------

    \30\ See Notice, supra note 3, at 80130.
---------------------------------------------------------------------------

    The Exchange further represents that it has the necessary system
capacity to support the additional quotations and messages that would
result from the listing and trading of RealDay Options.\31\ The
Exchange intends to minimize the system capacity required to list
RealDay Options by limiting the listing to seven strike prices per
expiration. The Exchange also states that having the discretion to not
list ITM call or put options would further minimize the required system
capacity to list RealDay Options.
---------------------------------------------------------------------------

    \31\ See id.
---------------------------------------------------------------------------

Pilot

    The Exchange has filed this proposal on a pilot basis for a period
of twelve months (the ``Pilot Program'' or ``Pilot Period'').\32\ The
Exchange further states that, if it were to propose an extension of the
Pilot Program or propose to make the Pilot Program permanent, the
Exchange would submit a filing to the Commission proposing such
amendments.\33\
---------------------------------------------------------------------------

    \32\ See Proposed Rule 5050(f)(9).
    \33\ The Exchange noted that any positions established under the
pilot would not be impacted by the expiration of the pilot. For
example, a position in a RealDay Options series that expires beyond
the conclusion of the pilot period could be established during the
12-month pilot. If the pilot program were not extended, then the
position could continue to exist. However, any further trading in
the series would be restricted to transactions where at least one
side of the trade is a closing transaction.

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

    The Exchange proposes to submit a report to the Commission two
months prior to the expiration date of the Pilot Program (the ``Pilot
Report'').\34\ The Pilot Report would contain an analysis of volume,
open interest, and trading patterns examining trading in RealDay
Options. In addition, for certain series, the Pilot Report would
provide an analysis of price volatility and trading activity in
additional option series. In addition to the Pilot Report, the Exchange
would provide the Commission with periodic interim reports while the
Pilot Program is in effect that would contain some, but not all, of the
information contained in the Pilot Report. The Pilot Report would be
provided to the Commission on a confidential basis.
---------------------------------------------------------------------------

    \34\ See Notice, supra note 3, at 80131.
---------------------------------------------------------------------------

    The Exchange states that the Pilot Report would contain the
following volume and open interest data for RealDay Options:
    (1) Daily contract trading volume aggregated for all trades, for
all option series with less than 31 days until expiration;
    (2) daily contract trading volume aggregated by expiration date,
for all option series with less than 31 days until expiration;
    (3) daily contract trading volume for each individual series;
    (4) daily open interest aggregated for all series, for all option
series with less than 31 days until expiration;
    (5) daily open interest aggregated for all series by expiration
date, for all option series with less than 31 days until expiration;
    (6) daily open interest for each individual series;
    (7) statistics on the distribution of trade sizes;
    (8) type of market participant trading (e.g., contract trading
volume for each market participant type); and
    (9) 5-minute returns, level changes, and trading volume for the S&P
500 Index, VIX, SPY, IVV, and expiring RealDay options between open and
close for the first and second Wednesday of the month that is a trading
day and trading days when standard SPY options expire.
    In addition to the Pilot Report, the Exchange would periodically
provide the Commission with interim reports of the information listed
in items (1) through (9) above as required by the Commission while the
Pilot Program is in effect. These interim reports will also be provided
on a confidential basis. The initial period of the Exchange's proposed
Pilot Program is set to expire on February 2, 2018.

III. Summary of Comment Letter

    The Commission received a comment letter from the Chicago Board
Options Exchange opposing the Exchange's RealDay Options proposal.\35\
The commenter argues that the proposal should be disapproved. First,
the commenter questions whether a RealDay Option can be considered a
securities option and therefore within the Commission's jurisdiction.
The commenter asserts that there is no precedent for classifying
RealDay Options as a securities option \36\ and cites a Seventh Circuit
decision holding that a contract is an option only if, among other
things, it ``establish[es] a careful balance among premium, strike
price, and duration.'' \37\ The commenter notes that, for all but ``a
tiny portion of its life'' (i.e., one day), a RealDay Option would not
have a specified strike price and believes that there is a ``serious
and novel issue about whether [RealDay Options] can be considered a
securities option--and therefore can fall within the Commission's
jurisdiction. . . .'' \38\
---------------------------------------------------------------------------

    \35\ See CBOE Letter, supra note 4.
    \36\ See id. at 2.
    \37\ See id. at 2 (citing Chicago Mercantile Exchange v. SEC,
883 F.2d 537, 546 (7th Cir. 1989)).
    \38\ See id. at 2.
---------------------------------------------------------------------------

    In its filing, the Exchange cited to CBOE's Delayed Start Options
(``DSOs'') as precedent for the approval of RealDay Options.\39\ The
commenter argues that RealDay Options are ``fundamentally different''
from DSOs. The commenter notes that, in its own filing seeking approval
for DSOs, it represented that the time interval between setting the
strike price and expiration initially would be three months, as
compared to one day for RealDay Options. At the same time, the
commenter acknowledges that it also stated that it would be able to
increase or decrease that interval, but maintains that it ``never
considered reducing that interval so drastically that the DSO would
live as a fully specified option for but a single day in a much longer
lifespan.'' \40\
---------------------------------------------------------------------------

    \39\ See Notice, supra note 3, at 80126 n.3; see also id. at
80127 n.16.
    \40\ See CBOE Letter, supra note 4, at 2.
---------------------------------------------------------------------------

    In addition, the commenter states that it would be unprecedented to
have a cash-settled option on an ETF.\41\ In its filing, the Exchange
cites to other cash-settled options, including CBOE's SPX options, as
support for the notion that cash settlement of options is not
novel.\42\ The commenter notes that SPX options are index options,
whereas the proposed RealDay Option would be an ETF option, which the
commenter notes ``have always been physically settled.'' \43\ The
commenter also argues that it would be without precedent for RealDay
Options to have European-style exercise when they would be trading
alongside physically settled options with American-style exercise on
the same ETF that might have the exact same strikes and would permitted
to expire on the same day.\44\
---------------------------------------------------------------------------

    \41\ See id. at 2-3.
    \42\ See Notice, supra note 3, at 80126 n.11.
    \43\ See CBOE Letter, supra note 4, at 2-3.
    \44\ See id. at 3.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\45\ In
particular, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\46\ which requires, among other things,
that the rules of a national securities exchange be 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.
---------------------------------------------------------------------------

    \45\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Comment Letter

    The Commission disagrees with the commenter's assertion that, with
respect to the timing of strike price setting, there is no precedent
for RealDay Options or their classification as securities options. As
noted by both the Exchange and the commenter, the Commission previously
approved an options product with a strike price not specified at the
time of issuance (i.e., DSOs).\47\ In its order approving the DSO
product, the Commission examined the question of whether DSOs should be
designated as standardized options for purposes of Rule 9b-1 under the
Act and concluded that DSOs should be so designated.\48\ In concluding
that the ``lack [of] a specified exercise price at the commencement of
trading does not detract from [the DSOs'] character as

options,'' the Commission noted that each DSO series would trade with a
fixed formula for determining the numerical strike price,\49\ which is
similar to the operation of RealDay Options. Moreover, although CBOE
states that, for DSOs, it never considered an active period as short as
a single day, it acknowledges that its own rule filing seeking approval
for DSOs stated that it would be able to increase or decrease the
three-month time interval between setting the strike price and
expiration. The Commission does not believe that the strike price
setting feature of RealDay Options is a novel issue, and believes the
same analysis it applied to DSOs applies to RealDay Options.\50\
---------------------------------------------------------------------------

    \47\ See Securities Exchange Act Release No. 56855 (November 28,
2007), 72 FR 68610 (December 5, 2007) (SR-CBOE-2006-90).
    \48\ See id. at 68612-13 (discussing the Commission's
designation of DSOs as standardized options).
    \49\ See id. at 68613.
    \50\ See id.
---------------------------------------------------------------------------

    As noted above, CBOE also asserts that the Exchange's RealDay
Options proposal is unprecedented because of its proposed settlement
and exercise methodologies. Among other things, the commenter
criticizes the Exchange for misleadingly making assertions regarding
cash settlement and options, noting that while it is not unusual for
index and currency options to be cash settled, that is not the case
with ETF options (such as the proposed RealDay Options product). In the
Notice, the Exchange argues that its proposed settlement and exercise
methodologies are appropriate for the proposed RealDay Options
product.\51\ Among other things, the Exchange asserts that there is a
low potential for manipulation of the settlement value of RealDay
Options on SPY due to the high cost and regulatory scrutiny that would
result from any attempted manipulation and the vast liquidity and high
level of participation among market participants in the market for SPY,
making manipulation very difficult.\52\ In addition, while the Exchange
notes that manipulation of the settlement value is unlikely, it
represents that its current surveillance procedures for its other
options products will be sufficient to monitor RealDay Options.\53\ The
Exchange further asserts that this low potential for manipulation and
its continued monitoring will alleviate any concerns regarding the
P.M., cash-settled nature of RealDay Options.\54\ According to the
Exchange, cash settlement helps to mitigate the risk that the price of
the security could change overnight before the investor would be able
to liquidate their position, which would undermine the intent of the
product having an active period designed to cover only a single trading
day.\55\ The Exchange further notes that P.M. settlement is necessary
for RealDay Options to prevent events occurring after the close from
having an effect on the settlement price, which the Exchange believes
would similarly undermine the intent of RealDay Options to cover only
one trading day.\56\
---------------------------------------------------------------------------

    \51\ See Notice, supra note 3, at 80126-27.
    \52\ See id. at 80129-30.
    \53\ See id. at 80130.
    \54\ See id. at 80126 and 80129-30.
    \55\ See id. at 80126.
    \56\ See id. at 80127.
---------------------------------------------------------------------------

    The Commission is cognizant that the proposed settlement and
exercise features of RealDay Options--while they exist in options more
broadly--would, taken together, be unique. However, given the
significant liquidity of the underlying ETF for the proposed
product,\57\ the Commission initially believes that the proposed
settlement and exercise features can be appropriate for RealDay Options
on SPY. As discussed above, though the Commission believes that the
liquidity of SPY and the proposed surveillance of RealDay Options can
serve to mitigate manipulation concerns, because of the proposed
features of RealDay Options, including those with respect to settlement
and exercise, the Commission believes it is appropriate for the product
to be approved on a pilot basis such that the Commission may further
review trading in the product to determine whether its proposed
features including, among other things, cash settlement, continue to be
appropriate. Importantly, the Commission notes that, if the Exchange
were to propose listing RealDay Options on any additional underlying
product (i.e., other than SPY), the Exchange has stated that it would
seek approval for such product through a proposed rule change and the
Commission would have to evaluate such different underlying product in
the context of RealDay Options, and whether or not the proposed
settlement and exercise features, among other things, for such RealDay
Options are appropriate.
---------------------------------------------------------------------------

    \57\ See id. at 80126 and 80129-30.
---------------------------------------------------------------------------

Other Issues

    The Commission believes that the Exchange's proposal to impose no
position limits on RealDay Options is appropriate and consistent with
the Act. As noted above, the Exchange proposed to initially list
RealDay Options only on SPY. The Commission notes that SPY options are
the most actively-traded options in terms of average daily volume. The
Commission believes that because these options are extremely liquid,
the potential manipulation and potential market disruption concerns
that position limits are designed to address are mitigated in the case
of this product. Moreover, the Commission believes that having no
position limits for these options may benefit investors by bringing
additional depth and liquidity to these options without raising
significant concerns about potential manipulation or potential market
disruption. Further, the Commission notes that standard options on SPY
are currently not subject to any position limits under a pilot program,
and the Exchange has proposed to apply any position limits for standard
options on SPY if that pilot program were discontinued.\58\
---------------------------------------------------------------------------

    \58\ See id. at 80130.
---------------------------------------------------------------------------

    The Commission also believes that it is consistent with the Act to
apply margin requirements to the proposed RealDay Options that are
otherwise applicable to standard options on SPY. The Commission further
believes that the Exchange's proposed minimum trading increments,
strike price setting process,\59\ and other aspects of the proposed
rule change are appropriate and consistent with the Act.
---------------------------------------------------------------------------

    \59\ The Commission notes that, as described above, the Exchange
has represented that it has informed various market participants
about the nature of the proposed use of three decimal places to
represent the Strike Multiplier, that it has ensured that these
market participants will understand the meaning of and be able to
handle the three decimal places, and that it will continue to
further educate market participants on this process to minimize any
potential investor confusion. See Notice, supra note 3, at 80128
n.24.
---------------------------------------------------------------------------

    As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\60\ to enforce compliance by its members
and persons associated with its members with the provisions of the Act,
Commission rules and regulations thereunder, and its own rules. In this
regard, other than for certain exercise and settlement features as
described above,\61\ the Commission notes that trading of RealDay
Options will be subject to many of the same rules that currently govern
the trading of other options on the Exchange.\62\ In addition, as noted
above, the Exchange has asserted that manipulation of the settlement
value of RealDay Options on SPY will be difficult based on the size and
liquidity of the market for SPY.\63\ Moreover, the Exchange has
represented that it has an adequate surveillance program in place for
RealDay Options on SPY, and will monitor for any potential manipulation
of the settlement value according to its current

surveillance procedures.\64\ In approving the proposed listing and
trading of the proposed RealDay Options, the Commission has also relied
on the Exchange's representation that it has the necessary systems
capacity to support the new options series that will result from this
proposal.\65\
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78f(b)(1).
    \61\ See supra notes 12-19 and accompanying text.
    \62\ See Exchange Rule 5050.
    \63\ See supra note 52 and accompanying text.
    \64\ See supra note 30 and accompanying text.
    \65\ See supra note 31 and accompanying text.
---------------------------------------------------------------------------

Pilot

    Given the size and liquidity of the market for SPY, the Commission
believes that the risks of manipulation and potential market disruption
are significantly mitigated as discussed above. Notwithstanding this
and the Exchange's representations in this regard, the Commission
believes that a prudent approach is warranted with respect to the
Exchange's proposal to list RealDay Options on SPY. To the extent the
potential for adverse effects with regard to the markets for the SPY
ETF, the S&P 500 component securities underlying the SPY ETF, or
RealDay Options on SPY continues to exist, the Exchange's proposal to
implement this change on a pilot basis should help to address this
concern. Accordingly, the Commission is approving the proposal on a
twelve-month pilot basis. Within two months of the end of the Pilot
Program the Exchange will be required to submit to the Commission the
Pilot Report. As described in more detail above,\66\ the Pilot Report
will contain an analysis of volume, open interest, and trading patterns
examining trading in RealDay Options. In addition, for certain series,
the Pilot Report will provide an analysis of price volatility and
trading activity in additional option series. In addition to the Pilot
Report, the Exchange will provide the Commission with periodic interim
reports while the Pilot Program is in effect that would contain some,
but not all, of the information contained in the Pilot Report. The
Pilot Report will be provided to the Commission on a confidential
basis. Furthermore, if the pilot is not extended or permanently
approved by the end of the Pilot Program, any position in RealDay
Options established during the Pilot Program would remain in effect,
but any further trading in those RealDay Options would be restricted to
transactions where at least one side of the trade is a closing
transaction.
---------------------------------------------------------------------------

    \66\ See supra note 34 and accompanying text.
---------------------------------------------------------------------------

    The Commission expects that, throughout the Pilot Program, the
Exchange will monitor for any problems and collect and analyze on an
ongoing basis the data and information that the Exchange ultimately
intends to include in the Pilot Report. The Commission also expects
that the Exchange will take prompt action, including timely
communication with the Commission and with other marketplace self-
regulatory organizations responsible for oversight of trading in
component stocks, should any unanticipated adverse market effects
develop.
    Based on the Exchange's representations with respect to the
proposed RealDay Options on SPY and for the foregoing reasons, the
Commission finds that the proposed rule change is consistent with the
Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\67\ that the proposed rule change (SR-BOX-2016-50) be, and hereby
is, approved on a twelve-month pilot basis set to expire on February 2,
2018.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02541 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P