Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to amend its rules to increase the maximum term for Long-Term Equity Options Series ("LEAPS") to fifteen years. The text of the proposed rule change is available from the principal office of the Exchange, on the Exchange's Internet 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.
Long-term equity and index option series (LEAPS) are similar to standard options but have maturities that may expire from 3 to 5 years, respectively, post initial listing. The purpose of the proposed rule change is to increase the maximum term for all LEAPS. Currently, the maximum term on BOX for equity LEAPS is 39 months and the maximum term for index LEAPS is 60 months.
Specifically, the Exchange is proposing to increase the maximum term for all LEAPS to 180 months (fifteen years). The Exchange understands that market participants currently enter into over-the-counter ("OTC") positions that have longer dated expirations than are currently available on BOX. The Exchange would like to accommodate the needs of BOX Options Participants by listing LEAPS with longer dated expirations. BOX is currently unable to do so because of the existing term limitations set forth in the Exchange Rules.
The Exchange believes that expanding the eligible term for all LEAPS to 180 months is important and necessary to BOX's efforts to offer products in an exchange-traded environment that compete with OTC products. The Exchange believes that LEAPS provide market participants and investors with a competitive comparable alternative to the OTC market in long-term options, which can take on contract characteristics similar to LEAPS but are not subject to the same maximum term restriction. By expanding the eligible term for LEAPS, market participants will now have greater flexibility in determining whether to execute their long-term options in an exchange environment or in the OTC market. The Exchange believes that market participants can benefit from being able to trade these long-term options in an exchange environment in several ways, including, but not limited to the following: (1) Enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of The Options Clearing Corporation ("OCC") as issuer and guarantor of LEAPS.
The Exchange understands that quote traffic is always an issue with the introduction of a new product or a revision to the terms of a contract, such as a longer dated LEAPS option. The Exchange, however, does not expect there to be a significant increase to quote traffic since the Exchange anticipates listing longer dated LEAPS in response to specific market demand and does not expect to significantly populate expirations. In addition, the Exchange notes that certain liquidity providers are not subject to quoting obligations for LEAPs, which will assist with quote traffic mitigation.
Additionally, the OCC has confirmed that it can configure its systems to support LEAPS that have a maximum term of fifteen years (180 months).
Finally, the Exchange is making technical, non-substantive changes to Rule 5070 to delete "(r)" symbols
The Exchange believes that the proposal is consistent with the requirements of Section 6(b) of the Act,
The Exchange believes that the proposed rule change is designed to promote just and equitable principles of trade in that the availability of LEAPS with longer dated expirations will give market participants an alternative to trading similar products in the OTC market. Trading a product in an exchange traded environment (that is currently being used in the OTC market) will also enable the Exchange to compete more effectively with the OTC market.
The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that it will hopefully lead to the migration of options currently trading in the OTC market to trading on BOX. Also, any migration to BOX from the OTC market will result in increased market transparency.
Additionally, the Exchange believes that the proposed rule change is designed to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest in that it should create greater trading and hedging opportunities and flexibility. The proposed rule change should also result in enhanced efficiency in initiating and closing out positions and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of LEAPS. Further, the proposal will result in increased competition by permitting the Exchange to offer products that are currently used in the OTC market.
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.
The Exchange has neither solicited nor received comments on the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
The Exchange notes that the proposal is substantially similar to a rule change proposed by the Chicago Board Options Exchange Incorporated ("CBOE"), which was recently approved by the Commission.
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.
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 Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.