Notice2022-04082
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Permit P.M.-Settled S&P 500 Index Options That Expire on Tuesday or Thursday Under Its Nonstandard Expirations Pilot Program
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Published
February 28, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 39 (Monday, February 28, 2022)</title>
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[Federal Register Volume 87, Number 39 (Monday, February 28, 2022)]
[Notices]
[Pages 11102-11105]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-04082]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94292; File No. SR-CBOE-2022-005]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Permit P.M.-Settled S&P 500 Index
Options That Expire on Tuesday or Thursday Under Its Nonstandard
Expirations Pilot Program
February 22, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 8, 2022, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change 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
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to permit P.M.-settled S&P 500 Index (``SPX'') options that expire on
Tuesday or Thursday under its Nonstandard Expirations Pilot Program.
The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx">http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx</a>), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
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 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.
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 4.13(e), which governs its
Nonstandard Expirations Pilot Program (``Pilot Program''), to permit
P.M.-settled SPX options that expire on Tuesday or Thursday. Under the
existing Pilot Program, the Exchange is permitted to list P.M.-settled
options on broad-based indexes that expire on: (1) Any Monday,
Wednesday, or Friday (``Weekly Expirations'' or ``EOWs'') and (2) the
last trading day of the month (``End of Month Expirations'' or
``EOMs'').\3\
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\3\ See Rule 4.13(e).
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Specifically, the proposed rule change amends Rule 4.13(e)(1) to
add P.M.-settled SPX Weekly (``SPXW'') options that expire on Tuesday
or Thursday as permissible Weekly Expirations under the Pilot Program
(currently set to expire on May 2, 2022). The Exchange notes that
permitting SPXW options with Tuesday and Thursday expirations, as
proposed, is in addition to the SPXW options with Monday, Wednesday and
Friday expirations that the Exchange may (and does) already list, as
they are permissible Weekly Expirations for options on a broad-based
index (e.g., SPX) pursuant to Rule 4.13(e)(1). The Pilot Program for
Weekly Expirations will apply to SPXW options with Tuesday and Thursday
expirations in the same manner as it currently applies to P.M.-settled
broad-based index options with Monday, Wednesday and Friday
expirations. That is, as proposed, Rule 4.13(e)(1) provides that the
Exchange may open for trading Weekly Expirations on any broad-based
index eligible for standard options trading to expire on any Monday,
Wednesday, or Friday (other than the third Friday-of-the-month or days
that coincide with an EOM expiration). In addition, the Exchange may
also open for trading Weekly Expirations on S&P 500 Index options to
expire on any Tuesday or Thursday (other than days that coincide with
an EOM expiration). Weekly Expirations shall be subject to all
provisions of this Rule and treated the same as options on the same
underlying index that expire on the third Friday of the expiration
month; provided, however, that Weekly Expirations shall be P.M.-settled
and new series in Weekly Expirations may be added up to and including
on the expiration date for an expiring Weekly Expiration. The maximum
number of expirations that may be listed for each Weekly Expiration
(i.e., a Monday expiration, Tuesday expiration, Wednesday expiration,
Thursday expiration, or Friday expiration, as applicable) in a given
class is the same as the maximum number of expirations permitted in
Rule 4.13(a)(2) for standard options on the same broad-based index
(which is 12 for SPX options). Weekly Expirations need not be for
consecutive Monday, Tuesday, Wednesday, Thursday, or Friday expirations
as applicable; however, the expiration date of a non-consecutive
expiration may not be beyond what would be considered the last
expiration date if the maximum number of expirations were listed
consecutively. Weekly Expirations that are first listed in a given
class may expire up to four weeks from the actual listing date. If the
Exchange lists EOMs and Weekly Expirations as applicable in a given
class, the Exchange will list an EOM instead of a Weekly Expiration
that expires on the same day in the
[[Page 11103]]
given class.\4\ Other expirations in the same class are not counted as
part of the maximum number of Weekly Expirations for an applicable \5\
broad-based index class. If the Exchange is not open for business on a
respective Monday, the normally Monday expiring Weekly Expirations will
expire on the following business day. If the Exchange is not open for
business on a respective Tuesday, Wednesday, Thursday, or Friday, the
normally Tuesday, Wednesday, Thursday, or Friday expiring Weekly
Expirations will expire on the previous business day. The proposed rule
change also adds that, if two different Weekly Expirations on S&P 500
Index options would expire on the same day because the Exchange is not
open for business on a certain weekday, the Exchange will list only one
of such Weekly Expirations. The Exchange believes it is appropriate to
clarify in the rule text that the Exchange will list just one Weekly
Expiration in such a case, as the two Weekly Expirations would
essentially be the same options contract. For example, if the Exchange
listed SPXW options with proposed Thursday expirations and Friday
expirations and the Exchange was closed for business on a Friday then,
pursuant to current Rule 4.13(e)(1), the normally expiring Friday
expiration would expire on the previous business day--essentially
making it an SPXW option with a Thursday expiration. Thus, expiring
SPXW options in this case will always have the same weekday expiration
(per the example, it is an SPXW option with a Thursday expiration,
whether it was listed as an SPXW with a Thursday expiration or a Friday
expiration). As such, for the sake of clarity in the rules and to
mitigate any confusion regarding the listing of SPXW options when the
Exchange is closed for business, the proposed rule change provides that
the Exchange will list just one Weekly Expiration if two Weekly
Expirations would expire on the same day due to the Exchange being
closed for business. Also, like all Weekly Expirations listed pursuant
to Rule 4.13(e)(4) of the Pilot Program, transactions in expiring SPXW
options with Tuesday and Thursday expirations may be effected on the
Exchange between the hours of 9:30 a.m. and 4:00 p.m. on their last
trading day (Eastern Time). The Exchange makes a nonsubstantive
clarifying change to Rule 4.13(e)(4) to provide that on the last
trading day, Regular Trading Hours for expiring Weekly Expirations and
EOMs are from 9:30 a.m. and 4:00 p.m. As SPXW options are also
available for trading during Global Trading Hours, the proposed update
merely clarifies that Rule 4.13(e)(4) refers to the close of Regular
Trading Hours.\6\ The proposed rule text is substantively identical to
Rule 5.1, which governs trading hours on the Exchange generally, and
provides that, on their last trading day, Regular Trading Hours for
index options with nonstandard expirations are from 9:30 a.m. to 4:00
p.m.\7\
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\4\ Given that each trading day of the week, as proposed, could
be the last trading day of the month and the day in which a Weekly
Expiration expires, the Exchange updates this rule text to
streamline the language.
\5\ The Exchange updates the rule text for additional clarity.
\6\ The Exchange notes that the Exchange's GTH trading session
was adopted after the Nonstandard Expirations Pilot Program. See
Securities Exchange Release Nos. 62911 (September 14, 2010), 75 FR
57539 (September 21, 2010) (SR-CBOE-2009-075) (``Nonstandard
Expirations Pilot Approval Order''); and 34-73704 (November 28,
2014), 79 FR 72044 (December 4, 2014) (SR-CBOE-2014-062) (order
granting approval of proposed rule change to adopt Extended Trading
Hours).
\7\ See Rule 5.1.(b)(2)(C).
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The Exchange believes that that [sic] the introduction of SPXW
options with Tuesday and Thursday expirations will expand hedging tools
available to market participants while also providing greater trading
opportunities. By offering SPXW options with Tuesday and Thursday
expirations along with the current Monday, Wednesday and Friday
expirations, the proposed rule change will allow market participants to
purchase SPXW options in a manner more aligned with specific timing
needs and more effectively tailor their investment and hedging
strategies and manage their portfolios. In particular, the proposed
rule change will allow market participants to roll their positions on
more trading days, thus with more precision, spread risk across more
trading days and incorporate daily changes in the markets, which may
reduce the premium cost of buying protection.
The Exchange proposes to abide by the same reporting requirements
for the trading of SPXW options that expire on any Tuesday or Thursday
that it does for the trading of P.M.-settled options on broad-based
indexes that expire on any Monday, Wednesday, or Friday pursuant to the
Pilot Program. The Exchange proposes to include data regarding SPXW
options that expire on Tuesdays or Thursdays as it does for current
Weekly Expirations on any broad-based index option in the Pilot Program
annual report that it submits to the Securities and Exchange Commission
(``Commission'') at least two months prior to the expiration date of
the Pilot Program.\8\ The Exchange is required to submit an annual
report at least yearly. The annual report to the Commission addresses
the following areas: Analysis of Volume & Open Interest, Monthly
Analysis of Weekly Expirations & EOM Trading Patterns and Provisional
Analysis of Index Price Volatility. Going forward, the Exchange will
include the same areas of analysis for SPXW options with Tuesday and
Thursday expirations in the annual reports. Additionally, the Exchange
will provide the Commission with any additional data or analyses the
Commission requests because it deems such data or analyses necessary to
determine whether the Pilot Program, including SPXW options with
Tuesday and Thursday expirations as proposed, is consistent with the
Exchange Act. As it does for current Pilot Program products, the
Exchange will make public on its website all data and analyses in
connection with SPXW options with Tuesday and Thursday expirations it
submits to the Commission under the Pilot Program.
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\8\ See Nonstandard Expirations Pilot Approval Order.
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The Exchange believes there is sufficient investor interest and
demand in SPXW options with Tuesday and Thursday expirations to warrant
inclusion in the Pilot Program and that the Pilot Program, as amended,
will continue to provide investors with additional means of managing
their risk exposures and carrying out their investment objectives.\9\
The Exchange notes that during the Pilot Program's nearly 12-year
tenure, the Exchange has not observed any significant adverse market
effects or identified any regulatory concerns as a result of the Pilot
Program, nor does it believe that additional expirations listed under
the Pilot Program would result in any such impact or regulatory
concerns. Based on a study conducted by Commission staff on the pilot
data (including quarterly, weekly, EOM and third Friday expirations for
P.M.-settled SPX options),\10\ there is no evidence of any
[[Page 11104]]
significant adverse economic impact to the futures, index, or
underlying index component securities markets as a result of the
quantity of P.M.-settled SPX options that settle at the close or the
amount of expiring open interest in P.M.-settled SPX options.\11\
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\9\ The Exchange additionally notes that it already allows SPXW
options to expire on Tuesdays for normally Monday or Wednesday
expiring SPXW options when the Exchange is not open for business on
a respective Monday or Wednesday (as applicable), and already allows
SPXW options to expire on Thursdays for normally Friday expiring
SPXW options when the Exchange is not open for business on a
respective Friday. Also, EOM options may currently be listed to
expire on a Tuesday or Thursday.
\10\ See Securities and Exchange Commission, Division of
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM
Cash-Settled Index Option Pilots (February 2, 2021) (``SEC PM Pilot
Memo'').at 13, available at: <a href="https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf">https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf</a> (``Option
settlement quantity data for A.M.- and P.M.-settled options were
obtained from the Cboe, including the number of contracts that
settled in-the-money for each exchange-traded option series on the
S&P 500 index . . . on expiration days from January 20, 2006 through
December 31, 2018. Daily open interest and volume data for [SPX]
option series were also obtained from Cboe, including open interest
data from January 3, 2006 through December 31, 2018 and trading
volume data from January 3, 2006 through December 31, 2018.'')
\11\ See id. at 3. For example, the largest settlement event
that occurred during the time period of the study (a settlement of
$100.4 billion of notional on December 29, 2017) had an estimated
impact on the futures price of only approximately 0.02% (a predicted
impact of $0.54 relative to a closing futures price of $2,677).
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With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it believes that
the Exchange and OPRA have the necessary systems capacity to handle any
potential additional traffic associated with trading of SPXW options
with Tuesday and Thursday expirations. The Exchange does not believe
that its Trading Permit Holders (``TPHs'') will experience any capacity
issues as a result of this proposal and represents that it will monitor
the trading volume associated with any possible additional options
series listed as a result of this proposal and the effect (if any) of
these additional series on market fragmentation and on the capacity of
the Exchange's automated systems. Additionally, the Exchange notes that
it recently implemented a strike mitigation initiative to reduce the
number of strikes listed for SPXW options, effectively reducing the
number of SPXW options series listed on the Exchange by approximately
10%; such that, upon adding SPXW options with Tuesday and Thursday
expirations, the number of SPXW options series listed on the Exchange
will be less than the number of such series that were listed prior to
the implementation of the SPXW options strike reduction.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\12\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \13\ requirements that the rules of an exchange be
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 regulating, clearing,
settling, processing information with respect to, and facilitation
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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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In particular, the Exchange does not believe that the addition of
SPXW options with Tuesday and Thursday expirations to the Pilot Program
will raise any prohibitive regulatory concerns, nor adversely impact
fair and orderly markets on expiration days. The Exchange has not
experienced any meaningful regulatory concerns, nor adverse impact on
fair and orderly markets, in connection with the Pilot Program that has
permitted the listing and trading of SPXW options with Monday,
Wednesday and Friday expirations since 2010. Particularly, and as
described above, the Exchange does not believe increases in the number
P.M.-settled SPX options series will have any significant adverse
economic impact on the futures, index, or underlying index component
securities markets. The Exchange believes that the proposed rule change
will provide investors with greater trading and hedging opportunities
and flexibility, allowing them to transact in SPXW options in a manner
more aligned with specific timing needs and more effectively tailor
their investment and hedging objectives by listing SPXW options that
expire each trading day of the week.
The Exchange notes also that it will include analysis in connection
with SPXW options that expire on Tuesdays and Thursdays, in the same
manner that it currently does for other Pilot Program products, in the
annual reports it submits to the Commission, and will provide the
Commission with any additional data or analyses the it may request if
it deems such data or analyses necessary to determine whether the Pilot
Program, including SPXW options with Tuesday and Thursday expirations
as proposed, is consistent with the Exchange Act. The Exchange
represents that it believes that it has the necessary systems capacity
to support any additional traffic associated with trading of SPXW
options with Tuesday and Thursday expirations and does not believe that
its TPHs will experience any capacity issues as a result of this
proposal. The Exchange will monitor the trading volume associated with
any possible additional options series listed and the effect (if any)
of these additional series on market fragmentation and on the capacity
of the Exchange's automated systems. The Exchange again notes that, as
a result of an SPXW options strike mitigation initiative recently
implemented by the Exchange, the number of SPXW options series listed
on the Exchange once Tuesday and Thursday expirations become available
will be less than the number of such series that were listed prior to
the implementation of the strike mitigation initiative.
The Exchange also notes that the nonsubstantive proposed rule
change clarifying the trading session to which Rule 4.13(e)(4) refers
will protect investors and the public interest by adding a
clarification to rules governing the Pilot Program, as well as
conforming such provision to Rule 5.1, which governs trading hours on
the Exchange generally and has a substantively identical provision to
that of the proposed rule change.\15\
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\15\ See supra note 7.
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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 that is 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 because SPXW options with
Tuesday and Thursday expirations will be available to all market
participants. By listing SPXW options that expire Tuesdays and
Thursdays, the proposed rule change will provide all investors that
participate in the SPX options market greater trading and hedging
opportunities and flexibility to meet their investment and hedging
needs. Additionally, Tuesday and Thursday expiring SPXW options will
trade in the same manner as Weekly Expirations currently trade.
The Exchange does not believe that the proposal to list SPXW
options with
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Tuesday and Thursday expirations will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because SPX options (including SPXW options) are
proprietary Exchange products. Other exchanges offer nonstandard
expiration programs for index options and are welcome to similarly
propose to list Tuesday and Thursday options on those indexes. To the
extent that the addition of SPXW options that expire on Tuesdays and
Thursdays available for trading on the Exchange makes the Exchange a
more attractive marketplace to market participants at other exchanges,
such market participants are free to elect to become market
participants on the Exchange.
The proposed rule change to clarify the trading session referred to
in Rule 4.13(e)(4) will not burden intramarket or intermarket
competition because it is not intended to be a competitive rule change
but instead is intended to add clarity to the Rules and conform the
provision to the Rule that governs Exchange trading hours generally.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be 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#2052554c450d434f4d4d454e5453605345430e474f56"><span class="__cf_email__" data-cfemail="f785829b92da94989a9a92998384b7849294d9909881">[email protected]</span></a>. Please include
File Number SR-CBOE-2022-005 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-CBOE-2022-005. 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-CBOE-2022-005, and should be submitted
on or before March 21, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-04082 Filed 2-25-22; 8:45 am]
BILLING CODE 8011-01-P
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