Notice2022-08162
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Expand the Nonstandard Expirations Pilot Program To Include P.M.-Settled S&P 500 Index Options That Expire on Tuesday or Thursday
Primary source
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Published
April 18, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 74 (Monday, April 18, 2022)</title>
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[Federal Register Volume 87, Number 74 (Monday, April 18, 2022)]
[Notices]
[Pages 22993-22995]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08162]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94682; File No. SR-CBOE-2022-005]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Expand the
Nonstandard Expirations Pilot Program To Include P.M.-Settled S&P 500
Index Options That Expire on Tuesday or Thursday
April 12, 2022.
I. Introduction
On February 8, 2022, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') 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 expand its Nonstandard Expirations Pilot
Program to permit P.M.-settled S&P 500 Index (``SPX'') options that
expire on Tuesday or Thursday. The proposed rule change was published
for comment in the Federal Register on February 28, 2022.\3\ On April
6, 2022, the Exchange filed Amendment No. 1 to the proposed rule
change.\4\ The Commission is publishing this notice to solicit comment
on Amendment No. 1 and is approving the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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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. 94292 (February 22,
2022), 87 FR 11102 (``Notice''). Comments received regarding the
proposal are available on the Commission's website at: <a href="https://www.sec.gov/comments/sr-cboe-2022-005/srcboe2022005.htm">https://www.sec.gov/comments/sr-cboe-2022-005/srcboe2022005.htm</a>.
\4\ In Amendment No. 1, the Exchange also proposes to include
the following market quality data for SPXW (as defined below) and
standard SPX options, over sample periods determined by the Exchange
and the Commission, as part of its Annual Report (as defined below)
going forward: Time-weighted relative quoted spreads; relative
effective spreads; and time-weighted bid and offer sizes. Amendment
No. 1 is available on the Commission's website at: <a href="https://www.sec.gov/comments/sr-cboe-2022-005/srcboe2022005.htm">https://www.sec.gov/comments/sr-cboe-2022-005/srcboe2022005.htm</a>.
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II. Description of the Proposal, as Modified by Amendment No. 1
Cboe Options proposes to expand its existing Nonstandard
Expirations Pilot (``Pilot'').\5\ Under the terms of the current Pilot,
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'').\6\ Under the proposal, the
Exchange will expand the Pilot to permit P.M.-settled SPX Weekly
(``SPXW'') options that expire on Tuesday or Thursday (``Tuesday and
Thursday SPXW Expirations'') as permissible Weekly Expirations under
the Pilot, in addition to the SPXW options with Monday, Wednesday, and
Friday expirations that the Exchange may currently list pursuant to
Rule 4.13(e)(1). The Exchange states that the Pilot for Weekly
Expirations will apply to Tuesday and Thursday SPXW Expirations in the
same manner as it currently applies to P.M.-settled broad-based index
options with Monday, Wednesday, and Friday expirations.\7\
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\5\ See Securities Exchange Act Release No. 62911 (September 14,
2010), 75 FR 57539 (September 21, 2010) (``Pilot Approval Order'').
See also Securities Exchange Act Release No. 76909 (January 14,
2016), 81 FR 3512 (January 21, 2016) (permitting P.M.-settled
options on broad-based indexes that expire on any Wednesday); and
Securities Exchange Act Release No. 78531 (August 10, 2016), 81 FR
54643 (August 16, 2016) (permitting P.M.-settled options on broad-
based indexes that expire on any Monday). The Pilot is currently set
to expire on May 2, 2022. See Securities Exchange Act Release No.
93459 (October 28, 2021), 86 FR 60663 (November 3, 2021).
\6\ Cboe Options Rule 4.13(e).
\7\ See Notice, supra note 3, 87 FR 11102.
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A. Tuesday and Thursday SPXW Expirations
The Exchange's proposed rule change will allow it to open for
trading SPXW options with Tuesday and Thursday expirations to expire on
any Tuesday or Thursday of the month, other than days that coincide
with an EOM expiration.\8\ The maximum number of expirations that may
be listed for each type of Weekly Expiration (including the proposed
Tuesday and Thursday SPXW Expirations) 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 (12 for SPX options).\9\
Further, under current Cboe Options Rule 4.13(e)(1),
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other expirations in the same class will not be counted as part of the
maximum number of Weekly Expirations for an applicable broad-based
index class.\10\
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\8\ 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 given
class. See Cboe Options Rule 4.13(e)(1).
\9\ See Notice, supra note 3, 87 FR 11102.
\10\ See Cboe Options Rule 4.13(e)(1).
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Weekly Expirations need not be for consecutive Monday, Tuesday,
Wednesday, Thursday, or Friday expirations as applicable; \11\ 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.\12\ Weekly Expirations that
are first listed in a given class may expire up to four weeks from the
actual listing date.\13\ Tuesday and Thursday SPXW Expirations will be
treated the same as options on the same underlying index that expire on
the third Friday of the expiration month, except that they will 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.\14\
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\11\ See proposed Cboe Options Rule 4.13(e)(1).
\12\ See Cboe Options Rule 4.13(e)(1).
\13\ Id.
\14\ See Notice, supra note 3, 87 FR 11102. The proposed rule
change also clarifies that on the last trading day, Regular Trading
Hours for expiring Weekly Expirations and EOMs are from 9:30 a.m. to
4:00 p.m. See proposed Cboe Options Rule 4.13(e)(4).
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Finally, if the Exchange is not open for business on a Tuesday or
Thursday, the normally Tuesday- or Thursday-expiring SPXW will expire
on the previous business day.\15\ If two different SPXW options will
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 SPXW
options.\16\
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\15\ Id.
\16\ Id.
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B. Annual Pilot Program Report
The Exchange has previously undertaken to submit a Pilot report to
the Commission at least two months prior to the expiration date of the
Pilot (``Annual Report'').\17\ The Exchange represents that it will
abide by the same reporting requirements for the trading of Tuesday and
Thursday SPXW Expirations 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.\18\ The Exchange states that it will
include data regarding Tuesday and Thursday SPXW Expirations in the
Annual Report that it submits to the Commission at least two months
prior to the expiration date of the Pilot.\19\ Additionally, the
Exchange represents that it will provide certain additional market
quality data for SPX options \20\ and will also 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,
including the proposed Tuesday and Thursday SPXW Expirations, is
consistent with the Act.\21\ As it does for current Pilot program
products, the Exchange states it 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.\22\
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\17\ See Pilot Approval Order, supra note 5.
\18\ See Notice, supra note 3, 87 FR at 11103. See also Pilot
Approval Order, supra note 5, 75 FR 57540 (stating, ``[i]n
particular, the Commission notes that [the Exchange] will provide
the Commission with the annual report analyzing volume and open
interest of EOWs and EOMs, will also contain information and
analysis of EOW and EOM trading patterns, and index price volatility
and share trading activity for series that exceed minimum
parameters.'').
\19\ See Notice, supra note 3, 87 FR 11103.
\20\ See Amendment No. 1, supra note 4. In particular, the
Exchange proposes to include the following market quality data, over
sample periods determined by the Exchange and the Commission, for
SPX options (SPXW and standard SPX options) as part of the annual
reports going forward: Time-weighted relative quoted spreads;
relative effective spreads; and time-weighted bid and offer sizes.
See id.
\21\ See Notice, supra note 3, 87 FR 11103.
\22\ Id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange and, in particular, with
Section 6(b) of the Act.\23\ In particular, the Commission finds that
the proposed rule change is consistent with Section 6(b)(5) of the
Act,\24\ which requires, among other things, that a national securities
exchange have rules 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 facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
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\23\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\24\ 15 U.S.C. 78f(b)(5).
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The Commission received a comment letter in support of the
Exchange's proposal.\25\ The commenter states that the addition of
Tuesday and Thursday SPXW Expirations would allow investors to closely
tailor their hedging strategies around specific dates \26\ and
potentially reduce hedging costs,\27\ as well as allow investors to
spread risk across more trading days and account for daily changes in
the markets.\28\ The commenter also asserts that there is demand for
the proposed Tuesday and Thursday SPXW Expirations, and that the
proposal ``will enhance the total liquidity and risk management
opportunities that the US options market offers, and will further
enhance the overall health of the US listed options market.'' \29\ The
commenter states that it has not observed any negative impact on the
market or regulatory concerns arising from SPXW options.\30\
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\25\ See Letter from John Zhu, Head of Trading, Optiver US LLC,
to Vanessa Countryman, Secretary, Commission, dated March 18, 2022.
\26\ See id. at 1.
\27\ Id.
\28\ Id.
\29\ Id. at 2.
\30\ Id.
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As the Commission noted in its orders approving the listing and
trading of P.M.-settled options on the S&P 500 Index, the Commission
has had concerns about the potential adverse effects and impact of P.M.
settlement upon market volatility and the operation of fair and orderly
markets on the underlying cash markets at or near the close of trading,
including for cash-settled derivatives contracts based on a broad-based
index.\31\ The potential impact today remains unclear, given the
significant changes in the closing procedures of the primary markets in
recent decades. The Commission is mindful of the historical experience
with the impact of P.M. settlement of cash-settled index derivatives on
the underlying cash markets, but recognizes that these risks may be
mitigated today by the enhanced closing procedures that are now in use
at the primary equity markets.
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\31\ See Securities Exchange Act Release No. 68888 (February 8,
2013), 78 FR 10668, 10669 (February 14, 2013) (order approving the
listing and trading of SPXPM on Cboe Options). See also Securities
Exchange Act Release Nos. 64599 (June 3, 2011), 76 FR 33798, 33801-
02 (June 9, 2011) (order instituting proceedings to determine
whether to approve or disapprove a proposed rule change to allow the
listing and trading of SPXPM options on the C2 Options Exchange,
Incorporated); and 65256 (September 2, 2011), 76 FR 55969, 55970-76
(September 9, 2011) (order approving proposed rule change to
establish a pilot program to list and trade SPXPM options on the C2
Options Exchange, Incorporated).
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The Exchange's proposal to add Tuesday and Thursday SPXW
Expirations to the existing Pilot would offer additional investment
options to investors and may be useful for their investment or hedging
objectives while providing the Commission with data to monitor the
effects of Tuesday and Thursday SPXW Expirations and the impact of P.M.
settlement on the markets. To assist the Commission in assessing any
potential impact of Tuesday and Thursday SPXW options on the options
markets as well as the underlying cash equities markets, the Exchange
will be required to submit data to the Commission in connection with
the Pilot.\32\ Further, including the proposed Tuesday and Thursday
SPXW Expirations in the Pilot, together with the data and analysis that
the Exchange will provide to the Commission, will allow Cboe Options
and the Commission to monitor for and assess any potential for adverse
market effects of allowing Tuesday and Thursday SPXW Expirations,
including on the underlying component stocks. In particular, the data
collected from the Pilot will help inform the Commission's
consideration of whether the Pilot, as amended to include Tuesday and
Thursday SPXW Expirations, should be modified, discontinued, extended,
or permanently approved. Furthermore, the Exchange's ongoing analysis
of the Pilot should help it monitor any potential risks from large
P.M.-settled positions and take appropriate action if warranted.
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\32\ See Notice, supra note 3, 87 FR 11103; Pilot Approval
Order, supra note 5, 75 FR 57540; and Amendment No. 1, supra note 4.
See also supra notes 18 and 20.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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#1f6d6a737a327c7072727a716b6c5f6c7a7c31787069"><span class="__cf_email__" data-cfemail="addfd8c1c880cec2c0c0c8c3d9deeddec8ce83cac2db">[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 May 9, 2022.
V. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. In Amendment No. 1, the Exchange represents
that it will provide certain additional data in the Pilot Program
annual reports regarding SPXW options.\33\ The Exchange states that
such data will assist in monitoring for any adverse market effects or
regulatory concerns. Amendment No. 1 raises no novel regulatory issues
and will provide additional data that will assist the Commission in
evaluating the Pilot. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\34\ to approve the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
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\33\ See Amendment No. 1, supra note 4.
\34\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\35\ that the proposed rule change (SR-CBOE-2022-005), as modified
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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\35\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08162 Filed 4-15-22; 8:45 am]
BILLING CODE 8011-01-P
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