Notice2022-10967
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Approving a Proposed Rule Change To Amend Rule 4.3.06 To Allow the Exchange To List and Trade Options on the Goldman Sachs Physical Gold ETF
Primary source
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Published
May 23, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 99 (Monday, May 23, 2022)</title>
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[Federal Register Volume 87, Number 99 (Monday, May 23, 2022)]
[Notices]
[Pages 31287-31290]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10967]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94928; File No. SR-CBOE-2022-009]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Amend Rule 4.3.06 To Allow the
Exchange To List and Trade Options on the Goldman Sachs Physical Gold
ETF
May 17, 2022.
I. Introduction
On March 25, 2022, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'')
filed with the Securities and Exchange
[[Page 31288]]
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 list and trade options on the
Goldman Sachs Physical Gold ETF (``AAAU'' or ``Trust''). The proposed
rule change was published for comment in the Federal Register on April
8, 2022.\3\ The Commission received one comment on the proposed rule
change.\4\ 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. 94594 (Apr. 4,
2022), 87 FR 20901 (Apr. 8, 2022) (``Notice'').
\4\ See Letter from Andrew Robison, dated April 28, 2022,
available at <a href="https://www.sec.gov/comments/sr-cboe-2022-009/srcboe2022009.htm">https://www.sec.gov/comments/sr-cboe-2022-009/srcboe2022009.htm</a>. The comments expressed by the commenter are not
relevant to the proposed rule change.
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II. Description of the Proposed Rule Change
Under Cboe Rule 4.3.06(a), securities deemed appropriate for
options trading include Units \5\ that represent certain types of
interests.\6\ Cboe Rule 4.3.06(a)(4) specifies Units that represent
interests in the SPDR Gold Trust, the iShares COMEX Gold Trust, the
iShares Silver Trust, the ETFS Silver Trust, the ETFS Gold Trust, the
ETFS Palladium Trust, the ETFS Platinum Trust, or the Sprott Physical
Gold Trust. The proposed rule change would add AAAU to the list of ETFs
under Rule 4.3.06(a)(4) that may be approved for options trading on the
Exchange.
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\5\ The terms ``Unit'' and Exchange-Traded Fund (``ETF'') mean a
share or other security traded on a national securities exchange and
defined as an NMS stock as set forth in Cboe Rule 4.3. See Cboe
Rule. 1.1. Capitalized terms not otherwise defined herein have the
meanings set forth in CBOE's rules or the Notice.
\6\ See Cboe Rules 4.3.06(a)(1)-(5).
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The Exchange states that AAAU is a gold-backed commodity ETF
structured as a trust, much like other Units currently deemed
appropriate for options trading pursuant to Cboe Rule 4.3.06(a)(4),
such as the SPDR Gold Trust (``GLD''), iShares COMEX Gold Trust
(``IAU''), Aberdeen Standard Physical Gold Trust (``SGOL''), and Sprott
Physical Gold Trust (``PHYS'').\7\ According to the Exchange, the
Trust's investment objective is for its shares to reflect the
performance of the price of gold (less the expenses of the Trust's
operations), which offers investors an opportunity to gain exposure to
gold without the complexities of gold delivery.\8\ The Trust issues
Goldman Sachs Physical Gold ETF Shares, which represent units of
fractional undivided beneficial interest in the Trust, the assets of
which consist principally of gold.\9\ The Exchange states that AAAU is
a competitively-priced commodity ETF whose cost is comparatively lower
than the industry average for commodity ETFs.\10\ The Exchange asserts
that AAAU provides investors with a cost-efficient alternative that
allows a level of participation in the gold market through the
securities market.\11\ The GLD, IAU, SGOL and PHYS trusts also issue
shares that represent fractional undivided beneficial interest in the
respective trust, each of which holds physical gold and is designed to
track gold or the performance of the price of gold and offer access to
the gold market.\12\
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\7\ See Notice, supra note 3, 87 FR at 20902.
\8\ See id.
\9\ See id. The Trust may include minimal cash. See id. at n. 5.
\10\ See Notice, supra note 3, 87 FR at 20902.
\11\ See id.
\12\ See id. The trusts may include minimal cash. See id. at
n.6.
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AAAU options will trade in the same manner as any other ETF options
on the Exchange.\13\ The Exchange states that Cboe rules that currently
apply to the listing and trading of the aforementioned options on gold-
backed commodity ETFs also will apply to the listing and trading of
AAAU options on the Exchange.\14\ The Exchange notes that these include
rules governing, among other things, listing criteria, expiration and
exercise prices, minimum increments, position and exercise limits,
margin requirements, customer accounts and trading halt procedures.\15\
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\13\ See Notice, supra note 3, 87 FR at 20902.
\14\ See id.
\15\ See id.
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The Exchange's initial listing standards for ETFs on which options
may be listed and traded on the Exchange will apply to AAAU.\16\ The
Exchange represents that AAAU satisfies the Exchange's initial listing
standards as set forth in Cboe Rule 4.3(a) and Cboe Rule 4.3.06(b).\17\
Pursuant to Cboe Rule 4.3(a), an underlying security on which options
may be listed and traded on the Exchange must be duly registered and be
an NMS stock,\18\ and be characterized by a substantial number of
outstanding shares which are widely held and actively traded.\19\ In
addition, Cboe Rule 4.3.06(b) requires that Units must either (1) meet
the criteria and guidelines under Cboe Rule 4.3.01,\20\ or (2) be
available for creation or redemption each business day from or through
the issuing trust, investment company, commodity pools or other issuer
in cash or in kind at a price related to net asset value, and the
issuing trust, investment company, commodity pools or other issuer is
obligated to issue Units in a specified aggregate number even if some
or all of the investment assets and/or cash required to be deposited
have not been received by the issuing trust, investment company,
commodity pools or other issuer, subject to the condition that the
person obligated to deposit the investments has undertaken to deliver
the investment assets and/or cash as soon as possible and such
undertaking is secured by the delivery and maintenance of collateral
consisting of cash or cash equivalents satisfactory to the issuer of
the Units which underlie the option as described in the Units'
prospectus.\21\ The Exchange represents that, at minimum, AAAU
satisfies Cboe Rule 4.3.06(b)(2).\22\
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\16\ See id.
\17\ See id.
\18\ See id. The term ``NMS stock'' has the meaning set forth in
Rule 600 of Regulation NMS. See Cboe Rule 1.1.
\19\ See Notice, supra note 3, 87 FR at 20902. The Exchange
notes that the year-to-date (March 23, 2022) average daily volume
(``ADV'') of AAAU shares is approximately 845,200 shares, the market
capitalization of AAAU as of March 23, 2022 is approximately $727.3
million and the NAV of its shares is $19.19. See id. at n. 7.
\20\ See Cboe Rule 4.3.01 (providing guidelines established by
the Board of Directors to be considered by the Exchange in
evaluating potential underlying securities for Exchange option
transactions).
\21\ See Notice, supra note 3, 87 FR at 20902-03.
\22\ See id. See also Goldman Sachs Physical Gold ETF,
Prospectus (January 8, 2021) available at <a href="https://www.gsam.com/content/gsam/us/en/individual/products/etf-fund-finder/goldman-sachs-physical-gold-etf.html#activeTab=overview">https://www.gsam.com/content/gsam/us/en/individual/products/etf-fund-finder/goldman-sachs-physical-gold-etf.html#activeTab=overview</a>.
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The Exchange states that AAAU also will be subject to the
Exchange's continued listing requirements, set forth in Cboe Rule
4.4.06, for ETFs deemed appropriate for options trading pursuant to
Cboe Rule 4.3.06.\23\ Cboe Rule 4.4.06 provides that Units that were
initially approved for options trading pursuant to Cboe Rule 4.3.06
shall be deemed not to meet the requirements for continued approval,
and the Exchange shall not open for trading any additional series of
option contracts of the class covering such Units, if the Units cease
to be an NMS stock or the Units are halted from trading in their
primary market.\24\ Additionally, options on Units may be subject to
the suspension of opening transactions in any of the following
circumstances: (1) In the case of options covering Units approved for
trading under Cboe Rule 4.3.06(b)(1), in accordance with the terms of
paragraphs (a), (b), and (c) of Cboe Rule 4.4.01; (2) in the case of
options covering Units approved for trading under Cboe Rule
[[Page 31289]]
4.3.06(b)(2), following the initial twelve-month period beginning upon
the commencement of trading in the Units on a national securities
exchange and are defined [sic] as an NMS stock, there are fewer than 50
record and/or beneficial holders of such Units for 30 or more
consecutive trading days; (3) the value of the index or portfolio of
securities, non-U.S. currency, or portfolio of commodities including
commodity futures contracts, options on commodity futures contracts,
swaps, forward contracts and/or options on physical commodities and/or
Financial Instruments and Money Market Instruments on which the Units
are based is no longer calculated or available; or (4) such other event
occurs or condition exists that in the opinion of the Exchange makes
further dealing in such options on the Exchange inadvisable.\25\
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\23\ See Notice, supra note 3, 87 FR at 20903.
\24\ See id.
\25\ See id.
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AAAU options will be physically-settled contracts with American-
style exercise.\26\ The Exchange states that, consistent with Cboe Rule
4.5, which governs the opening of options series on a specific
underlying security (including ETFs), the Exchange will open at least
one expiration month for options on AAAU \27\ and may also list series
of options on AAAU for trading on a weekly \28\ or quarterly \29\
basis.\30\ The Exchange states that it may also list long-term equity
option series (``LEAPS'') that expire from 12 to 180 months from the
time they are listed.\31\
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\26\ See id. See also Cboe Rule 4.2 (providing that the rights
and obligations of holders and writers shall be as set forth in the
Rules of The Options Clearing Corporation (``OCC'')); Cboe Equity
Options Product Specifications (March 23, 2022) available at <a href="https://www.cboe.com/exchange_traded_stock/equity_options_spec/?msclkid=8079efbbaaf111ec83b46e77a2984348">https://www.cboe.com/exchange_traded_stock/equity_options_spec/?msclkid=8079efbbaaf111ec83b46e77a2984348</a>; OCC Rules, Chapter VIII
(governing exercise and assignment) and Chapter IX (governing the
discharge of delivery and payment obligations arising out of the
exercise of physically-settled stock option contracts).
\27\ See Notice, supra note 3, 87 FR at 20903 n. 11; see also
Cboe Rule 4.5(b).
\28\ See Notice, supra note 3, 87 FR at 20903. The weekly
listing program is known as the Short Term Option Series Program and
is described within Cboe Rule 4.5(d). See id. at n.12.
\29\ See Notice, supra note 3, 87 FR at 20903; see also Cboe
Rule 4.5(e).
\30\ See Notice, supra note 3, 87 FR at 20903.
\31\ See id.; see also Cboe Rule 4.5(f).
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The Exchange states that, pursuant to Rule 4.5.07, which governs
strike prices of series of options on Units, the interval between
strike prices for series of options on AAAU will be $1 or greater where
the strike price is $200 or less and $5.00 or greater where the strike
price is greater than $200.\32\ The Exchange states that, pursuant to
Cboe Rule 5.4, where the price of a series of AAAU options is less than
$3.00 the minimum increment will be $0.05, and where the price is $3.00
or higher, the minimum increment will be $0.10.\33\ The Exchange states
that any and all new series of AAAU options that the Exchange lists
will be consistent and comply with the expirations, strike prices and
minimum increments set forth in Cboe Rules 4.5 and 5.4, as
applicable.\34\
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\32\ See Notice, supra note 3, 87 FR at 20903. The Exchange
notes that for options listed pursuant to the Short Term Option
Series Program, Rule 4.5(d)(5) specifically sets forth intervals
between strike prices on Short Term Option Series. See id. at n. 15.
\33\ See Notice, supra note 3, 87 FR at 20903; see also Cboe
Rule 5.4. The Exchange states that, if options on AAAU are eligible
to participate in the Penny Interval Program, the minimum increment
will be $0.01 below $3.00 and $0.50 above $3.00. See Notice, supra
note 3, 87 FR at 20903 n. 20.
\34\ See Notice, supra note 3, 87 FR at 20903.
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The Exchange states that position and exercise limits for options
on ETFs, including options on AAAU, are determined pursuant to Cboe
Rules 8.30 and 8.32, respectively.\35\ The Exchange states that
position and exercise limits for ETF options vary according to the
number of outstanding shares and the trading volumes of the underlying
ETF over the past six months, where the largest in capitalization and
the most frequently traded ETFs have an option position and exercise
limit of 250,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market, and smaller
capitalization ETFs have position and exercise limits of 200,000,
75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-
capitalizations, etc.) on the same side of the market.\36\ The Exchange
states that, given AAAU volume over the previous six months, the
Exchange anticipates that upon initial listing, AAAU options will fall
into the position limit bucket of 75,000 contracts.\37\ The Exchange
further notes that Cboe Rule 10.3, which governs margin requirements
applicable to the trading of all options on the Exchange, including
options on ETFs, will also apply to the trading of AAAU options.\38\
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\35\ See id.
\36\ See id.
\37\ See Notice, supra note 3, 87 FR at 20903 n. 21.
\38\ See Notice, supra note 3, 87 FR at 20903.
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The Exchange represents that the same surveillance procedures
applicable to all other options on other Units currently listed and
traded on the Exchange will apply to options on AAAU, and that it has
the necessary systems capacity to support the new option series.\39\
The Exchange states it believes that its existing surveillance and
reporting safeguards are designed to deter and detect possible
manipulative behavior which might potentially arise from listing and
trading ETF options, including AAAU options, as proposed.\40\ Also, the
Exchange states it may obtain information from the CME Group New York
Mercantile Exchange, Inc. (``NYMEX'') (a member of the Intermarket
Surveillance Group (``ISG'')) \41\ related to any financial instrument
that is based, in whole or in part, upon an interest in or performance
of gold.\42\
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\39\ See id.
\40\ See Notice, supra note 3, 87 FR at 20903-04.
\41\ The purpose of the ISG is to provide a framework for the
sharing of information and the coordination of regulatory efforts
among exchanges trading securities and related products to address
potential intermarket manipulations and trading abuses. See <a href="https://isgportal.org/">https://isgportal.org/</a>.
\42\ See Notice, supra note 3, 87 FR at 20904.
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The Exchange represents that it has also analyzed its capacity and
believes the Exchange and OPRA have the necessary systems capacity to
handle the additional traffic associated with the listing of new series
that may result from the introduction of options on AAAU, up to the
number of expirations currently permissible under its rules.\43\ The
Exchange believes that because the proposal is limited to one class,
any additional traffic that may be generated from the introduction of
AAAU options will be manageable.\44\ The Exchange also proposes to
amend Cboe Rule 4.3.06(a)(4) to update the names of the ``ETFS Silver
Trust,'' the ``ETFS Gold Trust,'' the ``ETFS Palladium Trust'' and the
``ETFS Platinum Trust'' to the ``Aberdeen Standard Physical Silver
Trust,'' the ``Aberdeen Standard Physical Gold Trust,'' the ``Aberdeen
Standard Physical Palladium Trust,'' and the ``Aberdeen Standard
Physical Platinum Trust,'' respectively,\45\ and make a non-substantive
change to the rule to replace superfluous commas with conjunctions.\46\
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\43\ See id.
\44\ See id.
\45\ See Notice, supra note 3, 87 FR at 20902. The Exchange
states that these ETFs were renamed in 2018. See id.
\46\ See id.
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III. Discussion and Commission Findings
After careful consideration, 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 \47\ and, in particular, the requirements of Section 6
[[Page 31290]]
of the Act.\48\ Specifically, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\49\ which
requires, among other things, that the rules of a national securities
exchange be designed to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
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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\47\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\48\ 15 U.S.C. 78f.
\49\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposal to list and trade options
on AAAU on the Exchange will provide investors with the ability to
transact in AAAU options in a listed market environment, which could
provide investors with heightened contra-party creditworthiness due to
the role of OCC as issuer and guarantor of all listed options, as well
as increased transparency and enhanced price discovery. Moreover, the
Exchange already lists options on other gold-based ETFs, which, as
described above, are trusts structured in substantially the same manner
as AAAU,\50\ and the Exchange represents that it has not identified any
issues with the continued listing and trading of the gold-backed ETF
options that it currently lists for trading.\51\
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\50\ See e.g., Securities Exchange Act Release No. 59055 (Dec.
4, 2008), 73 FR 75148 (Dec. 10, 2008) (approving proposals to list
and trade options on IAU and the iShares Silver Trust); Securities
Exchange Act Release No. 57894 (May 30, 2008), 73 FR 32061 (Jun. 5,
2008) (approving proposals to list and trade options on GLD); and
Securities Exchange Act Release No. 61483 (Feb. 3, 2010), 75 FR 6753
(Feb. 10, 2010) (approving proposals to list and trade options on
the ETFS Gold Trust and ETFS Silver Trust).
\51\ See Notice, supra note 3, at 20904.
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As a national securities exchange, Cboe is required under Section
6(b)(1) of the Act \52\ 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
addition, brokers that trade AAAU options also will be subject to best
execution obligations and FINRA rules.\53\ Applicable exchange rules
also require that customers receive appropriate disclosure before
trading AAAU Options.\54\ Further, brokers opening accounts and
recommending options transactions must comply with relevant customer
suitability standards.\55\
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\52\ 15 U.S.C. 78f(b)(1).
\53\ See FINRA Rule 5310.
\54\ See Cboe Rule 9.9 and Rule 9.15.
\55\ See Cboe Rule 9.3.
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Options on AAAU will trade as options under the trading rules of
the Exchange.\56\ AAAU options must also satisfy Exchange initial
listing and continued listing standards applicable to options on all
Units, including the gold-backed commodity ETFs already approved for
options trading on the Exchange. A security on which options may be
listed and traded on the Exchange must be duly registered and be an
``NMS stock'' as defined under Rule 600 of Regulation NMS \57\ and be
characterized by a substantial number of outstanding shares which are
widely held and actively traded.\58\ Additionally, Units must meet
either (1) the criteria and guidelines under Cboe Rule 4.3.01,\59\ or
(2) they must be available for creation or redemption each business day
from or through the issuer in cash or in kind at a price related to net
asset value, and the issuer must be obligated to issue Units in a
specified aggregate number even if some or all of the investment assets
required to be deposited have not been received by the issuer, subject
to the condition that the person obligated to deposit the investments
has undertaken to deliver the investment assets as soon as possible and
such undertaking is secured by the delivery and maintenance of
collateral consisting of cash or cash equivalents satisfactory to the
issuer, as provided in the respective prospectus.\60\
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\56\ See Chapter 5 of Cboe's Rules.
\57\ 17 CFR 242.600.
\58\ See Cboe Rule 4.3(a); see also supra note 19.
\59\ See Cboe Rule 4.3.06(b)(1). See also Cboe Rule 4.3.01
(providing guidelines established by the Board of Directors to be
considered by the Exchange in evaluating potential underlying
securities for Exchange option transactions).
\60\ See Cboe Rule 4.3.06(b)(2). The Exchange represents that,
at minimum, the AAAU satisfies this initial listing criteria. See
Notice, supra note 3, 87 FR at 20903.
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Series of AAAU options also will be subject to the Exchange's
continued listing requirements, including standards applicable to the
underlying Trust. If the Units cease to be an NMS stock or the Units
are halted from trading in their primary market, the Exchange will deem
Units that were initially approved for options trading pursuant to Cboe
Rule 4.3.06 not to meet the requirements for continued approval, and
the Exchange shall not open for trading any additional series of option
contracts of the class covering such Units.\61\
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\61\ See Cboe Rule 4.4.06.
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The Exchange represents that its existing surveillance and
reporting safeguards are designed to deter and detect possible
manipulative behavior which might arise from listing and trading ETF
options, including AAAU options.\62\ The Exchange also represents that
it has the necessary systems capacity to support the new ETF option
series.\63\ Additionally, the Commission notes that AAAU options will
trade in the same manner as any other options on ETFs, and the same
Exchange rules that currently govern the listing and trading of ETF
options, including permissible expirations, strike prices and minimum
increments, and applicable position and exercise limits and margin
requirements, will govern the listing and trading of options on AAAU.
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\62\ See Notice, supra note 3, 87 FR at 20903.
\63\ See id.
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Finally, the Commission believes that the Exchange's proposals to
make grammatical edits to the rule text and update the names of certain
ETFs in Cboe Rule 4.3.06(a)(4) are helpful technical changes that add
clarity and accuracy to the rule text.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\64\ that the proposed rule change (SR-CBOE-2022-009) be, and
hereby is, approved.
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\64\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\65\
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\65\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10967 Filed 5-20-22; 8:45 am]
BILLING CODE 8011-01-P
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