Notice2022-13150
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend Rule 5.4
Primary source
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Published
June 21, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 118 (Tuesday, June 21, 2022)</title>
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[Federal Register Volume 87, Number 118 (Tuesday, June 21, 2022)]
[Notices]
[Pages 36898-36902]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13150]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95102; File No. SR-CBOE-2022-027]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to Amend
Rule 5.4
June 14, 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 June 3, 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 and
II, below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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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 amend Rule 5.4. The text of the proposed rule change is provided
below.
(additions are underlined; deletions are [bracketed])
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[GRAPHIC] [TIFF OMITTED] TN21JN22.064
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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 5.4(a) to change the minimum
increment for all series of options on the Cboe Volatility Index (``VIX
options'') (if the Exchange does not list VIX options on a group basis)
and series of VIX options not listed under the Nonstandard Expirations
Pilot Program (if the Exchange lists VIX options on a group basis) to
$0.01 for series trading lower than $3.00 and $0.05 for series trading
at $3.00 or higher. Currently, the Exchange lists VIX options on a
group basis, so series of VIX options listed under the Nonstandard
Expirations Pilot Program (``VIXW options'') currently trade with a
minimum increment of $0.01 for all series trading prices. The proposed
rule change will permit the other group of VIX option series (those not
listed under the Nonstandard Expirations Pilot Program, which are
comprised of VIX options series that expire on the third Friday of the
month) to trade in smaller increments.\5\
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\5\ As proposed, if the Exchange were to stop listing VIX series
on a group basis, then the proposed increments of $0.01 for series
trading below $3.00 and $0.05 for series trade at or above $3.00
would apply to all VIX options series.
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The Exchange believes market demand (including by retail investors,
who generally prefer lower trading increments) supports a lower trading
increment for these series. The Exchange expects this more granular
pricing to lead to narrowing of the bid-ask spread for these options
and increase the possible number of price points available to investors
for these series. The Exchange believes tighter spreads will increase
order flow in VIX options, which additional liquidity ultimately
benefits all investors. Finer increments also permit more precise
pricing in line with the theoretical value of these options.
Additionally, penny pricing is available in weekly options on
competitor products such as the iPath S&P 500 VIX Short-Term Futures
exchange-traded note (``VXX''). As a result, the Exchange believes
penny pricing for VIX options is necessary for competitive reasons to
allow the Exchange to price these weekly options at the same level of
granularity as permitted for competitor products.\6\
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\6\ The Exchange notes that other options that trade on the
Exchange are currently permitted to trade in penny increments
because competitive products are able to trade in penny increments,
including VIXW options. See Rule 5.4 (the minimum for XSP options is
$0.01 because that is the minimum increment for SPY options, and the
minimum increment for DJX options is $0.01 for series below $3 and
$0.05 for series $3 and above because that is the minimum increment
for DIA options).
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The Exchange also notes that, while the Penny Interval Program
relates to multiply listed classes only, VIX options would be eligible
for that program, and thus for the same minimum trading increments as
being proposed in this rule filing. Specifically, pursuant to the Penny
Interval Program, option classes among the 300 most actively traded
multiply listed option classes overlying securities priced below $200,
or any index at any index level below $200, may be added to the Penny
Interval Program each year.\7\ Currently, the class with the lowest
cleared volume over the six-month period ending May 3, 2022 has a total
volume of 988,078 contracts. During that same six-month period, VIX
volume was 113,617,404 contracts, which would put it among the top five
classes currently eligible for the Penny Interval Program.
Additionally, the value of the VIX Index as of the close of regular
trading hours on May 3, 2022, was under 30 (and thus well under 200).
Therefore, VIX options have similar trading properties as other option
classes that are otherwise eligible for penny and nickel pricing.
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\7\ See Rule 5.4(d).
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Further, the Exchange notes that a majority of VIX options already
execute in penny increments. Specifically, in the first four months of
2022, approximately 62% of VIX option contract volume executed as part
of complex orders, which may execute in penny increments.\8\ In
addition, during that same time period, nearly 5% of VIX option
contract volume executed through an automated improvement mechanism
(``AIM'') auction for simple orders, which also permits penny
executions.\9\ Therefore, the proposed rule change will impact the
trading increment of approximately one-third of VIX options.
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\8\ See Rule 5.4(b).
\9\ See Rule 5.37(a)(4).
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With regard to the impact of this proposed rule change on system
capacity, the Exchange has analyzed its capacity and represents that it
and the Options Price Reporting Authority have the necessary systems
capacity to handle any potential additional traffic associated with
this proposal. The Exchange does not believe any potential increased
traffic will become unmanageable since this proposed rule change with
respect to minimum trading increments is limited to a single class of
options. The proposed rule change does not impact the number of
expirations for VIX options the Exchange may list pursuant to Rule
4.13.
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.\10\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \11\ 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 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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In particular, the proposed rule change will permit more granular
pricing in VIX options, which may lead to narrowing of the bid-ask
spread for these options and increase the possible number of price
points available to investors for these series, which ultimately
increases liquidity to the
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benefit of all investors. Additionally, as discussed above, at least
one competitive product participates in the Penny Interval Program and
thus may currently trade in penny and nickel increments. Therefore, the
proposed will and promote just and equitable principles of trade and
remove impediments to and perfect the mechanism of a free and open
market by allowing VIX options to trade at the same level of
granularity as permitted for competitor products.\13\ The Exchange
notes that VIX options have a volume and an underlying index price
consistent with option classes eligible for the Penny Interval Program
(and thus are able to trade in penny and nickel increments).
Additionally, as noted above, VIXW options and the majority of VIX
options already execute in penny increments.
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\13\ The Exchange notes that other options that trade on the
Exchange are currently permitted to trade in penny increments
because competitive products are able to trade in penny increments.
See 5.4 (the minimum for XSP options is $0.01 because that is the
minimum increment for SPY options, and the minimum increment for DJX
options is $0.01 for series below $3 and $0.05 for series $3 and
above because that is the minimum increment for DIA options).
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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 proposed rule change
will not impose any burden on intramarket competition that is not
necessary or appropriate, because all Trading Permit Holders will be
able to trade VIX options in the proposed minimum trading increments.
Additionally, all VIXW options may currently trade in penny increments,
and approximately two-thirds of VIX options volume execute in penny
increments as part of simple AIM or complex trading. The proposed rule
change will not impose any burden on intermarket competition that is
not necessary or appropriate, because it will permit VIX options to
have pricing consistent with the pricing of a competitive product that
is part of the Penny Interval Program and may currently trade in
increments of $0.01 or $0.05. The Exchange reiterates that VIX options
have a volume and an underlying index price consistent with option
classes eligible for the Penny Interval Program (and thus are able to
trade in penny and nickel increments).
Additionally, the proposed rule change to permit VIX options to be
listed in penny and nickel increments may relieve any burden on, or
otherwise promote, competition, as it will allow market participants to
trade these options at the same level of granularity as permitted for
competitor products. The Exchange notes that other options that trade
on the Exchange are currently permitted to trade in penny increments
because competitive products are able to trade in penny increments.\14\
The Exchange also expects the more granular pricing to lead to
narrowing of the bid-ask spread for these options, which the Exchange
believes will increase order flow and price competition in VIX options.
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\14\ See Rule 5.4(a) (the minimum for XSP options is $0.01
because that is the minimum increment for SPY options, and the
minimum increment for DJX options is $0.01 for series below $3 and
$0.05 for series $3 and above because that is the minimum increment
for DIA options).
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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
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) \16\ thereunder.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the filing
may become operative immediately upon filing. As discussed above, the
proposal will permit pricing of VIX options in an increment at the same
level of granularity as currently is permitted for at least one
competitor product and other products with similar volumes and
underlying prices that are eligible for the Penny Interval Program. The
Commission finds that waiving the operative delay is consistent with
the protection of investors and the public interest because it will
allow the Exchange to make this pricing option available to investors
without delay. Therefore, the Commission waives the 30-day operative
delay and designates the proposed rule change as operative upon
filing.\19\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
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#0270776e672f616d6f6f676c7671427167612c656d74"><span class="__cf_email__" data-cfemail="0a787f666f27696567676f647e794a796f69246d657c">[email protected]</span></a>. Please include
File Number SR-CBOE-2022-027 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-2022-027. 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
[[Page 36902]]
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; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-CBOE-2022-027 and should be submitted on or before July
12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13150 Filed 6-17-22; 8:45 am]
BILLING CODE 8011-01-P
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