Notice2022-16657
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend Rule 4.13
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Published
August 4, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 149 (Thursday, August 4, 2022)</title>
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[Federal Register Volume 87, Number 149 (Thursday, August 4, 2022)]
[Notices]
[Pages 47803-47806]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-16657]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95392; File No. SR-CBOE-2022-039]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Proposed Rule Change To Amend Rule 4.13
July 29, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 21, 2022, Cboe Exchange, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II 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 amend Rule 4.13. The text of the proposed rule change is provided
below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 4.13. Series of Index Options
* * * * *
(e) Nonstandard Expirations Pilot Program.
(1) Weekly Expirations. 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 and Mini-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. 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 given
class. Other expirations in the same class are not counted as part
of the maximum number of Weekly Expirations for an applicable 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. If two different Weekly Expirations on S&P 500 Index or Mini-
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 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.
[[Page 47804]]
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 options on the Mini-S&P 500 Index (``XSP 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 and, with
respect to options on the S&P 500 Index (``SPX options'') any Tuesday
or Thursday (``Weekly Expirations'' or ``EOWs'') and (2) the last
trading day of the month (``End of Month Expirations'' or ``EOMs'').\3\
The proposed XSP options that expire on Tuesday or Thursday would be
listed under the Pilot Program, which is currently set to expire on
November 7, 2022. The Exchange notes that permitting XSP options with
Tuesday and Thursday expirations, as proposed, would be in addition to
the XSP 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., the Mini-S&P 500
Index) pursuant to Rule 4.13(e)(1).
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\3\ See Rule 4.13(e).
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The Pilot Program for Weekly Expirations will apply to XSP options
with Tuesday and Thursday expirations in the same manner as it
currently applies to all other P.M.-settled broad-based index options
with Monday, Wednesday, and Friday expirations and to SPX options with
Tuesday and Thursday expirations. Specifically, as set forth in Rule
4.13(e), Weekly Expirations, including the proposed XSP options with
Tuesday and Thursday expirations, are subject to all provisions of Rule
4.13 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 are 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 (including XSP) 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 XSP options). Weekly Expirations need not be for consecutive
Monday, Tuesday, Wednesday, Thursday, or Friday expirations as
applicable; however, the expiration date of a nonconsecutive 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 given class. Other expirations in the same class are not counted
as part of the maximum number of Weekly Expirations for an applicable
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 Mini-S&P 500 Index options (as is the case of 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 XSP 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 XSP option with a Thursday expiration. Thus, expiring XSP
options in this case will always have the same weekday expiration (per
the example, it is an XSP option with a Thursday expiration, whether it
was listed as an XSP 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 Weekly XSP 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. In addition, like all Weekly Expirations listed
pursuant to Rule 4.13(e)(4), transactions in expiring XSP 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 believes that that the introduction of XSP options
with Tuesday and Thursday expirations will expand hedging tools
available to market participants while also providing greater trading
opportunities. By offering XSP 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 XSP 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 XSP 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 and for SPX
options that expire on Tuesday or Thursday pursuant to the Pilot
Program. The Exchange proposes to include data regarding XSP options
that expire on Tuesdays or Thursdays as it does for all other Weekly
Expirations in the Pilot Program annual report that it submits to the
Securities and Exchange Commission (``Commission'') at least
[[Page 47805]]
two months prior to the expiration date of the Pilot Program.\4\ 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
XSP options with Tuesday and Thursday expirations in the annual
reports. The Exchange also proposes to include the following market
quality data, over sample periods determined by the Exchange and the
Commission, for XSP options as part of the annual report, as it does
for SPX options:
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\4\ See Nonstandard Expirations Pilot Approval Order.
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<bullet> time-weighted relative quoted spreads;
<bullet> relative effective spreads; and
<bullet> time-weighted bid and offer sizes.
The Exchange also 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
XSP 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 XSP options with Tuesday and Thursday
expirations it submits to the Commission under the Pilot Program.
The Exchange believes there is sufficient investor interest and
demand in XSP 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.\5\
The Exchange notes that during the Pilot Program's approximately 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 XSP options),\6\ there is no evidence of any significant
adverse economic impact to the futures, index, or underlying index
component securities markets as a result of the quantity of P.M.-
settled XSP options that settle at the close or the amount of expiring
open interest in P.M.-settled XSP options.\7\
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\5\ The Exchange currently lists Tuesday and Thursday
expirations in SPX options. The Exchange also already allows XSP
options to expire on Tuesdays for normally Monday or Wednesday
expiring XSP options when the Exchange is not open for business on a
respective Monday or Wednesday (as applicable), and already allows
XSP options to expire on Thursdays for normally Friday expiring XSP
options when the Exchange is not open for business on a respective
Friday. Also, EOM options in XSP (and other broad-based indexes) may
currently be listed to expire on a Tuesday or Thursday.
\6\ 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 [XSP]
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.'')
\7\ 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 XSP 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.
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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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In particular, the Exchange believes that the proposed rule change
will 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 by providing investors with greater
trading and hedging opportunities and flexibility, allowing them to
transact in XSP options in a manner more aligned with specific timing
needs and more effectively tailor their investment and hedging
objectives by listing XSP options that expire each trading day of the
week. The Exchange does not believe that the addition of XSP options
with Tuesday and Thursday expirations to the Pilot Program will raise
any prohibitive regulatory concerns or adversely impact fair and
orderly markets on expiration days. The Exchange has not observed any
meaningful regulatory concerns or adverse impact on fair and orderly
markets in connection with the listing and trading of XSP options with
Monday, Wednesday and Friday expirations or with the recent listing and
trading SPX options with expirations on Monday through. Particularly,
the Exchange does not believe an increase in the number of P.M.-settled
XSP options series will have any significant adverse economic impact on
the futures, index, or underlying index component securities markets.
The Exchange will include analysis in connection with XSP options
that expire on Tuesdays and Thursdays in the same manner that it
currently does for other Pilot Program products, as described above, in
the annual reports it submits to the Commission. The Exchange also will
provide the Commission with any additional data or analyses that it may
request if it deems such data or analyses necessary to determine
whether the
[[Page 47806]]
Pilot Program, including XSP 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
XSP 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.
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 XSP options with Tuesday
and Thursday expirations will be available to all market participants.
By listing XSP options that expire Tuesdays and Thursdays, the proposed
rule change will provide all investors that participate in the XSP
options market greater trading and hedging opportunities and
flexibility to meet their investment and hedging needs. Additionally,
Tuesday and Thursday expiring XSP options will trade in the same manner
as Weekly Expirations currently trade.
The Exchange does not believe that the proposal to list XSP options
with 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 XSP options are
proprietary Exchange products. Other exchanges offer nonstandard
expiration programs for index options as well as short-term options
programs for certain equity options and are welcome to similarly
propose to list Tuesday and Thursday options on those indexes or equity
products. To the extent that the addition of XSP 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.
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#d2a0a7beb7ffb1bdbfbfb7bca6a192a1b7b1fcb5bda4"><span class="__cf_email__" data-cfemail="f587809990d8969a9898909b8186b5869096db929a83">[email protected]</span></a>. Please include
File Number SR-CBOE-2022-039 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-2022-039. 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-2022-039, and should be submitted
on or before August 25, 2022.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16657 Filed 8-3-22; 8:45 am]
BILLING CODE P
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