Notice2022-20377
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Approving a Proposed Rule Change To Expand the Nonstandard Expirations Pilot Program To Include P.M.-Settled Options on the Mini-S&P 500 Index That Expire on Tuesday or Thursday
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 21, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 182 (Wednesday, September 21, 2022)</title>
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[Federal Register Volume 87, Number 182 (Wednesday, September 21, 2022)]
[Notices]
[Pages 57745-57747]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-20377]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95795; File No. SR-CBOE-2022-039]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Expand the Nonstandard Expirations
Pilot Program To Include P.M.-Settled Options on the Mini-S&P 500 Index
That Expire on Tuesday or Thursday
September 15, 2022.
I. Introduction
On July 21, 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 options on the Mini-S&P 500 Index that
expire on Tuesday or Thursday. The proposed rule change was published
for comment in the Federal Register on August 4, 2022.\3\ The
Commission received no comments on the proposal. The Commission is
approving 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. 95392 (July 29,
2022), 87 FR 47803 (``Notice'').
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II. Description of the Proposal
Cboe Options proposes to expand its existing Nonstandard
Expirations Pilot (``Pilot Program'') \4\ 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 (``EOMs'').\5\ 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). The
Exchange states that the Pilot Program for Weekly Expirations will
apply to Tuesday and Thursday XSP options 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.\6\
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\4\ 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 November 7, 2022. See Securities Exchange Act Release
No. 94800 (April 27, 2022), 87 FR 26248 (May 3, 2022).
\5\ See Rule 4.13(e).
\6\ See Notice, supra note 3, 87 FR at 47804.
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A. Tuesday and Thursday XSP Options
The Exchange's proposed rule change will allow it to open for
trading XSP 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.\7\ 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).\8\
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\7\ 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).
\8\ See Notice, supra note 3, 87 FR at 47803.
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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.\9\ Weekly Expirations that are
first listed in a given class may expire up to four weeks from the
actual listing date.\10\ 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
[[Page 57746]]
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.\11\ 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.\12\
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\9\ See Cboe Options Rule 4.13(e)(1).
\10\ Id.
\11\ Id.
\12\ See proposed Cboe Options Rule 4.13(e)(1).
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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 Program (``Annual Report'').\13\ The Exchange represents that it
will 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.\14\ The Exchange
states that it will 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 Commission at
least two months prior to the expiration date of the Pilot Program.\15\
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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\13\ See Pilot Approval Order, supra note 4.
\14\ See Notice, supra note 3, 87 FR at 47804-47805. See also
Pilot Approval Order, supra note 4, 75 FR at 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.'').
\15\ See Notice, supra note 3, 87 FR at 47804-47805.
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<bullet> time-weighted relative quoted spreads;
<bullet> relative effective spreads; and
<bullet> time-weighted bid and offer sizes.\16\
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\16\ See id. at 47805.
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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 Act.\17\ 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 XSP options with Tuesday and
Thursday expirations it submits to the Commission under the Pilot
Program.\18\
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\17\ See id.
\18\ See id.
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III. Discussion and Commission Findings
After careful review, 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
and, in particular, with Section 6(b) of the Act.\19\ In particular,
the Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\20\ 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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\19\ 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).
\20\ 15 U.S.C. 78f(b)(5).
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As the Commission noted in its recent order approving the listing
and trading of P.M.-settled options on the S&P 500 Index that expire on
Tuesday or Thursday, 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.\21\
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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\21\ See Securities Exchange Act Release No. 94682 (April 12,
2022), 87 FR 22993 (April 18, 2022) (CBOE-2022-005).
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The Exchange's proposal to add Tuesday and Thursday XSP expirations
to the existing Pilot Program 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 XSP expirations and the impact of P.M.
settlement on the markets. To assist the Commission in assessing any
potential impact of Tuesday and Thursday XSP expiration 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 Program.\22\ Further, including the proposed Tuesday and
Thursday XSP expirations in the Pilot Program, together with the data
and analysis that the Exchange will provide to the Commission, will
allow the Exchange and the Commission to monitor for and assess any
potential for adverse market effects of allowing Tuesday and Thursday
XSP expirations, including on the underlying component stocks. In
particular, the data collected from the Pilot Program will help inform
the Commission's consideration of whether the Pilot Program, as amended
to include Tuesday and Thursday XSP expirations, should be modified,
discontinued, extended, or permanently approved. Furthermore, the
Exchange's ongoing analysis of the Pilot Program should help it monitor
any potential risks from large P.M.-settled positions and take
appropriate action if warranted.
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\22\ See Notice, supra note 3, 87 FR at 47804-47805 and Pilot
Approval Order, supra note 4, 75 FR at 57540. See also supra notes
15-18.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-CBOE-2022-039) be, and
hereby is, approved.
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\23\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20377 Filed 9-20-22; 8:45 am]
BILLING CODE 8011-01-P
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