Notice2023-16387
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove Proposed Rule Change To Make Permanent the Operation of its Pilot Program That Allows the Exchange to List P.M.-Settled Third Friday-of-the-Month Mini-SPX Index Options and Mini-Russell 2000 Index Options Series
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
August 2, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 147 (Wednesday, August 2, 2023)</title>
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[Federal Register Volume 88, Number 147 (Wednesday, August 2, 2023)]
[Notices]
[Pages 50943-50945]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16387]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98005; File No. SR-CBOE-2023-019]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove
Proposed Rule Change To Make Permanent the Operation of its Pilot
Program That Allows the Exchange to List P.M.-Settled Third Friday-of-
the-Month Mini-SPX Index Options and Mini-Russell 2000 Index Options
Series
July 27, 2023.
I. Introduction
On April 19, 2023, 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 make permanent the operation of its pilot
program (``Program'') that permits the Exchange to list p.m.-settled
third Friday-of-the-month Mini-SPX Index (``XSP'') options and Mini-
Russell 2000 Index (``MRUT''). The proposed rule change was published
for comment in the Federal Register on April 28, 2023.\3\ On June 9,
2023, pursuant to Section 19(b)(2) of the Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ The
Commission did not receive any comment letters on the proposed rule
change. The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove 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. 97366 (April 24,
2023), 88 FR 26359 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 97678, 88 FR 39285
(June 15, 2023). The Commission designated July 27, 2023, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
The Exchange proposes to make permanent a pilot program that
permits the Exchange to list and trade cash-settled XSP and MRUT
options with third Friday-of-the-month expiration dates (``Expiration
Friday'') whose exercise settlement value is derived from closing
prices on the last trading day prior to expiration (``p.m.-settled
XSP'' and ``p.m.-settled MRUT,'' respectively, and collectively, the
``Pilot Products'').
In July 2013, the Commission approved the Program to list and trade
p.m.-settled XSP options on a pilot basis.\7\ In February 2021, the
Commission approved a rule change that amended the Program to allow the
exchange to list and trade p.m.-settled MRUT options.\8\ In approving
the Program, the Commission noted its concern about the potential
impact on the market at expiration for the underlying component stocks
for a p.m.-settled, cash-settled index options.\9\ However, the
Commission also recognized the potential impact was unclear.\10\ The
Commission approved the Program on a pilot basis to allow the Exchange
and the Commission to monitor for and assess any potential for adverse
market effects.\11\ In order to facilitate this assessment, the
Exchange committed to provide the Commission with data and analysis in
connection with the Program.\12\ The Exchange has filed to extend the
operation of the Program on multiple occasions \13\ and it is currently
set to expire on the earlier of November 6, 2023, or the date on which
the Program is approved on a permanent basis.\14\
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\7\ See Securities Exchange Act Release No. 70087 (July 31,
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055) (``XSP
Approval Order'').
\8\ See Securities Exchange Act Release No. 91067 (February 5,
2021) 86 FR 9108 (February 11, 2021) (SR-CBOE-2020-116) (``MRUT
Approval Order'').
\9\ See XSP Approval Order, 78 FR at 47811; and MRUT Approval
Order, 86 FR at 9109. 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); 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); and
68888 (February 8, 2013), 78 FR 10668, 10669 (February 14, 2013)
(order approving the listing and trading of SPXPM on CBOE).
\10\ See XSP Approval Order, 78 FR at 47811; and MRUT Approval
Order, 86 FR at 9109.
\11\ See XSP Approval Order, 78 FR at 47811; and MRUT Approval
Order, 86 FR at 9109.
\12\ Id.
\13\ See, e.g., Securities Exchange Act Release Nos. 71424
(January 28, 2014), 79 FR 6249 (February 3, 2014) (SR-CBOE-2014-
004); and 96222 (November 3, 2022), 87 FR 67736 (November 9, 2022)
(SR-CBOE-2022-054).
\14\ See Securities Exchange Act Release No. 97446 (May 5,
2023), 88 FR 30365 (May 11, 2023).
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Since the Program's inception in 2013 for XSP and 2021 for MRUT,
the Exchange has submitted reports to the Commission regarding the
Program that detail the Exchange's experience with the Program,
pursuant to the XSP and MRUT Approval Orders.\15\ Specifically, the
Exchange states it has submitted annual pilot reports to the Commission
that contain an analysis of volume, open interest, and trading
patterns.\16\ The analysis examines trading in the Pilot Products, as
well as trading in the securities that comprise the underlying indexes.
Additionally, for series that exceed certain minimum open interest
parameters, the annual reports provide analysis of index price
volatility and share trading activity. The Exchange states it has also
submitted periodic interim reports that contain some, but not all, of
the information contained in the annual reports (together with the
annual reports, the ``pilot reports'').\17\ The Exchange states that,
during the course of the Program, it has provided
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the Commission with any additional data or analyses the Commission
requested if it deemed such data or analyses necessary to determine
whether the Program was consistent with the Exchange Act.\18\ The
Exchange states it has made public on its website data and analyses
previously submitted to the Commission under the Program,\19\ and will
continue to make public any data and analyses it submits to the
Commission while the Program is still in effect.\20\
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\15\ See supra note 12.
\16\ See Notice, 88 FR at 26361.
\17\ See id.
\18\ See Notice, 88 FR at 26361-62.
\19\ See Notice, 88 FR at 26362. Available at <a href="https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data">https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data</a>.
\20\ See Notice, 88 FR at 26362.
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As set forth more fully in the Notice, the Exchange concludes that
the Program does not negatively impact market quality or raise any
unique or prohibitive regulatory concerns.\21\ The Exchange states it
has not identified any evidence from the pilot data indicating that the
trading of p.m.-settled XSP or MRUT options has any adverse impact on
fair and orderly markets on Expiration Fridays for the Mini-SPX Index,
the Mini-RUT Index or the underlying securities comprising the
underlying indexes, nor have there been any observations of abnormal
market movements attributable to p.m.-settled XSP or MRUT options from
any market participants that have come to the attention of the
Exchange.\22\ In order to support its overall assessment of the
Program, the Exchange includes both an assessment of an analysis
conducted at the direction of the staff of the Commission's Division of
Economic and Risk Analysis and the Exchange's review and analysis of
pilot data.\23\ Among other things, the Notice includes the Exchange's
analysis of end of day volatility as well as a comparison of the impact
of quarterly index rebalancing versus p.m.-settled expirations.\24\
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\21\ See id.
\22\ See id.
\23\ See Notice, 88 FR at 26362-65.
\24\ See Notice, 88 FR at 26363-64. The Exchange states that
although its study specifically evaluated options on the S&P 500
index (``SPX options''), because XSP options overly the same index
comprised of the same securities (just one tenth the size) and MRUT
is also a broad-based index, the Exchange believes it is appropriate
to extrapolate the data to apply the Pilot Products. See Notice, 88
FR at 26365.
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The Exchange also completed an analysis intended to evaluate
whether the Program impacted the quality of the a.m.-settled options
market.\25\ Specifically, the Exchange compared values of key market
quality indicators (specifically, the bid-ask spread \26\ and effective
spread \27\) in p.m.-settled SPX options (``SPXW'') both before and
after the introduction of Tuesday expirations and Thursday expirations
for SPXW options on April 18 and May 11, 2022, respectively.\28\ The
Exchange believes analyzing the impact of new SPXW options on then-
existing SPXW options permit the Exchange to extrapolate that it is
unlikely the introduction of the Pilot Products significantly impacted
the market quality of a.m.-settled options, such as a.m.-settled SPX or
Russell 2000 index options, respectively, when the Program began.\29\
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\25\ See Notice, 88 FR at 26364.
\26\ The Exchange calculated for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and weekly options on the
Standard & Poor's Depositary Receipts S&P 500 ETF (``SPY'') (with
Monday, Wednesday, and Friday expirations) the daily time-weighted
bid-ask spread on the Exchange during its regular trading hours
session, adjusted for the difference in size between SPXW options
and SPY options (SPXW options are approximately ten times the value
of SPY options).
\27\ The Exchange calculated the volume-weighted average daily
effective spread for simple trades for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY weekly options
(with Monday, Wednesday, and Friday expirations) as twice the amount
of the absolute value of the difference between an order execution
price and the midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size between SPXW
options and SPY options.
\28\ For purposes of comparison, the Exchange paired SPXW
options and SPY options with the same moneyness and same days to
expiration.
\29\ See Notice, 88 FR at 26365.
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Finally, the Exchange states that the significant changes in the
closing procedures of the primary markets in recent decades, including
considerable advances in trading systems and technology, have
significantly minimized risks of any potential impact of p.m.-, cash-
settled XSP or MRUT options on the underlying cash markets.\30\
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\30\ See Notice, 88 FR at 26364.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2023-019, and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \31\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\31\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\32\ the Commission is
providing notice of the grounds for disapproval under consideration. As
described above, the Exchange has proposed to make permanent a pilot
program that permits the listing and trading of p.m.-settled XSP and
MRUT options with third Friday-of-the-month-expirations. The Commission
is instituting proceedings to allow for additional analysis of, and
input from commenters with respect to, the proposed rule change's
consistency with the Act, and in particular, Section 6(b)(5) of the
Act, which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
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.\33\
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\32\ Id.
\33\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, is consistent with Sections 6(b)(5) or any other provision of
the Act, or the rules and regulations thereunder. Although there do not
appear to be any issues relevant to approval or disapproval that would
be facilitated by an oral presentation of data, views, and arguments,
the Commission will consider, pursuant to Rule 19b-4 under the Act,\34\
any request for an opportunity to make an oral presentation.\35\
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\34\ 17 CFR 240.19b-4.
\35\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (Jun. 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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[[Page 50945]]
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by August 23, 2023. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
September 6, 2023. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#552720393078363a3838303b2126152630367b323a23"><span class="__cf_email__" data-cfemail="4735322b226a24282a2a222933340734222469202831">[email protected]</span></a>. Please include
file number SR-CBOE-2023-019 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-2023-019. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CBOE-2023-019 and should be
submitted on or before August 23, 2023. Rebuttal comments should be
submitted by September 6, 2023.
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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16387 Filed 8-1-23; 8:45 am]
BILLING CODE 8011-01-P
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