Notice2023-25670
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Approving a Proposed Rule Change To Amend Rule 4.13 To Expand the Nonstandard Expirations Program To Include P.M.-Settled Options on Broad-Based Indexes 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
November 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 223 (Tuesday, November 21, 2023)</title>
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[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81130-81131]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25670]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98957; File No. SR-CBOE-2023-054]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Amend Rule 4.13 To Expand the
Nonstandard Expirations Program To Include P.M.-Settled Options on
Broad-Based Indexes That Expire on Tuesday or Thursday
November 15, 2023.
I. Introduction
On September 28, 2023, Cboe Exchange, Inc. (``Exchange'') 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
amend Rule 4.13(e), which governs its Nonstandard Expirations Program
(``Program''), to permit p.m.-settled options on any broad-based index
eligible for standard options trading that expire on Tuesday or
Thursday. The proposed rule change published for comment in the Federal
Register on October 4, 2023.\3\ The Commission did not receive any
comment letters and 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. 98621 (September 28,
2023), 88 FR 68896 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to amend Rule 4.13(e), which governs its
Program, to permit p.m.-settled options on any broad-based index
eligible for standard options trading that expire on Tuesday or
Thursday. Currently under the Program, the Exchange is permitted to
list p.m.-settled options on any broad-based index eligible for
standard trading that expire on: (1) any Monday, Wednesday, or Friday
(other than the third Friday-of-the-month or days that coincide with an
end-of-month expiration and, with respect to options on the S&P 500
Index (``SPX options'') and the Mini-S&P 500 Index (``XSP options'')
any Tuesday or Thursday (``Weekly Expirations'') and (2) the last
trading day of the month (``End of Month Expirations'' or ``EOMs'').\4\
The proposal expands the availability of Tuesday and Thursday Weekly
Expirations to all broad-based indexes eligible for standard options
trading.\5\
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\4\ See Rule 4.13(e).
\5\ See Notice, supra note 3 at 68897.
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The Program for Weekly Expirations will apply to any broad-based
index option 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 and
XSP options with Tuesday and Thursday expirations.\6\ Specifically, as
set forth in Rule 4.13(e), Weekly Expirations, including the proposed
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.\7\
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\6\ See id.
\7\ See id.
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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.\8\ 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\ In
addition, like all Weekly Expirations, pursuant to Rule 4.13(e)(3),
transactions in expiring broad-based index 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. eastern time on their last trading day.
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\8\ See id.
\9\ See id.
\10\ For a more detailed description of the proposed Tuesday or
Thursday expirations, see Notice, supra note 3.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.\11\ In
[[Page 81131]]
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\12\ which requires, among
other things, that the Exchange's rules 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.
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\11\ 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).
\12\ 15 U.S.C. 78f(b)(5).
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In support of its proposal, the Exchange notes that the Commission
recently approved the listing of Tuesday and Thursday expirations for
SPX and XSP options in addition to Monday, Wednesday, and Friday
expirations for options on any broad-based index eligible for standard
options trading.\13\ The Exchange states that the introduction of
Tuesday and Thursday expirations for all broad-based index options
(rather than offering those expirations for just two indexes) will
provide investors with expanded hedging tools and greater trading
opportunities and flexibility, and will allow market participants to
trade in a manner more aligned with specific timing needs and more
effectively tailor their investment and hedging strategies and manage
their portfolios.\14\ The Exchange further believes that the listing of
additional p.m.-settled options on other broad-based indexes will not
have any significant economic impact on the underlying component
securities surrounding the close as a result of expiring p.m.-settled
options or impact market quality.\15\ Finally, the Exchange represents
it has sufficient capacity to handle additional traffic associated with
trading of broad-based index options with Tuesday and Thursday
expirations, and 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.\16\
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\13\ See Securities Exchange Act Release No. 98456 (September
20, 2023), 88 FR 66091 (September 26, 2023) (SR-CBOE-2023-020)
(permanent approval of nonstandard expirations pilot program)
(``Nonstandard Approval Order'').
\14\ See Notice, supra note 3 at 68898.
\15\ See id.
\16\ See id.
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The Commission has had concerns about the adverse effects and
impact of p.m.-settlement upon market volatility and the operation of
fair and orderly markets on the underlying cash market at or near the
close of trading on expiration days.\17\ However, the Commission
recently approved proposals from several exchanges, including the
Exchange, to permanently establish programs permitting the listing and
trading of certain p.m.-settled broad-based index options.\18\ In
approving these proposals, the Commission reviewed data provided by the
exchanges in their filings, the exchanges' pilot data and reports, as
well as an analysis conducted at the direction of Staff from the
Commission's Division of Economic and Risk Analysis and concluded that
analysis of the pilot data did not identify any significant economic
impact on the underlying component securities surrounding the close as
a result of expiring p.m.-settled options nor did it indicate a
deterioration in market quality for an existing product when a new
p.m.-settled expiration was introduced.\19\ Further, the Commission
stated that significant changes in closing procedures in the decades
since index options moved to a.m. settlement may also serve to mitigate
the potential impact of p.m.-settled index options on the underlying
cash markets.\20\
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\17\ See Securities Exchange Act Release No. 65256 (September 2,
2011), 76 FR 55969, at 55972 (September 9, 2011) (SR-C2-2011-008)
(Order approving proposed rule change to establish a pilot program
to list and trade SPXPM options on the C2 Options Exchange,
Incorporated).
\18\ See, e.g., Securities Exchange Act Release Nos. 98454
(September 20, 2023), 88 FR 66103 at 66103-04 (September 26, 2023)
(SR-CBOE-2023-005) (Order approving p.m.-settled Third Friday SPX
options); 98450 (September 20, 2023), 88 FR 66 111 (September 26,
2023) (SR-ISE-2023-08) (Order Granting Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, to Make Permanent Certain
P.M.-Settled Pilots); 98451 (September 20, 2023), 88 FR 66088
(September 26, 2023) (SR-Phlx-203-07) (Order approving a nonstandard
expirations pilot program and p.m.-settled XND options); and
Nonstandard Approval Order.
\19\ See e.g., Nonstandard Approval Order, 88 FR at 66094.
\20\ See id.
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As noted above, the Exchange currently may list Tuesday and
Thursday expirations for SPX and XSP options in addition to Monday,
Wednesday, and Friday expirations for options on any broad-based index
eligible for standard options trading.\21\ The Exchange's proposal,
which would permit Tuesday and Thursday expirations for options on any
broad-based index, is reasonably designed as a limited expansion of
existing p.m.-settled broad-based index option programs and may provide
the investing public and other market participants more flexibility to
closely tailor their investment and hedging decisions. The Exchange has
represented that it has adequate systems capacity and that it will
monitor trading of broad-based index options with Tuesday and Thursday
expirations.\22\ The Commission expects the Exchange to continue to
monitor any potential risks from large p.m.-settled positions and take
appropriate action on a timely basis if warranted.
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\21\ See supra note 13.
\22\ See supra note 16 and accompanying text.
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Accordingly, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act \23\ and the rules and
regulations thereunder applicable to a national securities exchange.
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\23\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-CBOE-2023-054) be, and
hereby is, approved.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25670 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P
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