Notice2024-22559
Self-Regulatory Organizations; CBOE Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To List P.M.-Settled Russell 2000 Index Options With Expirations on the Third Friday-of-the-Month
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
October 2, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 191 (Wednesday, October 2, 2024)</title>
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[Federal Register Volume 89, Number 191 (Wednesday, October 2, 2024)]
[Notices]
[Pages 80291-80296]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-22559]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101197; File No. SR-CBOE-2024-034]
Self-Regulatory Organizations; CBOE Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To
List P.M.-Settled Russell 2000 Index Options With Expirations on the
Third Friday-of-the-Month
September 26, 2024.
I. Introduction
On August 2, 2024, 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 list p.m.-settled broad-based Index options
with expirations on the third Friday-of-the-month. The proposed rule
change was published for comment in the Federal Register on August 14,
2024.\3\ On September 13, 2024, the Exchange filed Amendment No. 1 to
the proposed rule change, described in Item II below, which Item has
been prepared by the Exchange.\4\
[[Page 80292]]
Amendment No. 1 superseded the original proposed rule change in its
entirety.
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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. 100671 (August 8,
2024), 89 FR 66163. The Commission has not received any comments.
\4\ The full text of Amendment No. 1 is available on the
Commission's website at: <a href="https://www.sec.gov/comments/sr-cboe-2024-034/srcboe2024034.htm">https://www.sec.gov/comments/sr-cboe-2024-034/srcboe2024034.htm</a>.
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The Commission is publishing this notice and order to solicit
comments on the proposed rule change, as modified by Amendment No. 1,
from interested persons and is approving the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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 its Rules to permit the listing of
P.M.-settled \5\ options on the Russell 2000 Index (``RUT'') that
expire on the standard third Friday-of-the-month (``Expiration
Friday''). Currently, pursuant to Rule 4.13, Interpretations and
Policies .13 and .14, the Exchange is permitted to list P.M.-settled
options on the S&P 500 Index (``SPX options''), the Mini-S&P 500 Index
(``XSP options''), and the Mini-Russell 2000 Index (``MRUT options'')
that expire on Expiration Fridays.\6\ Additionally, pursuant to Rule
4.13(e), the Exchange may list P.M.-settled options on any broad-based
index eligible for standard options trading--including RUT--that expire
on any Monday, Tuesday, Wednesday, Thursday, or Friday (other than
Expiration Friday or days that coincide with an EOM Expiration (as
defined below)) (``Weekly Expirations'') or that expire on the last
trading day of the month (``EOM Expirations'' and, combined with Weekly
Expirations, ``Nonstandard Expirations''). As a result, currently, the
Exchange may list P.M-settled SPX, XSP, and MRUT options with
expirations on any day of the week, including all Fridays, while the
Exchange may list P.M-settled options on RUT with expirations on any
day of the week, including all Fridays except Expiration Fridays.
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\5\ An option with P.M.-settlement has its exercise settlement
value derived from the closing prices on the expiration date.
\6\ The proposed rule change deletes Interpretation .14 and
moves XSP and MRUT to Interpretation .13 so that all indexes on
which the Exchange may list P.M.-settled third-Friday-of-the-month
options series are included within the same rule provision. This is
a nonsubstantive, administrative change, and the proposed rule
change makes no changes to how XSP or MRUT P.M.-settled third-
Friday-of-the-month option series trade.
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The proposed rule change would permit the Exchange to list RUT
P.M.-settled options that expire on Expiration Fridays. Specifically,
the proposed rule change amends Rule 4.13, Interpretation and Policy
.13 to state that in addition to A.M.-settled options on SPX, XSP, and
MRUT \7\ pursuant to Rule 4.13, the Exchange may also list options on
RUT whose exercise settlement value is derived from closing prices on
their expiration dates (``P.M.-Settled'').\8\ The Exchange notes that
permitting RUT options that are P.M.-Settled that expire on Expiration
Friday, as proposed, would be in addition to the RUT P.M.-settled
options with expirations on all Fridays other than Expiration Fridays
that the Exchange may already list on those indexes as Weekly
Expirations pursuant to Rule 4.13(e)(1). Current Rule 4.13,
Interpretations and Policies .13 and .14 together with Rule 4.13(e)(1)
permit the Exchange to list P.M-settled SPX, XSP, and MRUT options on
all Fridays (including Expiration and non-Expiration Fridays). The
proposal merely expands this same ability to RUT options.
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\7\ The Exchange notes that the index underlying MRUT options is
the same as the index underlying RUT options but are just based on a
reduced value of that index.
\8\ The Exchange corrects outdated language in Rule 4.13,
Interpretation and Policy .13 by updating the definition of P.M.-
settled. The exercise settlement value of a P.M.-settled option is
derived from closing prices on the expiration date, rather than the
last trading day prior to expiration (which would have been Friday
when options settled on Saturdays; however, options now settle on
Fridays). This is consistent with the fact that expiring P.M.-
settled options trade on their expiration dates, as set forth in
Rule 5.1(b)(2)(C).
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RUT options that are P.M.-Settled and expire on Expiration Friday
are subject to all provisions of Rule 4.13 and treated the same as
A.M.-settled RUT options (which expire on Expiration Fridays), except
they are P.M.-settled. RUT options that are P.M.-Settled that expire on
Expiration Fridays have the same exercise style, same number of
permissible expirations, same exercise interval prices and limitations,
and same position and exercise limits, and will trade in the same
minimum price increment, as A.M.-settled RUT options.
The Exchange believes expanding the availability of P.M.-Settled
options that expire on Expiration Friday to RUT will expand hedging
tools available to market participants while also providing greater
trading opportunities, regardless of in which index option market they
participate. By expanding the availability of P.M.-Settled options that
expire on Expiration Friday, the proposed rule change (together with
currently available Weekly Expirations for RUT) will provide market
participants with opportunities to purchase RUT options in a manner
more aligned with specific timing needs and more effectively tailor
their investment and hedging strategies related to the Russell 2000
Index and manage their portfolios. In particular, the proposed rule
change will allow market participants to roll their positions in RUT
options 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 believes there is sufficient investor interest in and
demand for RUT P.M.-Settled options that expire on Expiration Friday to
warrant adding these expirations and that RUT P.M.-Settled options that
expire on Expiration Friday will provide investors with additional
means of managing their risk exposures and carrying out their
investment objectives. For example, from January 2 through August 30,
2024, the total trading volume on the Exchange of A.M.-settled RUT
options (which expire on Expiration Fridays) was over 7 million
contracts, which is comparable to the total trading volume on the
Exchange of P.M.-settled RUT options (which expire on any day of the
month, including Fridays, other than Expiration Fridays) of just over
10 million contracts. The Exchange believes this demonstrates strong
customer demand for both A.M.-settled RUT options as well as P.M.-
settled RUT options (across various expirations). This RUT options
volume (A.M.-settled and P.M.-settled combined) over 17 million
contracts is also comparable to the total trading volume on the
Exchange during that timeframe of XSP options (all of which are P.M.-
settled, including on Expiration Fridays) of approximately 23.5 million
contracts. Further, RUT options total trading volume on the Exchange
during this timeframe was significantly larger than the total trading
volume on the Exchange of MRUT options of approximately 139,000
contracts. The Exchange believes the
[[Page 80293]]
comparable volume of RUT options to XSP options and the similar volume
between A.M.-settled and P.M.-settled RUT options, as well the
significantly larger volume of RUT options compared to MRUT options,
for which the Exchange may currently list P.M.-settled series that
expire on Expiration Fridays, demonstrates that customers would benefit
from the availability of P.M.-settled RUT options that expire on
Expiration Friday. Overall, the Exchange believes that permitting the
trading of P.M.-Settled options that expire on Expiration Fridays in an
additional index option will encourage greater trading in this index
option. The Exchange believes the proposed rule change will provide
opportunities for market participants to benefit from exposure to the
market for an additional index option with further P.M.-settlement
flexibility.
The Exchange also proposes to amend Rule 5.1, which governs trading
days and hours, in conjunction with the proposed addition of RUT P.M.-
settled options that expire on Expiration Friday. Rule 5.1(b)(2)(C)
currently provides that on their last trading day, Regular Trading
Hours for expiring P.M.-settled SPX, XSP, and MRUT options, as well as
Index Options with Nonstandard Expirations, may be effected on the
Exchange between 9:30 a.m. and 4:00 p.m. Eastern Time \9\ (as opposed
to the 9:30 a.m. to 4:15 p.m. Regular Trading Hours for options with
those expirations that are non-expiring). The proposed rule change
amends Rule 5.1(b)(2)(C) to include RUT P.M.-Settled options. The
primary listing markets for the component securities that comprise
broad-based indexes close trading in those securities at 4:00 p.m.,
just as the primary listing markets for the component securities that
comprise the SPX, XSP, and MRUT Indexes close trading at 4:00 p.m. (the
Exchange notes the components of the RUT Index are identical to the
components of MRUT Index). The primary listing exchanges for the
component securities disseminate closing prices for the component
securities, which are used to calculate the exercise settlement value
of broad-based indexes on which the Exchange lists options. The
Exchange believes that, under normal trading circumstances, the primary
listing markets have sufficient bandwidth to prevent any data queuing
that may cause any trades that are executed prior to the closing time
from being reported after 4:00 p.m. If trading in expiring RUT P.M.-
Settled options that expire on Expiration Fridays continued an
additional fifteen minutes until 4:15 p.m. on their last trading day,
these expiring options would be trading after the settlement index
value for those expiring options was calculated.\10\ Therefore, in
order to mitigate potential investor confusion and the potential for
increased costs to investors as a result of potential pricing
divergence at the end of the trading day, the Exchange believes that it
is appropriate to cease trading in the expiring RUT P.M.-Settled
options that expire on Expiration Fridays at 4:00 p.m., as it already
does for expiring P.M.-settled SPX, XSP, and MRUT options that expire
on Expiration Fridays and for expiring broad-based indexes with
Nonstandard Expirations (which are p.m.-settled) for the same
aforementioned reasons.\11\ The Exchange does not believe that the
proposed rule change will impact volatility on the underlying cash
market comprising broad-based indexes at the close on Expiration
Fridays, as it already closes trading on the last trading day for
expiring P.M.-settled options at 4:00 p.m. (such as P.M.-settled SPX,
XSP, and MRUT options that expire on Expiration Fridays and broad-based
index options with Nonstandard Expirations), which the Exchange does
not believe has had an adverse impact on fair and orderly markets on
Expiration Fridays for the underlying stocks comprising the
corresponding indexes.\12\
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\9\ See Rule 1.6, which states that unless otherwise specified,
all times in the Rules are Eastern Time.
\10\ Further, the Exchange expects that RUT P.M.-Settled options
that expire on Expiration Friday (as the Exchange understands is the
case for P.M.-settled SPX, XSP and MRUT options that expire on
Expiration Friday and all broad-based index options with Nonstandard
Expirations) will typically be priced in the market based on
corresponding futures values. If trading expiring RUT P.M.-Settled
options that expire on Expiration Friday continued until 4:15 p.m.
on their last trading day, these expiring options could not be
priced on corresponding futures values, but rather would have to be
priced on the known cash value. At the same time, the prices of non-
expiring RUT P.M.-Settled options series that expire on Expiration
Friday would continue to move and likely be priced in response to
changes in corresponding futures prices. As a result, a potential
pricing divergence could occur between 4:00 p.m. and 4:15 p.m. on
the final trading day in expiring RUT P.M.-Settled options that
expire on Expiration Friday (e.g., a switch from pricing off of
futures to cash). The Exchange understands that the switch from
pricing off of futures to cash can be a difficult and risky
crossover for liquidity providers. As a result, if expiring P.M.-
Settled contracts closed at 4:15 p.m., Market-Makers may react by
widening spreads in order to compensate for the additional risk.
\11\ See Securities Exchange Act Release Nos. 68888 (February 8,
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (``SPXPM
Pilot Approval Order''); 70087 (July 31, 2013), 78 FR 47809 (August
6, 2013) (SR-CBOE-2013-055) (``XSPPM Pilot Approval Order''); and
91067 (February 5, 2021), 86 FR 9108 (February 11, 2021) (SR-CBOE-
2020-116) (``MRUTPM Pilot Approval Order'').
\12\ See Securities Exchange Act Release Nos. 98454 (September
20, 2023), 88 FR 66103 (September 26, 2023) (SR-CBOE-2023-005)
(``SPXPM Permanent Approval Order''); and 98455 (September 20,
2023), 88 FR 66073 (September 26, 2023) (SR-CBOE-2023-019) (``XSPPM
and MRUTPM Permanent Approval Order'').
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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 RUT P.M.-
Settled options that expire on Expiration Fridays. 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.
In addition to this, the Exchange believes that its existing
surveillance and reporting safeguards in place are adequate to deter
and detect possible manipulative behavior which might arise from
listing and trading RUT P.M.-Settled options that expire on Expiration
Fridays on all broad-based index options and will support the
protection of investors and the public interest. Furthermore, the
trading of RUT P.M.-Settled options that expire on Expiration Fridays
will be subject to Exchange Rules governing customer accounts, position
and exercise limits, margin requirements and trading halt procedures,
among other Rules, which are designed to prevent fraudulent and
manipulative acts and practices.
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.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ 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,
[[Page 80294]]
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) \15\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 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. The Exchange believes that expanding
the availability of P.M.-Settled options that expire on Expiration
Fridays to RUT (in addition to SPX, XSP, and MRUT (which options overly
the same index as RUT options but merely with a reduced value) will
provide investors with expanded hedging tools and greater trading
opportunities and flexibility for an additional index option. As a
result, investors will have additional means for an additional index
option to manage their risk exposures and carry out their investment
objectives. By offering RUT P.M.-Settled options that expire on
Expiration Fridays along with Weekly Expirations (including expirations
on Fridays other than Expiration Friday), the proposed rule change will
allow market participants to purchase options on an additional index
option available for trading on the Exchange in a manner more aligned
with specific timing needs and more effectively tailor their investment
and hedging strategies related to the Russell 2000 Index and manage
their portfolios. For example, the proposed rule change will allow
market participants to roll their positions in RUT options 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 represents that it
believes that it has the necessary systems capacity to support any
additional traffic associated with trading of RUT P.M.-Settled that
expire on Expiration Fridays and does not believe that its TPHs will
experience any capacity issues as a result of this proposal.
The Commission previously recognized that listing P.M.-Settled SPX,
XSP, and MRUT options that expire on Expiration Fridays was consistent
with the Act.\16\ The Exchange notes that MRUT options overlie a
reduced-value version of the same index underlying RUT options. The
Commission noted that P.M.-Settled options that expire on Expiration
Fridays in these index options ``has benefitted investors and other
market participants by providing more flexible trading and hedging
opportunities while also having no disruptive impact on the market.''
\17\ The proposed rule change is consistent with these findings, as it
will benefit investors and other market participants that participate
in the market for RUT options that expire on Expiration Fridays do by
providing investors with more flexible trading and hedging
opportunities in this index option. Additionally, the Exchange does not
believe listing of RUT P.M.-Settled options that expire on Expiration
Fridays will 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, based on the data
provided to and reviewed by the Commission (and the Commission's own
conclusions based on that review, as noted above) and due to the
significant changes in closing procedures in the decades since index
options moved to a.m.-settlement.\18\ This is particularly true given
that RUT options overlie the same index as MRUT options (for which the
Exchange may list P.M.-Settled options that expire on Expiration
Fridays), but just the full-value of that underlying index.
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\16\ See SPXPM, XSPPM, and MRUTPM Pilot Approval Orders (the
Exchange initially listed P.M.-Settled SPX, XSP, and MRUT options
that expire on Expiration Fridays pursuant to pilot programs, so the
Commission could monitor the impact of P.M. settlement of cash-
settled index derivatives on the underlying cash markets (while
recognizing that these risks may have been mitigated given enhanced
closing procedures in use in the primary equity markets); and SPXPM,
XSPPM, and MRUTPM Permanent Approval Orders.
\17\ See SPXPM Permanent Approval Order at 66106; and XSPPM and
MRUTPM Permanent Approval Order at 66076 (citing data the Commission
reviewed in connection with the pilot programs).
\18\ See id.
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In addition, the Exchange believes that the proposal to end trading
at 4:00 p.m. on the last trading day for transactions in expiring RUT
P.M.-Settled options that expire on Expiration Fridays will prevent
continued trading on a product after the exercise settlement value has
been fixed, thereby mitigating potential investor confusion and the
potential for increased costs to investors as a result of potential
pricing divergence at the end of the trading day.
Finally, the proposed rule change to correct the definition of
P.M.-Settled in Rule 4.13, Interpretation and Policy .13 will benefit
investors, as it will mitigate potential confusion of having an
outdated definition in the Exchange's Rules. This proposed rule change
will have no impact on trading, as the proposed definition of P.M.-
Settled is consistent with how P.M.-Settled options currently settle.
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 RUT P.M.-Settled options
that expire on Expiration Fridays will be available to all market
participants. By permitting RUT P.M.-Settled options that expire on
Expiration Fridays, the proposed rule change will provide all investors
that participate in the market for RUT options with greater trading and
hedging opportunities and flexibility to meet their investment and
hedging needs, which are already available for SPX, XSP, and MRUT
options. Additionally, RUT P.M.-Settled options that expire on
Expiration Fridays will trade in the same manner as RUT A.M-settled
options. Further, the proposed 4:00 p.m. closing time on Expiration
Fridays will apply equally to all market participants trading in RUT
P.M.-Settled options that expire on Expiration Fridays.
The Exchange does not believe that the proposal to list RUT P.M.-
Settled options that expire on Expiration Fridays will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because these options are
proprietary Exchange products. Other exchanges offer P.M.-settlement on
Expiration Fridays for other broad-based index options.\19\
Additionally, options on equity options (including options on certain
exchange-traded funds (``ETFs'') that track the Russell 2000 Index) are
P.M.-settled, and exchanges offer short-term options programs for
certain equity options,\20\
[[Page 80295]]
making options on certain ETFs that track the Russell 2000 Index
available with expirations on all Fridays. To the extent that the
addition of RUT P.M.-Settled options that expire on Expiration Fridays
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.
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\19\ See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12(a)(6)
(permitting P.M.-settlement for options on the Nasdaq-100 and
Nasdaq-100 Micro Indexes that expire on Expiration Fridays).
\20\ See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12
(permitting nonstandard expirations, including expirations on
Tuesdays and Thursdays, for Nasdaq-100 index options and Nasdaq 100-
Micro index options); and Nasdaq ISE, LLC Options 4, Section 5,
Supplementary Material .03 (permitting short-term options series
with daily expirations for SPY and QQQ options). [update] [sic]
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The Exchange does not believe the proposed rule change to correct
the definition of P.M.-Settled in Rule 4.13, Interpretation and Policy
.13 will impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as it is not a
competitive change. This proposed change merely updates an outdated
definition in the Exchange's Rules and will have no impact on trading,
as the proposed definition of p.m.-settled is consistent with how P.M.-
Settled options currently settle.
B. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written comments on the
proposed rule change.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act and
the rules and regulations thereunder applicable to a national
securities exchange.\21\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with Section 6(b)(5) of the Act,\22\ 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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\21\ In approving this proposed rule change, as modified by
Amendment No. 1, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b)(5).
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In support of its proposal, the Exchange states that the Commission
approved trading of MRUT options that expire on Expiration Fridays,
which options overly the same index as RUT options but with a reduced
value.\23\ In addition, the Commission approved other P.M.-Settled
broad-based index options that expire on Expiration Fridays including
SPX and XSP.\24\ The Exchange states that expanding the availability of
P.M.-Settled options that expire on Expiration Fridays to RUT will
provide investors with expanded hedging tools and greater trading
opportunities and flexibility for an additional index option. Further,
the Exchange also states there is sufficient investor interest in and
demand for RUT P.M.-Settled options that expire on Expiration Friday to
warrant adding these expirations.\25\
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\23\ See supra Item II.A.1, at note 12 (citing XSPPM and MRUTPM
Permanent Approval Order).
\24\ See id.
\25\ See supra Item II.A.1. In support of this statement, the
Exchange examined trading volumes of a.m.-settled RUT options and
P.M.-Settled RUT options as well XSP and MRUT options (all of which
are P.M.-Settled). Based on the total trading volumes, the Exchange
concludes that there is strong customer demand for both a.m.-settled
RUT options and P.M.-Settled RUT options and that trading volume in
all RUT options is comparable to that of XSP options and
significantly larger than MRUT options. See id.
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In addition, the Exchange further believes that listing P.M.-
Settled RUT options that expire on Expiration Friday 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.\26\ The Exchange represents that it has the
necessary systems capacity to support any additional traffic associated
with trading of RUT P.M.-Settled options that expire on Expiration
Fridays and does not believe that its TPHs will experience any capacity
issues as a result of this proposal.\27\ Finally, the Exchange states
that it believes that its existing surveillance and reporting
safeguards in place are adequate to deter and detect possible
manipulative behavior which might arise from listing and trading RUT
P.M.-Settled options that expire on Expiration Fridays.\28\
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\26\ See supra Item II.A.2. at text accompanying note 18.
\27\ See supra Item II.A.1 and II.A.2.
\28\ See supra Item II.A.1.
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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.\29\ 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.\30\ 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.\31\ 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.\32\
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\29\ 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).
\30\ See e.g., SPXPM Permanent Approval Order; XSPPM and MRUTPM
Permanent Approval Order; Securities Exchange Act Release Nos. 98450
(September 20, 2023), 88 FR 66111 (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);
and 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). See also Securities Exchange
Act Release Nos. 98935 (November 14, 2023), 88 FR 80792 (November
20, 2023) (SR-ISE-2023-20) (Order approving the listing and trading
of p.m.-settled Nasdasq-100 Index Options with a third Friday-of-
the-month expiration).
\31\ See e.g., XSPPM and MRUTPM Permanent Approval Order, 88 FR
at 66075-66076.
\32\ See id.
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As noted above, the Exchange may currently trade Expiration Friday
MRUT options, in addition to P.M.-Settled index options on XSP and SPX
that expire on Expiration Fridays.\33\ The Exchange's proposal, which
would permit P.M.-Settled RUT options to expire on Expiration Fridays,
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 an
[[Page 80296]]
adequate surveillance program in place to monitor trading in the P.M.-
Settled RUT options that expire on Expiration Fridays and has the
necessary systems capacity to support the new options series.\34\ 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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\33\ See supra note 13.
\34\ See supra note 26 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 \35\ and the rules and
regulations thereunder applicable to a national securities exchange.
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\35\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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="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#f587809990d8969a9898909b8186b5869096db929a83"><span class="__cf_email__" data-cfemail="542621383179373b3939313a2027142731377a333b22">[email protected]</span></a>. Please include
file number SR-CBOE-2024-034 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-2024-034. 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-2024-034 and should be
submitted on or before October 23, 2024.
V. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. In Amendment No. 1, the Exchange narrows the
scope of the proposed rule change from all broad-based indexes to the
RUT index, provides additional support for the proposed rule change,
and does not otherwise alter the substance of the proposed rule change.
The changes to the proposal and additional information in Amendment No.
1 do not raise any novel regulatory issues and assist the Commission in
evaluating the Exchange's proposal and in determining that it is
consistent with the Act. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\36\ to approve the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
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\36\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\37\ that the proposed rule change (SR-CBOE-2024-034), as modified
by Amendment No. 1, be and hereby is, approved on an accelerated basis.
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\37\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22559 Filed 10-1-24; 8:45 am]
BILLING CODE 8011-01-P
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