Notice2025-05445
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Eliminate Position and Exercise Limits for Options on the S&P 500 Equal Weight Index
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Published
March 31, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 60 (Monday, March 31, 2025)</title>
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[Federal Register Volume 90, Number 60 (Monday, March 31, 2025)]
[Notices]
[Pages 14297-14299]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-05445]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102720; File No. SR-CBOE-2025-020]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Eliminate Position and Exercise
Limits for Options on the S&P 500 Equal Weight Index
March 25, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on March 14, 2025, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') 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\ 15 U.S.C. 78a.
\3\ 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 the position and exercise limits for options that overlie the
S&P 500 Equal Weight Index (based on both the full value and one-tenth
the value of the index) (``SPEQF options'' and ``SPEQX options,''
respectively) and the S&P 500 ESG Index to S&P 500 Scored & Screened
Index (``SPESG options''). The text of the proposed rule change is
provided in Exhibit 5.
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.
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
[[Page 14298]]
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 purpose of this proposed rule change is to amend the position
and exercise limits for SPEQF options, SPEQX options, and SPESG
options. Pursuant to Rule 8.31(a), the current position limit for each
of these three options is 25,000 contracts. Pursuant to Rule 8.42(b),
the exercise limit for each of these options is equivalent to its
position limit, and thus is also 25,000 contracts. With respect to
flexible exchange options (``FLEX options''), Rule 8.35(a)(2) provides
that the position limits for FLEX SPEQF, SPEQX, and SPESG options are
200,000 contracts, and Rule 8.42(g) provides that the exercise limits
are also 200,000 contracts.
The proposed rule change amends Rules 8.31(a) and 8.35(b) to
eliminate the position and exercise limits for each of SPEQF, SPEQX,
and SPESG options (including FLEX options). This would also eliminate
the exercise limits for these options pursuant to Rule 8.42(b) and (g).
There are currently no position or exercise limits for many other
broad-based index options (including FLEX), including SPX and XSP
options. The underlying index of SPX and XSP options (the S&P 500
Index) is comprised of the same components as SPEQF and SPEQX options
and, each constituent of the S&P 500 Scored and Screened Index is a
constituent of the S&P 500 Index. In addition, the Exchange notes that
other S&P 500 Index-related options (e.g., S&P 500 Dividend Index) have
no position or exercise limits. FLEX SPEQF, SPEQX, and SPESG options
will be subject to the same reporting requirements triggered for other
FLEX options traded on the Exchange.\4\ Given the relationship between
the S&P 500 Equal Weight Index, the S&P 500 Scored and Screened Index,
and the S&P 500 Index, the Exchange understands that market
participants' investment and hedging strategies may consist of options
overlying any or all of these options. As a result, the Exchange
believes it is appropriate for these options to all be subject to the
same position and exercise limits to provide them with the ability to
execute these strategies with sufficient flexibility and in a
consistent manner.
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\4\ See Rule 8.35(b).
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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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \6\ 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 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) \7\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ Id.
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In particular, the Exchange believes the proposed rule change will
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest, because it is consistent with existing rules regarding
position and exercise limits for many broad-based index options
currently authorized for listing and trading on the Exchange. There are
currently no position limits for related options that overlay the S&P
500 Index, the components of which are the same as those of the S&P 500
Equal Weight Index and the majority of components of which are the same
as those of the S&P 500 Scored & Screened Index. Because of this
relationship between the S&P 500 Equal Weight Index, the S&P 500 Scored
& Screened Index, and the S&P 500 Index, options on all of which market
participants may use as hedging vehicles to meet their investment needs
in connection with S&P 500 Index-related products and cash positions,
the Exchange believes the proposed rule change will benefit investors,
as it will permit market participants to use these options in
accordance with consistent rules with respect to their investment and
hedging strategies.
Despite the overlapping constituents of the indexes underlying SPX
options and SPEQF, SPEQX, and SPESG options, these options provide
investors with important alternate investment opportunities. With
respect to SPEQF and SPEQX options, the U.S. equity markets have
experienced increased levels of concentration in recent years. SPEQF
and SPEQX options provide market participants with alternative tools to
manage their risk and diversify their exposure to the stocks comprising
the S&P 500 Index by permitting them to gain broad exposure to these
stocks using options that would be less impacted by a shift in
concentration and market momentum. Because capitalization-weighted
indexes such as the S&P 500 Index are more impacted by larger
capitalized stocks, options overlying an equal-weighted index (such as
the S&P 500 Equal Weight Index) would benefit investors by permitting
them to hedge against potential swings in the largest stocks comprising
the S&P 500 Index while maintaining the ability to hedge across the
entire span of S&P 500 constituent securities. Similarly, SPESG options
provide investors with an alternative tool to manage their risk and
diversify their exposure to stock comprising the S&P 500 Index that
meet specified sustainability criteria. Because the components of each
of the S&P 500 Equal Weight Index and the S&P 500 Scored & Screened
Index are all components of the S&P 500 Index, market participants may
use options overlying these indexes as a hedging vehicle to meet their
investment needs in connection with S&P 500-related products and cash
positions, and, therefore, the Exchange believes it is appropriate to
provide generally consistent features between options on these indexes,
as that ultimately will remove impediments to and perfect the mechanism
of a free and open market and a national market system. The Exchange
believes imposing lower position and exercise position limits on SPEQF,
SPEQX, and SPESG options may unnecessarily restrict investors'
abilities to use these options to achieve their investment goals.
When approving the Exchange's proposed rule change to eliminate
position limits for SPX options, the Commission noted it believed
``that the enormous capitalization of and deep, liquid markets for the
underlying securities contained in these indexes significantly reduces
concerns regarding market manipulation or disruption in
[[Page 14299]]
the underlying market.'' \8\ The Commission continued, stating that
``[r]emoving position and exercise limits for these index options may
also bring additional depth and liquidity, in terms of both volume and
open interest, to [SPX options] without significantly increasing
concerns regarding intermarket manipulations or disruptions of the
options or the underlying securities.'' \9\ This finding would apply to
the S&P 500 Equal Weight Index, and thus SPEQF and SPEQX options, given
that it is comprised of the same components as the S&P 500 Index
underlying SPX options. Similarly, this finding would apply to the S&P
500 Scored and Screen Index, and thus SPESG options, given that all
components of the S&P 500 ESG Index are components of the S&P 500
Index. The Commission further found that: (1) eliminating position and
exercise limits for SPX options would better service the hedging needs
of institutions; (2) financial requirements imposed by the Exchange and
the Commission adequately address concerns that a Cboe member or
customer may try to maintain an inordinately large unhedged SPX option
position; (3) index derivatives are not subject to position and
exercise limits in the over-the-counter market); and (4) the Exchange
surveillance reporting safeguards would allow it to detect and deter
trading abuses arising from the elimination of position and exercise
limits for SPX options).\10\ The Exchange believes these same
principles apply to supporting no position or exercise limits for
SPEQF, SPEQX, and SPESG options, particularly given the relationship
between the S&P 500 Index, the S&P 500 Equal Weight Index, and the S&P
500 Scored and Screened Index.
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\8\ See Securities Exchange Act Release No. 40969 (January 22,
1999), 64 FR 4911, 4913 (February 1, 1999) (SR-CBOE-98-23). As of
January 8, 2025, the total market capitalization of the S&P 500
Index was $49.788 trillion (which is nearly six times more than the
market capitalization of the S&P 500 Index in 1999, when the
Commission approved the elimination of position and exercise limits
for SPX options). Additionally, the average daily trading volume for
the underlying components of the S&P 500 Index for the six months
preceding January 8, 2025 was approximately 2.7 billion shares
(compared to 757.7 million in 1999). Given that the S&P 500 Equal
Weight Index is comprised of the same constituents as the S&P 500
Index, the S&P 500 Equal Weight Index would have the same market
capitalization, and the underlying components would have the same
average trading volume, as the S&P 500 Index, which demonstrates the
``substantial liquidity of the index components as a group.'' Id.
\9\ Id.
\10\ Id.
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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 the proposed rule change will impose any burden on intramarket
competition that is not necessary in furtherance of the purposes of the
Act, because it will apply to all market participants in the same
manner. Additionally, the Exchange does not believe this proposed rule
change will impose any burden on intermarket competition that is not
necessary in furtherance of the purposes of the Act, because the Rules
currently impose no position or exercise limits on many other broad-
based index options, including SPX and XSP options, which overlie an
index comprised of the same constituents. Additionally, the rules of
other options exchange provide that other broad-based index options
will not be subject to any position or exercise limits.\11\
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\11\ See, e.g., Nasdaq PHLX LLC Options 4A, Section 6(a)(i)
(which provides there are no position limits for Full Value Nasdaq
100 Options, the Reduced Value Nasdaq 100 Options, the Nasdaq 100--
Micro Index Options, and the Nasdaq-100 ESG Index Options).
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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 written 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 (i) as the Commission may
designate up to 90 days of such date 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 shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be approved or
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="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#156760797038767a7878707b6166556670763b727a63"><span class="__cf_email__" data-cfemail="b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6">[email protected]</span></a>. Please include
file number SR-CBOE-2025-020 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-2025-020. 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-2025-020 and should be
submitted on or before April 21, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05445 Filed 3-28-25; 8:45 am]
BILLING CODE 8011-01-P
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