Notice2026-02821
Notice of an Application of the Chicago Mercantile Exchange Inc. for an Exemption Pursuant to Section 36 of the Securities Exchange Act of 1934 and Request for Comment in Connection With the Opening Price Settlement Requirements of Rule 6h-1(b) Under the Securities Exchange Act of 1934 for Certain Cash-Settled Security Futures
Primary source
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Published
February 12, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 29 (Thursday, February 12, 2026)</title>
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[Federal Register Volume 91, Number 29 (Thursday, February 12, 2026)]
[Notices]
[Pages 6681-6686]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-02821]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104786; File No. S7-2026-04]
Notice of an Application of the Chicago Mercantile Exchange Inc.
for an Exemption Pursuant to Section 36 of the Securities Exchange Act
of 1934 and Request for Comment in Connection With the Opening Price
Settlement Requirements of Rule 6h-1(b) Under the Securities Exchange
Act of 1934 for Certain Cash-Settled Security Futures
February 10, 2026.
On July 25, 2025, the Securities and Exchange Commission (``SEC''
or ``Commission'') received an application \1\ from the Chicago
Mercantile Exchange Inc. (``CME'') to obtain an exemption pursuant to
Section 36 \2\ of the Securities Exchange Act of 1934 (``Exchange
Act''),\3\ in accordance with the procedures set forth in Exchange Act
Rule 0-12.\4\ Specifically, CME is requesting exemptive relief from
Rule 6h-1(b) under the Exchange Act to permit the final settlement
price of certain cash-settled security futures to reflect the closing
price of the underlying security. The Commission is publishing this
notice to provide interested persons with an opportunity to comment.
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\1\ Letter from Jonathan Marcus, Senior Managing Director and
General Counsel, CME (July 25, 2025) (``Application''). The
Application is an appendix to this notice and available on the
Commission's internet website (<a href="https://www.sec.gov/rules-regulations/exchange-act-exemptive-notices-orders">https://www.sec.gov/rules-regulations/exchange-act-exemptive-notices-orders</a>). Defined terms in
this notice are the same as used in the Application, unless noted
otherwise.
\2\ 15 U.S.C. 78mm. Section 36(a)(1) of the Exchange Act gives
the Commission the authority to exempt any person, security or
transaction or any class or classes of persons, securities or
transactions, conditionally or unconditionally, from any Exchange
Act provision or any rule or regulation thereunder by rule,
regulation or order, to the extent that the exemption is necessary
or appropriate in the public interest and consistent with the
protection of investors. 15 U.S.C. 78mm(a)(1).
\3\ 15 U.S.C. 78a et seq.
\4\ 17 CFR 240.0-12.
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I. Introduction
A. Security Futures Regulatory Framework
The Commodity Futures Modernization Act of 2000 \5\ (``CFMA'')
authorizes the trading of futures on individual stocks and narrow-based
security indexes (collectively, ``security futures'') \6\ and any put,
call, straddle, option, or privilege on any security future
(collectively with security futures, ``security futures products'').\7\
The CFMA defines security futures as securities under the Exchange Act
\8\ and contracts of sale for future delivery under the Commodity
Exchange Act (``CEA'').\9\ Accordingly, the regulatory framework
established by the CFMA for the markets and intermediaries trading
security futures products provides the Commission and the Commodity
Futures Trading Commission (``CFTC'') with joint jurisdiction.
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\5\ Public Law 106-554, Appendix E, 114 Stat. 2763.
\6\ See Section 3(a)(55) of the Exchange Act, 15 U.S.C.
78c(a)(55) (defining security future as ``a contract of sale for
future delivery of a single security or of a narrow-based security
index, including any interest therein or based on the value thereof,
except an exempted security under section 3(a)(12) of this title 5
as in effect on the date of the enactment of the Futures Trading Act
of 1982 (other than any municipal security as defined in section
3(a)(29) as in effect on the date of the enactment of the Futures
Trading Act of 1982)'').
\7\ See Section 3(a)(56) of the Exchange Act, 15 U.S.C.
78c(a)(56) (defining ``security futures product'' as ``a security
future or any put, call, straddle, option, or privilege on any
security future'').
\8\ See Section 3(a)(10) of the Exchange Act, 15 U.S.C.
78c(a)(10).
\9\ See Section 1a(44) of the CEA, 7 U.S.C. 1a(44) (defining
``security future'').
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B. Exemption Request
CME plans to list and trade cash-settled security futures on
certain individual securities.\10\ CME previously listed and traded
security futures and ceased offering security futures for trading in
March 2011. CME previously adopted general listing standards for
security futures in Chapter 700 of its Rules. In connection with its
plans to begin listing and trading security futures again, CME intends
to revise its security futures listing standards to establish contract
terms and conditions specific to listing and trading cash-settled
single stock futures. In addition to the listing standards CME
originally established for single stock security futures, CME would
limit the listing and trading of cash-settled security futures to an
underlying security that (1) has an outstanding market capitalization
of $20 billion or greater, (2) has an estimated deliverable supply \11\
of greater than 20 million shares, and (3) a minimum average daily
value of transactions (``ADVT'') of $100 million over the prior six
months \12\ (``Proposed Cash-Settled Products''). The new listing
standards also would provide for the Proposed Cash-Settled Products to
settle at expiration based on the closing prices of the underlying
securities.\13\
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\10\ Application at 1.
\11\ See infra note 68.
\12\ An underlying security that has been trading for less than
six months must have a minimum ADVT of $1 billion over the prior
month.
\13\ Cash-settled derivatives contracts such as security futures
must determine a settlement price on expiration date that is based
on the underlying product of the derivatives contract on expiration
date. Cash-settled derivatives products' final settlement prices on
the expiration date can be based on different reference prices for
the underlying security, including: (1) the opening price (``A.M.
Settlement'' or ``A.M. Settled'') or (2) the closing price (``P.M.
Settlement'' or ``P.M. Settled'') of the underlying security.
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The SEC and CFTC jointly adopted Exchange Act Rule 6h-1(b) and CFTC
Regulation 41.25(c) to require that cash-settled security futures
products be A.M. Settled.\14\ CME's planned P.M. Settlement would not
comply with Rule 6h-1(b). Therefore, CME requests that the Commission
grant an exemption from Rule 6h-1(b) of the Exchange Act.
Simultaneously, CME is seeking from the CFTC an exemption from the
corresponding requirement under CFTC Regulation 41.25.\15\ Rule 6h-1(d)
states that the SEC may grant a national securities exchange or
national securities association an exemption from the above SEC
requirements if the SEC determines that the exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors.\16\ The Commission is publishing this notice to provide
interested persons with an opportunity to comment.
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\14\ Rule 6h-1(b) also requires that, if an opening price for an
underlying security or securities was not readily available, the
final settlement price of the overlying cash-settled security
futures product has to fairly reflect the price of the underlying
security or securities during its most recent regular trading
session or the next available opening price of the underlying
security or securities.
\15\ Application at 1.
\16\ The standard for exemptive authority under Rule 6h-1(d) is
the same as that in Section 36 of the Exchange Act. 15 U.S.C. 78mm.
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II. Discussion of History of P.M. Settlement and CME's Application
A. History of P.M. Settlement
In the mid-1980s, cash-settled index options and futures utilized
P.M.
[[Page 6682]]
Settlement procedures.\17\ The Commission and the CFTC became concerned
that cash-settled index derivatives that were P.M. Settled contributed
to market volatility in the underlying securities near the close on
expiration days.\18\ These cash settlement provisions in index futures
and options ``facilitated the growth of sizable index arbitrage
activities by firms and professional traders and made it relatively
easy for arbitrageurs to buy or sell the underlying stocks at or near
the market close on expiration Fridays in order to `unwind' arbitrage-
related positions.'' \19\ Unwinding these positions often severely
constrained the liquidity of the securities markets because unwinding
sometimes involved large sell or buy orders in individual securities
and there was insufficient buy or sell interest to absorb the
derivatives' expiration-related trading within the limited amount of
time to establish closing prices at 4 p.m.\20\ Specialists in the
underlying securities often had to drop or raise share prices sharply
at the close to establish sufficient buy-side or sell-side interest to
offset order imbalances.\21\ In addition, these derivative expiration
liquidity constraints created concerns that liquidity constraints could
provide opportunities for market participants to ``anticipate these
pressures and enter orders as part of manipulative or abusive trading
practices designed to artificially drive up or down share prices.''
\22\ These concerns were heightened during the ``triple-witching'' hour
on the third Friday of March, June, September, and December when index
options, index futures, and options on index futures expired
concurrently.\23\ Academic research at the time suggested that futures
and options expirations contributed to excess volatility and reversals
around the close on those days.\24\
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\17\ See, e.g., Securities Exchange Act Release Nos. 45956 (May
17, 2002), 67 FR 36740, 36741 (May 24, 2002) (``Rule 6h-1 Joint
Adopting Release''); 65256 (Sept. 2, 2011), 76 FR 55969, 55972
(Sept. 9, 2011) (SR-C2-2011-008); 98454 (Sept. 20, 2023) 88 FR
66103, 66103-66104 (Sept. 26, 2023) (SR-CBOE-2023-005).
\18\ See Rule 6h-1 Joint Adopting Release, 67 FR at 36741;
Securities Exchange Act Release Nos. 65256 (Sept. 2, 2011), 76 FR
55969, 55972 (Sept. 9, 2011) (SR-C2-2011-008); 98454 (Sept. 20,
2023) 88 FR 66103, 66103-66104 (Sept. 26, 2023) (SR-CBOE-2023-005).
\19\ Rule 6h-1 Joint Adopting Release, 67 FR at 36741.
\20\ See id.; Securities Exchange Act Release No. 44743 (Aug.
24, 2001), 66 FR 45904, 45907 (Aug. 30, 2001) (``Rule 6h-1 Joint
Proposing Release'').
\21\ See Rule 6h-1 Joint Proposing Release, 66 FR at 45907.
\22\ See id.
\23\ See, e.g., Securities Exchange Act Release No. 98454 (Sept.
20, 2023), 88 FR 66103, 66104 (Sept. 26, 2023) (SR-CBOE-2023-005).
\24\ See Securities and Exchange Commission, Division of
Economic Risk and Analysis, Memorandum dated Feb. 2, 2021 on
Cornerstone Analysis of PM Cash-Settled Index Option Pilots (Sept.
16, 2020) (``Pilot Memo'') at 5-6, available at: <a href="https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf">https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf</a> (citing, among
other papers, Stoll, Hans R., and Robert E. Whaley, ``Expiration day
effects of index options and futures,'' Monograph Series in Finance
and Economics, no. 3 (1986)).
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The SEC and CFTC expected that opening price settlement procedures
would solve these expiration-related liquidity pressures.\25\ For
example, smaller price discounts or premiums were needed to accommodate
derivatives' expiration related trading in opening auctions because
market participants in an opening auction would have the rest of the
trading day to trade out of long or short positions acquired in the
opening auction.\26\ Additionally, the New York Stock Exchange was able
to use its existing electronic order routing systems and electronic
specialist books to process and match incoming unwinding stock orders
before the opening of the regular trading session at 9:30 a.m.\27\
Specialists could then utilize long-standing procedures to disseminate
price indications in an orderly manner before index component stocks
opened for trading.\28\
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\25\ Rule 6h-1 Joint Adopting Release, 67 FR at 36742-43.
\26\ Rule 6h-1 Joint Proposing Release, 66 FR at 45908.
\27\ See id.
\28\ See id.
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In light of the concerns with P.M. Settlement and to help
ameliorate the price effects associated with expirations of P.M.
Settled index products, in 1987, CME proposed to change its rules to
provide for A.M. Settlement for index futures, including futures on the
S&P 500.\29\ The Commission subsequently approved several filings to
list and trade A.M. Settled options.\30\ The SEC and CFTC expected the
widespread adoption of opening-price settlement procedures in index
futures and options served to mitigate the liquidity strains that had
previously been experienced in the securities markets on
expirations.\31\
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\29\ See Proposed Amendments Relating to the Standard and Poor's
500, the Standard and Poor's 100 and the Standard Poor's OTC Stock
Price Index Futures Contract, 51 FR 47053 (Dec. 30, 1986) (notice of
proposed rule change submitted by CME to the CFTC). See also
Securities Exchange Act Release No. 24367 (Apr. 17, 1987), 52 FR
13890 (Apr. 27, 1987) (SR-CBOE-87-11) (noting that CME moved the S&P
500 futures contract's settlement value to opening prices on the
delivery date).
\30\ See Securities Exchange Act Release No. 24367 (Apr. 17,
1987), 52 FR 13890 (Apr. 27, 1987) (SR-CBOE-87-11). See also
Securities Exchange Act Release No. 30944 (July 21, 1992), 57 FR
33376 (July 28, 1992) (SR-CBOE-92-09). The Commission also approved
proposals by other options markets to transfer most of their cash-
settled index products to A.M. Settlement. See, e.g., Securities
Exchange Act Release No. 25804 (June 15, 1988), 53 FR 23475 (June
22, 1988) (SR-NYSE-87-11 and 88-04).
\31\ See Pilot Memo, supra note 24; see also Rule 6h-1 Joint
Proposing Release, 66 FR at 45908.
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Shortly after the CFMA was enacted, the SEC and CFTC jointly
adopted Rule 6h-1 and CFTC Regulation 41.25(c) to establish an A.M.
Settlement standard for cash-settled security futures that had become
common for index futures and index options.\32\ Rule 6h-1 states that
the final settlement price of a ``cash-settled'' security futures
product must fairly reflect the opening price of the underlying
security or securities.\33\ As discussed above, this rule was
established in response to concerns with cash-settled index derivatives
that were P.M. Settled.\34\ At the time, there were no single stock
futures products; single stock options were physically settled using
P.M. Settlement, as they are generally done today.\35\
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\32\ See 17 CFR 6h-1(b)(1) and 17 CFR 41.25(c); see also Rule
6h-1 Joint Adopting Release, 67 FR at 36759.
\33\ 17 CFR 6h-1(b)(1).
\34\ See Rule 6h-1 Joint Adopting Release, 66 FR at 36741-42.
\35\ The Commission has approved cash settlement for two types
of single security options, in each case recognizing several factors
that mitigated manipulation concerns with these products: (1) binary
options on certain single stocks (``BYRDS''); and (2) Flexible
Exchange (``FLEX'') options on certain exchange traded products such
as exchange traded funds (``ETFs''). See, e.g., Securities Exchange
Act Release Nos. 56251 (Aug. 14, 2007), 72 FR 46523 (Aug. 20, 2007)
(SR-Amex-2004-27) (Order approving listing of Fixed Return Options,
later knows as ``BYRDS''); 88131 (Feb. 5, 2020), 85 FR 7806 (Feb.
11, 2020) (SR-NYSEAMER-2019-38) (Order approving certain FLEX
options to be cash-settled). Section 6(h)(3)(C) of the Exchange Act
states that listing standards for security futures shall be no less
restrictive than comparable listing standards for options traded on
a national securities exchange. 15 U.S.C. 78f(h)(3)(C). Section
6(h)(3)(H) of the Exchange Act states that listing standards for
security futures shall ``require that trading in the security
futures product not be readily susceptible to manipulation of the
price of such security futures product, nor to causing or being used
in the manipulation of the price of any underlying security, option
on such security, or option on a group or index including such
securities.'' 15 U.S.C. 78f(h)(3)(H).
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B. Options P.M. Pilots
Starting in 2010, the Commission approved proposals, on a pilot
basis, permitting CBOE and other options exchanges to introduce P.M.
Settlement for various cash-settled broad-based index options (``P.M.
Pilots''). These included P.M. Settled index options expiring weekly
(other than the third Friday) and at the end of each month,\36\
[[Page 6683]]
as well as P.M. Settled Mini-S&P 500 index options (``SPX'') and Mini-
Russell 2000 index options expiring on the third Friday of the
month.\37\ In the course of approving the various P.M. Pilots, the
Commission reiterated its concerns about P.M. Settled, cash-settled
index options on the underlying component stocks at expiration.\38\
However, the Commission also recognized the potential impact was
unclear.\39\ The Commission approved the programs on a pilot basis to
allow the various exchanges and the Commission to monitor for any
adverse market effects.\40\ As part of the P.M. Pilots, the Commission
required that certain data and analysis be provided by the exchanges in
order to evaluate the effects of these products on the underlying
securities.\41\
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\36\ See Securities Exchange Act Release Nos. 62911 (Sept. 14,
2010), 75 FR 57539 (Sept. 21, 2010) (SR-CBOE-2009-075); 76529 (Nov.
30, 2015), 80 FR 75695 (Dec. 3, 2015) (SR-CBOE-2015-106); 78531
(Aug. 10, 2016), 81 FR 54643 (Aug. 16, 2016) (SR-CBOE-2016-046).
\37\ See Securities Exchange Act Release Nos. 70087 (July 31,
2013), 78 FR 47809 (Aug. 6, 2013) (SR-CBOE-2013-055); 91067 (Feb. 5,
2021) 86 FR 9108 (Feb. 11, 2021) (SR-CBOE-2020-116).
\38\ See, e.g., Securities Exchange Act Release No. 68888 (Feb.
8, 2013), 78 FR 10668, 10669 (Feb. 14, 2013) (SR-CBOE-2012-120).
\39\ See id.
\40\ See id.
\41\ Information provided as part of the pilot data included,
among other data: monthly volume aggregated for all trades; monthly
volume aggregated by expiration date; monthly volume for each
individual series; month-end open interest aggregated for all
series; month-end open interest for all series aggregated by
expiration date; month-end open interest for each individual series;
a time series analysis of open interest; and (8) an analysis of the
distribution of trade sizes. See, e.g., Securities Exchange Act
Release No. 96703 (Jan. 18, 2023), 88 FR 4265, 4266 (Jan. 24, 2023)
(SR-CBOE-2023-005).
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After a lengthy evaluation period, the Commission approved the P.M.
Pilots on a permanent basis.\42\ Generally, during the pilot period,
the exchanges listing and trading these products stated that they had
not identified any evidence indicating that the trading of P.M. Settled
index options had any adverse impact on fair and orderly markets on
expiration days, nor had there been any observations of abnormal market
movements attributable to P.M. Settled index options from any market
participants.\43\ For example, one exchange reviewed a sample of pilot
data from 2019 through 2021, and measured the volatility of the S&P 500
over the final fifteen minutes of each trading day and compared
expiration days to non-expiration days.\44\ That exchange observed that
generally volatility was slightly higher on expiration days, but in
cases where overall market volatility increased, the normalized impact
on expiration days versus non-expiration days remained consistent.\45\
The exchange further analyzed volatility on days when the S&P 500 was
rebalanced, and stated the results suggest more closing volatility on
rebalance dates compared to non-rebalance expiration dates, indicating
that rebalancing of the S&P 500 may have had a greater impact on S&P
500 volatility than P.M. Settled index option expirations.\46\ In
addition to reviewing the data and analysis provided by the exchanges,
the Commission reviewed analysis prepared by the Commission's Division
of Economic and Risk Analysis. This analysis, contained in the Pilot
Memo, evaluated whether higher levels of expiring open interest in P.M.
Settled index options resulted in increased volatility and price
reversals around the close.\47\ The Pilot Memo concluded that, although
expiring P.M. Settled index option open interest may have a
statistically significant relationship with volatility and price
reversals of the underlying index, index futures, and index component
securities around the market close, the magnitude of the effect was
economically small.\48\
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\42\ See, e.g., Securities Exchange Act Release No. 98454 (Sept.
20, 2023), 88 FR 66103 (Sept. 26, 2023) (SR-CBOE-2023-005).
\43\ See, e.g., Securities Exchange Act Release Nos. 96703 (Jan.
18, 2023), 88 FR 4265, 4267 (Jan. 24, 2023) (SR-CBOE-2023-005);
98451 (Sept. 20, 2023), 88 FR 66088, 66091 (Sept. 26, 2023) (SR-
Phlx-2023-07).
\44\ See Securities Exchange Act Release No. 96703 (Jan. 18,
2023), 88 FR 4265, 4268 (Jan. 24, 2023) (SR-CBOE-2023-005).
\45\ See id.
\46\ See id.
\47\ See Pilot Memo, supra note 24.
\48\ See id. at 3.
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C. CME Application <SUP>49</SUP>
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\49\ This section describes CME's statements in support of its
request for exemptive relief. The Commission seeks comment on CME's
statements in support of such exemption.
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In its Application, CME states that now, more than twenty years
later, the historic concern around thin liquidity at the close of the
equity securities markets is largely moot given the characteristics of
today's markets for those securities.\50\ CME states that trading
volumes and liquidity for equity securities have increased
substantially since 2002, including trading volumes at both the open
and close of the markets.\51\ CME states that trading volume for equity
securities is generally significantly greater at the close than at the
open.\52\ CME states that the liquidity characteristics of today's cash
equity markets, as well as the current use of the closing price for
final settlement of cash-settled index options and physically-settled
options on individual stock, mitigate the concerns regarding closing
volatility and manipulation, and support CME's proposed use of the
official closing prices for securities underlying the Proposed Cash-
Settled Products.\53\
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\50\ Application at 4.
\51\ See id. (citing C. Tarun, et al., Recent Trends in Trading
Activity and Market Quality, 101 J. Fin. Econ. 2 (2011) (analyzing,
among other data, the large increase in daily trading volume from
1993--under 1,000 trades per day--to 2008--over 100,000 trades per
day); B. Novick, et al., A global perspective on market-on-close
activity, BlackRock ViewPoint (2020) (observing the ``notable
escalation globally in [market-on-close] activity'' from the early
2000s through 2020)).
\52\ Application at 4.
\53\ See id. at 5.
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In support of its position, CME provided comparisons of trading
volume at the market close versus the market open.\54\ The sample
consisted of the constituents within the Russell 1000 as of June 30,
2025.\55\ CME sorted stocks into various buckets of trading activity
and liquidity; and the average full day trading volume by value for
each stock on the Fridays from January 2025 through June 2025 was
ranked and filtered based on per-stock ADVT ($).\56\ The most active 25
stocks by this metric were grouped as the top 25 stocks in tables
provided by CME, followed subsequent rank based on ADVT to provide an
indication of activity throughout the index.\57\
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\54\ Id. at 4-8.
\55\ Id. at 5.
\56\ Id.
\57\ Id.
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CME's tables showed that on the 25 Fridays from January 2025
through June 2025 (excluding April 18, 2025, Good Friday), irrespective
of the trading activity bucket, trading volume at the closing auction
far outstripped trading volume at the opening auction.\58\ For the top
25 traded stocks, the former was 5.14 times greater than the latter.
For the second 25 traded stocks, the ratio was 7.04.\59\ As the
``liquidity'' of the stock dropped, the ratio became increasingly
larger, e.g., 14.84 for the 350th stock within the Russell 1000.\60\
Additionally, for opening and closing auctions on third Fridays other
than quarterly third Fridays, the difference in volume was even greater
in favor of the close.\61\ Therefore, CME states that the exchange
equities markets that exist today have substantial liquidity that can
absorb trading demand at the close in contrast to the circumstances of
the distant past.\62\ Thus, according to CME, it is no longer a valid
concern that using official closing prices for final settlement of
[[Page 6684]]
security futures could strain trading liquidity at the close for the
underlying securities when market participants engaged in intermarket
trading strategies unwind their securities positions.\63\
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\58\ Id.
\59\ Id.
\60\ Id.
\61\ Id. at 8.
\62\ Id.
\63\ Id. at 8-9.
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In addition to the analysis described above, CME states that the
listing standards for cash-settled futures on individual equity
securities described in its Application ensure substantial protection
from manipulation, because they require a highly liquid underlying
market for any such contracts the Exchange will list for trading.\64\
Specifically, CME's planned additions to Chapter 700, as described in
its exemption request, include the requirement that the underlying
security for each product must exceed 20 million shares in estimated
deliverable supply (Rule 70001.5); have a minimum market capitalization
of at least $20 billion (Rule 70001.6); and have a minimum ADVT of $100
million over the prior six months (Rule 70001.7).\65\ CME further
states that it will review the underlying securities on a quarterly
basis and apply maintenance standards under which an underlying
security must maintain over 20 million shares in estimated deliverable
supply, a minimum market capitalization of at least $10 billion, and an
ADVT of $100 million for the prior calendar quarter.\66\ CME states
that the new listing standards assure a robust market for the
underlying security to protect against manipulation.\67\ It also states
that it has carefully structured the initial listing standards to
assure that the contracts it will list at a minimum meet the more
stringent requirements for CME to have the flexibility allowed under
CFTC Regulation 41.25(b)(3)(i)(A) to set positions limits as a
percentage of the security's estimated deliverable supply.\68\
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\64\ Id. at 9.
\65\ Id. at 9-10.
\66\ Id. at 1-2. An underlying security that has been listed for
trading for less than a quarter must have a minimum of $1 billion
ADVT over the period traded during the calendar quarter.
\67\ Id. at 10.
\68\ Id. The CFTC revised its position limits rule concerning
single stock futures in 2019, and in that rulemaking defined
``estimated deliverable supply'' for security futures position
limits. See Position Limits and Position Accountability for Security
Futures Products, 84 FR 51005 (Sept. 27, 2019) (``CFTC Position
Limit Rule''). CFTC Rule 41.25 defines ``estimated deliverable
supply'' as ``the quantity of the security underlying a security
futures product that reasonably can be expected to be readily
available to short traders and salable by long traders at its market
value in normal cash marketing channels during the specified
delivery period.'' See 17 CFR 41.25(a). Appendix A to Part 41 of the
CFTC's rules states that for equity securities ``deliverable supply
should be no greater than the free float of the security.'' See 17
CFR 41 Appendix A. The CFTC stated that estimated deliverable supply
should be ``based on free float, that is, shares issued and
outstanding, excluding shares that either: (i) [a]re restricted from
transfer (e.g., restricted stock units), or (ii) have been
repurchased by the issuing corporation (i.e., treasury shares).''
See CFTC Position Limit Rule, 84 FR at 51008.
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CME also states that the position limits that CME will establish
will provide additional protection against manipulation.\69\ In
particular, CME states that it will establish speculative position
limits for all cash-settled single equity security futures it lists as
required by and consistent with CFTC Rule 41.25(b)(3) and the CFTC's
guidance in Appendix A to Subpart C of Part 41--Guidance on and
Acceptable Practices for Position Limits and Position Accountability
for Security Futures Products.\70\ CME states that its existing Rule
71101.E., Position Limits, provides that: ``Position limits shall be
applied in accordance with CFTC Rule 41.25(b)(3). Cash-Settled Single
Stock Security Futures limits will be set no greater than the
equivalent of 12.5 percent of the estimated deliverable supply of the
underlying security for securities exceeding 20 million shares in
estimated deliverable supply and no greater than 25,000 contracts for
securities at or below 20 million shares in estimated deliverable
supply. Limits will be effective during the last three trading days of
an expiring contract month.'' \71\ CME states that it will set out the
position limits in the Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices Section
of Chapter 5.\72\
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\69\ Application at 10.
\70\ Id. CFTC Rule 41.25 establishes position limits for
security futures on a single equity security, including ETFs. See 17
CFR 41.25. For any equity security with an estimated deliverable
supply of greater than 20 million shares, Rule 41.25 permits a DCM
to adopt, if appropriate considering the liquidity and trading in
the underlying security, a position limit as high as 12.5% of the
estimated deliverable supply of the underlying security. See 17 CFR
41.25(b)(3)(i)(A). For single equity securities where the six-month
total trading volume in the underlying exceeds 2.5 billion shares
and there are more than 40 million shares of estimated deliverable
supply, a DCM is permitted to adopt a position accountability rule
instead of a position limit. See 17 CFR 41.25(b)(3)(i)(B).
\71\ Application at 10.
\72\ Id.
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CME also states that it has rules prohibiting market participants
from engaging in manipulation of the security futures or the underlying
cash market and disciplinary rules to enforce such prohibition.\73\
Finally, CME states that trading activity in the Proposed Cash-Settled
Products will be subject to monitoring and surveillance by CME Group
Inc.'s Market Regulation Department.\74\
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\73\ Id.
\74\ Id.
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III. Request for Comments
We request and encourage any interested person to submit comments
regarding the Application, including whether the Commission should
grant the exemption request. We also request comment on whether the
Commission should establish any limitations or conditions in connection
with an exemption. In particular, we request comment on the following
questions:
1. Does the data and analysis provided by CME in its Application
support granting an exemption from Rule 6h-1 for the Proposed Cash-
Settled Products?
2. Are there potential risks associated with P.M. Settlement for
cash-settled single equity security futures? If so, what are they and
how do the risks of P.M Settlement compare to the risks of A.M.
Settlement? Does P.M. Settlement present risks that do not exist with
A.M. Settlement with respect to cash-settlement and, if so, what are
these risks?
3. Would P.M. Settlement of the Proposed Cash-Settled Products
result in constraints on liquidity, closing volatility, and
manipulation in the market for the underlying securities at expiration
that the SEC and CFTC were concerned about when Rule 6h-1 was adopted?
Does CME's Application, including its contemplated initial and
maintenance listing standards, address these concerns regarding P.M.
Settlement for the Proposed Cash-Settled Products that were present
when Rule 6h-1 was adopted? What factors should CME consider when
determining whether a Proposed Cash-Settled Product is readily
susceptible to manipulation?
4. As discussed above, the markets have changed significantly in
the decades since Rule 6h-1 was adopted as has the regulatory
landscape, such as the implementation of Regulation National Market
System. Do these regulatory and market structure changes affect the
concerns regarding constraints on liquidity, closing volatility, and
manipulation regarding P.M. Settlement?
5. What data would facilitate the Commission's analysis of
liquidity levels and absorption of imbalances at the time of
expiration?
6. Do closing processes in today's markets mitigate against the
risk of constraints on liquidity, closing volatility, and manipulation
due to P.M. Settlement and, if so, how? Could P.M. Settlement
nonetheless result in constraints on liquidity and increased closing
volatility on expiration days due to insufficient buy or sell interest
to
[[Page 6685]]
satisfy demand to unwind security futures positions or from market
participants being less willing to provide liquidity at the close on
expiration day due to the risk of carrying positions overnight?
7. Does the listing and trading of the Proposed Cash-Settled
Products that are P.M. Settled raise concerns about manipulation of the
underlying security in order to benefit the position in the security
futures or options on such security? If so, what are these concerns?
Are there conditions on the listing and trading of the Proposed Cash-
Settled Products that may mitigate these concerns?
8. Should an exemption be granted for the Proposed Cash-Settled
Products that meet the specific listing standards that CME described in
its Application? Should CME's proposed listing standards be subject to
periodic evaluation to ensure their continued appropriateness? What
methods should be used to conduct this evaluation?
9. With respect to each listing standard described by CME in its
Application and identified below, should any of them be modified? If
the listing standard should be modified, please explain why and in what
way. If not, please explain why not. Specifically, CME has proposed
that each underlying security has:
<bullet> an outstanding market capitalization of $20 billion or
greater;
<bullet> an estimated deliverable supply of greater than 20 million
shares;
<bullet> a minimum ADVT of $100 million over the prior six months
(or if the underlying security has been trading for less than six
months, a minimum ADVT of $1 billion over the prior month); and
<bullet> these exact same standards to maintain listing except that
market capitalization must be at least $10 billion (instead of $20
billion required for initial listing) and ADVT must be at least $100
million over the prior quarter (instead of the prior six months)? \75\
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\75\ If an underlying security has been listed for trading for
less than a quarter, it must have a minimum of $1 billion ADVT over
the period traded during the calendar quarter.
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10. Currently, approximately 300 underlying securities would
qualify for listing a cash-settled security future based on CME's
listing standards identified in the exemption request. Should the
Commission limit an exemption to a smaller group of securities than
those that would qualify for the Proposed Cash-Settled Products and if
so, how should the Commission determine which securities should qualify
for the exemption? Is there a smaller group of securities that have
certain characteristics (e.g., very high daily trading volume or
accessible shares outstanding) that effectively mitigate the
Commission's concerns regarding constraints on liquidity, closing
volatility, and manipulation in the underlying securities related to
the P.M. Settlement of cash-settled products? For example, should the
Proposed Cash-Settled Products be limited to security futures overlying
the top 25 or 50 securities in terms of daily trading volume?
11. Are the P.M. Pilots informative with respect to P.M. Settlement
of the Proposed Cash-Settled Products? Are the P.M. Pilots informative
on the issue of constraints on liquidity, closing volatility, and
manipulation in the underlying markets? If so, please explain. If not,
what aspects of the P.M. Pilots make them different enough to not be a
relevant precedent?
12. Are there differences between cash-settled index derivatives
and cash-settled single stock derivatives that raise or mitigate
concerns related to constraints on liquidity, closing volatility, and
manipulation in the underlying securities of P.M. Settlement as applied
to the Proposed Cash-Settled Products and, if so, what are those
differences?
13. What type of market participant is likely to trade the Proposed
Cash-Settled Products, and what would be the common use cases for these
products? What are the benefits to the market of permitting the listing
and trading of the Proposed Cash-Settled Products?
14. Would P.M. Settlement of the Proposed Cash-Settled Products
lead to any unintended consequences?
15. Would trading volume in the underlying cash securities migrate
to the Proposed Cash-Settled Products? Are there certain types of
underlying securities where it is more likely for trading volume to
migrate from the underlying cash security to the Proposed Cash-Settled
Products? Could potential trading volume migration to the Proposed
Cash-Settled Products negatively impact the liquidity of the underlying
securities, including on expiration days?
16. Should data regarding the trading of cash-settled security
futures be made publicly available? What data would be useful for the
evaluation of any potential impact of the Proposed Cash-Settled
Products on the underlying securities and options on such securities?
Should an exemption be conditioned on CME making publicly available in
a machine-readable Comma-Separated Values format for a period of three
years the following information:
<bullet> on a daily basis, a daily report of aggregate long and
short positions by market participant type (including market maker,
firm and customer) or by clearing member account type (e.g.,
proprietary and customer account as required by CFTC Rule 16.00) \76\
for each security future listed and traded pursuant to this exemption
(``Listed Cash-Settled Product'');
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\76\ See 17 CFR 16.00.
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<bullet> for each security underlying a Listed Cash-Settled
Product, the opening price for the next trading day after the
settlement Friday and the closing price on the settlement Friday, along
with the percentage change between these two prices, and the average
percent change between these two prices over the course of a year, made
available once a year and to the Commission upon request;
<bullet> for each Listed Cash-Settled Product, the month-end
aggregate long and short positions by market participant type
(including market maker, firm and customer) or by clearing member
account type (e.g., proprietary and customer account as required by
CFTC Rule 16.00) and trading volume for each month, made available once
a year and to the Commission upon request; and
<bullet> for each security underlying a Listed Cash-Settled
Product, the first traded price and the last traded price for the 15-
minute periods of 3:30 p.m.-3:45 p.m. and 3:45 p.m.-4:00 p.m. for every
Friday of each month along with the next trading day's opening price,
made available once a year and to the Commission upon request?
17. Should an exemption be conditioned on CME providing the
Commission within four years of listing and trading security futures
pursuant to the exemption, a report examining the effect of cash-
settled single stock futures and, to the extent listed and traded,
cash-settled single stock options, on the market for the underlying
securities? If so, should this report include analysis concerning the
Proposed Cash-Settled Products, as well as analysis of any other P.M.
Settled, cash-settled single stock security futures, security options,
or other derivative listed and traded during the period subject to the
report? Should the report examine the price of the underlying stock at
3:30 p.m. and 3:45 p.m., the closing price of the underlying stock on
expiration day, the opening price on the next trading day, and the
percentage change among such prices? Should the number of security
futures contracts settled based on the closing price of the underlying
stock be included with a discussion of price
[[Page 6686]]
reversal (i.e., change in the closing price of the underlying security
and the opening price on the next trading day)? Should such a report be
made publicly available?
18. Are the data and report described above sufficient to evaluate
the potential impacts of the Proposed Cash-Settled Products on the
market for the underlying security or options on such security? What
other or different data or report would be useful concerning the
Proposed Cash-Settled Products in order to evaluate the impact of the
Proposed Cash-Settled Products on the underlying securities and options
on such securities?
19. Section 6(h)(3)(I) of the Exchange Act requires that procedures
be in place for coordinated surveillance among the markets trading
security futures, the markets trading the underlying securities, and
markets trading related securities to detect manipulation and insider
trading. What surveillance (coordinated or otherwise) is in place that
could help identify manipulation and insider trading related to the
Proposed Cash-Settled Products? Would a surveillance agreement among
CME, the primary markets where the underlying securities trade, and
markets that trade related securities be appropriate to detect
manipulation and insider trading with respect to products related to
the Proposed Cash-Settled Products? Would membership by CME in the
Intermarket Surveillance Group be appropriate and sufficient to detect
manipulation and insider trading with respect to products related to
the Proposed Cash-Settled Products?
20. Should an exemption be conditioned on CME entering a market-to-
market surveillance sharing agreement with the markets trading the
underlying securities and markets that trade related securities? Should
an exemption be conditioned, instead, on CME entering a market-to-
market surveillance sharing agreement with the primary listing market?
Should an exemption be conditioned on CME being a member of ISG?
21. Would position limits that are filed with the Commission
pursuant to Section 19(b)(7) of the Exchange Act for the Proposed Cash-
Settled Products mitigate the concerns around cash settlement and P.M.
Settlement, and, if so, what should be the position limits for the
Proposed Cash-Settled Products in order to support the Commission
granting an exemption from Rule 6h-1(d)? Should an exemption be
conditioned on CME filing such position limits with the Commission
pursuant to Section 19(b)(7) of the Exchange Act?
22. CME states that it will establish speculative position limits
for all cash-settled single equity security futures it lists as
required by and consistent with CFTC Rule 41.25(b)(3) and the CFTC's
guidance in Appendix A to Subpart C of Part 41--Guidance on and
Acceptable Practices for Position Limits and Position Accountability
for Security Futures Products.\77\ Would a position limit of 12.5% of
the estimated deliverable supply (as represented by CME and reflected
in CFTC Rule 41.25 \78\), which would be applicable to most of the
Proposed Cash-Settled Products, be sufficient to mitigate the concerns
regarding cash settlement and P.M. Settlement? Would a higher or lower
limit be appropriate?
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\77\ Application at 10.
\78\ See supra notes 69-70 and accompanying text.
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23. CFTC Rule 41.25(b)(3)(i)(B) permits a designated contract
market to adopt a position accountability rule in lieu of position
limits if the 6-month total trading volume of the underlying security
exceeds 2.5 billion shares and it has more than 40 million shares of
estimated deliverable supply. Approximately 40 Proposed Cash Settled
Products would qualify for position accountability.\79\ Would position
accountability (i.e., requirements to provide information about or
adjust positions if certain position levels are reached) be sufficient
to mitigate the concerns regarding cash settlement and P.M. Settlement?
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\79\ See 17 CFR 41.25(b)(3)(i)(B) and supra notes 68 and 70
(discussing CFTC position limit and accountability rules).
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24. Is the method for estimating deliverable supply that is
prescribed in CFTC Rule 41.25, and Appendix A to Subpart C of Part 41
of the CFTC's regulations, appropriate for setting position limits on
the Proposed Cash-Settled Products? Should alternative methods be
considered when estimating the deliverable supply for the Proposed
Cash-Settled Products?
25. Should position limits be different for cash-settled single
stock futures that are P.M. Settled versus those that are A.M. Settled?
26. Would applying to the Proposed Cash-Settled Products the same
position limits that are currently applied to securities options
mitigate concerns regarding cash settlement and P.M. Settlement and, if
not, should position limits for the Proposed Cash-Settled Products be
higher or lower?
27. Should any position limit require the aggregation of positions
across exchange-traded derivatives (or across all derivatives whether
traded on exchange or over-the-counter) overlying the same underlying
security?
Comments should be received on or before March 16, 2026. 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-regulations/commission-orders-notices/other-commission-orders-notices-information">https://www.sec.gov/rules-regulations/commission-orders-notices/other-commission-orders-notices-information</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9"><span class="__cf_email__" data-cfemail="3e4c4b525b135d5153535b504a4d7e4d5b5d10595148">[email protected]</span></a>. Please include
File Number S7-2026-04 on the subject line.
Paper Comments
<bullet> Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-2026-04. 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-regulations/exchange-act-exemptive-notices-orders">https://www.sec.gov/rules-regulations/exchange-act-exemptive-notices-orders</a>). 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.
For further information, you may contact David Dimitrious, Senior
Special Counsel; Michou Nguyen, Special Counsel; and Alba Baze,
Attorney-Advisor, Office of Market Supervision, Division of Trading and
Markets, at (202) 551-5550, Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-02821 Filed 2-11-26; 8:45 am]
BILLING CODE 8011-01-P
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