Notice2026-17908
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 Nos. 1 and 2, To Adopt VIX Future-Option Orders
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
September 2, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 169 (Wednesday, September 2, 2026)</title>
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[Federal Register Volume 91, Number 169 (Wednesday, September 2, 2026)]
[Notices]
[Pages 56493-56504]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17908]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106216; File No. SR-CBOE-2026-004]
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 Nos. 1 and 2, To Adopt
VIX Future-Option Orders
August 28, 2026.
I. Introduction
On January 5, 2026, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'')
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
permit orders comprised of Cboe Volatility Index (``VIX'') options and
VIX futures (``VX futures'') (``VIX future-option orders''). The
proposed rule change was published for comment in the Federal Register
on January 16, 2026.\3\ On March 6, 2024, pursuant to Section 19(b)(2)
of the Act, \4\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On April 9, 2026, the Commission instituted
proceedings under Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change.\7\ On July
8, 2026, the Commission designated a longer time for Commission action
on the proposed rule change.\8\ The Commission received no comments
regarding the proposed rule change. On August 6, 2026, the Exchange
filed Amendment No. 1 to the proposed rule change, which replaces and
supersedes the original filing in its entirety.\9\ On August 17, 2026,
the Exchange filed Amendment No. 2 to the proposal.\10\ The Commission
is publishing this notice and order to solicit comment on Amendment No.
1 in Sections II and III below, which sections are being published
verbatim as filed by the Exchange, and to approve the proposed rule
change, as modified by Amendment Nos. 1 and 2, on an accelerated basis.
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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. 104588 (Jan. 13,
2026), 91 FR 2209.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 104865 (Feb. 19,
2026), 91 FR 8928 (Feb. 24, 2026). The Commission designated April
16, 2026, as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to
disapprove, the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 105188 (Apr. 9,
2026), 91 FR 19245 (Apr. 14, 2026).
\8\ See Securities Exchange Act Release No. 105864 (July 8,
2026) 91 FR 42989 (July 13, 2026). The Commission designated
September 13, 2026, as the date by which the Commission shall either
approve or disapprove the proposed rule change.
\9\ Amendment No. 1 revises the proposal to: (1) clarify that
the scope of the proposal is limited to VIX future-option orders by
revising rule text and language in the original proposal that could
have applied generically to any future-option orders not just VIX
future-option orders; (2) provide additional discussion of the
proposed FLEX VIX future-option orders; (3) revise the process for
submitting the VX futures component(s) of a VIX future-option order
to the Chicago Futures Exchange; (4) provide additional discussion
of the regulatory oversight of the VIX options and VX futures
components of VIX future-option orders; and (5) allow VIX future-
option orders to be entered as Immediate-or-Cancel (``IOC'') orders.
Amendment No. 1 is available at: <a href="https://www.sec.gov/comments/SR-CBOE-2026-004/srcboe2026004-994519-3111886.pdf">https://www.sec.gov/comments/SR-CBOE-2026-004/srcboe2026004-994519-3111886.pdf</a>.
\10\ Amendment No. 2 revises the proposal to correct technical
errors in the text of proposed Exchange Rule 5.33, Interpretation
and Policy .05. Because the changes in Amendment No. 2 are technical
in nature and do not materially alter the substance of the proposal,
Amendment No. 2 is not subject to notice and comment. Amendment No.
2 is available at: <a href="https://www.sec.gov/comments/SR-CBOE-2026-004/srcboe2026004-1006080-3202926.pdf">https://www.sec.gov/comments/SR-CBOE-2026-004/srcboe2026004-1006080-3202926.pdf</a>.
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II. 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 its Rules to permit orders comprised of Cboe Volatility Index
(``VIX'') options (``VIX options'') (which trade on the Exchange) and
VIX futures (``VX futures'') (which trade on Cboe Futures Exchange,
LLC's (``CFE'')) (``VIX future-option orders''). The text of the
proposed rule change is provided below.
The text of the proposed rule change is also available on the
Commission's website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>), the
Exchange's website
[[Page 56494]]
(<a href="https://www.cboe.com/us/options/regulation/rule_filings/cone/">https://www.cboe.com/us/options/regulation/rule_filings/cone/</a>), and at
the principal office of the Exchange.
III. 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 VIX future-
option orders. The Exchange understands it is common for investors to
engage in hedging or other investment strategies that involve VIX
options and VX futures, given they both overlie the same index.
However, to execute those strategies, investors must submit a VIX
options order to the Exchange and separately submit a VX futures order
to CFE, which is the designated contract market (``DCM'') on which the
VX futures trade. For example, market participants may obtain positions
in VIX options through a transaction on the Exchange and hedge those
positions by entering into a separate transaction on CFE for VX
futures. Separate executions of this sort create additional risks,
including risk that one order will execute while the other does not and
price risk resulting from the time it takes to complete both
transactions. The Exchange understands that due to those risks and the
complexities of multi-part transactions, market participants may
instead transact in the over-the-counter (``OTC'') market or not obtain
a hedge at all. The proposed rule change adopts a mechanism to
facilitate the execution of these cross-product transactions in a
simple, efficient manner that reduces these execution and price risks.
First, the Exchange proposes to adopt a definition of a VIX future-
option order. Specifically, the proposed rule change amends Rule 1.1 to
define a ``VIX future-option order'' \11\ as an order to buy or sell a
stated number of units of VX futures contract(s) coupled with the
purchase or sale of a VIX option contract(s) on the Exchange.
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\11\ As proposed, a ``VIX future-option order'' is deemed an
inter-regulatory spread order for purposes of the Rules. Rule 1.1
defines an inter-regulatory spread order as an order involving the
simultaneous purchase and/or sale of at least one unit in contracts
each of which is subject to different regulatory jurisdictions at
stated limits, or at a stated differential, or at market prices on
the floor of the Exchange. The proposed rule change amends the
definition of inter-regulatory spread order to provide that, with
respect to VIX future-option orders, market prices are those on the
Exchange, not just the floor of the Exchange, given that trading on
the Exchange currently occurs both on the trading floor and
electronically. As proposed, VIX future-option orders are eligible
for electronic processing only and not for trading in open outcry on
the Exchange's trading floor (and thus must be designated as
Electronic Only).
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The proposed definition of a VIX future-option order includes a
risk offset requirement. A User \12\ may only submit a VIX future-
option order if it satisfies the applicable risk offset requirement.
The Exchange believes a risk offset requirement will provide market
participants with sufficient flexibility to execute legitimate
strategies comprised of VIX options and VX futures while preventing a
market participant from using the proposed execution mechanism to
execute a VX futures trade outside of the normal trading process on CFE
by combining the VX future leg(s), for example, with an inexpensive
out-of-the-money VIX option leg.
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\12\ Rule 1.1 defines User as any Trading Permit Holder
(``TPH'') or Sponsored User (as described in Rule 6.30--there are
currently no Sponsored Users on the Exchange) who is authorized to
obtain access to the Exchange's System pursuant to Rule 5.5.
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Pursuant to paragraph (a) of the proposed definition of VIX future-
option order, a VIX future-option order must be comprised of ``groups''
of offsetting VX future and VIX options legs. The VX future and VIX
option components of each group must have the same expiration, and the
VX future leg(s) in a group must provide a risk offset to the VIX
option leg(s) in that group of no less than 10% and no greater than
125%. A VIX future-option order satisfies this risk offset requirement
if the delta value of each group is no greater than -0.10 and no less
than -1.25.\13\ The delta value \14\ of VIX option leg equals the
expected change in the price of that option contract given a $1.00
change in the value of VIX. The delta value of a VX future leg equals
one. The delta value of each VIX option leg is multiplied by its
multiplier of 100, and the delta value of each VX future leg is
multiplied by its multiplier of 1,000. The sum of the VX future legs
delta values divided by the sum of the VIX option legs delta values
equals the delta value for the order.
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\13\ The System rejects a VIX future-option order if any VIX
option contract leg or VX future contract leg cannot be grouped with
any VX future leg(s) or VIX option leg(s), respectively.
\14\ A User must include a reasonable delta value for each VIX
option leg when submitting a VIX future-option order (excluding
auction responses) to the Exchange. See paragraph (b) of proposed
definition of VIX future-option order in Rule 1.1. While a user may
use any methodology it chooses to calculate the delta value of
option legs, the value must be reasonable and will be subject to
surveillance by the Exchange's regulatory division (similar to
surveillance the Exchange currently conducts to determine
reasonability, such as when evaluating whether a qualified
contingent transaction is fully hedged). The System will use the
user-submitted delta values to calculate the risk offset for the
entire order. The proposed rule change will permit the System to
calculate whether the delta value of a group satisfies the risk
offset requirement. Auction responses need not include the
reasonable delta value because the risk offset requirement would
have already been deemed to be satisfied upon acceptance of the
auctioned order.
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For example, suppose a VIX future-option order is submitted with
the following components:
<bullet> Sell 1 Dec VX future with a delta of -1
<bullet> Buy 2 Jan VX futures with delta of 1
<bullet> Buy 16 Dec VIX option calls with a delta of 0.50
<bullet> Buy 35 Jan VIX option puts with a delta of -0.60
The 1 short Dec VX future is grouped with the 16 long Dec VIX
calls, which group has a delta of (-1 x 1,000)/(16 x .50 x 100) = -
1,000/800 = -0.125. The 2 long Jan VX futures are grouped with the 35
short Jan VIX puts, which group has a delta of (2 x 1,000)/(35 x -0.60
x 100) = -2,000/2,100 = -0.9524. This order would satisfy the risk
offset requirement, as both groups have a delta between -0.10 and -
1.25.
If the System determines that a complex strategy comprised of VX
future (at a price specified by the User upon order entry) \15\ and VIX
option legs satisfies the risk offset requirement, it accepts all VIX
future-option orders for that complex strategy for the remainder of
that trading day. This will prevent a situation in which a specific
strategy for a VIX future-option order satisfies the risk offset
requirement earlier in the trading day but not later in the trading day
due to changes in market conditions, which would prevent that earlier
order from potential execution. For example, suppose a User submits a
VIX future-option order for a specific complex strategy at 10:00 a.m.,
and the Exchange accepts it because the risk offset requirement is
satisfied. The order does not immediately execute and rests on the COB.
At 2:00 p.m., a different
[[Page 56495]]
User sees that VIX future-option order resting on the Book and wants to
trade against it. It submits a contra-side order for the same complex
strategy; however, market conditions have changed, so that strategy no
longer satisfies the risk offset requirement and the Exchange does not
accept it. The proposed rule change will allow a VIX future-option
order for a specific complex strategy accepted during a trading day to
have execution opportunities throughout that trading day, despite
market conditions changes that may cause that strategy to not satisfy
the risk offset requirement at all times during that trading day.\16\
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\15\ A User must include a net price for the option leg(s) and a
specified price for each futures leg of a future-option order. See
proposed subparagraph (b)(3) of the definition of future-option
order in Rule 1.1.
\16\ It is for this reason a User may only designate a VIX
future-option order submitted for electronic processing as Day (an
order that, if not executed, expires at the applicable market close)
or Immediate or Cancel (``IOC''). See proposed Rule 1.1 (proposed
paragraph (b)(1) of definition of VIX future-option order).
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The proposed rule change also amends the definition of ``complex
order'' in Rule 1.1 to provide that unless the context otherwise
requires, the term complex order will include VIX future-option
orders.\17\
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\17\ The term complex order already includes cross-product
orders such as stock-option orders and security future-option
orders.
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The proposed rule change adds VIX future-option order to the list
of types of complex orders that may be accepted for electronic trading.
Specifically, the proposed rule change amends Rule 5.33(b)(5) to
reference the proposed definition of VIX future-option order in Rule
1.1 and state that only VIX future-option orders with no more than the
applicable number of legs are eligible for electronic processing.\18\
The System electronically handles and processes VIX future-option
orders in the same manner as other complex orders submitted to the
System, except as otherwise specified below. Specifically, VIX future-
option orders submitted for electronic processing may execute pursuant
to a complex order auction (``COA'') if eligible as described in Rule
5.33(d) or in the complex order book (``COB'') as described in Rule
5.33(e) and will execute in the same manner as other complex orders,
except as described below. VIX future-option orders may also be
submitted for execution (if eligible) in the complex automated
improvement mechanism (``C-AIM'') as described in Rule 5.38 or complex
solicitation auction mechanism (``C-SAM) as described in Rule 5.40.
Processing of VIX future-option orders through C-AIM or C-SAM will
occur in the same manner as any other complex orders submitted into
those execution mechanisms.
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\18\ The definition of stock-option order in Rule 5.33(b)(5)
similarly permits stock-option orders with no more than the
applicable number of legs permitted by the Exchange for electronic
processing.
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The proposed rule change also amends Rule 5.70(b) to provide that
the Exchange may make VIX future-option orders available for flexible
(FLEX) options trading. In connection with this change, the proposed
rule change amends Rule 4.21(b) to provide that the submitting FLEX
Trader of a FLEX VIX future-option order may not modify the terms of
the VX future leg(s), as the terms of VX futures are determined by CFE.
In other words, a submitting FLEX Trader may designate the terms of the
VIX options legs of a VIX future-options order submitted for FLEX
trading in the same manner as they may designate the terms of any VIX
options submitted for FLEX trading; however, the submitting FLEX Trader
may not designate terms of the VX futures leg(s) of the order.
Additionally, the proposed rule change adds Rule 5.72(b)(2)(C) to
describe additional requirements for FLEX trading that will apply to
VIX future-option orders. Specifically, the proposed rule change
provides that a FLEX VIX future-option order submitted into the System
for an electronic FLEX Auction pursuant Rule 5.72(c) or any other
electronic FLEX auction mechanism available under the Rules (such as
the FLEX automated improvement mechanism described in Rule 5.73 or the
FLEX solicitation auction mechanism described in Rule 5.74) must
include a specified price for each VX futures leg (as is required for
non-FLEX VIX future-option orders as proposed). Further, the proposed
rule change provides if the VX futures leg(s) of a FLEX VIX future-
option order cannot execute at the price(s) specified by the submitting
User upon order entry, it will be cancelled (also as is required for
non-FLEX VIX future-option orders as proposed).
The Exchange proposes to amend Rule 5.33 to describe how VIX
future-option orders may execute electronically on the Exchange, which
process is substantially similar to that for stock-option orders. As
proposed in Rule 5.33(o), when a User submits to the System a VIX
future-option order, the Exchange will electronically communicate the
VX future component (at the price specified by the User upon order
entry) of the VIX future-option order to CFE on behalf of the User (if
the User is also a CFE member) or the designated FCM/IB (as defined
below) (if the User is not also a CFE member, as described in proposed
Interpretation and Policy .05).\19\
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\19\ Unlike stock, a future trades on one DCM, which would make
such direct communication with the DCM possible. This would only be
available if the DCM and Exchange established electronic
communication between the two markets to permit this direct
communication of the futures component, as is the case with CFE.
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Proposed Interpretation and Policy .05 provides that to submit a
VIX future-option order to the Exchange for execution, if the User is
not also a CFE member, a User must enter into an agreement with one or
more futures commission merchants (``FCMs'') or introducing brokers
(``IBs'') that are not affiliated with the Exchange, which FCM/IB(s)
the Exchange has designated as being registered with the Exchange to
serve as a routing broker for the VX futures components of VIX future-
option orders.\20\ A User that is not also a CFE member must designate
on each VIX future-option order submitted to the Exchange the FCM/IB
that is the routing broker for the VX future component of that order.
This will provide Users with flexibility to pick which FCM/IB will
communicate the VX futures components of their orders for execution (if
an FCM/IB is necessary for communication of the VX futures component to
CFE) if there are multiple possible FCM/IBs that register with the
Exchange to serve as a routing broker for the VX components of VIX
future-option orders.\21\
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\20\ This requirement is substantially similar to that required
for stock-option orders. See Rule 5.33(l)(1) and Interpretation and
Policy .04.
\21\ The Exchange intends to establish a process that would
permit one or more FCMs/IBs that are members of CFE to serve as a
routing broker by registering with the Exchange. While the Exchange
communicates the VX future component of a VIX future-option order to
CFE on behalf of the FCM/IB designated by each User that is a party
to the transaction, and CFE will communicate whether the VX future
component of a VIX future-option order was executed to the Exchange,
the designated FCM/IB is agent and broker for the executing User and
will receive copies of any VX future execution reports.
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Proposed Rule 5.33(o)(2) provides that a VIX future-option order
may execute against other VIX future-option orders (or COA Responses,
if applicable), but may not execute against orders in the Simple
Book.\22\ If a VIX future-option order can execute upon entry or
following a COA (or other auction mechanisms set forth in the
Rules),\23\ or if it can execute following evaluation while resting in
the COB pursuant to
[[Page 56496]]
Rule 5.33(i), the System executes the VIX option component(s) of a VIX
future-option order against the option component of other VIX future-
option orders resting in the COB or COA (or other auction mechanism)
responses pursuant to the allocation algorithm applicable to the class
(pursuant Rule 5.33(d)(5)(A)(ii)), as applicable, but does not
immediately send the User a trade execution report, and then
automatically communicates the VX future component(s) (at the price
specified by the User upon order entry) to CFE for execution. Each VX
futures component of a VIX future-option order may only execute at the
price specified by the User upon entry of the order into the System. In
other words, despite being exposed as part of the VIX futures-option
order on Cboe, the price of a VX futures component of a VIX futures-
option order is not negotiable. Any price competition and improvement
for a VIX futures-option order will occur with respect only to the VIX
options components of the order. If the System receives an execution
report for the VX future component(s) (at the price(s) specified by the
User upon order entry) from CFE on behalf of the User \24\ or the
designated FCM/IB, as applicable, the Exchange sends the User the trade
execution report for the VIX future-option order, including execution
information for the VX future and VIX option components. If the System
receives a report from CFE that the VX future component(s) cannot
execute at the price(s) specified by the User upon order entry,\25\ the
Exchange nullifies the VIX option component(s) trade and notifies the
User of the reason for the nullification. If a VIX future-option order
is not marketable, it rests in the COB (if eligible to rest), subject
to a User's instructions.
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\22\ See also proposed Rule 5.33(g)(5) (which provides that VIX
future-option orders, like stock-option orders, may not leg into the
Simple Book).
\23\ For example, if the Exchange designates VIX future-option
orders as eligible for the Complex Automated Improvement Mechanism
(``C-AIM'') pursuant to Rule 5.38, execution of a VIX future-option
order through C-AIM would occur in the same manner as set forth in
proposed Rule 5.33(o).
\24\ This applies to each User that is a party to a trade,
including auction responders.
\25\ Execution of the VX futures components will need to satisfy
requirements of CFE, including informational and reporting time
requirements, risk controls, and price restrictions because
execution of VX futures components will be subject to CFE rules
Pursuant to Rule 5.33(k), trading in any complex strategy (including
one that comprises a VIX future-option order) is suspended if any
component of a complex strategy (including a VX future leg) is
halted. Therefore, if trading in a VX future is halted, it could not
execute and would result in the VIX future-option order not being
executed.
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The proposed rule change adopts rule 5.33(f)(1)(C) to provide that
Users may express bids and offers for a VIX future-option order in the
number of decimals permissible for VX futures, which will permit the
Exchange to accommodate the available pricing of futures.\26\ The
minimum increment for the option leg(s) of a VIX future-option order is
$0.01 or greater, which the Exchange may determine on a class-by-class
basis, regardless of the minimum increments otherwise applicable to the
VIX option leg(s),\27\ and the VX future leg(s) of a future-option
order may be executed in any decimal price CFE permits. The Exchange
notes that even with the flexibility provided in the proposed rule with
respect to the permissible prices for VX futures, the individual
options legs must trade at increments as set forth in the Rules for VIX
options.
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\26\ The current minimum increment for VX futures on CFE is 0.05
index points (equivalent to $0.05), and the individual legs and net
prices of spread trades in the VX futures contract may be in
increments of 0.01 index points (equivalent to $0.01).
\27\ This is consistent with the permissible pricing of options
legs of complex orders and stock-option orders. See Rule 5.4(b) and
5.33(f)(A) and (B).
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Proposed Rule 5.33(o)(2) provides that a VIX future-option order
may only execute if the price complies with proposed subparagraph
(f)(2)(C), which describes the permissible execution prices and
priority of the VIX options components of the VIX future-option orders
(which are substantially similar to that of stock-option orders).
Specifically, proposed Rule 5.33(f)(2)(C) states for a VIX future-
option order with one VIX option leg, the VIX option leg may not trade
at a price worse than the individual component price on the simple Book
or at the same price as a priority customer order on the Simple
Book.\28\ For a VIX future-option order with more than one VIX option
leg, the VIX option legs must trade at price pursuant to Rule
5.33(f)(2)(A) (applicable to conforming complex orders, as VIX future-
option orders are defined as conforming complex orders, as discussed
below), which is the permissible execution prices and priority for
conforming complex orders comprised of solely option legs. The System,
therefore, will not execute a VIX future-option order at a net price:
(1) that would cause any VIX option component of the complex strategy
to be executed at a price of zero; (2) that would cause any VIX option
component of the complex strategy to be executed at a price worse than
the individual component prices on the simple Book; (3) worse than the
price that would be available if the complex order legged into the
simple Book; or (4) worse than the synthetic best bid or offer
(``SBBO'') \29\ or equal to the SBBO when there is a priority customer
order on any leg comprising the SBBO and \30\ at least one VIX option
component of the complex order must execute at a price that improves
the best bid or offer (``BBO'') for that component by at least one
minimum increment.\31\ Pursuant to these proposed changes, the VIX
option component(s) of a VIX future-option order will ultimately trade
in the same manner and in accordance with the same priority principles
as they would if they had been submitted without a VX future leg.
Additionally, each component of a VIX future-option order will clear in
the same manner as they would if they executed in separate trades.
Specifically, each executed VIX option leg of a VIX future-option order
will clear at The Options Clearing Corporation (``OCC'') in the same
manner as it would if the VIX option executed in a simple transaction
on Cboe. Similarly, each VX future leg of a VIX future-option order
will clear at OCC in the same manner as it would if the VX future
executed in a simple transaction on CFE.
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\28\ The DCM will check the prices of the futures legs to ensure
the prices are consistent with its execution requirements (including
those related to price and risk).
\29\ Because the price(s) of the future leg(s) is specified by
the User at the time of order entry, the proposed rule change amends
the definition of SBBO in Rule 5.33(a) to provide that, for a
future-option order, the SBBO is the best net bid and best net offer
on the Exchange for a complex strategy calculated using the BBO for
each option component (or the national best bid or offer (``NBBO'')
for a component if the BBO for that component is not available).
\30\ The proposed rule change amends the definition of
``conforming complex order'' in Rule 1.1 to include a future-option
order. As discussed above, a future-option order must satisfy a risk
offset to be entered into the System, which is intended to prevent
misuse of this mechanism and permit entry of legitimate strategies
comprised of options and futures. The Exchange believes it is,
therefore, appropriate to define all future-option orders as
conforming.
\31\ All-or-none complex orders (including VIX future-option
orders) may only execute at prices better than the SBBO.
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Unlike the stock component of stock-option orders, the VX futures
leg(s) of a VIX future-option order may only on CFE if the VX future
leg(s) is executable at the price(s) specified by the User upon order
entry. Therefore, while the VIX options legs may execute at prices that
satisfy the net price and may be improved through exposure on the
Exchange, the price(s) of the VX future leg(s) are set upon order
entry, as noted above. Specifically, despite being exposed as part of
the VIX futures-option order on Cboe, the price of a VX futures
component of a VIX futures-option order may not be negotiated once
submitted to the Exchange. The price(s) specified by the User upon
order entry for VX future leg(s) must be permissible by the CFE rules.
As described above and in proposed Rule 5.33(o)(2), after execution of
the VIX options component(s) on the Exchange, if CFE is unable to
execute the VX futures the
[[Page 56497]]
component(s) electronically communicated to it at the price(s)
specified by the User upon order entry,\32\ the VIX options executions
are unwound and no execution of the VIX future-option order occurs. Any
price competition and improvement for a VIX futures-option order will
occur with respect only to the VIX options components of the order.
Price competition for a VIX future-option order exposed on the Exchange
will, therefore, occur with respect to the VIX option leg(s) only, and
the package execution price will reflect the net price of the VIX
option leg(s) and the price(s) of the VX future leg(s) specified by the
User upon order entry.
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\32\ As noted above, execution of the VX futures components will
need to satisfy requirements of CFE's Rules, including informational
and reporting time requirements, risk controls, and price
restrictions, because execution of VX futures components are subject
to CFE rules.
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The Exchange believes the proposed execution process for VIX
future-option orders is reasonable, because the VIX options and VX
futures components of a VIX future-option order are submitted for
execution as part of the same investment strategy.\33\ Given this, if
the VX future component(s) does not execute, the Exchange believes it
is reasonable to expect that a User that submitted a VIX future-option
order would request nullification of the VIX options trade (as
permitted by Rule 6.5). If the VX future component(s) does not execute,
rather than require the User that submitted the VX future-option order
to contact the Exchange to request nullification of the VIX option
component(s) execution pursuant to Rule 6.5, the proposed rule
eliminates this requirement for the User to make such request. Instead,
the proposed rule change provides that the Exchange will automatically
nullify the option transaction if the VX future component(s) does not
execute. The Exchange believes such nullification without a request
from the User is consistent with the purpose of VIX future-option
orders, as contingent execution at or near the same time (and thus
reduction in price and execution risk) is one of the primary goals of
VIX future-option orders (as further discussed below).\34\
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\33\ The electronic processing of VIX future-option orders
through any execution mechanism available for complex orders,
including on the COB or through COA, C-AIM, or C-SAM, will be the
same as it is for any complex orders.
\34\ This proposed process to nullify (without request) the
option leg(s) of a VIX future-option order if the DCM nullifies the
VX future leg(s) of the order is consistent with the process used
for stock-option orders. See Rule 6.5, Interpretation and Policy
.07(c).
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The Exchange proposes to amend Rule 6.5, Interpretation and Policy
.07 to describe how a VIX future-option order may qualify as an obvious
error. As proposed, VIX future-option orders will be handled in a
similar manner as stock-option orders for purposes of Rule 6.5.
Specifically, if the VIX option leg of a VX future-option order
qualifies as an obvious error under Rule 6.5(c)(1) or catastrophic
error under Rule 6.5(d)(1), then the option leg that is an obvious or
catastrophic error will be adjusted in accordance with Rule
6.5(c)(4)(A) or (d)(3), respectively, regardless of whether one of the
parties is a customer. However, the VIX option leg of any customer VIX
future-option order will be nullified if the adjustment would result in
an execution price higher (lower) for buy (sell) transactions than the
customer's limit price on the VIX future-option order, and the Exchange
will attempt to nullify the VX future leg. Whenever CFE nullifies the
VX futures leg(s) of a VIX future-option order or whenever the VX
future leg(s) cannot be executed (including at the price by the User
upon order entry), the Exchange will nullify the VIX option leg upon
request of one of the parties to the transaction or in accordance with
Rule 6.5(c)(3). While this has the same effect as nullification of the
VIX option leg(s) transactions set forth in proposed 5.33(o)(2), the
proposed nullification in Rule 6.5, Interpretation and Policy .07
occurs at a different time, in a different manner, and for different
reasons. Rule 5.33(o)(2) is nearly instantaneous nullification of the
execution of the VIX option leg(s) if it is communicated to the
Exchange that the VX futures leg(s) was unable to execute. In that
situation, the customer receives no fill report as the VIX future-
option order was not fully executed. However, with respect to Rule 6.5,
Interpretation and Policy .07, nullification pursuant to this provision
permits nullification of the VIX option leg(s) if an execution of a VIX
future-option order occurred, but the VX future leg(s) execution was
nullified at a later time by CFE pursuant to its rules.
Finally, the proposed rule change adds Interpretation and Policy
.02 to Rule 6.6 to clarify that TPHs may update only the VIX option
component of a VIX future-option order trade using Clearing Editor (and
as permitted by Rule 6.6). Any updates to the VX future component would
need to be done in accordance with CFE rules (if permissible) given
that the VX future component of a VIX future-option order ultimately
executes in accordance with CFE's Rules.\35\ The Clearing Editor is an
Exchange tool available only to correct information specific to option
executions.\36\
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\35\ The proposed rule change also adds that the same would be
true for security-future orders, which are not currently listed for
trading on the Exchange.
\36\ The Exchange notes Rule 6.6 permits TPHs to update the MPID
of a stock component of a stock-option order, but that is a
securities concept and thus Clearing Editor does not contain the
functionality to update any corresponding futures field. However,
unlike options components, TPHs cannot use Clearing Editor to update
order-specific fields for stock components as they can for option
components. Therefore, the proposed rule change is effectively
consistent with the Clearing Editor use for stock components. Any
post-execution changes to VX futures components of VIX future-option
orders would need to occur pursuant to CFE rules.
---------------------------------------------------------------------------
Activity related to the execution of the VIX options components of
VIX future-option orders will be subject to Commission jurisdiction,
and activity related to the execution of the VX futures components of
VIX future-option orders will be subject to Commodity Futures Trading
Commission (``CFTC'') jurisdiction.\37\ Further, each of the Exchange
and CFE will regulate conduct relating to VIX future-option orders and
trades with respect to compliance with its respective rules (i.e., the
Exchange will regulate conduct relating to the VIX options legs of VIX
future-option orders and CFE will regulate conduct relating to the VX
futures legs of VIX future-option orders), including bringing
disciplinary actions for violations of its respective rules. The
Exchange and CFE have an existing information sharing agreement that
encompasses information relating to the proposed VIX future-option
orders and trades. This would allow for the sharing of
[[Page 56498]]
information between the Exchange and CFE to permit the Exchange to have
access to all order, trade, regulatory, and other data relating to
these orders and trades (CFE will also have access to such information
regarding these orders and trades).
---------------------------------------------------------------------------
\37\ On September 9, 2025, CFE submitted to the CFTC a rule
certification filing to adopt rules regarding VIX future-option
orders (which filing became effective ten business days following
such filing date, however CFE stated in that filing it would not
implement the functionality until the Exchange amended its rules to
permit VIX future-option orders). See CFE Rule Certification
Submission Number CFE-2025-021 (September 9, 2025), available at
<a href="https://www.cftc.gov/sites/default/files/filings/orgrules/25/09/rules09092530095.pdf">https://www.cftc.gov/sites/default/files/filings/orgrules/25/09/rules09092530095.pdf</a>. CFE submitted to the CFTC an additional rule
certification (which filing became effective ten business days
following such rule filing and similarly notes CFE would not
implement the functionality until the Exchange amended its rules to
permit VIX future-option orders) to update its VIX future-option
orders to reflect modifications to how VX future leg(s) will be
routed to CFE, which modifications are proposed in this Amendment
No. 1. See CFE Rule Certification Submission Number CFE-2026-014
(July 1, 2026), available at <a href="https://www.cftc.gov/filings/orgrules/rules0701268664.pdf">https://www.cftc.gov/filings/orgrules/rules0701268664.pdf</a>. To the extent CFE submits to the CFTC any
additional rule certification filings related to VIX future-option
orders that must become effective prior to the implementation of the
proposed functionality, the Exchange would not launch VIX future-
option order functionality until any such filings became effective.
---------------------------------------------------------------------------
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.\38\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \39\ 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) \40\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78f(b).
\39\ 15 U.S.C. 78f(b)(5).
\40\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes 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 because it will provide investors
with greater opportunities to manage risk. The proposed rule change
would provide investors with a more efficient mechanism to execute
strategies involving VIX options and VX futures, which investors
regularly trade as part of hedging, management of risk exposure, and
other investment strategies. The proposed execution mechanism for VIX
future-option orders will make the trading and hedging process for
investment strategies comprised of VIX option and VX future components
more efficient, which will reduce execution, legging, and price drift
risk that otherwise accompanies the current execution process for these
strategies. For example, today, investors looking to execute an
investment strategy comprised of VIX option and VX future components
must do so through separate trades--one for the options on the Exchange
and one for the futures on CFE. This creates risk that one trade occurs
but the other does not, which may leave an investor with an unhedged
position. Additionally, separate transactions create risk because
market conditions may change between the time it takes to execute both
transactions, which may make the full package execute in an unfavorable
manner for the investor. Investors may continue to execute these
strategies as separate transactions as they do today if they so choose.
However, the addition of the proposed electronic execution process
would provide investors with an optional, alternative means to execute
strategies comprised of VX future and VIX options components that would
reduce these risks, as it would permit the entire package to be priced
together and will result in an execution only if both the options and
futures components are able to trade. The proposed single execution
mechanism, therefore, expands the ability of market participants to
engage in cross-product investment and hedging transactions, which the
Exchange believes will contribute to reduced overall market risk and
increased liquidity in the listed markets for products overlying the
VIX.
The Exchange believes the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and to promote
just and equitable principles of trade. The proposed risk offset
requirement is designed to provide market participants with sufficient
flexibility to execute legitimate options strategies comprised of
options and futures while preventing misuse of this mechanism, such as
a market participant using the proposed execution mechanism to execute
a futures trade outside of the normal trading process on CFE by
combining a VX future leg(s), for example, with an inexpensive out-of-
the-money option leg. As noted above, the Exchange determined the
proposed risk offset range based on experience with and feedback from
market participants, as well as a review of the risk offsets of
transactions involving VX futures and VIX options. As a result, we feel
this range would accommodate their investment strategies. Additionally,
the Exchange manually reviewed the risk offsets of executed Exchange of
Contract for Related Positions (``ECRPs'') that occurred in accordance
with CFE rules (which market participants engage in to exchange future
positions for options positions) over a six-month period. None of those
ECRP transactions had a risk offset outside of the 10% to 125% range.
The Exchange believes review of the risk offsets in ECRPs is
informative, as it is a common investment strategy comprised of options
and futures positions.
As discussed above, the Commission and the CFTC will maintain
jurisdiction over execution of the options and futures components,
respectively, of VX future-option orders. Further, each of the Exchange
and CFE will regulate conduct relating to future-option orders and
trades with respect to compliance with its rules, including bringing
disciplinary actions for violations of its rules (i.e., the Exchange
will regulate conduct relating to the VIX options legs of VIX future-
option orders and CFE will regulate conduct relating to the VX futures
legs of VIX future-option orders).\41\ The Exchange and CFE have an
existing information sharing agreement that encompasses information
relating to the proposed VIX future-option orders and trades. This
would allow for the sharing of information between the Exchange and CFE
to permit each of the Exchange and CFE to have access to all order,
trade, regulatory, and other data relating to these orders and trades,
and thus facilitate the intermarket surveillance of future-option
orders. As a self-regulatory organization, the Exchange recognizes the
importance of surveillance, among other things, to detect and deter
fraudulent and manipulative trading activity as well as other
violations of Exchange rules and the federal securities laws. The
Exchange's current rules prohibiting market manipulation and
fraudulent, noncompetitive, and disruptive trading practices will apply
to VIX future-option orders. The Cboe Regulatory Division will
incorporate information it receives from CFE into its surveillance
procedures to monitor trading of VIX future-option orders, including to
detect any manipulative trading activity. The Exchange believes its
surveillance, along with the proposed risk offset requirement and
application of current surveillances to evaluate the reasonability of
User-designated delta values, are reasonably designed to detect
manipulative trading and enforce compliance with the proposed rules and
other Exchange Rules. The Exchange performs ongoing evaluations of its
surveillance program to ensure its continued effectiveness and will
continue to review its surveillance procedures on an ongoing basis. The
[[Page 56499]]
Exchange's Regulatory Division is currently evaluating its surveillance
program to identify any necessary enhancements and/or modifications
that may be needed for VIX future-option orders, which enhancements or
modifications (if any) will be implemented prior the Exchange's launch
of VIX future-option orders.
---------------------------------------------------------------------------
\41\ This would include any CFE rules related to the execution
of the VX future component(s) of a future-option order.
---------------------------------------------------------------------------
The Exchange believes the proposed execution process will also
promote just and equitable principles of trade. As described above, VIX
future-option orders will execute in a substantially similar way as
complex orders, including stock-option orders. The proposed priority
for VIX future-option orders will protect customer VIX option orders in
the simple Book. As proposed, the VIX option component(s) of a VIX
future-option order will ultimately trade in the same manner and in
accordance with the same priority principles as they would if they had
been submitted without a VX future leg(s). Further, the proposed
process to nullify the VIX option component execution if the VIX
future-option order does not execute is consistent with the purpose of
the VIX future-option order. Given the VIX option and VX future
components of a VIX future-option order are submitted as part of the
same investment strategy, if the VX future component does not execute,
the Exchange believes it is reasonable to expect that a User that
submitted a VIX future-option to request nullification of the VX
options trade in accordance with current Exchange Rules. If the VX
future component does not execute, rather than require the User that
submitted the VIX future-option order to contact the Exchange to
request nullification of the VIX option component execution, the
proposed rule eliminates the requirement for the User to make such
request. Instead, the proposed rule change provides that the Exchange
will automatically nullify the VIX option transaction if the VX future
component does not execute. The Exchange believes such nullification
without a request from the User is consistent with the purpose of VIX
future-option orders, as contingent execution at or near the same time
(and thus reduction in price and execution risk) is one of the primary
goals of VIX future-option orders (as further discussed below).
Additionally, the Exchange believes the availability of VIX future-
option orders 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 because it will provide
investors with an alternative to the OTC market for investment
strategies comprised of instruments (e.g., swaps and bilaterals)
economically similar to VX futures and VIX options. The proposed rule
change will provide investors with the ability to execute these
investment strategies in a listed market environment as opposed to in
the unregulated OTC market. The proposed rule change may shift
liquidity from the OTC market onto the Exchange (as well as shift swaps
and OTC combos from the OTC market onto designated contract markets in
the form of futures), which the Exchange believes would increase market
transparency as well as enhance the process of price discovery
conducted on the Exchange through increased order flow to the benefit
of all investors. The Exchange believes it may be a more attractive
alternative to the OTC market, because trading these strategies in an
exchange environment may benefit market participants in several ways,
including but not limited to the following: (1) enhanced efficiency in
initiating and closing out positions; (2) increased market
transparency; and (3) heightened contra-party creditworthiness due to
clearing requirements for listed options and futures.
The Commission previously determined that permitting investors to
submit an order for execution to Cboe that included components subject
to different regulatory jurisdictions was consistent with the Act.\42\
Specifically, in 1988, the Commission approved a Cboe proposed rule
change to allow inter-regulatory spread orders (which were defined as
the simultaneous purchase and/or sale of at least one unit in contracts
each of which is subject to different regulatory jurisdictions at
stated limits, or at a stated differential, or at market prices on the
floor of the Exchange) to trade on Cboe's trading floor.\43\ The only
substantive differences between that proposal and the proposed rule
change regarding future-option orders are as follows:
---------------------------------------------------------------------------
\42\ Securities Exchange Act Release No. 26271 (November 10,
1988), 53 FR 46727 (November 18, 1988) (SR-CBOE-88-17) (``CBOE-CBOT
JV Approval Order''); see also Securities Exchange Act Release No.
24235 (March 19, 1987), 52 FR 9750 (March 26, 1987) (SR-Phlx-86-43).
\43\ See CBOE-CBOT JV Approval Order.
---------------------------------------------------------------------------
<bullet> The proposed rule change would permit electronic execution
only.\44\ This merely reflects the advancement in the availability of
electronic trading since 1988 and provides an additional manner of
execution for VIX future-option orders.
---------------------------------------------------------------------------
\44\ The proposed rule change does not adopt VIX future-option
orders for open outcry trading. The Exchange intends to add VIX
future-option orders for open outcry trading at a later date and
will submit a separate rule filing for that functionality.
---------------------------------------------------------------------------
<bullet> The proposed rule change does not create a separate pit on
the Exchange's trading floor for the related futures as the prior
proposal did. Given the advances in electronic trading (and the fact
that many futures exchanges no longer have open outcry trading), the
Exchange believes this is no longer necessary to permit VIX future-
option orders.\45\
---------------------------------------------------------------------------
\45\ As an example, VX futures trade electronically only on CFE.
For similar reasons, the Exchange believes structuring VIX future-
option orders as a joint venture is unnecessary, as the individual
components will continue to trade on the applicable market as
proposed. As noted above, the Exchange will be able to share
information with CFE for regulatory purposes.
---------------------------------------------------------------------------
These differences have no impact on the fundamental attributes of
the underlying product that the Commission approved in 1988 and that
the Exchange proposes in this filing, which is a multi-part order
comprised of an option and a related future submitted to the Exchange
for pricing as a package, with execution of each component contingent
on the other. When approving the prior proposal, the Commission stated
that permitting execution of inter-regulatory spreads (including for
hedging purposes) on the Exchange would ``contribute to the mechanism
of a free and open market by enhancing . . . market makers' ability to
hedge their positions with futures [and] enable market makers to better
accommodate customer orders and to provide deeper and tighter
markets.'' \46\ The Commission further stated that the proposed rule
change was designed to minimize regulatory concerns, and clarifying the
regulatory responsibility for each leg of an inter-regulatory spread
(as the current filing does) would ``expedite the enforcement of each
jurisdiction's regulations and foster coordination and cooperation
between the jurisdictions involved.'' \47\ Ultimately, the Commission
found that the proposal to execute inter-regulatory spreads on Cboe to
be consistent with the requirements of the Act.\48\ While some time has
passed since approving inter-regulatory spreads (the Exchange notes the
rules permitted execution of inter-regulatory spreads remained in
Cboe's Rulebook until 2005,\49\ and the definition of an inter-
regulatory spreads remains in Cboe's Rulebook \50\), the
[[Page 56500]]
Exchange is unaware of any changes to Section 6(b)(5) of the Act since
the Commission approved that the trading of inter-regulatory spreads
that would prevent the Commission from approving future-option orders
at this time.
---------------------------------------------------------------------------
\46\ See CBOE-CBOT JV Approval Order at 46729.
\47\ Id. at 46730.
\48\ Id.
\49\ See Securities Exchange Act Release No. 52824 (November 22,
2005), 70 FR 72318 (December 2, 2005) (SR-CBOE-2005-69).
\50\ See Rule 1.1 (definition of inter-regulatory spread).
---------------------------------------------------------------------------
Further, as discussed above, the proposed rules regarding the
handling and execution of VIX future-option orders are also
substantially similar to that of stock-option orders,\51\ and rules
previously filed with the Commission for security-future option
orders.\52\ The primary substantive difference between stock-option
orders (and security-future option orders) is that one component of a
VIX future-option order (the VX future leg(s)) is not subject to
Commission jurisdiction. The Exchange believes market participants who
want to trade these strategies because they have determined these
strategies are the most appropriate to achieve their investment goals
should be able to avail themselves of a more efficient and lower risk
execution mechanism for these strategies, even though those strategies
happen to include a component subject to jurisdiction of another
regulator.
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\51\ See Rules 5.33 (including subparagraphs (f)(1)(B) and
(2)(B), paragraph (l), and Interpretation and Policy .04), and
5.70(b).
\52\ See Securities Exchange Act Release No. 49367 (March 5,
2004), 69 FR 11678 (March 11, 2004) (SR-CBOE-2004-14); see also
Securities Exchange Act Release Nos. 46390 (August 21, 2002), 67 FR
55290 (August 28, 2002) (SR-ISE-2002-18); and 48894 (December 8,
2003), 68 FR 70328 (December 17, 2003) (SR-PCX-2003-42).
---------------------------------------------------------------------------
Additionally, the proposed rule change provides that the Exchange
will communicate to CFE directly the VX components of a VIX future-
option order for execution, and CFE will communicate to the Exchange
directly any execution information. This is different than what occurs
today with respect to stock-option orders, for which a designated
broker communicates this information to and receives this information
from the stock trading venue. However, as is required for stock-option
orders, the Exchange will require Users that are not CFE members to
enter into a brokerage agreement with an FCM/IB, which will serve as
the routing broker for such User. Ultimately, because the Exchange
already has connectivity to CFE, the Exchange will act as the conduit
for the electronic transmissions of the VX components and execution
information on behalf of each designated FCM/IB. The FCM/IB designated
by a User will continue to act as agent and broker for that User's side
of the VX futures component of the transaction on CFE and will continue
to be the executing CFE member for that side of the VX futures
component of the transaction on CFE. The Exchange will merely act as
the designated FCM/IB's conduit rather than the designated FCM/IB
communicating directly with CFE. Given that the Exchange has
established connectivity to CFE, the Exchange believes this is an
efficient approach that will further remove impediments to and perfect
the mechanism of a free and open market, as it will provide for direct
messaging between two parties (the Exchange and CFE) rather than take
additional steps to communicate information to and from a third party
(the designated FCM/IB).
The Exchange believes the proposed rule change to make VIX Future-
Option Orders eligible for FLEX trading and related changes 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 by providing investors with an additional on-exchange
vehicle to meet their investment needs in connection with VIX
derivatives. By providing investors an exchange-traded environment for
customized strategies, such as those investors may trade in the OTC
market, the Exchange would be able to compete more effectively with the
OTC market. Further it will create greater trading and hedging
opportunities and flexibility for investors. FLEX trading for VIX
Future-Option Orders may also result in enhanced efficiency in
initiating and closing out positions and heightened contra-party
creditworthiness due to the role of OCC as issuer and guarantor of FLEX
options. Further, the proposed rule change would result in increased
competition by permitting the Exchange offer products that it
understands are currently used in the OTC market. The proposed rule
change to prevent customization of the VX future leg(s) of a FLEX VIX
Future-Option Order is consistent with the Act, because the terms of VX
future leg(s) are dictated by CFE and its rules and thus subject to
CFTC jurisdiction.
Ultimately, the Exchange believes 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 because it will provide investors
with a competitive and efficient market mechanism for executing
investment strategies comprised of VX futures and VIX options on the
Exchange, which will provide a venue for order exposure and price
discovery (with respect to the VIX options legs, as the VX futures legs
may execute only at the prices specified by the User upon order entry).
These are bona fide investment strategies that reduce market
participants' risk and facilitate hedging. A robust and competitive
market requires that exchanges respond to investors' evolving needs by
constantly improving their offerings. When Congress charged the
Commission with supervising the development of a ``national market
system'' for securities, Congress stated its intent that the ``national
market system evolve through the interplay of competitive forces as
unnecessary regulatory restrictions are removed.\53\ Consistent with
this purpose, Congress and the Commission have repeatedly stated their
preference for competition, rather than regulatory intervention to
determine products and services in the securities markets.\54\ This
consistent and considered judgment of Congress and the Commission is
correct, particularly in light of evidence of robust competition in the
options trading industry. The fact that an exchange proposed something
new is a reason to be receptive, not skeptical--innovation is the life-
blood of a vibrant competitive market--and that is particularly so
given the continued internationalization of the securities markets, as
exchanges continue to implement new products and services to compete
not only in the United States but throughout the world. Options
exchanges continuously adopt new and different products and trading
services in response to industry demands in order to attract order flow
and liquidity to increase their trading volume. This competition has
led to a growth in investment choices, which ultimately benefits the
marketplace and the public. The Exchange believes that the proposed
rule change will help further competition by providing market
[[Page 56501]]
participants with yet another investment option for the listed options
market.
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\53\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.).
\54\ See S. Rep. No. 94-75, 94th Cong., 1st Sess. 8 (1975)
(``The objective [in enacting the 1975 amendments to the Exchange
Act] would be to enhance competition and to allow economic forces,
interacting within a fair regulatory field, to arrive at appropriate
variations in practices and services.''); Order Approving Proposed
Rule Change Relating to NYSE Arca Data, Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008)
(``The Exchange Act and its legislative history strongly support the
Commission's reliance on competition, whenever possible, in meeting
its regulatory responsibilities for overseeing the [self-regulatory
organizations] and the national market system. Indeed, competition
among multiple markets and market participants trading the same
products is the hallmark of the national market system.''); and
Regulation NMS, 70 FR at 37499 (observing that NMS regulation ``has
been remarkably successful in promoting market competition in [the]
forms that are most important to investors and listed companies'').
---------------------------------------------------------------------------
While a VIX future-option order contains a component that is not a
security, the Exchange believes the proposed rule change may be
approved as consistent with the Exchange Act. The Commission's primary
purposes are to protect investors and maintain fair, orderly, and
efficient markets.\55\ As discussed in this rule filing, the primary
purpose of this proposal is to create a more efficient mechanism for
investors to execute their investment strategies that include VIX
options and VX futures components. VX futures are highly correlated and
strongly related to VIX options, given they both overlie the same index
and thus have similar characteristics.\56\ As a result, the Exchange
believes that VIX futures-option orders are related to the purposes of
the Act, which would make it appropriate for the Commission to approve
this proposal.\57\ Consistent with Congress's finding in connection
with the establishment of a national market system, the proposed rule
change strengthens the securities market by providing investors with a
more efficient and transparent mechanisms to execute VIX options that
are part of investment strategies that include VX futures.\58\ As
discussed above, the proposed rule change promotes a more economically
efficient manner to execute VIX options transactions that are tied to
VX futures.\59\ The proposed rule change may also reduce the execution
and price risks that accompany the current method of executing VIX
options and VX futures as separate transactions, as well as increase
transparency by providing a listed environment to execute these
transactions. While the price discovery for the VIX options will occur
on the Exchange (which price discovery would impact the price of the
entire package that includes the VX futures), the VX futures leg may
execute only at the price specified by the User upon order entry. The
execution of the VX futures must still occur in accordance with CFE
rules and will be regulated by CFE and the CFTC. Therefore, the
proposed rule change increases the information available with respect
to these transactions and improves the practicability of executing
these orders in the best market, which ultimately enables market
participants to receive better executions of their orders.\60\
---------------------------------------------------------------------------
\55\ See <a href="http://SEC.gov">SEC.gov</a>[verbar]Mission.
\56\ See Cboe VIX Index Futures & Options Fact Sheet, available
at <a href="https://cdn.cboe.com/resources/vix_options/VIX_fact_sheet.pdf">https://cdn.cboe.com/resources/vix_options/VIX_fact_sheet.pdf</a>.
\57\ See 15 U.S.C. 78f(b)(5); see also Alliance for Fair Board
Recruitment & National Center for Public Policy Research v.
Securities and Exchange Commission, No. 21-60626 (5th Circuit
December 11, 2024), at 4 (``AFBR v. SEC''). The Act provides that
exchanges may not regulate matters not related to the Act's
purposes. It is common practice for market participants to engage in
investment strategies that involve securities and non-securities. As
part of its need to regulate securities transactions, the Exchange
may request information from other exchanges (including about non-
securities) that relate to those securities transactions. Therefore,
it is possible for the execution of a non-security, such as a
future, to be related to the purposes of the Act and thus permit the
Exchange to adopt rules related to such non-securities transactions
when they are tied to securities transactions occurring on the
Exchange.
\58\ See 15 U.S.C. 78k-1(a)(1).
\59\ See 15 U.S.C. 78k-1(a)(1)(C)(i).
\60\ See 15 U.S.C. 78k-1(a)(1)(C)(iii)-(v). Further, reduction
in price risk that currently results from separate transaction may
ultimately reduce overall transactions costs associated with
execution of VIX options and the related VX future as it may lower
the overall cost of the transaction. This plausible reduction in
transactions associated with executing this securities trade
``presumably relate[s] to the purpose of'' the national market
system. See AFBR v. SEC, at 27.
---------------------------------------------------------------------------
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 VIX future-option
orders will be available to all TPHs and will execute in the same
manner. VIX future-option orders will be available to all Users on a
voluntary basis, and Users will not be required to use VIX future-
option orders to execute investment strategies comprised of option and
future components. Users may continue to execute these strategies as
they do today by entering a VIX option order on the Exchange and
separately executing the VX future component on CFE. For Users that
elect to use the proposed functionality, the Exchange believes the
proposed rule change would reduce price and execution risk that
currently exists when executing these strategies. The Exchange
understands investors currently execute investment strategies comprised
of VIX option and VX future components today. Investors may continue to
do so; however, the proposed rule change merely provides them with a
simpler, more efficient, transparent, and competitive execution
mechanism for hedging and other investment strategies that contain VIX
options and VX futures components.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, because other
options exchanges may propose similar functionality (and previously
have, as noted above). The proposed rule change is intended to provide
investors with an alternative to execute these investment strategies
through separate transactions or in the unregulated and opaque OTC
market by providing investors with the ability to execute these
strategies in a single transaction in an exchange environment. The
Exchange believes this would result in increased market transparency,
enhanced efficiency in initiating and closing out positions, and
heightened contra-party creditworthiness. The proposed rule change is
designed to provide investors with a more efficient and lower risk
mechanism to execute investment strategies comprised of futures and
options components, and ultimately the Exchange believes it may relieve
any burden on, or otherwise promote, competition.
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.
IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment Nos. 1 and 2, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\61\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment Nos. 1 and 2, is consistent with Section 6(b)(5) of the
Act,\62\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to remove impediments to and perfect
the mechanism of a free and open market, and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\61\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\62\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As discussed above, the Exchange states that investors currently
execute orders in VIX options and VX futures to hedge, manage risk, or
implement other
[[Page 56502]]
trading strategies.\63\ According to the Exchange, market participants
currently execute these orders as separate transactions, a process that
presents risks that an investor will be left with an unhedged position
if only one of the orders executes, or that an investor will receive an
unfavorable execution if market conditions change during the time it
takes to execute both orders.\64\ The proposal is designed to remove
impediments to and perfect the mechanism of a free and open market and
to protect investors and the public interest by establishing a
mechanism--the proposed VIX future-option order--that could facilitate
more efficient effectuation of risk mitigation and other trading
strategies involving VIX options and VX futures, since execution would
result only if both the options and futures components are able to
trade, as discussed below.\65\
---------------------------------------------------------------------------
\63\ See Amendment No. 1 at 19-20.
\64\ See Amendment No. 1 at 20.
\65\ The Exchange's proposal, and the Commission's approval
herein, is for the trading of VIX future-option orders specifically,
not future-option orders generally or any other type of inter-
regulatory spread order.
---------------------------------------------------------------------------
Trading of VIX Future-Option Orders
VIX future-option orders would be conforming complex orders under
the Exchange's rules.\66\ It is consistent with the protection of
investors and the public interest to treat VIX future-option orders as
conforming complex orders because VIX future-option orders must satisfy
certain requirements, including a risk offset requirement that groups
together the VX futures and VIX options components of the order with
the same expiration and requires that the VX future leg(s) in the group
provide a risk offset to the VIX option leg(s) in that group of no less
than 10% and no greater than 125%.\67\ The Exchange states that the
proposed risk offset requirement is informed, in part, by the
Exchange's review of the risk offsets of ECRP transactions that
occurred in accordance with CFE rules over a six-month period, none of
which had a risk offset outside of the 10% to 125% range.\68\ The
proposed risk offset requirement is designed to provide market
participants with flexibility in executing trading, hedging, and
investment strategies that use VIX options and VX futures while
ensuring that only bona fide strategies qualify for treatment as VIX
future-option orders.\69\
---------------------------------------------------------------------------
\66\ See proposed Exchange Rule 1.1 (definitions of complex
order and conforming complex order).
\67\ A VIX future-option order satisfies this risk offset
requirement if the delta value of each group is no greater than -
0.10 and no less than -1.25. See proposed Exchange Rule 1.1
(definition of VIX future-option order, paragraph (a)(1)). A User
must include a reasonable delta value for each VIX option leg of a
VIX future-option order (excluding auction responses). See proposed
Exchange Rule 1.1 (definition of VIX future-option order, paragraph
(b)(2)). The Exchange states that the delta values will be subject
to surveillance by the Exchange, which will be similar to
surveillances that the Exchange currently conducts to determine
reasonability, such as when evaluating whether a qualified
contingent transaction is fully hedged. See Amendment No. 1 at
footnote 4. The Exchange states that auction responses need not
include a delta value because the risk offset requirement would have
already been deemed to be satisfied upon acceptance of the auctioned
order. See id. at 4.
\68\ See Amendment No. 1 at 21.
\69\ A complex order, including a VIX future-option order, must
be entered for the purpose of executing a particular investment
strategy. See Exchange Rule 1.1 (definition of complex order). See
also Securities Exchange Act Release No. 48858 (Dec. 1, 2003), 68 FR
68128 (Dec. 5, 2003).
---------------------------------------------------------------------------
VIX future-option orders would be eligible only for electronic
processing and must be entered as Day or IOC.\70\ Like other complex
orders, VIX future-option orders may rest in the COB or, if eligible,
may be submitted for execution in the COA, C-AIM, or C-SAM auction
mechanisms.\71\ The COA, C-AIM, and C-SAM auctions could facilitate the
execution of VIX future-option orders and provide opportunities for
price improvement for the VIX option component(s) of a VIX future-
option order. As discussed above, upon order entry, a User must specify
a price for each VX future component, which must be permissible under
CFE rules, and the VX futures component(s) of the order may only
execute at the price(s) specified by the User upon order entry.\72\
Accordingly, the price(s) of the VX futures component(s) of a VIX
futures-option order may not be negotiated after the order is submitted
to the Exchange, and any price competition and improvement on the
Exchange will occur only with respect to the VIX option component(s) of
the VIX future-option order.\73\
---------------------------------------------------------------------------
\70\ See proposed Exchange Rule 1.1 (definition of VIX future-
option order and paragraph (b)(1) of the definition of VIX future-
option order). Only VIX future-option orders with no more than the
applicable number of legs would be eligible for electronic
processing. See proposed Exchange Rule 5.33(b)(5).
\71\ See Amendment No. 1 at 8.
\72\ See Amendment No. 1 at 14-15 and proposed Exchange Rule 1.1
(definition of VIX future-option order, paragraph (b)(3)).
\73\ See Amendment No. 1 at 11, 14-15.
---------------------------------------------------------------------------
The VIX option legs of VIX future-option orders would be subject to
the same priority requirements that currently apply to stock-option
orders and other complex orders. The VIX option leg of a VIX future-
option order with one option leg may not trade at a price worse than
the individual component price on the Simple Book or at the same price
as a Priority Customer order on the Simple Book.\74\ The VIX option
legs of a VIX future-option order with more than one option leg must
trade at prices applicable to conforming complex orders pursuant to
Exchange Rule 5.33(f)(2)(A).\75\ Thus, a VIX future-option order with
more than one option leg may not execute at a net price that is worse
than the SBBO \76\ for the strategy and, if there is a Priority
Customer order on any leg comprising the SBBO, at least one option
component of the order must execute at a price that improves the BBO
for that component by at least one minimum increment.\77\ These
requirements, which are consistent with the priority requirements
applicable to other types of complex orders, are designed to protect
investors and the public interest by protecting the priority of
Priority Customer orders resting on the Exchange's Simple Book.
---------------------------------------------------------------------------
\74\ See proposed Exchange Rule 5.33(f)(2)(C)(i) and Exchange
Rule 5.33(f)(2)(B)(i) (stating that the option leg of a stock-option
order with one option leg may not trade at a price worse than the
individual component price on the Simple Book or at the same price
as a Priority Customer Order on the Simple Book).
\75\ See proposed Exchange Rule 5.33(f)(2)(C)(ii) and Exchange
Rule 5.33(f)(2)(B)(ii).
\76\ The Exchange proposes to define the SBBO for VIX future-
option orders to mean the best net bid and net offer on the Exchange
for a complex strategy calculated using the BBO for each option
component (or the NBBO for a component if the BBO for that component
is not available) of a complex strategy from the Simple Book. See
proposed Exchange Rule 5.33(a) (definition of Synthetic Best Bid or
Offer),
\77\ See Exchange Rule 5.33(f)(2)(A)(iv)(a). In addition,
Exchange Rule 5.33(f)(2)(A) provides that a complex order will not
execute at a net price that would cause any component of the complex
strategy to be executed: (i) at a price of zero; (ii) at a price
worse than the individual component prices on the Simple Book; or
(iii) worse than the price that would be available if the complex
order Legged into the Simple Book.
---------------------------------------------------------------------------
The Exchange may make VIX future-option orders available for FLEX
trading.\78\ A trader submitting a FLEX VIX future-option order would
be permitted to specify the terms of the VIX option component(s) of the
order but, as with a non-FLEX VIX future-option order, would not be
permitted to modify the terms of VX futures leg(s) of the order, which
are determined by CFE.\79\ As with a non-FLEX VIX future-option order,
a FLEX VIX future-option order must include a specified price for each
VX futures leg.\80\ FLEX VIX future-option orders would allow market
participants to customize the VIX option component(s) of their FLEX VIX
future-option orders to more precisely implement their hedging, risk
[[Page 56503]]
management, and investment strategies. In addition, the proposal would
extend to the VIX option component(s) of FLEX VIX future-option orders
the benefits of trading on the Exchange's options market, including a
centralized market center, an auction market with posted transparent
market quotations and transaction reporting, parameters and procedures
for clearance and settlement, and the guarantee of OCC for all FLEX VIX
option contracts traded on the Exchange.
---------------------------------------------------------------------------
\78\ See proposed Exchange Rule 5.70(b).
\79\ See proposed Exchange Rule 4.21(b)(3) and Amendment No. 1
at 9.
\80\ See proposed Exchange Rule 5.72(b)(2)(C).
---------------------------------------------------------------------------
The Clearing Editor functionality in Exchange Rule 6.6 allows TPHs
to update certain information with respect to executed trades on their
trading date and revise them for clearing.\81\ The proposal amends
Exchange Rule 6.6 to make clear that TPHs may use the Clearing Editor
functionality to update only the VIX option component of a VIX future-
option order or a security-future order, thereby eliminating potential
confusion with respect to the use of Clearing Editor for VIX future-
option and security future-option orders.\82\ The Exchange states that
any updates to the VX future component of a VIX future-option order
would need to be made in accordance with CFE's rules.\83\
---------------------------------------------------------------------------
\81\ See Exchange Rule 6.6(a).
\82\ See proposed Exchange Rule 6.6, Interpretation and Policy
.02.
\83\ See Amendment No. 1 at 17.
---------------------------------------------------------------------------
The proposal amends Exchange Rule 6.5, Interpretation and Policy
.07(c) to treat VIX future-option orders in the same manner as stock-
option orders for purposes of the Exchange's Obvious Error and
Catastrophic Error provisions, which should help to ensure objectivity,
transparency, and clarity with respect to the adjustment and
nullification of erroneous options transactions involving VIX future-
option orders.\84\
---------------------------------------------------------------------------
\84\ Proposed Exchange Rule 6.5, Interpretation and Policy
.07(c) states that whenever CFE nullifies the VX future leg(s) of a
VIX future-option order, or whenever the VX future leg(s) cannot be
executed (including at the price(s) specified by the User upon order
entry), the Exchange will nullify the VIX option leg upon the
request of one of the parties or in accordance with Exchange Rule
6.5(c)(3). The Exchange states that proposed Exchange Rule 6.5(c)(3)
differs from the nullification provision in proposed Exchange Rule
5.33(o)(2)(B) in that proposed Exchange Rule 5.33(o)(2)(B) provides
for the nearly instantaneous nullification of the execution of the
VIX option leg(s) of a VIX future-option order if it is communicated
to the Exchange that the VX future leg(s) was unable to execute.
Proposed Exchange Rule 6.5, Interpretation and Policy .07 permits
nullification of the VIX option leg(s) if an execution of a VIX
future-option order occurred, but CFE nullified the VX future leg(s)
execution at a later time pursuant to its rules. See Amendment No. 1
at 16-17. See also Securities Exchange Act Release No. 80040 (Feb.
14, 2017), 82 FR 11248 (Feb. 21, 2017) (File No. SR-Cboe-2016-88)
(approving proposed changes related to the adjustment and
nullification of erroneous complex order and stock-option order
transactions).
---------------------------------------------------------------------------
Execution of VX Futures Component(s)
The execution of the VX futures component of a VIX future-option
will be subject to CFE's rules, including informational and reporting
time requirements, risk controls, and price restrictions.\85\ To submit
a VIX future-option order to the Exchange for execution, a User that is
not also a CFE member must enter into an agreement with one or more
FCMs/IBs that are not affiliated with the Exchange but are registered
with the Exchange to serve as a routing broker for the VX futures
component(s) of VIX future-option orders.\86\ After the execution of
the option leg(s) of a VIX future-option order, the Exchange will
electronically communicate the VX future component of the order to CFE
on behalf of the User (if the User is a CFE member) or the designated
FCM/IB (if the User is not a CFE member) at the execution price(s)
specified by the User upon order entry.\87\ If the Exchange's System
\88\ receives a report from CFE that the VX future component(s) cannot
execute at the price(s) specified by the User, the Exchange will
nullify the VIX option component(s) trade and notify the User of the
reason for the nullification.\89\ The Exchange states that CFE
submitted to the CFTC an initial rule certification filing to adopt
rules addressing VIX future-option orders and a subsequent rule
certification filing to reflect modifications to how VX futures leg(s)
of a VIX future-option order will be routed to CFE.\90\ These rule
certification filings became effective ten business days after
filing.\91\ The Exchange represents that, to the extent CFE submits to
the CFTC any additional rule certification filings related to VIX
future-option orders that must become effective prior to the
implementation of the proposed functionality, the Exchange will not
launch the VIX future-option order functionality until any such filings
become effective.\92\
---------------------------------------------------------------------------
\85\ See Amendment No. 1 at footnote 22.
\86\ See proposed Exchange Rule 5.33, Interpretation and Policy
.05.
\87\ See proposed Exchange Rule 5.33(o)(1). The designated FCM/
IB will be the agent and broker for the User and the executing CFE
member and will receive copies of any VX future execution reports.
See Amendment No. 2 and proposed Exchange Rule 5.33, Interpretation
and Policy .05.
\88\ The Exchange defines the term ``System'' to mean the
Exchange's hybrid trading platform that integrates electronic and
open outcry trading of option contracts on the Exchange, and
includes any connectivity to the foregoing trading platform that is
administered by or on behalf of the Exchange, such as a
communications hub. See Exchange Rule 1.1.
\89\ See proposed Exchange Rule 5.33(o)(2)(B).
\90\ See Amendment No. 1, footnote 27. See also CFE Rule
Certification Submission Number CFE-2026-014 (July 1, 2026),
available at <a href="https://www.cftc.gov/filings/orgrules/rules0701268664.pdf">https://www.cftc.gov/filings/orgrules/rules0701268664.pdf</a>) and CFE Rule Certification Submission Number
CFE-2025-021 (September 9, 2025), available at <a href="https://www.cftc.gov/sites/default/files/filings/orgrules/25/09/rules09092530095.pdf">https://www.cftc.gov/sites/default/files/filings/orgrules/25/09/rules09092530095.pdf</a>.
\91\ See Amendment No. 1, footnote 27.
\92\ Id.
---------------------------------------------------------------------------
The proposal establishes a mechanism designed to create an
efficient process for executing VIX future-option orders. The proposed
process for routing the VX futures component of a VIX future-option
order to CFE is designed to facilitate the execution of the VX leg(s)
of a VIX future-option order. The nullification of the VIX option
component(s) of a VX future-option order if the VX future component(s)
cannot execute will help to ensure that investors do not receive an
incomplete execution that is inconsistent with their investment
strategy in entering a VIX future-option order. Accordingly, the
proposal should reduce the execution and price risks associated with
the current process of effectuating a trading strategy involving VIX
options and VX futures through separate and unrelated trades on Cboe
and CFE.
Regulatory Oversight of VIX Options and VX Futures
Activity related to the execution of the option component(s) of VIX
future-option orders would be subject to Commission jurisdiction, and
activity related to the execution of the VX futures component(s) of VIX
future-option orders would be subject to the jurisdiction of the CFTC.
The Exchange would regulate conduct relating to the VIX options legs of
VIX future-option orders and CFE would regulate conduct relating to the
VX futures legs of VIX future-option orders, with each exchange
bringing disciplinary actions for violations of its rules.\93\ As
discussed above, CFE's rule certification filings with the CFTC to
adopt rules addressing the VX futures component of VIX future-option
orders have become effective.\94\
---------------------------------------------------------------------------
\93\ See Amendment No. 1 at 18.
\94\ See Amendment No. 1 at footnote 27.
---------------------------------------------------------------------------
The Exchange states that the Exchange and CFE have an existing
information sharing agreement that encompasses information relating to
the proposed VIX future-option orders and trades, which would allow for
the sharing of information between the Exchange and CFE and would
permit the Exchange to have access to all order, trade, regulatory, and
other data relating to VIX future-option orders and trades.\95\ The
Exchange states that the Cboe Regulatory Division will incorporate
[[Page 56504]]
information it receives from CFE into its surveillance procedures to
monitor trading of VIX future-option orders, including to detect any
manipulative trading activity.\96\ The Exchange further represents that
it will implement any necessary enhancements or modifications to its
surveillance program that may be needed for VIX future-option orders
prior to the Exchange's launch of VIX future-option orders.\97\
Accordingly, the Exchange's surveillance procedures should allow the
Exchange to investigate suspected manipulations or other trading abuses
in VIX future-option orders. Further, the Exchange's current rules
prohibiting market manipulation and fraudulent, noncompetitive, and
disruptive trading practices will apply to VIX future-option
orders.\98\
---------------------------------------------------------------------------
\95\ See Amendment No. 1 at 18. The Exchange states that CFE
also will have access to this information. See id. at 18.
\96\ See Amendment No. 1 at 22.
\97\ See Amendment No. 1 at 22. The Exchange represents that its
Regulatory Division is currently evaluating its surveillance program
to identify any necessary enhancements and/or modifications that may
be needed for VIX future-option orders.
\98\ See Amendment No. 1 at 22.
---------------------------------------------------------------------------
V. 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#a8daddc4cd85cbc7c5c5cdc6dcdbe8dbcdcb86cfc7de"><span class="__cf_email__" data-cfemail="c3b1b6afa6eea0acaeaea6adb7b083b0a6a0eda4acb5">[email protected]</span></a>. Please include
file number SR-CBOE-2026-004 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-2026-004 on the
subject line. 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 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-2026-
004 on the subject line, and should be submitted on or before September
23, 2026.
VI. Accelerated Approval of 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. Amendment No. 1 revises the proposal to: (i)
clarify that the scope of the proposal is limited to VIX future-option
orders by revising rule text and language in the original proposal that
could have applied generically to any future-option orders not just VIX
future-option orders; (ii) provide additional detail and clarity
regarding the operation of FLEX VIX future-option orders; (iii)
streamline the process for transmitting the VX futures component(s) of
a VIX future-option order to CFE; (iv) provide additional detail and
clarity regarding how regulatory oversight would be applied to the VIX
options and VX futures components of VIX future-option orders; and (v)
provide market participants with additional flexibility in their use of
VIX future-option orders by allowing such orders to be IOC.
Amendment No. 1 raises no novel regulatory issues that have not
previously been subject to comment, as it narrows or further addresses
aspects of the original proposal that were subject to comment without
altering the proposal's core purpose of allowing for VIX future-option
orders. Indeed, without altering the purpose of the proposal, Amendment
No. 1 strengthens the proposal by providing additional clarity and
support. Accordingly, for the reasons discussed above, the Commission
finds good cause, pursuant to Section 19(b)(2) of the Act,\99\ to
approve the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
---------------------------------------------------------------------------
\99\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\100\ that the proposed rule change (SR-CBOE-2026-004), as modified
by Amendment Nos. 1 and 2, is approved, on an accelerated basis with
respect to Amendment No. 1.
---------------------------------------------------------------------------
\100\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\101\
---------------------------------------------------------------------------
\101\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-17908 Filed 9-1-26; 8:45 am]
BILLING CODE 8011-01-P
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