Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval to Proposed Rule Change To Establish a Pilot Program, as Modified by Amendment Nos. 2, 3, and 4, To List and Trade a P.M.-Settled S&P 500 Index Option Product, 10668-10670 [2013-03395]
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10668
Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, on business days
between the hours of 10 a.m. and 3 p.m.,
located at 100 F Street NE., Washington,
DC 20549–1090. Copies of the filing will
also be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2013–15 and should be submitted on or
before March 7, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–03396 Filed 2–13–13; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68888; File No. SR–CBOE–
2012–120]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
to Proposed Rule Change To Establish
a Pilot Program, as Modified by
Amendment Nos. 2, 3, and 4, To List
and Trade a P.M.-Settled S&P 500
Index Option Product
Paper Comments
sroberts on DSK5SPTVN1PROD with NOTICES
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–Phlx–2013–15 on the
subject line.
February 8, 2013.
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Phlx–2013–15. 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 Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
I. Introduction
On December 5, 2012, Chicago Board
Options Exchange, Incorporated (the
‘‘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 the listing and trading of P.M.settled options on the Standard & Poor’s
500 Index (‘‘S&P 500’’). On December
17, 2012, the Exchange filed
Amendments No. 1 and 2 to the
proposed rule change.3 The proposed
rule change was published for comment
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15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange withdrew Amendment No. 1 on
December 17, 2012. In Amendment No. 2, the
Exchange represented that it does not believe that
CBOE Trading Permit Holders will experience
significant operations issues when trading P.M.settled S&P 500 Index products on CBOE.
1 15
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in the Federal Register on December 26,
2012.4 On January 4, 2013, the Exchange
filed Amendment No. 3 to the proposed
rule change.5 On January 29, 2013, the
Exchange filed Amendment No. 4 to the
proposed rule change.6 The Commission
received no comment letters on the
proposal. This order approves the
proposed rule change, as modified, on a
twelve-month pilot basis.
II. Description of the Proposal
The Exchange is proposing to amend
its rules to permit it to list and trade, on
a pilot basis, cash-settled S&P 500 index
options with third-Friday-of-the-month
(‘‘Expiration Friday’’) expiration dates
for which the exercise settlement value
will be based on the index value derived
from the closing prices of component
securities (‘‘P.M.-settled’’). The
proposed contract (referred to as
‘‘SPXPM’’) is currently traded on a pilot
basis on C2 Options Exchange,
Incorporated (‘‘C2’’) (the ‘‘C2 Pilot
Program’’).7 CBOE is proposing to list
and trade SPXPM on the same terms as
the C2 Pilot Program, except that CBOE
intends to list and trade SPXPM for an
initial pilot period of twelve months.8
CBOE and C2 will not concurrently list
and trade SPXPM. In other words, C2
(which is wholly owned by the same
corporation, CBOE Holdings, Inc., as
CBOE) will cease trading SPXPM upon
the introduction of SPXPM trading on
CBOE. CBOE initially represented that it
intended to begin trading SPXPM on or
around January 22, 2013, but in
Amendment No. 4, CBOE instead
represented its intent to begin trading
SPXPM on February 19, 2013.9
CBOE will list and trade SPXPM in a
manner similar to how SPXPM
currently is listed and traded on C2. In
4 See Securities Exchange Act Release No. 68457
(December 18, 2012), 77 FR 76135 (December 26,
2012) (‘‘Notice’’). An amendment to the Notice was
published in the Federal Register on January 8,
2013 with a corrected deadline for comments of
January 16, 2013. See Securities Exchange Act
Release No. 68457 (December 18, 2012), 78 FR 1296
(January 8, 2013).
5 In Amendment No. 3, the Exchange explained
that any P.M.-settled S&P 500 Index options series
that are part of the SPX options class and that have
an expiration on any day other than the third Friday
of every month will remain under the SPXPM class
to avoid investor confusion. Because Amendment
No. 3 is technical in nature, the Commission is not
publishing it for comment.
6 In Amendment No. 4, the Exchange modified
the anticipated start date for the listing and trading
of the proposed contact on CBOE from January 22,
2013 to February 19, 2013. See Notice, supra note
4, at 76136. Because Amendment No. 4 is technical
in nature, the Commission is not publishing it for
comment.
7 See Securities Exchange Act Release No. 65256
(September 2, 2011), 76 FR 55969 (September 9,
2011) (‘‘C2 SPXPM Approval Order’’).
8 The C2 Pilot Program is a fourteen month pilot.
9 See Amendment No. 4, supra note 6.
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Notices
sroberts on DSK5SPTVN1PROD with NOTICES
particular, SPXPM on CBOE will use a
$100 multiplier, and the minimum
trading increment will be $0.05 for
options trading below $3.00 and $0.10
for all other series. Strike price intervals
will be set no less than 5 points apart.
Consistent with existing rules for index
options, the Exchange will allow up to
twelve near-term expiration months, as
well as LEAPS. Expiration processing
will occur on the Saturday following
Expiration Friday. The product will
have European-style exercise and will
not be subject to position limits, though
there would be enhanced reporting
requirements. The Exchange represents
that the conditions for listing SPXPM on
CBOE will be similar to those for SPX,
which already is listed and traded on
CBOE.10
The Exchange proposes that SPXPM
be approved on a pilot basis for an
initial period of twelve months. As part
of the pilot program, the Exchange
committed to submit a pilot program
report to the Commission at least two
months prior to the expiration date of
the pilot program (the ‘‘annual report’’).
The annual report will contain the same
information currently provided to the
Commission pursuant to the C2 Pilot
Program and would include an analysis
of volume, open interest, and trading
patterns. The analysis will examine
trading in the proposed option product
as well as trading in the securities that
comprise the S&P 500 index. In
addition, for series that exceed certain
minimum open interest parameters, the
annual report will provide analysis of
index price volatility and share trading
activity. In addition to the annual
report, the Exchange committed to
provide the Commission with periodic
reports while the pilot is in effect that
would contain some, but not all, of the
information contained in the annual
report (‘‘interim reports’’). This
information is identical to the
information that C2 is required to report
to the Commission pursuant to the C2
Pilot Program.
III. Discussion and Commission
Findings
After careful consideration of the
proposal, the Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange,11 and, in particular, the
requirements of Section 6 of the Act.12
10 See
Notice, supra note 4, at 76136.
approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
12 15 U.S.C. 78f.
11 In
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Specifically, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,13 which
requires that an exchange have rules
designed to remove impediments to and
perfect the mechanism of a free and
open market and to protect investors
and the public interest, to allow CBOE
to conduct a limited, and carefully
monitored, pilot as proposed.
As noted in the Commission’s order
approving the listing and trading of
SPXPM on C2 on a pilot program basis,
the Commission has concerns about the
potential impact on the market at
expiration for the underlying
component stocks for a P.M.-settled,
cash-settled index option such as
SPXPM.14 The potential impact today
remains unclear, given the significant
changes in the closing procedures of the
primary markets over the past two
decades. The Commission is mindful of
the historical experience with the
impact of P.M. settlement of cash-settled
index derivatives on the underlying
cash markets, but recognizes that these
risks may be mitigated today by the
enhanced closing procedures that are
now in use at the primary equity
markets.
To assist the Commission in assessing
any potential impact of a P.M.-settled
S&P 500 index option on the options
markets as well as the underlying cash
equities markets, CBOE will be required
to submit data to the Commission in
connection with the pilot in exactly the
same scope and format as C2 was
required to submit as a condition of
Commission approval of SPXPM on a
pilot basis. The Commission believes
that CBOE’s proposed twelve-month
pilot, together with the data and
analysis that CBOE will provide to the
Commission, will allow CBOE and the
Commission to monitor for and assess
any potential for adverse market effects.
Specifically, the data and analysis will
assist the Commission in evaluating the
effect of allowing P.M. settlement for
S&P 500 index options on the
underlying component stocks.
CBOE’s proposed twelve-month pilot
will enable the Commission to collect
current data to assess and monitor for
any potential for impact on markets,
including the underlying cash equities
markets. In particular, the data collected
from CBOE’s pilot program will help
inform the Commission’s consideration
of whether the SPXPM pilot should be
modified, discontinued, extended, or
permanently approved. The P.M.
settlement pilot information should
13 15
U.S.C. 78f(b)(5).
C2 SPXPM Approval Order, supra note 7,
at 55972, 55974–55975.
14 See
PO 00000
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Fmt 4703
Sfmt 4703
10669
help the Commission assess the impact
on the markets and determine whether
other changes are necessary.
Furthermore, the Exchange’s ongoing
analysis of the pilot should help it
monitor any potential risks from large
P.M.-settled positions and take
appropriate action on a timely basis if
warranted.
As the Commission noted when it
approved C2’s proposal to list and trade
SPXPM, approval of CBOE’s proposal to
transfer listing of SPXPM from C2 to
CBOE could benefit investors and the
public interest to the extent it attracts
trading in P.M.-settled S&P 500 index
options from the opaque OTC market to
the more transparent exchange-listed
markets, where trading in the product
will be subject to exchange trading rules
and exchange surveillance.15
The Exchange represents that it has
adequate surveillance procedures to
monitor trading in these options thereby
helping to ensure the maintenance of a
fair and orderly market, and has
represented that it has sufficient
capacity to handle additional traffic
associated with this new listing.16 In
addition, CBOE represents that it does
not expect that its Trading Permit
Holders will experience significant
operation issues as a result of the
cessation of trading on C2 of SPXPM
upon the introduction of trading of
SPXPM on CBOE.17 CBOE stated that
there are no C2 Trading Permit Holders
that are not also CBOE Trading Permit
Holders, so any C2 Trading Permit
Holder that is currently trading SPXPM
on C2 will have access to trade SPXPM
on CBOE.18
For the reasons discussed above, the
Commission finds that CBOE’s proposal
is consistent with the Act, including
Section 6(b)(5) thereof, in that it is
designed to remove impediments to and
perfect the mechanism of a free and
open market, and, in general, to protect
investors and the public interest. As it
found in the case of C2’s original
proposal to list and trade SPXPM, and
in light of the enhanced closing
15 See C2 SPXPM Approval Order, supra note 7,
at 55976.
16 See Notice, supra note 4, at 76138.
In addition, the Commission notes that CBOE
would have access to information through its
membership in the Intermarket Surveillance Group
with respect to the trading of the securities
underlying the S&P 500 index, as well as tools such
as large options positions reports to assist its
surveillance of SPXPM options.
In approving the proposed rule change, the
Commission also has relied upon the Exchange’s
representation that it has the necessary systems
capacity to support new options series that will
result from this proposal. See Notice, supra note 4,
at 76138.
17 See Notice, supra note 4, at 76136.
18 See Amendment No. 2, supra note 3.
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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Notices
procedures at the underlying markets
and the potential benefits to investors
discussed above, the Commission finds
that it is appropriate and consistent
with the Act to approve CBOE’s
proposal on a pilot basis. The collection
of data during the pilot and CBOE’s
active monitoring of any effects of
SPXPM on the markets will help CBOE
and the Commission assess any impact
of P.M. settlement in today’s market.
As noted in Amendment No. 4, CBOE
represented its intent to begin trading
SPXPM on February 19, 2013, which is
the first day of a new expiration cycle
for options.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,19 that the
proposed rule change (SR–CBOE–2012–
120), as modified by Amendment Nos.
2, 3, and 4, be, and hereby is, approved,
as amended, on a 12 month pilot basis
set to expire on February 8, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–03395 Filed 2–13–13; 8:45 am]
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes a rule change
for the permanent approval of its pilot
program to permit inbound orders
routed by Nasdaq Execution Services
LLC (‘‘NES’’) from the NASDAQ OMX
BX Equities Market of NASDAQ OMX
BX, Inc. (‘‘BX’’) and the NASDAQ OMX
PSX facility of NASDAQ OMX PHLX
LLC (‘‘PHLX’’).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
1. Purpose
[Release No. 34–68891; File No. SR–
NASDAQ–2013–028]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change for the
Permanent Approval of a Pilot Program
To Permit Inbound Orders Routed by
Nasdaq Execution Services LLC From
the NASDAQ OMX BX Equities Market
and NASDAQ OMX PSX
sroberts on DSK5SPTVN1PROD with NOTICES
February 8, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on February
6, 2013, The NASDAQ Stock Market
LLC (‘‘Exchange’’ or ‘‘Nasdaq’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
19 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
20 17
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Jkt 229001
In conjunction with BX and PHLX
providing outbound routing services to
all markets using their affiliated routing
broker, NES,4 NASDAQ proposed that
NES be permitted to route orders from
BX and PHLX, respectively, to the
Exchange on a pilot basis, subject to
certain conditions and limitations, as
described below.5 The current pilot
program expires March 30, 2013.6
NES is a broker-dealer and member of
NASDAQ, PHLX and BX. NES provides
all routing functions for NASDAQ, BX
and PHLX. BX, NASDAQ, PHLX and
NES are affiliates. Accordingly, the
affiliate relationship between NASDAQ
and NES, its member, raises the issue of
an exchange’s affiliation with a member
of such exchange. Specifically, in
connection with prior filings, the
4 See Securities Exchange Act Release Nos. 65470
(October 3, 2011), 76 FR 62489 (October 7, 2011)
(SR–BX–2011–048); and 65469 (October 3, 2011),
76 FR 62486 (October 7, 2011) (SR–Phlx–2011–
108).
5 See Securities Exchange Act Release No. 65554
(October 13, 2011), 76 FR 65311 (October 20, 2011)
(SR–NASDAQ–2011–142).
6 See Securities Exchange Act Release No. 67997
(October 5, 2012), 77 FR 62293 (October 12, 2012)
(SR–NASDAQ–2012–112).
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
Commission has expressed concern that
the affiliation of an exchange with one
of its members raises the potential for
unfair competitive advantage and
potential conflicts of interest between
an exchange’s self-regulatory obligations
and its commercial interests.7
Recognizing that the Commission has
previously expressed concern regarding
the potential for conflicts of interest in
instances where a member firm is
affiliated with an exchange of which it
is a member, the Exchange previously
proposed, and the Commission
approved, limitations and conditions on
NES’s affiliation with the Exchange.8
The Exchange now proposes to permit
NASDAQ to accept inbound orders that
NES routes in its capacity as a facility
of BX and PHLX on a permanent basis,
subject to the imitations [sic] and
conditions of this pilot:
• First, the Exchange and FINRA
maintain a Regulatory Contract, as well
as an agreement pursuant to Rule 17d–
2 under the Act (‘‘17d–2 Agreement’’).9
Pursuant to the Regulatory Contract and
the 17d–2 Agreement, FINRA is
allocated regulatory responsibilities to
review NES’s compliance with certain
Exchange rules.10 Pursuant to the
Regulatory Contract, however, NASDAQ
retains ultimate responsibility for
enforcing its rules with respect to NES.
• Second, FINRA monitors NES for
compliance with the Exchange’s trading
rules, and collects and maintains certain
related information.11
• Third, FINRA provides a report to
the Exchange’s chief regulatory officer
(‘‘CRO’’), on a quarterly basis, that: (i)
Quantifies all alerts (of which FINRA is
aware) that identify NES as a participant
that has potentially violated
Commission or Exchange rules, and (ii)
lists all investigations that identify NES
as a participant that has potentially
violated Commission or Exchange rules.
7 See Securities Exchange Act Release Nos. 59153
(December 23, 2008), 73 FR 80485 (December 31,
2008) (SR–NASDAQ–2008–098); and 62736 (August
17, 2010), 75 FR 51861 (August 23, 2010) (SR–
NASDAQ–2010–100).
8 Id.
9 17 CFR 240.17d–2.
10 NES is also subject to independent oversight by
FINRA, its designated examining authority, for
compliance with financial responsibility
requirements.
11 Pursuant to the Regulatory Contract, both
FINRA and the Exchange collect and maintain all
alerts, complaints, investigations and enforcement
actions in which NES (in its capacity as a facility
of BX and PHLX routing orders to NASDAQ) is
identified as a participant that has potentially
violated applicable Commission or Exchange rules.
The Exchange and FINRA retain these records in an
easily accessible manner in order to facilitate any
potential review conducted by the Commission’s
Office of Compliance Inspections and
Examinations.
E:\FR\FM\14FEN1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Notices]
[Pages 10668-10670]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03395]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68888; File No. SR-CBOE-2012-120]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval to Proposed Rule Change To
Establish a Pilot Program, as Modified by Amendment Nos. 2, 3, and 4,
To List and Trade a P.M.-Settled S&P 500 Index Option Product
February 8, 2013.
I. Introduction
On December 5, 2012, Chicago Board Options Exchange, Incorporated
(the ``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 the listing and trading
of P.M.-settled options on the Standard & Poor's 500 Index (``S&P
500''). On December 17, 2012, the Exchange filed Amendments No. 1 and 2
to the proposed rule change.\3\ The proposed rule change was published
for comment in the Federal Register on December 26, 2012.\4\ On January
4, 2013, the Exchange filed Amendment No. 3 to the proposed rule
change.\5\ On January 29, 2013, the Exchange filed Amendment No. 4 to
the proposed rule change.\6\ The Commission received no comment letters
on the proposal. This order approves the proposed rule change, as
modified, on a twelve-month pilot basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange withdrew Amendment No. 1 on December 17, 2012.
In Amendment No. 2, the Exchange represented that it does not
believe that CBOE Trading Permit Holders will experience significant
operations issues when trading P.M.-settled S&P 500 Index products
on CBOE.
\4\ See Securities Exchange Act Release No. 68457 (December 18,
2012), 77 FR 76135 (December 26, 2012) (``Notice''). An amendment to
the Notice was published in the Federal Register on January 8, 2013
with a corrected deadline for comments of January 16, 2013. See
Securities Exchange Act Release No. 68457 (December 18, 2012), 78 FR
1296 (January 8, 2013).
\5\ In Amendment No. 3, the Exchange explained that any P.M.-
settled S&P 500 Index options series that are part of the SPX
options class and that have an expiration on any day other than the
third Friday of every month will remain under the SPXPM class to
avoid investor confusion. Because Amendment No. 3 is technical in
nature, the Commission is not publishing it for comment.
\6\ In Amendment No. 4, the Exchange modified the anticipated
start date for the listing and trading of the proposed contact on
CBOE from January 22, 2013 to February 19, 2013. See Notice, supra
note 4, at 76136. Because Amendment No. 4 is technical in nature,
the Commission is not publishing it for comment.
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange is proposing to amend its rules to permit it to list
and trade, on a pilot basis, cash-settled S&P 500 index options with
third-Friday-of-the-month (``Expiration Friday'') expiration dates for
which the exercise settlement value will be based on the index value
derived from the closing prices of component securities (``P.M.-
settled''). The proposed contract (referred to as ``SPXPM'') is
currently traded on a pilot basis on C2 Options Exchange, Incorporated
(``C2'') (the ``C2 Pilot Program'').\7\ CBOE is proposing to list and
trade SPXPM on the same terms as the C2 Pilot Program, except that CBOE
intends to list and trade SPXPM for an initial pilot period of twelve
months.\8\ CBOE and C2 will not concurrently list and trade SPXPM. In
other words, C2 (which is wholly owned by the same corporation, CBOE
Holdings, Inc., as CBOE) will cease trading SPXPM upon the introduction
of SPXPM trading on CBOE. CBOE initially represented that it intended
to begin trading SPXPM on or around January 22, 2013, but in Amendment
No. 4, CBOE instead represented its intent to begin trading SPXPM on
February 19, 2013.\9\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 65256 (September 2,
2011), 76 FR 55969 (September 9, 2011) (``C2 SPXPM Approval
Order'').
\8\ The C2 Pilot Program is a fourteen month pilot.
\9\ See Amendment No. 4, supra note 6.
---------------------------------------------------------------------------
CBOE will list and trade SPXPM in a manner similar to how SPXPM
currently is listed and traded on C2. In
[[Page 10669]]
particular, SPXPM on CBOE will use a $100 multiplier, and the minimum
trading increment will be $0.05 for options trading below $3.00 and
$0.10 for all other series. Strike price intervals will be set no less
than 5 points apart. Consistent with existing rules for index options,
the Exchange will allow up to twelve near-term expiration months, as
well as LEAPS. Expiration processing will occur on the Saturday
following Expiration Friday. The product will have European-style
exercise and will not be subject to position limits, though there would
be enhanced reporting requirements. The Exchange represents that the
conditions for listing SPXPM on CBOE will be similar to those for SPX,
which already is listed and traded on CBOE.\10\
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\10\ See Notice, supra note 4, at 76136.
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The Exchange proposes that SPXPM be approved on a pilot basis for
an initial period of twelve months. As part of the pilot program, the
Exchange committed to submit a pilot program report to the Commission
at least two months prior to the expiration date of the pilot program
(the ``annual report''). The annual report will contain the same
information currently provided to the Commission pursuant to the C2
Pilot Program and would include an analysis of volume, open interest,
and trading patterns. The analysis will examine trading in the proposed
option product as well as trading in the securities that comprise the
S&P 500 index. In addition, for series that exceed certain minimum open
interest parameters, the annual report will provide analysis of index
price volatility and share trading activity. In addition to the annual
report, the Exchange committed to provide the Commission with periodic
reports while the pilot is in effect that would contain some, but not
all, of the information contained in the annual report (``interim
reports''). This information is identical to the information that C2 is
required to report to the Commission pursuant to the C2 Pilot Program.
III. Discussion and Commission Findings
After careful consideration of the proposal, the Commission finds
that the proposed rule change is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
national securities exchange,\11\ and, in particular, the requirements
of Section 6 of the Act.\12\ Specifically, the Commission finds that
the proposed rule change is consistent with Section 6(b)(5) of the
Act,\13\ which requires that an exchange have rules designed to remove
impediments to and perfect the mechanism of a free and open market and
to protect investors and the public interest, to allow CBOE to conduct
a limited, and carefully monitored, pilot as proposed.
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\11\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(5).
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As noted in the Commission's order approving the listing and
trading of SPXPM on C2 on a pilot program basis, the Commission has
concerns about the potential impact on the market at expiration for the
underlying component stocks for a P.M.-settled, cash-settled index
option such as SPXPM.\14\ The potential impact today remains unclear,
given the significant changes in the closing procedures of the primary
markets over the past two decades. The Commission is mindful of the
historical experience with the impact of P.M. settlement of cash-
settled index derivatives on the underlying cash markets, but
recognizes that these risks may be mitigated today by the enhanced
closing procedures that are now in use at the primary equity markets.
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\14\ See C2 SPXPM Approval Order, supra note 7, at 55972, 55974-
55975.
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To assist the Commission in assessing any potential impact of a
P.M.-settled S&P 500 index option on the options markets as well as the
underlying cash equities markets, CBOE will be required to submit data
to the Commission in connection with the pilot in exactly the same
scope and format as C2 was required to submit as a condition of
Commission approval of SPXPM on a pilot basis. The Commission believes
that CBOE's proposed twelve-month pilot, together with the data and
analysis that CBOE will provide to the Commission, will allow CBOE and
the Commission to monitor for and assess any potential for adverse
market effects. Specifically, the data and analysis will assist the
Commission in evaluating the effect of allowing P.M. settlement for S&P
500 index options on the underlying component stocks.
CBOE's proposed twelve-month pilot will enable the Commission to
collect current data to assess and monitor for any potential for impact
on markets, including the underlying cash equities markets. In
particular, the data collected from CBOE's pilot program will help
inform the Commission's consideration of whether the SPXPM pilot should
be modified, discontinued, extended, or permanently approved. The P.M.
settlement pilot information should help the Commission assess the
impact on the markets and determine whether other changes are
necessary. Furthermore, the Exchange's ongoing analysis of the pilot
should help it monitor any potential risks from large P.M.-settled
positions and take appropriate action on a timely basis if warranted.
As the Commission noted when it approved C2's proposal to list and
trade SPXPM, approval of CBOE's proposal to transfer listing of SPXPM
from C2 to CBOE could benefit investors and the public interest to the
extent it attracts trading in P.M.-settled S&P 500 index options from
the opaque OTC market to the more transparent exchange-listed markets,
where trading in the product will be subject to exchange trading rules
and exchange surveillance.\15\
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\15\ See C2 SPXPM Approval Order, supra note 7, at 55976.
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The Exchange represents that it has adequate surveillance
procedures to monitor trading in these options thereby helping to
ensure the maintenance of a fair and orderly market, and has
represented that it has sufficient capacity to handle additional
traffic associated with this new listing.\16\ In addition, CBOE
represents that it does not expect that its Trading Permit Holders will
experience significant operation issues as a result of the cessation of
trading on C2 of SPXPM upon the introduction of trading of SPXPM on
CBOE.\17\ CBOE stated that there are no C2 Trading Permit Holders that
are not also CBOE Trading Permit Holders, so any C2 Trading Permit
Holder that is currently trading SPXPM on C2 will have access to trade
SPXPM on CBOE.\18\
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\16\ See Notice, supra note 4, at 76138.
In addition, the Commission notes that CBOE would have access to
information through its membership in the Intermarket Surveillance
Group with respect to the trading of the securities underlying the
S&P 500 index, as well as tools such as large options positions
reports to assist its surveillance of SPXPM options.
In approving the proposed rule change, the Commission also has
relied upon the Exchange's representation that it has the necessary
systems capacity to support new options series that will result from
this proposal. See Notice, supra note 4, at 76138.
\17\ See Notice, supra note 4, at 76136.
\18\ See Amendment No. 2, supra note 3.
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For the reasons discussed above, the Commission finds that CBOE's
proposal is consistent with the Act, including Section 6(b)(5) thereof,
in that it is designed to remove impediments to and perfect the
mechanism of a free and open market, and, in general, to protect
investors and the public interest. As it found in the case of C2's
original proposal to list and trade SPXPM, and in light of the enhanced
closing
[[Page 10670]]
procedures at the underlying markets and the potential benefits to
investors discussed above, the Commission finds that it is appropriate
and consistent with the Act to approve CBOE's proposal on a pilot
basis. The collection of data during the pilot and CBOE's active
monitoring of any effects of SPXPM on the markets will help CBOE and
the Commission assess any impact of P.M. settlement in today's market.
As noted in Amendment No. 4, CBOE represented its intent to begin
trading SPXPM on February 19, 2013, which is the first day of a new
expiration cycle for options.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-CBOE-2012-120), as modified
by Amendment Nos. 2, 3, and 4, be, and hereby is, approved, as amended,
on a 12 month pilot basis set to expire on February 8, 2014.
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\19\ 15 U.S.C. 78s(b)(2).
\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03395 Filed 2-13-13; 8:45 am]
BILLING CODE 8011-01-P
