Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change To Amend CBOE Rule 6.2B To Establish Modified Hybrid Opening System Opening Procedures for All Volatility Index Constituent Options, 65402-65407 [2013-25828]
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Federal Register / Vol. 78, No. 211 / Thursday, October 31, 2013 / Notices
changes reflect this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 7 and paragraph (f) of Rule
19b–4 8 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Electronic Comments
• 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–ISE–2013–53 on the subject
line.
Paper Comments
• 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–ISE–2013–53. 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
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will 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–ISE–
2013–53 and should be submitted on or
before November 21, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–25830 Filed 10–30–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70755; File No. SR–CBOE–
2013–102]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change To Amend
CBOE Rule 6.2B To Establish Modified
Hybrid Opening System Opening
Procedures for All Volatility Index
Constituent Options
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
15, 2013, the Chicago Board Options
Exchange, Incorporated (‘‘Exchange’’ or
‘‘CBOE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
U.S.C. 78s(b)(3)(A).
8 17 CFR 240.19b–4(f).
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to amend CBOE Rule
6.2B to establish modified Hybrid
Opening System (‘‘HOSS’’) opening
procedures for all option series that are
used to calculate volatility indexes. The
text of the proposed rule change is
available on the Exchange’s Web site
https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission.
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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On the expiration/final settlement
date for volatility index options and
futures, modified Hybrid Opening
System (HOSS) opening procedures are
used for Hybrid 3.0 options and series
that are used to calculate the exercise
settlement/final settlement value for
expiring volatility index options and
futures contracts.3 The exercise
settlement/final settlement value for
volatility index options and futures is a
October 25, 2013.
9 17
7 15
in Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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3 The expiration/final settlement date for
volatility index options and futures is the same day
that the exercise settlement/final settlement value is
calculated for those contracts. See CBOE Rule
24.9(a)(5) and CBOE Futures Exchange, LLC
(‘‘CFE’’) Rule 1202(b). This date is on the
Wednesday that is thirty days prior to the third
Friday of the calendar month immediately
following the month in which the applicable
volatility index options or futures contract expires.
If the third Friday of the month subsequent to
expiration of the applicable volatility index option
or futures contract is a CBOE holiday, the exercise
settlement/final settlement value will be calculated
on the business day immediately preceding that
Friday.
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Special Opening Quotation (‘‘SOQ’’) of
the respective volatility index
calculated from the sequence of opening
prices, as traded on CBOE, of a single
strip of constituent options used to
calculate the exercise settlement value
on expiration dates. The opening price
for any constituent option series in
which there is no trade on CBOE is the
average of that option series’ bid price
and ask price as determined at the
opening of trading.
Standard expiration options (i.e.,
third Friday expirations) on the S&P 500
index are the only Hybrid 3.0 option
series for which modified HOSS
opening procedures are utilized (‘‘SPX
option series’’). SPX option series are
used to calculate the CBOE Volatility
Index (‘‘VIX’’ or ‘‘VIX index’’).4 As a
result, the only volatility index products
whose exercise settlement/final
settlement values are currently
calculated in this manner are VIX
options traded on CBOE and VIX futures
contracts traded on CFE.
CBOE and CFE, however, trade
options and futures on other volatility
indexes 5 and normal HOSS opening
procedures are used on all days for the
constituent options in those volatility
indexes, including the expiration/final
settlement dates for those volatility
index contracts. This is because the
constituent option series of those
volatility indexes trade on the Hybrid
platform and the modified HOSS
opening procedures for Hybrid 3.0
classes and series are not applicable to
those classes and series. The purpose of
this filing is to align the opening
procedures for calculating the exercise
settlement/final settlement value for all
volatility index products as closely as
possible to the existing and known
modified HOSS opening procedures
used to calculate the VIX exercise/final
settlement value.
In addition to the existing volatility
indexes calculated using Hybrid option
series, the Exchange has created a new
volatility index that measures a 9-day
period of implied volatility: The CBOE
Short-Term Volatility Index (‘‘VXST’’ or
‘‘VXST index’’).6 The Exchange
understands that there is an unmet
market demand for derivatives that
expire each week on a short-term
volatility index. In order to respond to
that demand, the Exchange plans to
introduce VXST security options (to be
traded on CBOE) and VXST futures (to
be traded on CFE) that expire every
Wednesday. These new VXST products
will trade alongside existing VIX
options and VIX futures, (which expire
on a monthly basis) and on one
Wednesday each month, the Exchange
plans to calculate two exercise
August 31, 2016 ..............
September 7, 2016 ..........
September 14, 2016 ........
September 21, 2016 ........
settlement/final settlement values based
on S&P 500 index option series to settle
expiring VIX and VXST options and
futures.
In terms of product launches, the
Exchange anticipates that CFE will list
VXST futures prior to CBOE listing
VXST options. This order of product
launches is consistent with the past
practice of introducing volatility index
futures prior to volatility index options
due to the use by many market
participants of futures as proxies for
forward volatility index levels when
pricing options.
The VXST index is calculated using
S&P 500 index option series that expire
on every Friday, including standard
SPX option series (i.e., third Friday
expirations). The non-standard
expiration constituent S&P 500 index
option series are: (1) Listed under
various Exchange rules; (2) may expire
on Fridays other than the third Friday
of the month; (3) Hybrid series and
Hybrid 3.0 series; and (4) considered
part of the S&P 500 index option class.
The below chart sets forth a
hypothetical listing schedule identifying
the VXST derivative expiration/final
settlement date, the constituent S&P 500
index option series and expiration/final
settlement date and the trading platform
of the constituent option series:
Constituent S&P 500 index option series and expiration date
Type of
constituent
series
End-of-Week Expiration * (ticker: SPXW), Expires Friday, September 9, 2016 ....................
Standard Expiration (ticker: SPX), Expires Friday, September 16, 2016 .............................
End-of-Week Expiration * (ticker: SPXW), Expires Friday, September 23, 2016 ..................
Quarterly Index Expiration ** (ticker: SPXQ), Expires on Friday, September 30, 2016 ........
Hybrid.
Hybrid 3.0.
Hybrid.
Hybrid 3.0.
VXST derivative expiration/final
settlement date
Wednesday,
Wednesday,
Wednesday,
Wednesday,
65403
* Listed under Rule 24.9(e).
** Listed under Rule 24.9(c).
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As shown above, because some VXST
constituent S&P 500 index option series
are Hybrid series, the modified HOSS
opening procedures for Hybrid 3.0
series are not applicable to those S&P
500 index option series.7 This filing
proposes to align the opening
procedures on Wednesdays for all VXST
constituent S&P 500 index option series
to the existing and known modified
HOSS opening procedures used to
calculate the exercise/final settlement
value for VIX derivatives.
4 Some series of the S&P 500 index option class
are Hybrid series.
5 For example: the CBOE Nasdaq-100 Volatility
Index (‘‘VXN’’), the CBOE Russell 2000 Volatility
Index (‘‘RVX’’), the CBOE Gold ETF Volatility Index
(‘‘GVZ’’) and the CBOE Crude Oil ETF Volatility
Index (‘‘OVX’’). This list is not exhaustive.
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What are the modified HOSS opening
procedures?
The main feature of the modified
HOSS opening procedures utilized in
Hybrid 3.0 classes and series (i.e., SPX
options) on VIX derivative expiration/
final settlement dates is the strategy
order 8 cut-off time for the SPX option
series that will be used to calculate the
exercise settlement/final settlement
value for VIX derivatives. Rule
6.2B.01(c)(iii)(B)(1)–(3) sets forth three
6 The VIX index measures a 30-day period of
expected volatility and is calculated using S&P 500
index option series that expire in 30 days. The
VXST index measures a 9-day period of expected
volatility and is calculated using S&P 500 index
option series that expire in 9 days.
7 The Exchange is proposing this change in order
to calculate a final settlement value for VXST
PO 00000
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characteristics that the Exchange
considers strategy orders to possess:
(1) The orders are for options series
with the expiration month that will be
used to calculate the settlement price of
the applicable volatility index option or
futures contract;
(2) The orders are for options series
spanning the full range of strike prices
in the appropriate expiration month for
options series that will be used to
calculate the settlement price of the
applicable volatility index option or
futures contract, though they will not
futures contracts. The Exchange will submit a filing
to the Commission to list VXST options separately.
8 Option orders that are related to position in, or
a trading strategy involving, volatility index options
or futures are known as ‘‘strategy orders,’’ under
Rule 6.2B.01(c)(iii).
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necessarily include every available
strike price; and
(3) The orders are for put options with
strikes prices less than the ‘‘at-themoney’’ strike price or for call options
with strike prices greater than the ‘‘atthe-money’’ strike price. The orders may
also be for put and call options with ‘‘atthe-money’’ strike prices.
Rule 6.2B.01(c)(iii)(B) also gives the
Exchange discretion to deem other types
of orders to fall within the category of
‘‘strategy orders’’ if the Exchange
determines that the applicable facts and
circumstances warrant. Under current
Rule 6.2B.01(c)(iii), all strategy orders
must be submitted by 8:15 a.m. (Chicago
time).9 In two limited circumstances,
strategy orders may be cancelled.10
As background, the Exchange notes
that market participants that actively
trade VIX derivatives (e.g., options and
futures) often hedge their positions with
the SPX option series that will be used
to calculate the VIX exercise settlement/
final settlement value. Traders holding
hedged VIX derivatives positions can be
expected to trade out of their SPX
option series on the relevant VIX
expiration/final settlement date.
Specifically, traders holding short,
hedged VIX products would liquidate
that hedge by selling their SPX option
series, while traders holding long,
hedged VIX products would liquidate
their hedge by buying SPX option series.
In order to seek convergence with the
VIX exercise settlement/final settlement
value, these traders would be expected
to liquidate their hedges by submitting
market orders or limit orders in the
appropriate SPX option series during
the SPX opening on the VIX expiration/
final settlement date.
The strategy order cut-off time exists
because trades to liquidate hedges can
contribute to an order imbalance during
the SPX opening on VIX expiration/final
settlement dates. For example, traders
liquidating hedges may predominately
be on one side of the market (e.g., seek
to buy the particular SPX option series)
and those traders’ orders may create buy
or sell order imbalances during the SPX
opening on a VIX expiration/final
settlement date. As a result of having a
9 The applicable cut-off time for the entry of
strategy orders is established by the Exchange on
class-by-class. See Rule 6.2B.01(c)(i)(A) and CBOE
Regulatory Circular RG08–43 (Cut-Off Time for
Submission of Strategy Orders for Participation in
SPX Modified HOSS Opening Procedure).
10 These circumstances include when the order is
not executed in the modified HOSS opening
procedures and the cancellation or change is
submitted after the modified HOSS opening
procedures are concluded or if there is a legitimate
error and the procedures for cancelling or changing
a legitimate error are followed as set forth in Rule
6.2B.01(c)(iii)(B).
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strategy order cut-off time in place, the
Exchange has created a window to
encourage additional participation in
the modified HOSS opening procedures
among market participants who may
wish to place off-setting orders against
imbalances to which strategy orders
may have contributed.11 The Exchange
also hopes that during this time period
market participants will also enter
orders that will result in price
improvement in those SPX options
series that are used to calculate the VIX
exercise settlement/final settlement
value.
For the same reasons set forth above,
the Exchange now seeks to establish a
strategy order cut-off time: (1) For all
constituent option series used to
calculate volatility indexes on the
expiration/final settlement dates for
volatility index derivatives; and (2) for
all constituent SPX option series used to
calculate the VXST on every
Wednesday.
Proposed Modified HOSS Opening
Procedures for Hybrid Classes and
Series
The Exchange proposes to adopt new
Interpretation and Policy .08 to Rule
6.2B to set forth the modified HOSS
opening procedures for Hybrid classes
and series used to calculate volatility
indexes.
First, the Exchange proposes to set
forth the applicable days for when the
modified HOSS opening procedures
would apply. (All provisions set forth in
Rule 6.2B would remain in effect unless
superseded or modified by proposed
Rule 6.2B.08.) For 30-day volatility
indexes, the modified HOSS opening
procedures would be utilized on the
days that the exercise settlement value
and final settlement value is calculated
for options (as determined under Rule
24.9(a)(5)) or (security) futures contracts
on volatility indexes measuring a 30-day
volatility period.12 For short-term
volatility indexes, the modified HOSS
opening procedures would be utilized
every Wednesday for Hybrid classes and
series that are used to calculate
volatility indexes measuring a 9-day
volatility period. If a Wednesday is an
Exchange holiday or if the Friday in the
business [sic] following a Wednesday is
11 Any imbalance of contracts to buy over
contracts to sell in the applicable index option
series, or vice versa, as indicated on the electronic
book, as well as expected opening prices and sizes
are periodically published in a snapshot form on
the CBOE and CFE Web sites as soon as practicable
up through the opening on settlement days when
the modified HOSS opening procedures are
utilized. See CBOE Rule 6.2B.01(vi). They are also
periodically disseminated on the Hybrid trading
system.
12 See supra note 1 [sic].
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an Exchange holiday, then the modified
HOSS opening procedures would be
utilized on a Tuesday.13
Second, the Exchange proposes to
provide that on applicable days, all
orders in Hybrid classes and series used
to calculate 30-day and short-term
volatility indexes (including public
customer, broker-dealer, Exchange
Market-Maker, away Market-Maker and
Specialist orders), other than spread or
contingency orders, would be eligible to
be placed on the electronic book for the
purpose of permitting those orders to
participate in the opening price
calculation for the applicable option
class or series.
Third, the Exchange proposes to
establish criteria for strategy orders, a
cut-off time to be established by the
Exchange on a class-by-class basis and
a prohibition against cancelling strategy
orders; with the limited exception that
would permit strategy order to be
cancelled if the order is (i) not executed
in the modified HOSS opening
procedures and the cancellation is
submitted after the procedures have
concluded, or (ii) cancelled to correct a
legitimate error. These proposed
provisions are substantially the same as
the existing provisions set forth in Rule
6.2B.01. The specific provisions
proposed to be adopted are:
On the days that the modified HOSS
opening procedures would be utilized,
the following provisions would apply to
all volatility index option components:
• All option orders for participation
in modified HOSS opening procedures
that are related to positions in, or a
trading strategy involving, volatility
index options or (security) futures, and
any change to or cancellation of any
such order:
Æ must be received prior to the
applicable strategy order cut-off time for
the affected option series (established by
the Exchange on a class-by-class basis),
provided that the strategy order cut-off
time will be no earlier than 8:00 a.m.
and no later than the opening of trading
in the option series. All
pronouncements regarding changes to
the applicable strategy order cut-off time
would be announced at least one day
prior to implementation.
Æ may not be cancelled or changed
after the applicable strategy order cut-off
13 The Exchange is identifying the days that the
modified HOSS opening procedures would apply in
proposed Rule 6.2B.08 because those days need to
be identified in order to calculate a final settlement
value for VXST futures. The Exchange expects to
amend this provision when the Exchange makes a
filing with the Commission to list VXST options.
Specifically, the Exchange plans to establish an
expiration date and exercise settlement rule for
VXST options that would be comparable to Rule
24.9(a)(5).
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time established in accordance with
paragraph (c)(i) to Rule 6.2B.08, unless
the order is not executed in the
modified HOSS opening procedures and
the cancellation or change is submitted
after the modified HOSS opening
procedures are concluded (provided
that any such order may be changed or
cancelled after the applicable strategy
order cut-off time established in
accordance with paragraph (c)(i) to Rule
6.2B.08 and prior to applicable cut-off
time established in accordance with
paragraph (d) to Rule 6.2B.08 in order
to correct a legitimate error, in which
case the Trading Permit Holder
submitting the change or cancellation
would be required to prepare and
maintain a memorandum setting forth
the circumstances that resulted in the
change or cancellation and shall file a
copy of the memorandum with the
Exchange no later than the next
business day in a form and manner
prescribed by the Exchange).
In general, the Exchange would
consider option orders to be related to
positions in, or a trading strategy
involving, volatility index options or
(security) futures for purposes of Rule
6.2B.08 if the orders possess the
following three characteristics:
• The orders are for option series
with the expirations that will be used to
calculate the exercise settlement or final
settlement value of the applicable
volatility index option or (security)
futures contract.
• The orders are for options series
spanning the full range of strike prices
for the appropriate expiration for
options series that will be used to
calculate the exercise settlement or final
settlement value of the applicable
volatility index option or (security)
futures contract, but not necessarily
every available strike price.
• The orders are for put options with
strike prices less than the ‘‘at-themoney’’ strike price and for call options
with strike prices greater than the ‘‘atthe-money’’ strike price. The orders may
also be for put and call options with ‘‘atthe-money’’ strike prices.
Whether option orders are related to
positions in, or a trading strategy
involving, volatility index options or
(security) futures for purposes of this
Rule 6.2B.08 would depend upon
specific facts and circumstances. Order
types other than those provided above
may also be deemed by the Exchange to
fall within this category of orders if the
Exchange determines that to be the case
based upon the applicable facts and
circumstances.
Fourth, the Exchange proposes to
provide that the provisions of Rule
6.2B.08 may be suspended by two Floor
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Officials in the event of unusual market
conditions.
Fifth, the Exchange proposes to
provide that all other option orders for
participation in the modified HOSS
opening procedures, and any change to
or cancellation of any such order, would
be required to be received prior to the
applicable cut-off time in order to
participate at the opening price for the
applicable option series. The applicable
cut-off time for the affected option series
would be established by the Exchange
on a class-by-class basis, provided the
cut-off time would be no earlier than
8:25 a.m. and no later than the opening
of trading in the option series. All
pronouncements regarding changes to
the applicable cut-off time would be
announced at least one day prior to
implementation.
Sixth, the Exchange proposes to
provide that any imbalance of contracts
to buy over contracts to sell in the
applicable option series, or vice versa,
as indicated on the electronic book,
would be published as soon as
practicable up through the opening of
trading in the affected series on days
that the modified HOSS opening
procedures are utilized.
The Exchange notes that there are
certain provisions set forth in Rule
6.2B.01 that the Exchange is not
proposing to adopt as parallel provision
to proposed Rule 6.2B.08. The
provisions set forth in Rules 6.2B.01(a),
(b) and (c)(ii) pertain to opening
requirements for liquidity providers that
only apply to Hybrid 3.0 classes and
series. For Hybrid classes and series, the
applicable opening provisions for
liquidity providers are set forth in Rule
6.2B. The key difference is that liquidity
providers in Hybrid 3.0 classes and
series are required to enter opening
quotes whereas no such requirement
exists for Hybrid classes and series.
In addition, the Exchange is not
proposing to adopt a provision similar
to Rule 6.2B.01(c)(v) which provides
that the HOSS system automatically
generates cancels immediately prior to
the opening of the applicable index
option series for broker-dealer,
Exchange Market-Maker, away MarketMaker, and Specialist orders which
remain on the electronic book following
the modified HOSS opening procedures.
This is another difference between
Hybrid 3.0 classes and series and
Hybrid classes and series in that a
similar automatic cancellation function
does not occur for Hybrid classes and
series because orders from those
participants would be permitted to rest
in the electronic book following the
modified HOSS opening procedures.
PO 00000
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65405
Proposed Non-Substantive Changes to
Rule 6.2B.01
The Exchange is taking this
opportunity to make some nonsubstantive changes to Rule 6.2B.01.
First, the Exchange is proposing to
delete the sentence that is set forth in
from [sic] Rule 6.2B.01(b). This
provision provides that (on all days),
series will not open if there is not a
quote present in that series that
complies with the bid/ask different [sic]
requirements that the Exchange
establishes on a class-by-class basis.
This same requirement is set forth
earlier in Rule 6.2(e). Therefore, the
second sentence to Rule 6.2B.01(b) can
be deleted.
Second, the Exchange is proposing to
amend Rule 6.2B.01(c)(i). On all days,
non-customer orders in Hybrid 3.0
classes and series are not permitted to
rest in the book after the open.
Accordingly, non-customers must
submit ‘‘opening rotation orders’’
(‘‘OPG’’) in order to participate in the
opening.14 If non-customer orders are
not submitted as OPG orders, those
orders will not participate in the
opening rotation. An OPG order is not
technically a contingency but is a
requirement for non-customers to
participate in the opening for Hybrid 3.0
classes and series. As a result, the
Exchange proposes to add the phrase
‘‘non-OPG’’ before ‘‘contingency orders’’
in Rule 6.2B.01(c)(i) to make that rule
clearer.
Third, the Exchange is proposing
amend Rule 6.2B.01 to include the
correct terminology conventions for
options and futures throughout Rule
6.2B.01. The Exchange notes that
options expire on an expiration date and
settle to an exercise settlement value.
Futures settle on a final settlement date
and settle to a final settlement value.
Where appropriate, the Exchange is
adding the correct terminology
throughout Rule 6.2B.01.
Fourth, the Exchange is proposing to
change the reference to ‘‘month’’ as used
in Rule 6.2B.01(c)(i) and (c)(iii)(B)(2)
[sic] to ‘‘expiration.’’ The reference to
month is used to designate which
month’s option series will be used to
calculate a 30-day volatility index.
Because options series that expire more
often than monthly will be used to
calculate the VXST, the Exchange is
proposing to amend these provisions to
account for the existence of volatility
14 See Rule 6.53(l), which defines ‘‘Opening
Rotation Order.’’ After the opening rotation is
concluded, unfilled OPG orders are cancelled. See
also CBOE Regulatory Circular RG07–097 (SPX
Trading on Hybrid 3.0).
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Federal Register / Vol. 78, No. 211 / Thursday, October 31, 2013 / Notices
indexes that expire more frequently
than on a once per month basis.
Fifth, the Exchange is proposing to
add more specific rule citations
throughout Rule 6.2B.01. Currently,
there are several cross references
throughout Rule 6.2B.01 to Rule 6.2B
and Rule 6.2B.01. In order to be more
clear (because some of the same
numbering conventions are used in
these provisions and could be
confusing), the Exchange is proposing to
add specific rule references (instead of
just subparagraphs) throughout Rule
6.2B.01.
Sixth, the Exchange is proposing to
replace the reference to the ‘‘opening
bell’’ to [sic] the ‘‘opening of trading in
the affected series’’ in Rule 6.2B.01(vi)
[sic]. This change is being proposed to
make that provision more specific in its
description of when imbalances will be
published.
Finally, the Exchange is proposing to
make a few grammatical changes
throughout Rule 6.2B.01.
mstockstill on DSK4VPTVN1PROD with NOTICES
Proposed Changes to Rule 24.9(a)(5)
The Exchange is proposing to amend
Rule 24.9(a)(5), which sets forth the
method of determining the day that the
exercise settlement value will be
calculated and of determining the
expiration date and last trading day for
volatility index options. Specifically,
the Exchange is proposing to add the
phrase ‘‘Measure a 30-Day Volatility
Period.’’ This change is being proposed
to account for the existence of two
different volatility index products that
overlie different implied volatility
measurement periods. As described in
footnote 13, when the Exchange makes
a filing with the Commission to list
VXST options, the Exchange plans to
establish a proposed similar rule setting
forth similar information for VXST
options.
Surveillance
The Exchange currently conducts
heightened surveillance on the days
when the modified HOSS opening
procedures are utilized. Those same
heightened surveillance practices will
be utilized on every Wednesday and the
Exchange represents that these
surveillance practices shall be adequate
to monitor trading in all constituent
option series used to calculate volatility
indexes. The Exchange expects to
enhance surveillance practices in
tandem with any resultant trading
volume growth.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
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19:21 Oct 30, 2013
Jkt 232001
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.15 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 requirements that the rules of
an exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts, to remove impediments to and to
perfect the mechanism for a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
The primary purpose of the proposed
rule change is to establish a strategyorder cut-off time for option series on
the day those option series are used to
calculate the exercise settlement/final
settlement value for volatility index
options and futures. Because those
option series are typically used to hedge
VIX derivatives, market participant [sic]
liquidating their hedges on expiration/
final settlement dates may contributed
to an order imbalance. The proposed
rule change will protect investors and
the public interest because the strategy
order cut-off time provides a time
period prior to the open of trading
during which market participants may
help reduce order imbalances for
volatility index options. The Exchange
notes that a series will not open if there
is an imbalance. By creating a window
of opportunity to enter orders that
reduce any order imbalances to which
strategy orders may have contributed,
the Exchange is establishing a procedure
that is designate [sic] to facilitate a more
stable opening process.
In addition, the Exchange hopes that
the establishment of a strategy cut-off
time will result in market participants
submitting orders that would result in
price improvement to the option series
used to calculate exercise settlement/
final settlement values for volatility
index derivatives.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act. Specifically, CBOE
believes that the establishment of a
strategy-order cut-off time results in all
market participants, that hedge
volatility index derivative using
constituent volatility index options,
being treated the same and does not
impose any burden on competition.
15 15
16 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00143
Fmt 4703
Sfmt 4703
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate 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
will:
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
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
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2013–102 on the subject line.
Paper Comments
• 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–CBOE–2013–102. 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
E:\FR\FM\31OCN1.SGM
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Federal Register / Vol. 78, No. 211 / Thursday, October 31, 2013 / Notices
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will 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–CBOE–
2013–102 and should be submitted on
or before November 21, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–25828 Filed 10–30–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70754; File No. SR–
NYSEArca–2013–105]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the SPDR MFS Systematic Core
Equity ETF, SPDR MFS Systematic
Growth Equity ETF, and SPDR MFS
Systematic Value Equity ETF Under
NYSE Arca Equities Rule 8.600
mstockstill on DSK4VPTVN1PROD with NOTICES
October 25, 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 October
10, 2013, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
19:21 Oct 30, 2013
Jkt 232001
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the following under
NYSE Arca Equities Rule 8.600
(‘‘Managed Fund Shares’’): SPDR MFS
Systematic Core Equity ETF; SPDR MFS
Systematic Growth Equity ETF; and
SPDR MFS Systematic Value Equity
ETF. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares: SPDR MFS
Systematic Core Equity ETF; SPDR MFS
Systematic Growth Equity ETF; and
SPDR MFS Systematic Value Equity
ETF (each a ‘‘Fund’’ and, collectively,
the ‘‘Funds’’).4 The Shares will be
offered by SSgA Active ETF Trust (the
‘‘Trust’’), which is organized as a
Massachusetts business trust and is
registered with the Commission as an
open-end management investment
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
65407
company.5 SSgA Funds Management,
Inc. (the ‘‘Adviser’’ or ‘‘SSgA FM’’) will
serve as the investment adviser to the
Funds. Massachusetts Financial
Services Company (the ‘‘Sub-Adviser’’
or ‘‘MFS’’) will be the sub-adviser for
the Funds.6 State Street Global Markets,
LLC (the ‘‘Distributor’’ or ‘‘Principal
Underwriter’’) will be the principal
underwriter and distributor of the
Funds’ Shares. State Street Bank and
Trust Company (the ‘‘Administrator’’,
‘‘Custodian’’ or ‘‘Transfer Agent’’) will
serve as administrator, custodian and
transfer agent for the Funds.7
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.8 Commentary .06 to Rule
5 The Trust is registered under the 1940 Act. On
December 21, 2012, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’), and
under the 1940 Act relating to the Funds (File Nos.
333–173276 and 811–22542) (‘‘Registration
Statement’’). The description of the operation of the
Trust and the Funds herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the1940 Act.
See Investment Company Act Release No. 29524
(December 13, 2010) (File No. 812–13487)
(‘‘Exemptive Order’’).
6 MFS is a subsidiary of Sun Life of Canada (U.S.)
Financial Services Holdings, Inc., which in turn is
an indirect majority owned subsidiary of Sun Life
Financial Inc. (a diversified financial services
organization).
7 The Commission has previously approved
listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60460 (August 7,
2009), 74 FR 41468 (August 17, 2009) (SR–
NYSEArca–2009–55) (order approving listing of
Dent Tactical ETF); 62502 (July 15, 2010), 75 FR
42471 (July 21, 2010) (SR–NYSEArca–2010–57)
(order approving listing of AdviserShares WCM/
BNY Mellon Focused Growth ADR ETF); 63076
(October 12, 2010), 75 FR 63874 (October 18, 2010)
(SR–NYSEArca–2010–79) (order approving listing
of Cambria Global Tactical ETF).
8 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
E:\FR\FM\31OCN1.SGM
Continued
31OCN1
]]>Agencies
[Federal Register Volume 78, Number 211 (Thursday, October 31, 2013)]
[Notices]
[Pages 65402-65407]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-25828]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70755; File No. SR-CBOE-2013-102]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Proposed Rule Change To Amend CBOE
Rule 6.2B To Establish Modified Hybrid Opening System Opening
Procedures for All Volatility Index Constituent Options
October 25, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 15, 2013, the Chicago Board Options Exchange, Incorporated
(``Exchange'' or ``CBOE'') 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 self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend CBOE Rule 6.2B to establish modified Hybrid
Opening System (``HOSS'') opening procedures for all option series that
are used to calculate volatility indexes. The text of the proposed rule
change is available on the Exchange's Web site https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of
the Secretary, and at the Commission.
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On the expiration/final settlement date for volatility index
options and futures, modified Hybrid Opening System (HOSS) opening
procedures are used for Hybrid 3.0 options and series that are used to
calculate the exercise settlement/final settlement value for expiring
volatility index options and futures contracts.\3\ The exercise
settlement/final settlement value for volatility index options and
futures is a
[[Page 65403]]
Special Opening Quotation (``SOQ'') of the respective volatility index
calculated from the sequence of opening prices, as traded on CBOE, of a
single strip of constituent options used to calculate the exercise
settlement value on expiration dates. The opening price for any
constituent option series in which there is no trade on CBOE is the
average of that option series' bid price and ask price as determined at
the opening of trading.
---------------------------------------------------------------------------
\3\ The expiration/final settlement date for volatility index
options and futures is the same day that the exercise settlement/
final settlement value is calculated for those contracts. See CBOE
Rule 24.9(a)(5) and CBOE Futures Exchange, LLC (``CFE'') Rule
1202(b). This date is on the Wednesday that is thirty days prior to
the third Friday of the calendar month immediately following the
month in which the applicable volatility index options or futures
contract expires. If the third Friday of the month subsequent to
expiration of the applicable volatility index option or futures
contract is a CBOE holiday, the exercise settlement/final settlement
value will be calculated on the business day immediately preceding
that Friday.
---------------------------------------------------------------------------
Standard expiration options (i.e., third Friday expirations) on the
S&P 500 index are the only Hybrid 3.0 option series for which modified
HOSS opening procedures are utilized (``SPX option series''). SPX
option series are used to calculate the CBOE Volatility Index (``VIX''
or ``VIX index'').\4\ As a result, the only volatility index products
whose exercise settlement/final settlement values are currently
calculated in this manner are VIX options traded on CBOE and VIX
futures contracts traded on CFE.
---------------------------------------------------------------------------
\4\ Some series of the S&P 500 index option class are Hybrid
series.
---------------------------------------------------------------------------
CBOE and CFE, however, trade options and futures on other
volatility indexes \5\ and normal HOSS opening procedures are used on
all days for the constituent options in those volatility indexes,
including the expiration/final settlement dates for those volatility
index contracts. This is because the constituent option series of those
volatility indexes trade on the Hybrid platform and the modified HOSS
opening procedures for Hybrid 3.0 classes and series are not applicable
to those classes and series. The purpose of this filing is to align the
opening procedures for calculating the exercise settlement/final
settlement value for all volatility index products as closely as
possible to the existing and known modified HOSS opening procedures
used to calculate the VIX exercise/final settlement value.
---------------------------------------------------------------------------
\5\ For example: the CBOE Nasdaq-100 Volatility Index (``VXN''),
the CBOE Russell 2000 Volatility Index (``RVX''), the CBOE Gold ETF
Volatility Index (``GVZ'') and the CBOE Crude Oil ETF Volatility
Index (``OVX''). This list is not exhaustive.
---------------------------------------------------------------------------
In addition to the existing volatility indexes calculated using
Hybrid option series, the Exchange has created a new volatility index
that measures a 9-day period of implied volatility: The CBOE Short-Term
Volatility Index (``VXST'' or ``VXST index'').\6\ The Exchange
understands that there is an unmet market demand for derivatives that
expire each week on a short-term volatility index. In order to respond
to that demand, the Exchange plans to introduce VXST security options
(to be traded on CBOE) and VXST futures (to be traded on CFE) that
expire every Wednesday. These new VXST products will trade alongside
existing VIX options and VIX futures, (which expire on a monthly basis)
and on one Wednesday each month, the Exchange plans to calculate two
exercise settlement/final settlement values based on S&P 500 index
option series to settle expiring VIX and VXST options and futures.
---------------------------------------------------------------------------
\6\ The VIX index measures a 30-day period of expected
volatility and is calculated using S&P 500 index option series that
expire in 30 days. The VXST index measures a 9-day period of
expected volatility and is calculated using S&P 500 index option
series that expire in 9 days.
---------------------------------------------------------------------------
In terms of product launches, the Exchange anticipates that CFE
will list VXST futures prior to CBOE listing VXST options. This order
of product launches is consistent with the past practice of introducing
volatility index futures prior to volatility index options due to the
use by many market participants of futures as proxies for forward
volatility index levels when pricing options.
The VXST index is calculated using S&P 500 index option series that
expire on every Friday, including standard SPX option series (i.e.,
third Friday expirations). The non-standard expiration constituent S&P
500 index option series are: (1) Listed under various Exchange rules;
(2) may expire on Fridays other than the third Friday of the month; (3)
Hybrid series and Hybrid 3.0 series; and (4) considered part of the S&P
500 index option class. The below chart sets forth a hypothetical
listing schedule identifying the VXST derivative expiration/final
settlement date, the constituent S&P 500 index option series and
expiration/final settlement date and the trading platform of the
constituent option series:
----------------------------------------------------------------------------------------------------------------
Constituent S&P 500 index
VXST derivative expiration/final settlement date option series and expiration Type of constituent
date series
----------------------------------------------------------------------------------------------------------------
Wednesday, August 31, 2016.............................. End-of-Week Expiration * Hybrid.
(ticker: SPXW), Expires
Friday, September 9, 2016.
Wednesday, September 7, 2016............................ Standard Expiration (ticker: Hybrid 3.0.
SPX), Expires Friday,
September 16, 2016.
Wednesday, September 14, 2016........................... End-of-Week Expiration * Hybrid.
(ticker: SPXW), Expires
Friday, September 23, 2016.
Wednesday, September 21, 2016........................... Quarterly Index Expiration ** Hybrid 3.0.
(ticker: SPXQ), Expires on
Friday, September 30, 2016.
----------------------------------------------------------------------------------------------------------------
* Listed under Rule 24.9(e).
** Listed under Rule 24.9(c).
As shown above, because some VXST constituent S&P 500 index option
series are Hybrid series, the modified HOSS opening procedures for
Hybrid 3.0 series are not applicable to those S&P 500 index option
series.\7\ This filing proposes to align the opening procedures on
Wednesdays for all VXST constituent S&P 500 index option series to the
existing and known modified HOSS opening procedures used to calculate
the exercise/final settlement value for VIX derivatives.
---------------------------------------------------------------------------
\7\ The Exchange is proposing this change in order to calculate
a final settlement value for VXST futures contracts. The Exchange
will submit a filing to the Commission to list VXST options
separately.
---------------------------------------------------------------------------
What are the modified HOSS opening procedures?
The main feature of the modified HOSS opening procedures utilized
in Hybrid 3.0 classes and series (i.e., SPX options) on VIX derivative
expiration/final settlement dates is the strategy order \8\ cut-off
time for the SPX option series that will be used to calculate the
exercise settlement/final settlement value for VIX derivatives. Rule
6.2B.01(c)(iii)(B)(1)-(3) sets forth three characteristics that the
Exchange considers strategy orders to possess:
---------------------------------------------------------------------------
\8\ Option orders that are related to position in, or a trading
strategy involving, volatility index options or futures are known as
``strategy orders,'' under Rule 6.2B.01(c)(iii).
---------------------------------------------------------------------------
(1) The orders are for options series with the expiration month
that will be used to calculate the settlement price of the applicable
volatility index option or futures contract;
(2) The orders are for options series spanning the full range of
strike prices in the appropriate expiration month for options series
that will be used to calculate the settlement price of the applicable
volatility index option or futures contract, though they will not
[[Page 65404]]
necessarily include every available strike price; and
(3) The orders are for put options with strikes prices less than
the ``at-the-money'' strike price or for call options with strike
prices greater than the ``at-the-money'' strike price. The orders may
also be for put and call options with ``at-the-money'' strike prices.
Rule 6.2B.01(c)(iii)(B) also gives the Exchange discretion to deem
other types of orders to fall within the category of ``strategy
orders'' if the Exchange determines that the applicable facts and
circumstances warrant. Under current Rule 6.2B.01(c)(iii), all strategy
orders must be submitted by 8:15 a.m. (Chicago time).\9\ In two limited
circumstances, strategy orders may be cancelled.\10\
---------------------------------------------------------------------------
\9\ The applicable cut-off time for the entry of strategy orders
is established by the Exchange on class-by-class. See Rule
6.2B.01(c)(i)(A) and CBOE Regulatory Circular RG08-43 (Cut-Off Time
for Submission of Strategy Orders for Participation in SPX Modified
HOSS Opening Procedure).
\10\ These circumstances include when the order is not executed
in the modified HOSS opening procedures and the cancellation or
change is submitted after the modified HOSS opening procedures are
concluded or if there is a legitimate error and the procedures for
cancelling or changing a legitimate error are followed as set forth
in Rule 6.2B.01(c)(iii)(B).
---------------------------------------------------------------------------
As background, the Exchange notes that market participants that
actively trade VIX derivatives (e.g., options and futures) often hedge
their positions with the SPX option series that will be used to
calculate the VIX exercise settlement/final settlement value. Traders
holding hedged VIX derivatives positions can be expected to trade out
of their SPX option series on the relevant VIX expiration/final
settlement date. Specifically, traders holding short, hedged VIX
products would liquidate that hedge by selling their SPX option series,
while traders holding long, hedged VIX products would liquidate their
hedge by buying SPX option series. In order to seek convergence with
the VIX exercise settlement/final settlement value, these traders would
be expected to liquidate their hedges by submitting market orders or
limit orders in the appropriate SPX option series during the SPX
opening on the VIX expiration/final settlement date.
The strategy order cut-off time exists because trades to liquidate
hedges can contribute to an order imbalance during the SPX opening on
VIX expiration/final settlement dates. For example, traders liquidating
hedges may predominately be on one side of the market (e.g., seek to
buy the particular SPX option series) and those traders' orders may
create buy or sell order imbalances during the SPX opening on a VIX
expiration/final settlement date. As a result of having a strategy
order cut-off time in place, the Exchange has created a window to
encourage additional participation in the modified HOSS opening
procedures among market participants who may wish to place off-setting
orders against imbalances to which strategy orders may have
contributed.\11\ The Exchange also hopes that during this time period
market participants will also enter orders that will result in price
improvement in those SPX options series that are used to calculate the
VIX exercise settlement/final settlement value.
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\11\ Any imbalance of contracts to buy over contracts to sell in
the applicable index option series, or vice versa, as indicated on
the electronic book, as well as expected opening prices and sizes
are periodically published in a snapshot form on the CBOE and CFE
Web sites as soon as practicable up through the opening on
settlement days when the modified HOSS opening procedures are
utilized. See CBOE Rule 6.2B.01(vi). They are also periodically
disseminated on the Hybrid trading system.
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For the same reasons set forth above, the Exchange now seeks to
establish a strategy order cut-off time: (1) For all constituent option
series used to calculate volatility indexes on the expiration/final
settlement dates for volatility index derivatives; and (2) for all
constituent SPX option series used to calculate the VXST on every
Wednesday.
Proposed Modified HOSS Opening Procedures for Hybrid Classes and Series
The Exchange proposes to adopt new Interpretation and Policy .08 to
Rule 6.2B to set forth the modified HOSS opening procedures for Hybrid
classes and series used to calculate volatility indexes.
First, the Exchange proposes to set forth the applicable days for
when the modified HOSS opening procedures would apply. (All provisions
set forth in Rule 6.2B would remain in effect unless superseded or
modified by proposed Rule 6.2B.08.) For 30-day volatility indexes, the
modified HOSS opening procedures would be utilized on the days that the
exercise settlement value and final settlement value is calculated for
options (as determined under Rule 24.9(a)(5)) or (security) futures
contracts on volatility indexes measuring a 30-day volatility
period.\12\ For short-term volatility indexes, the modified HOSS
opening procedures would be utilized every Wednesday for Hybrid classes
and series that are used to calculate volatility indexes measuring a 9-
day volatility period. If a Wednesday is an Exchange holiday or if the
Friday in the business [sic] following a Wednesday is an Exchange
holiday, then the modified HOSS opening procedures would be utilized on
a Tuesday.\13\
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\12\ See supra note 1 [sic].
\13\ The Exchange is identifying the days that the modified HOSS
opening procedures would apply in proposed Rule 6.2B.08 because
those days need to be identified in order to calculate a final
settlement value for VXST futures. The Exchange expects to amend
this provision when the Exchange makes a filing with the Commission
to list VXST options. Specifically, the Exchange plans to establish
an expiration date and exercise settlement rule for VXST options
that would be comparable to Rule 24.9(a)(5).
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Second, the Exchange proposes to provide that on applicable days,
all orders in Hybrid classes and series used to calculate 30-day and
short-term volatility indexes (including public customer, broker-
dealer, Exchange Market-Maker, away Market-Maker and Specialist
orders), other than spread or contingency orders, would be eligible to
be placed on the electronic book for the purpose of permitting those
orders to participate in the opening price calculation for the
applicable option class or series.
Third, the Exchange proposes to establish criteria for strategy
orders, a cut-off time to be established by the Exchange on a class-by-
class basis and a prohibition against cancelling strategy orders; with
the limited exception that would permit strategy order to be cancelled
if the order is (i) not executed in the modified HOSS opening
procedures and the cancellation is submitted after the procedures have
concluded, or (ii) cancelled to correct a legitimate error. These
proposed provisions are substantially the same as the existing
provisions set forth in Rule 6.2B.01. The specific provisions proposed
to be adopted are:
On the days that the modified HOSS opening procedures would be
utilized, the following provisions would apply to all volatility index
option components:
All option orders for participation in modified HOSS
opening procedures that are related to positions in, or a trading
strategy involving, volatility index options or (security) futures, and
any change to or cancellation of any such order:
[cir] must be received prior to the applicable strategy order cut-
off time for the affected option series (established by the Exchange on
a class-by-class basis), provided that the strategy order cut-off time
will be no earlier than 8:00 a.m. and no later than the opening of
trading in the option series. All pronouncements regarding changes to
the applicable strategy order cut-off time would be announced at least
one day prior to implementation.
[cir] may not be cancelled or changed after the applicable strategy
order cut-off
[[Page 65405]]
time established in accordance with paragraph (c)(i) to Rule 6.2B.08,
unless the order is not executed in the modified HOSS opening
procedures and the cancellation or change is submitted after the
modified HOSS opening procedures are concluded (provided that any such
order may be changed or cancelled after the applicable strategy order
cut-off time established in accordance with paragraph (c)(i) to Rule
6.2B.08 and prior to applicable cut-off time established in accordance
with paragraph (d) to Rule 6.2B.08 in order to correct a legitimate
error, in which case the Trading Permit Holder submitting the change or
cancellation would be required to prepare and maintain a memorandum
setting forth the circumstances that resulted in the change or
cancellation and shall file a copy of the memorandum with the Exchange
no later than the next business day in a form and manner prescribed by
the Exchange).
In general, the Exchange would consider option orders to be related
to positions in, or a trading strategy involving, volatility index
options or (security) futures for purposes of Rule 6.2B.08 if the
orders possess the following three characteristics:
The orders are for option series with the expirations that
will be used to calculate the exercise settlement or final settlement
value of the applicable volatility index option or (security) futures
contract.
The orders are for options series spanning the full range
of strike prices for the appropriate expiration for options series that
will be used to calculate the exercise settlement or final settlement
value of the applicable volatility index option or (security) futures
contract, but not necessarily every available strike price.
The orders are for put options with strike prices less
than the ``at-the-money'' strike price and for call options with strike
prices greater than the ``at-the-money'' strike price. The orders may
also be for put and call options with ``at-the-money'' strike prices.
Whether option orders are related to positions in, or a trading
strategy involving, volatility index options or (security) futures for
purposes of this Rule 6.2B.08 would depend upon specific facts and
circumstances. Order types other than those provided above may also be
deemed by the Exchange to fall within this category of orders if the
Exchange determines that to be the case based upon the applicable facts
and circumstances.
Fourth, the Exchange proposes to provide that the provisions of
Rule 6.2B.08 may be suspended by two Floor Officials in the event of
unusual market conditions.
Fifth, the Exchange proposes to provide that all other option
orders for participation in the modified HOSS opening procedures, and
any change to or cancellation of any such order, would be required to
be received prior to the applicable cut-off time in order to
participate at the opening price for the applicable option series. The
applicable cut-off time for the affected option series would be
established by the Exchange on a class-by-class basis, provided the
cut-off time would be no earlier than 8:25 a.m. and no later than the
opening of trading in the option series. All pronouncements regarding
changes to the applicable cut-off time would be announced at least one
day prior to implementation.
Sixth, the Exchange proposes to provide that any imbalance of
contracts to buy over contracts to sell in the applicable option
series, or vice versa, as indicated on the electronic book, would be
published as soon as practicable up through the opening of trading in
the affected series on days that the modified HOSS opening procedures
are utilized.
The Exchange notes that there are certain provisions set forth in
Rule 6.2B.01 that the Exchange is not proposing to adopt as parallel
provision to proposed Rule 6.2B.08. The provisions set forth in Rules
6.2B.01(a), (b) and (c)(ii) pertain to opening requirements for
liquidity providers that only apply to Hybrid 3.0 classes and series.
For Hybrid classes and series, the applicable opening provisions for
liquidity providers are set forth in Rule 6.2B. The key difference is
that liquidity providers in Hybrid 3.0 classes and series are required
to enter opening quotes whereas no such requirement exists for Hybrid
classes and series.
In addition, the Exchange is not proposing to adopt a provision
similar to Rule 6.2B.01(c)(v) which provides that the HOSS system
automatically generates cancels immediately prior to the opening of the
applicable index option series for broker-dealer, Exchange Market-
Maker, away Market-Maker, and Specialist orders which remain on the
electronic book following the modified HOSS opening procedures. This is
another difference between Hybrid 3.0 classes and series and Hybrid
classes and series in that a similar automatic cancellation function
does not occur for Hybrid classes and series because orders from those
participants would be permitted to rest in the electronic book
following the modified HOSS opening procedures.
Proposed Non-Substantive Changes to Rule 6.2B.01
The Exchange is taking this opportunity to make some non-
substantive changes to Rule 6.2B.01. First, the Exchange is proposing
to delete the sentence that is set forth in from [sic] Rule 6.2B.01(b).
This provision provides that (on all days), series will not open if
there is not a quote present in that series that complies with the bid/
ask different [sic] requirements that the Exchange establishes on a
class-by-class basis. This same requirement is set forth earlier in
Rule 6.2(e). Therefore, the second sentence to Rule 6.2B.01(b) can be
deleted.
Second, the Exchange is proposing to amend Rule 6.2B.01(c)(i). On
all days, non-customer orders in Hybrid 3.0 classes and series are not
permitted to rest in the book after the open. Accordingly, non-
customers must submit ``opening rotation orders'' (``OPG'') in order to
participate in the opening.\14\ If non-customer orders are not
submitted as OPG orders, those orders will not participate in the
opening rotation. An OPG order is not technically a contingency but is
a requirement for non-customers to participate in the opening for
Hybrid 3.0 classes and series. As a result, the Exchange proposes to
add the phrase ``non-OPG'' before ``contingency orders'' in Rule
6.2B.01(c)(i) to make that rule clearer.
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\14\ See Rule 6.53(l), which defines ``Opening Rotation Order.''
After the opening rotation is concluded, unfilled OPG orders are
cancelled. See also CBOE Regulatory Circular RG07-097 (SPX Trading
on Hybrid 3.0).
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Third, the Exchange is proposing amend Rule 6.2B.01 to include the
correct terminology conventions for options and futures throughout Rule
6.2B.01. The Exchange notes that options expire on an expiration date
and settle to an exercise settlement value. Futures settle on a final
settlement date and settle to a final settlement value. Where
appropriate, the Exchange is adding the correct terminology throughout
Rule 6.2B.01.
Fourth, the Exchange is proposing to change the reference to
``month'' as used in Rule 6.2B.01(c)(i) and (c)(iii)(B)(2) [sic] to
``expiration.'' The reference to month is used to designate which
month's option series will be used to calculate a 30-day volatility
index. Because options series that expire more often than monthly will
be used to calculate the VXST, the Exchange is proposing to amend these
provisions to account for the existence of volatility
[[Page 65406]]
indexes that expire more frequently than on a once per month basis.
Fifth, the Exchange is proposing to add more specific rule
citations throughout Rule 6.2B.01. Currently, there are several cross
references throughout Rule 6.2B.01 to Rule 6.2B and Rule 6.2B.01. In
order to be more clear (because some of the same numbering conventions
are used in these provisions and could be confusing), the Exchange is
proposing to add specific rule references (instead of just
subparagraphs) throughout Rule 6.2B.01.
Sixth, the Exchange is proposing to replace the reference to the
``opening bell'' to [sic] the ``opening of trading in the affected
series'' in Rule 6.2B.01(vi) [sic]. This change is being proposed to
make that provision more specific in its description of when imbalances
will be published.
Finally, the Exchange is proposing to make a few grammatical
changes throughout Rule 6.2B.01.
Proposed Changes to Rule 24.9(a)(5)
The Exchange is proposing to amend Rule 24.9(a)(5), which sets
forth the method of determining the day that the exercise settlement
value will be calculated and of determining the expiration date and
last trading day for volatility index options. Specifically, the
Exchange is proposing to add the phrase ``Measure a 30-Day Volatility
Period.'' This change is being proposed to account for the existence of
two different volatility index products that overlie different implied
volatility measurement periods. As described in footnote 13, when the
Exchange makes a filing with the Commission to list VXST options, the
Exchange plans to establish a proposed similar rule setting forth
similar information for VXST options.
Surveillance
The Exchange currently conducts heightened surveillance on the days
when the modified HOSS opening procedures are utilized. Those same
heightened surveillance practices will be utilized on every Wednesday
and the Exchange represents that these surveillance practices shall be
adequate to monitor trading in all constituent option series used to
calculate volatility indexes. The Exchange expects to enhance
surveillance practices in tandem with any resultant trading volume
growth.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\15\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \16\ requirements that the rules
of an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The primary purpose of the proposed rule change is to establish a
strategy-order cut-off time for option series on the day those option
series are used to calculate the exercise settlement/final settlement
value for volatility index options and futures. Because those option
series are typically used to hedge VIX derivatives, market participant
[sic] liquidating their hedges on expiration/final settlement dates may
contributed to an order imbalance. The proposed rule change will
protect investors and the public interest because the strategy order
cut-off time provides a time period prior to the open of trading during
which market participants may help reduce order imbalances for
volatility index options. The Exchange notes that a series will not
open if there is an imbalance. By creating a window of opportunity to
enter orders that reduce any order imbalances to which strategy orders
may have contributed, the Exchange is establishing a procedure that is
designate [sic] to facilitate a more stable opening process.
In addition, the Exchange hopes that the establishment of a
strategy cut-off time will result in market participants submitting
orders that would result in price improvement to the option series used
to calculate exercise settlement/final settlement values for volatility
index derivatives.
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. Specifically, CBOE believes that the
establishment of a strategy-order cut-off time results in all market
participants, that hedge volatility index derivative using constituent
volatility index options, being treated the same and does not impose
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate 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 will:
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
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
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2013-102 on the subject line.
Paper Comments
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-CBOE-2013-102. 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
[[Page 65407]]
public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will 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-CBOE-2013-102 and should be submitted on or before
November 21, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-25828 Filed 10-30-13; 8:45 am]
BILLING CODE 8011-01-P
