Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval of Proposed Rule Change To List and Trade CBOE Short-Term Volatility Index Options, 17212-17214 [2014-06758]
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17212
Federal Register / Vol. 79, No. 59 / Thursday, March 27, 2014 / Notices
will invest at least 80% of such
Portfolio’s net assets in equity
securities.
(9) Neither the Funds nor the
Portfolios will invest in options
contracts, futures contracts, or swap
agreements.
(10) A Portfolio will enter into TBA
transactions only with established
counterparties (such as major brokerdealers) and the Adviser will monitor
the creditworthiness of such
counterparties.
(11) Each Fund’s investments will be
consistent with its investment objective
and will not be used to enhance
leverage. While the Funds may invest in
inverse ETFs, the Funds will not invest
in leveraged or inverse leveraged ETFs
(e.g., 2X or 3X).
(12) A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Funds.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 33 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,34 that the
proposed rule change (SR–NYSEArca–
2014–11) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–06760 Filed 3–26–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71764; File No. SR–CBOE–
2014–003]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
of Proposed Rule Change To List and
Trade CBOE Short-Term Volatility
Index Options
March 21, 2014.
I. Introduction
On January 27, 2014, the Chicago
Board Options Exchange, Incorporated
(‘‘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
list options on the CBOE Short-Term
Volatility Index (‘‘VXST’’). The
proposed rule change was published for
comment in the Federal Register on
February 6, 2014.3 The Commission
received no comments on the proposed
rule change. This order grants approval
of the proposed rule change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade A.M. cash-settled, European-style
options on the VXST, which will expire
every week. According to the Exchange,
VXST is designed to measure investors’
consensus view of future (nine day)
expected stock market volatility, and
VXST options will trade alongside the
existing CBOE Volatility Index (‘‘VIX’’)
options (which expire on a monthly
basis and measure a 30 day period of
implied volatility).4 The Exchange states
that the calculation of VXST is based on
the VIX methodology as applied to
option series on the S&P 500 index that
expire on every Friday.5 The constituent
S&P 500 index options that expire on a
Friday (i.e., nine days from the VXST
option expiration date, which is
typically a Wednesday in the preceding
week) may include the following types
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 71458
(January 31, 2014), 79 FR 7239 (‘‘Notice’’).
4 According to the Exchange, the VXST index was
introduced by CBOE on October 1, 2013 and has
been disseminated at least once a day on every
trading day since that time. See Notice, supra note
3, at 7239–40.
5 The Exchange states that VXST is calculated in
the same manner as other volatility indexes (e.g.,
VIX). A more detailed explanation of the method
used to calculate the VIX may be found on the
CBOE’s Web site at https://www.cboe.com/micro/
vix/vixwhite.pdf. See Notice, supra note 3, at 7240.
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2 17
33 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
35 17 CFR 200.30–3(a)(12).
34 15
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of options on the S&P 500 index:
Standard monthly options, End-of-Week
(‘‘EOW’’) expirations, and Quarterly
Index (‘‘QIX’’) expirations. According to
the Exchange, because some of the
constituent options used to calculate
VXST are A.M.-settled and some are
P.M.-settled, the amount of time covered
by a specific contract will vary slightly
depending on the type of series used for
any given A.M.-settled VXST option.6
Similar to VIX and VIX options, the
cash (spot) VXST value will be
calculated using premium quotations
and the exercise settlement value for
VXST options will be calculated using
the actual opening premium prices of
the constituent S&P 500 index options
on the expiration day of the VXST
option.7 The Exchange will compute
values for VXST on a real-time basis
throughout each trading day, from
approximately 8:30 a.m. (Chicago time)
until approximately 3:15 p.m. (Chicago
time).8 VXST levels will be calculated
by CBOE and generally disseminated at
15-second intervals to major market data
vendors.9 The trading hours for VXST
options will be from 8:30 a.m. to 3:15
p.m. (Chicago time).10
The Exchange proposes to list up to
12 near-term VXST option expiration
weeks, and that new series will be
permitted to be added up to and
including on the last day of trading for
an expiring VXST option contract.11
As proposed, the exercise settlement
value for a VXST option will be
calculated on the specific date (usually
a Wednesday) identified in the option
symbol for the series.12 If that
6 For a VXST option contract calculated using
A.M.-settled standard S&P 500 index options, the
period of implied volatility covered by the contract
will be exactly nine days. For a VXST option
contract calculated using P.M.-settled EOW or QIX
on the S&P 500 index, the period of implied
volatility covered by the contract will be nine days,
plus 390 minutes. See Notice, supra note 3, at 7240.
7 See id.
8 See id.
9 According to the Exchange, when VIX options
and VXST options expire on the same day, as the
calculator of volatility indexes, CBOE would not
begin disseminating the spot (cash) values for any
volatility index that CBOE calculates until the S&P
500 index option series that CBOE will use to
calculate the exercise settlement value for VIX
options have opened. On all other VXST option
expiration days, as the calculator of volatility
indexes, CBOE would not begin disseminating the
spot (cash) values for any volatility index that
CBOE calculates until the S&P 500 index option
series that CBOE will use to calculate the exercise
settlement value for VXST options have opened.
See id., at n. 8.
10 See id., at 7241.
11 See CBOE Rules 24.9(a)(2) and 24.9.01(c).
12 See CBOE Rule 24.9(a)(6). According to the
Exchange, option symbols are constructed as
follows: Symbol + Expiration Date (Year, Month,
Day) + Call or Put + Strike Price (in dollars to three
decimal places). See Notice, supra note 3, at n. 14.
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Wednesday or the Friday in the
business week following that
Wednesday (i.e., nine days away) is an
Exchange holiday, the exercise
settlement value will be calculated on
the business day immediately preceding
the Wednesday.13 According to the
Exchange, on the day the exercise
settlement value is calculated for VXST
options, modified Hybrid Opening
System (‘‘HOSS’’) opening procedures
will be used to calculate the exercise
settlement value.14 The exercise
settlement value of a VXST option will
be calculated by the Exchange as a
Special Opening Quotation (‘‘SOQ’’) of
VXST using the sequence of opening
prices of the options that comprise the
VXST index.15 The opening price for
any series in which there is no trade
will be the average of that option’s bid
price and ask price as determined at the
opening of trading.16 The ‘‘time to
expiration’’ used to calculate the SOQ
will account for the actual number of
days and minutes until expiration for
the constituent option series.17
The expiration date of a VXST option
will be on the same day that the exercise
settlement value of the VXST option is
calculated.18 The last trading day for a
VXST option will be the business day
immediately preceding the expiration
date of the VXST option (typically a
Tuesday).19 When the last trading day is
moved because of an Exchange holiday,
the last trading day for an expiring
VXST option contract will be the day
immediately preceding the last regularly
scheduled trading day.20 Exercise will
result in delivery of cash on the
business day following expiration. The
exercise-settlement amount will be
equal to the difference between the
exercise-settlement value and the
exercise price of the option, multiplied
by $100.
As proposed, VXST options will be
quoted in index points and fractions
and one point will equal $100.21 The
Exchange proposes that the minimum
tick size for series trading below $3 will
be 0.05 ($5.00) and above $3 will be
0.10 ($10.00).22 The Exchange proposes
13 See
CBOE Rule 24.9(a)(6).
CBOE Rules 6.2B.01 and 6.2B.08. The
Exchange states that the main feature of the
modified HOSS opening procedures is the strategy
order cut-off time for the constituent option series
that will be used to calculate the exercise settlement
value of a volatility index. See Notice, supra note
3, at n. 15.
15 See CBOE Rule 24.9(a)(6).
16 See id.
17 See id.
18 See id.
19 See id.
20 See id.
21 See Notice, supra note 3, at 7240.
22 See id., at 7240–41.
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14 See
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to permit $0.50 (or greater) strike price
intervals for VXST options where the
strike price is less than $75. The
Exchange also proposes to permit $1 (or
greater) strike price intervals for VXST
options where the strike price is $200 or
less. Further, the Exchange proposes to
permit $5 (or greater) strike price
intervals for VXST options where the
strike price is greater than $200.23
The Exchange does not propose to
establish any position or exercise limits
for VXST options.24 In addition, the
Exchange proposes that VXST options
be margined as ‘‘broad-based index’’
options.25 The Exchange notes that,
except as modified by this proposed
rule change, Chapters I through XIX and
Chapter XXIV of its rules will apply to
VXST options.26
The Exchange states that it has
analyzed its capacity and represents that
it believes the Exchange and the
Options Price Reporting Authority
(‘‘OPRA’’) have the necessary systems
capacity to handle the additional traffic
associated with the listing of new series
that will result from the introduction of
VXST options.27
The Exchange represents that it will
use the same surveillance procedures
currently utilized for its other index
options to monitor trading in VXST
options, as well as enhanced
surveillance procedures at expiration,
several of which would be automated.28
The Exchange further represents that
these surveillance procedures will be
adequate to monitor trading in VXST
options.29 The Exchange states that, for
surveillance purposes, it will have
complete access to information
regarding trading activity in the
pertinent underlying securities.30
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
23 See CBOE Rules 5.5.23 and 24.9.01(i). The
Exchange also proposes to make a technical change
to CBOE Rule 24.9.12, which permits $0.50 and $1
strike price intervals for index options used to
calculate volatility indexes. Specifically, the
Exchange notes that it proposes to add ‘‘and $150’’
to the rule text as those two words were
inadvertently omitted from the proposed rule text
changes to Rule 24.9.12 contained in original rule
filing, but were described in detail in the purpose
section. See Notice, supra note 3, at 7241 and n. 13.
24 See CBOE Rules 24.4(a) and 24.5. According to
the Exchange, VXST options will be subject to the
same reporting requirements triggered for other
options dealt in on the Exchange. See Notice, supra
note 3, at 7242 and CBOE Rule 24.4.03.
25 See CBOE Rules 12.3 and 24.4.04.
26 See Notice, supra note 3, at 7242.
27 See id.
28 See id.
29 See id.
30 See id.
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17213
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.31 Specifically, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,32 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest.
Specifically, the Commission believes
that VXST options will provide
investors with an additional trading and
hedging mechanism. In addition, the
Commission believes that the
Exchange’s proposal with respect to
position limits, margin, strike price
intervals, minimum trading increments,
series openings, exercise limits, and
other aspects of the proposed rule
change are appropriate and consistent
with the Act.
As a national securities exchange, the
Exchange is required, under Section
6(b)(1) of the Act,33 to enforce
compliance by its members and persons
associated with its members with the
provisions of the Act, Commission rules
and regulations thereunder, and its own
rules. In this regard, the Commission
notes that trading of VXST options will
be subject to Chapters I through XIX and
Chapter XXIV of CBOE rules.34
Moreover, the Exchange has represented
that it will use the same surveillance
procedures currently utilized for its
other index options to monitor trading
in VXST options, as well as enhanced
surveillance procedures at expiration,
several of which would be automated.35
The Exchange has represented that these
surveillance procedures will be
adequate to monitor trading in VXST
options.36 The Exchange also stated that
it will have complete access to
information regarding trading activity in
the pertinent underlying securities.37 In
approving the proposed listing and
trading of the VXST options, the
Commission has also relied on the
Exchange’s representation that it and
the OPRA have the necessary systems
31 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).
32 15 U.S.C. 78f(b)(5).
33 15 U.S.C. 78f(b)(1).
34 See supra note 26 and accompanying text.
35 See supra note 28 and accompanying text.
36 See supra note 29 and accompanying text.
37 See supra note 30 and accompanying text.
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Federal Register / Vol. 79, No. 59 / Thursday, March 27, 2014 / Notices
capacity to handle the additional traffic
associated with the listing of new series
that will result from the introduction of
VXST options.38
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,39 that the
proposed rule change (SR–CBOE–2014–
003) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–06758 Filed 3–26–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71769; File No. SR–OCC–
2014–05]
Self-Regulatory Organizations; the
Options Clearing Corporation; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Reflect
the Elimination of a Discount to OCC’s
Clearing Fee Schedule
March 21, 2014.
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 March
21, 2014, The Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I and II
below, which Items have been prepared
primarily by OCC. OCC filed the
proposed rule change pursuant to
Section 19(b)(3)(A) 3 of the Act and Rule
19b–4(f)(2) 4 thereunder, so that the
proposal was effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the rule change from
interested parties.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
tkelley on DSK3SPTVN1PROD with NOTICES
OCC proposes to amend its Schedule
of Fees, effective April 1, 2014, to reflect
the elimination of a discount to OCC’s
clearing fee schedule.
38 See
supra note 27 and accompanying text.
U.S.C. 78s(b)(2).
40 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(2).
39 15
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II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC 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. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The purpose of this proposed rule
change is to amend OCC’s Schedule of
Fees to reinstate the permanent reduced
fee schedule adopted, effective May 1,
2007, for securities options and
securities futures.5 In conjunction with
adopting this permanent reduced fee
schedule, OCC simultaneously
discounted the permanent schedule.
Effective January 1, 2008, OCC replaced
the May 1, 2007, discounted schedule 6
with the discount remaining in effect
until further action of by the Board.
Implementation of this schedule was
premised on the discounts not adversely
affecting OCC’s ability to meet its
expenses and maintain an acceptable
level of retained earnings. Article IX,
Section 9 of OCC’s By-Laws permits
OCC to establish a fee structure to cover
operating expenses, to maintain reserves
as are deemed reasonably necessary by
the Board to provide facilities for the
conduct of OCC’s business and to
accumulate such additional surplus as
the Board deems advisable to allow OCC
to meet its obligations to clearing
members and the general public.
OCC has determined to reinstate its
permanent reduced fee schedule. OCC’s
revenues principally are derived from
clearing fees charged to clearing
members and OCC’s current and
projected operating expenses have
increased due to current and anticipated
regulatory requirements.7 These
5 See Exchange Act Release No. 34–55709 (May
4, 2007), 72 FR 26669 (May 10, 2007) (SR–OCC–
2007–05). This schedule is applied to futures and
futures options as well.
6 See Exchange Act Release No. 34–57192
(January 24, 2008), 73 FR 5618 (January 30, 2008)
(SR–OCC–2007–17).
7 See Statements of Income and Comprehensive
Income in OCC’s 2013 Annual Report available on
OCC’s Web site, www.theocc.com. In 2013, clearing
fees represented over 90% of OCC’s total revenues.
Between 2012 and 2013, OCC annual expenses
increased by approximately 9%. OCC’s currently
projects a greater increase in expenses in 2014.
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requirements include those proposed by
the Commission at its meeting on March
12, 2014, requiring OCC to be in a
position to cover potential general
business losses so that it can continue
operations if those losses materialize.8
OCC’s current and anticipated operating
expenses have also increased as a result
of costs associated with the engagement
of outside professionals to address
various regulatory issues arising under
the Dodd-Frank Act, notably additional
expectations and requirements arising
from OCC’s status as a Systemically
Important Financial Market Utility
(‘‘SIFMU’’), and OCC’s assessment of
and compliance with international
standards applicable to clearing
agencies. Employee costs additionally
are expected to rise further in 2014 as
resources are enhanced to meet current
and anticipated regulatory obligations,
including increased requirements to
produce data, analysis and information
to the Commission in connection with
its exercise of its supervisory authority
over OCC.
As noted above, the Board
unanimously determined to reinstate
the permanent reduced fee schedule to
compensate for these increased
expenses. In making this determination,
the Board carefully considered the
requirements of Article IX, Section 9 of
OCC’s By-Laws as well as the
expectations and obligations imposed
upon OCC as a SIFMU in the national
system for clearance and settlement.
The Board further evaluated the
potential for a refund of clearing fees in
2014. While no affirmative decision has
been made by the Board regarding such
refund, the Board recognized that OCC’s
current funding, reserve and surplus
needs might result in refunds, if any,
which are significantly lower in 2014
than in past years.9 OCC will monitor
the impact of returning to the
permanent reduced fee schedule as well
as OCC’s needs to evaluate whether
additional action should be taken. For
example, changes in revenues as a result
of significant fluctuations in cleared
volume (upwards or downwards) may
8 See Exchange Act Release No. 34–71699 (March
12, 2014). OCC anticipates that these requirements
will need to be met by the end of 2014. The
determination to reinstate the permanent reduced
fee schedule was based on an analysis of such
requirements and such reinstatement being effective
April 1, 2014. Implementation thereafter potentially
could have required an increase in the fees beyond
the reinstatement of the permanent reduced fee
schedule.
9 See OCC’s 2013 Annual Report, Footnote 8 to
the Notes to the Financial Statements for a
description of recent past refunds. Footnote 8
further discusses that OCC’s Board sets clearing fees
and determines the amounts of refunds, fee
reductions and discounts, if any, based upon OCC’s
current funding needs.
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Agencies
[Federal Register Volume 79, Number 59 (Thursday, March 27, 2014)]
[Notices]
[Pages 17212-17214]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06758]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71764; File No. SR-CBOE-2014-003]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of Proposed Rule Change To List
and Trade CBOE Short-Term Volatility Index Options
March 21, 2014.
I. Introduction
On January 27, 2014, the Chicago Board Options Exchange,
Incorporated (``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 list options on the CBOE
Short-Term Volatility Index (``VXST''). The proposed rule change was
published for comment in the Federal Register on February 6, 2014.\3\
The Commission received no comments on the proposed rule change. This
order grants approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 71458 (January 31,
2014), 79 FR 7239 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade A.M. cash-settled,
European-style options on the VXST, which will expire every week.
According to the Exchange, VXST is designed to measure investors'
consensus view of future (nine day) expected stock market volatility,
and VXST options will trade alongside the existing CBOE Volatility
Index (``VIX'') options (which expire on a monthly basis and measure a
30 day period of implied volatility).\4\ The Exchange states that the
calculation of VXST is based on the VIX methodology as applied to
option series on the S&P 500 index that expire on every Friday.\5\ The
constituent S&P 500 index options that expire on a Friday (i.e., nine
days from the VXST option expiration date, which is typically a
Wednesday in the preceding week) may include the following types of
options on the S&P 500 index: Standard monthly options, End-of-Week
(``EOW'') expirations, and Quarterly Index (``QIX'') expirations.
According to the Exchange, because some of the constituent options used
to calculate VXST are A.M.-settled and some are P.M.-settled, the
amount of time covered by a specific contract will vary slightly
depending on the type of series used for any given A.M.-settled VXST
option.\6\
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\4\ According to the Exchange, the VXST index was introduced by
CBOE on October 1, 2013 and has been disseminated at least once a
day on every trading day since that time. See Notice, supra note 3,
at 7239-40.
\5\ The Exchange states that VXST is calculated in the same
manner as other volatility indexes (e.g., VIX). A more detailed
explanation of the method used to calculate the VIX may be found on
the CBOE's Web site at https://www.cboe.com/micro/vix/vixwhite.pdf.
See Notice, supra note 3, at 7240.
\6\ For a VXST option contract calculated using A.M.-settled
standard S&P 500 index options, the period of implied volatility
covered by the contract will be exactly nine days. For a VXST option
contract calculated using P.M.-settled EOW or QIX on the S&P 500
index, the period of implied volatility covered by the contract will
be nine days, plus 390 minutes. See Notice, supra note 3, at 7240.
---------------------------------------------------------------------------
Similar to VIX and VIX options, the cash (spot) VXST value will be
calculated using premium quotations and the exercise settlement value
for VXST options will be calculated using the actual opening premium
prices of the constituent S&P 500 index options on the expiration day
of the VXST option.\7\ The Exchange will compute values for VXST on a
real-time basis throughout each trading day, from approximately 8:30
a.m. (Chicago time) until approximately 3:15 p.m. (Chicago time).\8\
VXST levels will be calculated by CBOE and generally disseminated at
15-second intervals to major market data vendors.\9\ The trading hours
for VXST options will be from 8:30 a.m. to 3:15 p.m. (Chicago
time).\10\
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\7\ See id.
\8\ See id.
\9\ According to the Exchange, when VIX options and VXST options
expire on the same day, as the calculator of volatility indexes,
CBOE would not begin disseminating the spot (cash) values for any
volatility index that CBOE calculates until the S&P 500 index option
series that CBOE will use to calculate the exercise settlement value
for VIX options have opened. On all other VXST option expiration
days, as the calculator of volatility indexes, CBOE would not begin
disseminating the spot (cash) values for any volatility index that
CBOE calculates until the S&P 500 index option series that CBOE will
use to calculate the exercise settlement value for VXST options have
opened. See id., at n. 8.
\10\ See id., at 7241.
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The Exchange proposes to list up to 12 near-term VXST option
expiration weeks, and that new series will be permitted to be added up
to and including on the last day of trading for an expiring VXST option
contract.\11\
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\11\ See CBOE Rules 24.9(a)(2) and 24.9.01(c).
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As proposed, the exercise settlement value for a VXST option will
be calculated on the specific date (usually a Wednesday) identified in
the option symbol for the series.\12\ If that
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Wednesday or the Friday in the business week following that Wednesday
(i.e., nine days away) is an Exchange holiday, the exercise settlement
value will be calculated on the business day immediately preceding the
Wednesday.\13\ According to the Exchange, on the day the exercise
settlement value is calculated for VXST options, modified Hybrid
Opening System (``HOSS'') opening procedures will be used to calculate
the exercise settlement value.\14\ The exercise settlement value of a
VXST option will be calculated by the Exchange as a Special Opening
Quotation (``SOQ'') of VXST using the sequence of opening prices of the
options that comprise the VXST index.\15\ The opening price for any
series in which there is no trade will be the average of that option's
bid price and ask price as determined at the opening of trading.\16\
The ``time to expiration'' used to calculate the SOQ will account for
the actual number of days and minutes until expiration for the
constituent option series.\17\
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\12\ See CBOE Rule 24.9(a)(6). According to the Exchange, option
symbols are constructed as follows: Symbol + Expiration Date (Year,
Month, Day) + Call or Put + Strike Price (in dollars to three
decimal places). See Notice, supra note 3, at n. 14.
\13\ See CBOE Rule 24.9(a)(6).
\14\ See CBOE Rules 6.2B.01 and 6.2B.08. The Exchange states
that the main feature of the modified HOSS opening procedures is the
strategy order cut-off time for the constituent option series that
will be used to calculate the exercise settlement value of a
volatility index. See Notice, supra note 3, at n. 15.
\15\ See CBOE Rule 24.9(a)(6).
\16\ See id.
\17\ See id.
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The expiration date of a VXST option will be on the same day that
the exercise settlement value of the VXST option is calculated.\18\ The
last trading day for a VXST option will be the business day immediately
preceding the expiration date of the VXST option (typically a
Tuesday).\19\ When the last trading day is moved because of an Exchange
holiday, the last trading day for an expiring VXST option contract will
be the day immediately preceding the last regularly scheduled trading
day.\20\ Exercise will result in delivery of cash on the business day
following expiration. The exercise-settlement amount will be equal to
the difference between the exercise-settlement value and the exercise
price of the option, multiplied by $100.
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\18\ See id.
\19\ See id.
\20\ See id.
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As proposed, VXST options will be quoted in index points and
fractions and one point will equal $100.\21\ The Exchange proposes that
the minimum tick size for series trading below $3 will be 0.05 ($5.00)
and above $3 will be 0.10 ($10.00).\22\ The Exchange proposes to permit
$0.50 (or greater) strike price intervals for VXST options where the
strike price is less than $75. The Exchange also proposes to permit $1
(or greater) strike price intervals for VXST options where the strike
price is $200 or less. Further, the Exchange proposes to permit $5 (or
greater) strike price intervals for VXST options where the strike price
is greater than $200.\23\
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\21\ See Notice, supra note 3, at 7240.
\22\ See id., at 7240-41.
\23\ See CBOE Rules 5.5.23 and 24.9.01(i). The Exchange also
proposes to make a technical change to CBOE Rule 24.9.12, which
permits $0.50 and $1 strike price intervals for index options used
to calculate volatility indexes. Specifically, the Exchange notes
that it proposes to add ``and $150'' to the rule text as those two
words were inadvertently omitted from the proposed rule text changes
to Rule 24.9.12 contained in original rule filing, but were
described in detail in the purpose section. See Notice, supra note
3, at 7241 and n. 13.
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The Exchange does not propose to establish any position or exercise
limits for VXST options.\24\ In addition, the Exchange proposes that
VXST options be margined as ``broad-based index'' options.\25\ The
Exchange notes that, except as modified by this proposed rule change,
Chapters I through XIX and Chapter XXIV of its rules will apply to VXST
options.\26\
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\24\ See CBOE Rules 24.4(a) and 24.5. According to the Exchange,
VXST options will be subject to the same reporting requirements
triggered for other options dealt in on the Exchange. See Notice,
supra note 3, at 7242 and CBOE Rule 24.4.03.
\25\ See CBOE Rules 12.3 and 24.4.04.
\26\ See Notice, supra note 3, at 7242.
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The Exchange states that it has analyzed its capacity and
represents that it believes the Exchange and the Options Price
Reporting Authority (``OPRA'') have the necessary systems capacity to
handle the additional traffic associated with the listing of new series
that will result from the introduction of VXST options.\27\
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\27\ See id.
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The Exchange represents that it will use the same surveillance
procedures currently utilized for its other index options to monitor
trading in VXST options, as well as enhanced surveillance procedures at
expiration, several of which would be automated.\28\ The Exchange
further represents that these surveillance procedures will be adequate
to monitor trading in VXST options.\29\ The Exchange states that, for
surveillance purposes, it will have complete access to information
regarding trading activity in the pertinent underlying securities.\30\
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\28\ See id.
\29\ See id.
\30\ See id.
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III. Discussion and Commission Findings
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.\31\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\32\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest. Specifically, the Commission believes that VXST options will
provide investors with an additional trading and hedging mechanism. In
addition, the Commission believes that the Exchange's proposal with
respect to position limits, margin, strike price intervals, minimum
trading increments, series openings, exercise limits, and other aspects
of the proposed rule change are appropriate and consistent with the
Act.
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\31\ 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).
\32\ 15 U.S.C. 78f(b)(5).
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As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\33\ to enforce compliance by its members
and persons associated with its members with the provisions of the Act,
Commission rules and regulations thereunder, and its own rules. In this
regard, the Commission notes that trading of VXST options will be
subject to Chapters I through XIX and Chapter XXIV of CBOE rules.\34\
Moreover, the Exchange has represented that it will use the same
surveillance procedures currently utilized for its other index options
to monitor trading in VXST options, as well as enhanced surveillance
procedures at expiration, several of which would be automated.\35\ The
Exchange has represented that these surveillance procedures will be
adequate to monitor trading in VXST options.\36\ The Exchange also
stated that it will have complete access to information regarding
trading activity in the pertinent underlying securities.\37\ In
approving the proposed listing and trading of the VXST options, the
Commission has also relied on the Exchange's representation that it and
the OPRA have the necessary systems
[[Page 17214]]
capacity to handle the additional traffic associated with the listing
of new series that will result from the introduction of VXST
options.\38\
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\33\ 15 U.S.C. 78f(b)(1).
\34\ See supra note 26 and accompanying text.
\35\ See supra note 28 and accompanying text.
\36\ See supra note 29 and accompanying text.
\37\ See supra note 30 and accompanying text.
\38\ See supra note 27 and accompanying text.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\39\ that the proposed rule change (SR-CBOE-2014-003) be, and
hereby is, approved.
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\39\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06758 Filed 3-26-14; 8:45 am]
BILLING CODE 8011-01-P