Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Options That Overlie the FTSE Developed Europe Index and the FTSE Emerging Index and To Amend the Maintenance Listing Criteria Applicable to Certain Index Options, 62208-62212 [2016-21643]
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62208
Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,20
that the proposed rule change (SR–
BatsEDGX–2016–26), as modified by
Amendment No. 1, be and hereby is
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Brent J. Fields,
Secretary.
[FR Doc. 2016–21650 Filed 9–7–16; 8:45 am]
BILLING CODE 8011–01–P
II. Description of the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78760; File No. SR–CBOE–
2016–049]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To List and Trade
Options That Overlie the FTSE
Developed Europe Index and the FTSE
Emerging Index and To Amend the
Maintenance Listing Criteria
Applicable to Certain Index Options
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September 2, 2016.
I. Introduction
On June 15, 2016, 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 and trade options that overlie the
FTSE Developed Europe Index and the
FTSE Emerging Index, to raise the
comprehensive surveillance agreement
(‘‘CSA’’) percentages applicable to
options that overlie the MSCI EAFE
Index and the MSCI Emerging Markets
Index, and to amend the maintenance
listing criteria applicable to MSCI EAFE,
MSCI Emerging Markets, FTSE 100, and
FTSE China 50 Index options. The
proposed rule change was published for
comment in the Federal Register on July
1, 2016.3 On August 9, 2016, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
20 Id.
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 78177
(Jun. 28, 2016), 81 FR 43308 (‘‘Notice’’).
1 15
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19:34 Sep 07, 2016
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.4 On August 25,
2016, the Exchange filed Amendment
No. 1 to the proposed rule change.5 The
Commission received no comments on
the proposed rule change. The
Commission is publishing this notice to
solicit comment on Amendment No. 1
to the proposed rule change from
interested persons and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
Jkt 238001
A. Listing and Trading of FTSE
Developed Europe Index and FTSE
Emerging Index Options
The Exchange proposes to list and
trade P.M. cash-settled, European-style
options on the FTSE Developed Europe
Index and the FTSE Emerging Index.6
4 See Securities Exchange Act Release No. 78511,
81 FR 54173 (Aug. 15, 2016).
5 Pursuant to Amendment No. 1, the Exchange
proposes to (i) retain the current CSA percentages
applicable to the initial and continued listing of
MSCI EAFE and MSCI Emerging Markets Index
options at 25% and 27.5%, respectively (the
original proposal would have raised such CSA
percentages to 50%) and (ii) decrease the proposed
CSA percentages applicable to the initial and
continued listing of FTSE Developed Europe and
FTSE Emerging Index options to 32.5% and 35%,
respectively (the original proposal would have set
such CSA percentages at 50%). Thus, as amended
by Amendment No. 1, proposed Rule 24.2,
Interpretation and Policy .01(a)(7) provides that
‘‘non-U.S. component securities (stocks or ADRs)
that are not subject to comprehensive surveillance
agreements do not, in the aggregate, represent more
than: (i) Twenty-five percent (25%) of the weight
of the [MSCI] EAFE Index, (ii) twenty-seven and a
half percent (27.5%) of the weight of the [MSCI
Emerging Markets] Index, (iii) thirty-two and a half
percent (32.5%) of the weight of the FTSE
Developed [Europe] Index, and (iv) thirty-five
percent (35%) of the weight of the FTSE Emerging
Index.’’ In addition, Amendment No. 1 amends the
proposed maintenance listing criteria applicable to
FTSE Developed Europe, FTSE Emerging, MSCI
EAFE, MSCI Emerging Markets, FTSE 100, and
FTSE China 50 Index options to require that the
CSA percentages applicable to such products be
satisfied as of the first day of the month following
the Reporting Authority’s review of the weighting
of the constituents in the applicable index, but in
no case less than on a quarterly basis (the original
proposal would have provided that the CSA
requirements for such products must only be
satisfied as of the first day of the January and July
in each year). Amendment No. 1 is available at:
https://www.cboe.com/publish/RuleFilingsSEC/SRCBOE-2016-049.a1.pdf.
6 The Exchange proposes to list up to twelve nearterm expiration months for the FTSE Developed
Europe and FTSE Emerging Index options. The
Exchange also proposes to list LEAPS on the FTSE
Developed Europe Index and the FTSE Emerging
Index. The Exchange proposes that options on the
FTSE Developed Europe Index and the FTSE
Emerging Index would be eligible for all other
expirations permitted for other broad-based indexes
(e.g., End of Week/End of Month/Wednesday
Expirations, Short Term Option Series, and
Quarterly Options Series). In addition, the
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The following discussion is a summary
of the Exchange’s description of its
proposed listing criteria for the FTSE
Developed Europe and FTSE Emerging
Index options.7
According to the Exchange, the FTSE
Developed Europe Index is a weighted
index representing the performance of
large- and mid-cap companies in
Developed European markets. The FTSE
Developed Europe Index is comprised of
over 500 securities from 15 countries.
According to the Exchange, the FTSE
Emerging Index is a weighted index
representing the performance of largeand mid-cap companies in advanced
and secondary emerging markets. The
FTSE Emerging Index is comprised of
approximately 950 securities from 22
countries.8 The Exchange states that the
indexes are monitored and maintained
by FTSE International Limited
(‘‘FTSE’’).9 Adjustments to the indexes
can be made on a daily basis, and FTSE
reviews the indexes semi-annually.
According to the Exchange, the FTSE
Developed Europe Index is calculated
and published in U.S. dollars on a realtime basis during U.S. trading hours
from 2:00 a.m. to 10:30 a.m. (Chicago
time). At 10:30 a.m. (Chicago time) the
real-time index closes using the closing
prices from the London Stock Exchange
and between 10:30 a.m. and 3:15 p.m.
(Chicago time) the FTSE Developed
Europe Index level is a static value that
market participants can access via data
vendors. The FTSE Emerging Index is
calculated and published in U.S. dollars
on a real-time basis during U.S. trading
hours from 6:30 p.m. (Chicago time,
prior day) to 3:10 p.m. (Chicago time,
next day). At 3:10 p.m. (Chicago time)
the real-time index closes using the
closing prices from Brazil, Chile, Peru,
and Mexico and between 3:10 p.m. and
3:15 p.m. (Chicago time) the FTSE
Emerging Index level is a static value
that market participants can access via
data vendors.
The methodologies used to calculate
the FTSE Developed Europe Index and
the FTSE Emerging Index are similar to
the methodology used to calculate the
value of other benchmark marketExchange proposes to designate the FTSE
Developed Europe Index and the FTSE Emerging
Index as eligible for trading as FLEX options.
7 For a more complete description of the FTSE
Developed Europe Index and the FTSE Emerging
Index, and CBOE’s proposed listing criteria for
options on these indexes, see Notice, supra note 3.
8 The Exchange states that the FTSE Developed
Europe Index and the FTSE Emerging Index each
meet the definition of a broad-based index as set
forth in Exchange Rule 24.1(i)(1).
9 The Exchange proposes to designate FTSE as the
reporting authority for the FTSE Developed Europe
Index and the FTSE Emerging Index.
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capitalization weighted indexes.10 Realtime data is distributed at least every 15
seconds while the indexes are being
calculated using FTSE’s real-time
calculation engine to Bloomberg L.P.
(‘‘Bloomberg’’), Thomson Reuters
(‘‘Reuters’’), and other major vendors.
End of day data is distributed daily to
clients through FTSE as well as through
major quotation vendors, including
Bloomberg and Reuters.
The Exchange proposes that trading
hours for FTSE Developed Europe Index
options would be from 8:30 a.m.
(Chicago Time) to 3:15 p.m. (Chicago
Time), except that trading in expiring
FTSE Developed Europe Index options
would end upon the close of the London
Stock Exchange (usually 10:30 a.m.
Chicago time) 11 on their expiration
date. The Exchange proposes that
trading hours for FTSE Emerging Index
options would be from 8:30 a.m.
(Chicago Time) to 3:15 p.m. (Chicago
Time).
The Exchange proposes that FTSE
Developed Europe and FTSE Emerging
Index options would expire on the third
Friday of the expiration month.12 The
exercise settlement value would be the
official closing values of the FTSE
Developed Europe Index and the FTSE
Emerging Index as reported by FTSE on
the last trading day of the expiring
contract. The exercise settlement
amount would be equal to the difference
between the exercise-settlement value
and the exercise price of the option,
multiplied by the contract multiplier
($100).13 Exercise would result in
delivery of cash on the business day
following expiration.
The Exchange proposes to apply the
initial and maintenance listing criteria
in Interpretation and Policy .01(a) to
10 Specifically, the indexes are governed by the
Ground Rules for the FTSE Global Equity Index
Series. Further detail regarding this methodology
can be found in the Notice, supra note 3, at notes
7 and 11 and accompanying text.
11 For example, Daylight Saving Time began in
Chicago on March 13, 2016, and in London on
March 27, 2016. If an expiration were to occur after
Daylight Savings was observed in Chicago but prior
to observance in London, trading in expiring FTSE
Developed Europe Index options would end at
11:30 a.m. (Chicago time). FTSE Emerging Index
options are not affected by Daylight Savings as
trading in expiring FTSE Emerging Index options
ends at 3:15 p.m. (Chicago Time) on their expiration
date.
12 According to the Exchange, when the last
trading day/expiration date is moved because of an
Exchange holiday or closure, the last trading day/
expiration date for expiring options would be the
immediately preceding business day.
13 According to the Exchange, if the exercise
settlement value is not available or the normal
settlement procedure cannot be utilized due to a
trading disruption or other unusual circumstance,
the settlement value would be determined in
accordance with the rules and bylaws of the
Options Clearing Corporation.
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19:34 Sep 07, 2016
Jkt 238001
Rule 24.2, currently only applicable to
MSCI EAFE and MSCI Emerging
Markets Index options, to options on the
FTSE Developed Europe Index and the
FTSE Emerging Index. Specifically, the
Exchange proposes to amend
Interpretation and Policy .01(a) to Rule
24.2 to provide that the Exchange may
trade FTSE Developed Europe and FTSE
Emerging Index options if each of the
following conditions is satisfied: (1) The
index is broad-based, as defined in
Exchange Rule 24.1(i)(1); (2) options on
the index are designated as P.M.-settled
index options; (3) the index is
capitalization-weighted, price-weighted,
modified capitalization-weighted, or
equal dollar-weighted; (4) the index
consists of 500 or more component
securities; (5) all of the component
securities of the index will have a
market capitalization of greater than
$100 million; (6) no single component
security accounts for more than fifteen
percent (15%) of the weight of the
index, and the five highest weighted
component securities in the index do
not, in the aggregate, account for more
than fifty percent (50%) of the weight of
the index; (7) non-U.S. component
securities (stocks or American
Depositary Receipts) that are not subject
to CSAs do not, in the aggregate,
represent more than: (a) Thirty-two and
a half percent (32.5%) of the weight of
the FTSE Developed Europe Index, and
(b) thirty-five percent (35%) of the
weight of the FTSE Emerging Index; 14
(8) during the time options on the index
are traded on the Exchange, the current
index value is widely disseminated at
least once every fifteen (15) seconds by
one or more major market data vendors;
however, the Exchange may continue to
trade FTSE Developed Europe and FTSE
Emerging Index options after trading in
all component securities has closed for
the day and the index level is no longer
widely disseminated at least once every
fifteen (15) seconds by one or more
major market data vendors, provided
that FTSE Developed Europe or FTSE
Emerging Index futures contracts are
trading and prices for those contracts
may be used as a proxy for the current
index value; (9) the Exchange
reasonably believes it has adequate
system capacity to support the trading
of options on the index, based on a
calculation of the Exchange’s current
Independent System Capacity Advisor
14 See Amendment No. 1, supra note 5. Other
than proposed listing criteria 7 of Rule 24.2.01(a)
and maintenance listing criteria 1 of Rule
24.2.01(b), the Exchange is proposing to adopt the
same listing criteria for FTSE Developed Europe
and FTSE Emerging Index options that are currently
applicable to MSCI EAFE and MSCI Emerging
Markets Index options.
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62209
(ISCA) allocation and the number of
new messages per second expected to be
generated by options on such index; and
(10) the Exchange has written
surveillance procedures in place with
respect to surveillance of trading of
options on the index.
Additionally, the Exchange proposes
to amend Interpretation and Policy
.01(b) to Rule 24.2 to set forth the
following maintenance listing standards
for options on the FTSE Developed
Europe Index and the FTSE Emerging
Index: (1) the conditions set forth in
subparagraphs .01(a)(1), (2), (3), (4), (8),
(9), and (10) must continue to be
satisfied; the conditions set forth in
subparagraphs .01(a)(5) and (6) must be
satisfied only as of the first day of
January and July in each year; and the
conditions set forth in subparagraph
.01(a)(7) must be satisfied as of the first
day of the month following the
Reporting Authority’s review of the
weighting of the constituents in the
applicable index, but in no case less
than a quarterly basis; 15 and (2) the total
number of component securities in the
index may not increase or decrease by
more than thirty-five percent (35%)
from the number of component
securities in the index at the time of its
initial listing. In the event a class of
index options listed on the Exchange
pursuant to Interpretation and Policy
.01(a) fails to satisfy these maintenance
listing standards, the Exchange shall not
open for trading any additional series of
options of that class unless the
continued listing of that class of index
options has been approved by the
Commission under Section 19(b)(2) of
the Act.
The contract multiplier for the FTSE
Developed Europe and FTSE Emerging
Index options would be $100. The
Exchange proposes that the minimum
tick size for series trading below $3
would be 0.05 ($5.00), and at or above
$3 would be 0.10 ($10.00). The
Exchange also proposes that the strike
price interval for FTSE Developed
Europe and FTSE Emerging Index
options would be no less than $5,
except that the strike price interval
would be no less than $2.50 if the strike
price is less than $200.
The Exchange proposes to apply the
default position limits for broad-based
index options of 25,000 contracts on the
same side of the market (and 15,000
contracts near-term limit) to FTSE
Developed Europe and FTSE Emerging
Index options. All position limit hedge
exemptions would apply. The exercise
limits for FTSE Developed Europe and
FTSE Emerging Index options would be
15 See
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Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
equivalent to the near-term position
limits for those options. In addition, the
Exchange proposes that the position
limits for FLEX options on the FTSE
Developed Europe Index and the FTSE
Emerging Index would be equal to the
position limits for non-FLEX options on
the FTSE Developed Europe Index and
the FTSE Emerging Index. The exercise
limits for FLEX options on the FTSE
Developed Europe Index and the FTSE
Emerging Index would be equivalent to
the position limits for those options.
The Exchange states that, except as
modified by the proposal, Exchange
Rules in Chapters I through XIX, XXIV,
XXIVA, and XXIVB would equally
apply to FTSE Developed Europe and
FTSE Emerging Index options. The
Exchange also states that FTSE
Developed Europe and FTSE Emerging
Index options would be subject to the
same rules that currently govern other
CBOE index options, including sales
practice rules, margin requirements,16
and trading rules.17
The Exchange represents that it has an
adequate surveillance program in place
for FTSE Developed Europe and FTSE
Emerging Index options and intends to
use the same surveillance procedures
currently utilized for each of the
Exchange’s other index options to
monitor trading in the proposed
options. The Exchange also states that it
is a member of the Intermarket
Surveillance Group; is an affiliate
member of the International
Organization of Securities Commissions;
and has entered into various CSAs,
Memoranda of Understanding, and/or
information sharing agreements with
various stock exchanges. Finally, the
Exchange represents that it believes it
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 would result
from the introduction of FTSE
Developed Europe and FTSE Emerging
Index options.
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B. Amendment to Maintenance Listing
Criteria Applicable to Certain Index
Options
The Exchange also proposes to amend
Exchange Rule 24.2, Interpretation and
Policy .01(b)(1), .02(b)(1), and .03(b)(1)
to modify the maintenance listing
16 The
Exchange states that FTSE Developed
Europe and FTSE Emerging Index options would be
margined as broad-based index options.
17 See, e.g., Exchange Rule Chapters IX (Doing
Business with the Public), XII (Margins), IV
(Business Conduct), VI (Doing Business on the
Trading Floor), VIII (Market-Makers, Trading
Crowds and Modified Trading Systems), and XXIV
(Index Options).
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19:34 Sep 07, 2016
Jkt 238001
criteria applicable to MSCI EAFE, MSCI
Emerging Markets, FTSE 100, and FTSE
China 50 Index options, and that will be
applicable to the proposed FTSE
Developed Europe and FTSE Emerging
Index options. The Exchange proposes
to amend Exchange Rules 24.2.01(b)(1),
24.2.02(b)(1), and 24.2.03(b)(1) 18 to
specify that the listing criteria set forth
in subparagraphs .01(a)(7), .02(a)(7), and
.03(a)(7) to Rule 24.2 need only be met
as of the first day of the month
following the Reporting Authority’s
review of the weighting of the
constituents in the applicable index, but
in no case less than a quarterly basis.19
The listing criteria set forth in
subparagraphs .01(a)(7), .02(a)(7), and
.03(a)(7) to Rule 24.2 generally provides
that non-U.S. component securities
(stocks or American Depositary
Receipts) that are not subject to CSAs do
not, in the aggregate, represent more
than a certain percent of the weight of
the applicable index. Currently, Rules
24.2.01(b)(1), 24.2.02(b)(1), and
24.2.03(b)(1) provide that this listing
criteria must continue to be satisfied.
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.20 Specifically, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,21 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.
The Commission believes that the
listing and trading of FTSE Developed
Europe Index options should broaden
trading and hedging opportunities for
investors by providing an options
instrument based on an index
representing the performance of largeand mid-cap companies in Developed
European markets. Similarly, the
18 The Exchange also proposes to amend Rule
24.2.03(b) to correct a technical error in which
Current Rule 24.2.03(b) and (b)(1) mistakenly
reference paragraph .02(a), instead of .03(a).
19 See Amendment No. 1, supra note 5.
20 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).
21 15 U.S.C. 78f(b)(5).
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Commission believes that the listing and
trading of FTSE Emerging Index options
should broaden trading and hedging
opportunities for investors by providing
an options instrument based on an
index representing the performance of
large- and mid-cap companies in
advanced and secondary emerging
markets. Moreover, the Exchange states
that FTSE Developed Europe and FTSE
Emerging Index futures contracts are
listed for trading on the Chicago
Mercantile Exchange (‘‘CME’’) and that
FTSE Developed Europe and FTSE
Emerging Index options are designed to
provide additional opportunities for
investors to hedge or speculate on the
market risk associated with the FTSE
Developed and FTSE Emerging Indexes
by listing an option directly on these
indexes.
Because the FTSE Developed Europe
Index and the FTSE Emerging Index are
broad-based indexes composed of
actively-traded, well-capitalized stocks,
the trading of options on these indexes
does not raise unique regulatory
concerns. The Commission believes that
the listing standards, which are
substantially similar to the listing
standards for MSCI EAFE and MSCI
Emerging Markets Index options, are
consistent with the Act,22 for the
reasons discussed below.
The Commission notes that the
proposed listing standards would
require that the FTSE Developed Europe
Index and the FTSE Emerging Index
each consist of 500 or more component
securities. Further, for options on the
FTSE Developed Europe Index and the
FTSE Emerging Index to trade, each of
the minimum of 500 component
securities would need to have a market
capitalization of greater than $100
million. The Commission notes that,
according to the Exchange, the FTSE
Developed Europe Index has more than
500 components and the FTSE Emerging
Index has more than 900 components,
all of which must meet the market
capitalization requirement to permit
options on these indexes to begin
trading.
The Commission notes that the
proposed listing standards for options
on the FTSE Developed Europe Index
and the FTSE Emerging Index would
not permit any single component
security to account for more than 15%
of the weight of the index, and would
not permit the five highest weighted
component securities to account for
more than 50% of the weight of the
22 See Securities Exchange Act Release No. 74687
(April 8, 2015), 80 FR 20032 (April 14, 2015) (SR–
CBOE–2015–023) (order approving the listing of
MSCI EAFE and MSCI Emerging Markets Index
options on the Exchange).
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index in the aggregate. The Commission
believes that, in view of the requirement
on the number of securities in each
index, the number of countries
represented in each index, and the
market capitalization, this concentration
standard is consistent with the Act.
Further, the Exchange states that no
single component accounts for more
than 5% of either index. As noted
above, the Exchange represents that it
has an adequate surveillance program in
place for FTSE Developed Europe and
FTSE Emerging Index options and
intends to use the same surveillance
procedures currently utilized for each of
the Exchange’s other index options to
monitor trading in the proposed
options.
The proposed listing standards would
require that non-U.S. component
securities of the FTSE Developed
Europe Index that are not subject to
CSAs will not, in the aggregate,
represent more than 32.5% of the
weight of the index. With respect to the
FTSE Emerging Index, the proposed
listing standards would require that
non-U.S. component securities that are
not subject to CSAs must not, in the
aggregate, represent more than 35% of
the weight of the index. The Exchange
stated that both indexes are broad-based
indexes and have high market
capitalizations. Given the high number
of constituents and the overall high
capitalization of the FTSE Developed
Europe and FTSE Emerging Indexes and
the deep and liquid markets for the
securities underlying these indexes, the
Exchange believes that the concerns for
market manipulation or disruption in
the underlying markets are greatly
reduced. Additionally, in its filing, the
Exchange represented that it has an
adequate surveillance program for FTSE
Developed Europe and FTSE Emerging
Index options and intends to use the
same surveillance procedures currently
utilized for each of the Exchange’s other
index options to monitor trading in
these products.
The proposed listing standards
require that, during the time options on
the FTSE Developed Europe Index and
the FTSE Emerging Index are traded on
the Exchange, the current index value is
widely disseminated at least once every
15 seconds by one or more major market
data vendors. However, the Exchange
may continue to trade FTSE Developed
Europe and FTSE Emerging Index
options after trading in all component
securities has closed for the day and the
index level is no longer widely
disseminated at least once every 15
seconds by one or more major market
data vendors, provided that FTSE
Developed Europe Index futures
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19:34 Sep 07, 2016
Jkt 238001
contracts or FTSE Emerging Index
futures contracts, respectively, are
trading and prices for those contracts
may be used as a proxy for the current
index value.23
In addition, the proposed listing
standards require the Exchange to
reasonably believe that it has adequate
system capacity to support the trading
of options on the FTSE Developed
Europe Index and the FTSE Emerging
Index. As noted above, the Exchange
represents that it believes it and the
OPRA have the necessary systems
capacity to handle the additional traffic
associated with the listing of new series
that would result from the introduction
of FTSE Developed Europe and FTSE
Emerging Index options.
As a national securities exchange, the
Exchange is required, under Section
6(b)(1) of the Act,24 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. As noted above, the Exchange
states that, except as modified by the
proposal, Exchange Rules in Chapters I
through XIX, XXIV, XXIVA, and XXIVB
would equally apply to FTSE Developed
Europe and FTSE Emerging Index
options. The Exchange also states that
FTSE Developed Europe and FTSE
Emerging Index options would be
subject to the same rules that currently
govern other CBOE index options,
including sales practice rules, margin
requirements, and trading rules.
The Commission further believes that
the Exchange’s proposed position and
exercise limits, trading hours, margin,
strike price intervals, minimum tick
23 The
Exchange notes that, because trading in the
components of the FTSE Developed Europe Index
ends at approximately 10:30 a.m. (Chicago Time),
there will not be a current FTSE Developed Europe
Index level calculated and disseminated during a
portion of the time when FTSE Developed Europe
Index options would be traded (from approximately
10:30 a.m. (Chicago Time) to 3:15 p.m. (Chicago
Time)). However, the Exchange states that FTSE
Developed Europe Index futures contracts will be
trading during this time period and that the futures
prices would be a proxy for the current FTSE
Developed Europe Index level during this time
period. The Exchange states that E-mini FTSE
Developed Europe Index futures contracts are listed
for trading on CME. Similarly, because trading in
the components of the FTSE Emerging Index ends
at approximately 3:10 p.m. (Chicago Time), there
will not be a current FTSE Emerging Index level
calculated and disseminated during a portion of the
time when FTSE Emerging Index options would be
traded (from approximately 3:10 p.m. (Chicago
Time) to 3:15 p.m. (Chicago Time)). However, the
Exchange states that FTSE Emerging Index futures
contracts will be trading during this time period
and that the futures prices would be a proxy for the
current FTSE Emerging Index level during this time
period. The Exchange states that E-mini FTSE
Emerging Index futures contracts are listed for
trading on CME.
24 15 U.S.C. 78f(b)(1).
PO 00000
Frm 00140
Fmt 4703
Sfmt 4703
62211
size, series openings, and other aspects
of the proposed rule change related to
the listing and trading of FTSE
Developed Europe and FTSE Emerging
Index options are appropriate and
consistent with the Act.
Finally, the Exchange has proposed to
modify the maintenance listing criteria
applicable to current MSCI EAFE, MSCI
Emerging Markets, FTSE 100, and FTSE
China 50 Index options, and to be
applied to FTSE Developed Europe and
FTSE Emerging Index options, to
specify that the listing criteria set forth
in subparagraphs .01(a)(7), .02(a)(7), and
.03(a)(7) of Rule 24.2, which generally
provide that non-U.S. component
securities (stocks or American
Depositary Receipts) that are not subject
to CSAs do not, in the aggregate,
represent more than a certain percent of
the weight of the applicable indexes, be
met as of the first day of the month
following the Reporting Authority’s
review of the weighting of the
constituents in the applicable index, but
in no case less than a quarterly basis.
According to the Exchange, any change
to the CSA percentages described in
subparagraph 7 of Rules 24.2.01(a),
24.2.02(a), and 24.2.03(a) would most
likely occur during the rebalancing
process by which constituent securities
are added or removed from the
indexes.25 Further, the Exchange states
that the relevant indexes are rebalanced
no more frequently than quarterly.26
Based on these representations, the
Commission believes that the proposed
amendment to the maintenance listing
criteria is appropriate and consistent
with the Act.
IV. Solicitation of Comments on
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 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–2016–049 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
25 See
26 See
E:\FR\FM\08SEN1.SGM
Amendment No. 1, supra note 5.
id.
08SEN1
62212
Federal Register / Vol. 81, No. 174 / Thursday, September 8, 2016 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
All submissions should refer to File
Number SR–CBOE–2016–049. 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–CBOE–
2016–049 and should be submitted on
or before September 29, 2016.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,27 for approving the proposed rule
change, as modified by Amendment No.
1, prior to the 30th day after the date of
publication of notice of Amendment No.
1 in the Federal Register. As noted
above, the Commission previously
approved the listing and trading of
options on the MSCI EAFE Index and
the MSCI Emerging Markets Index on
the Exchange,28 and the current
proposal is substantially similar to the
rules applicable to MSCI EAFE and
MSCI Emerging Markets Index options
that were approved by the Commission.
The original proposal was subject to a
full 21-day comment period and no
comments were received on the
proposal. In Amendment No. 1, the
Exchange proposed changes to limit the
scope of its original proposal with
respect to (1) the CSA requirements
27 15
U.S.C. 78s(b)(2).
supra note 22.
28 See
VerDate Sep<11>2014
19:34 Sep 07, 2016
Jkt 238001
applicable to FTSE Developed Europe,
FTSE Emerging, MSCI EAFE, and MSCI
Emerging Markets Index options; and (2)
the maintenance listing criteria
applicable to FTSE Developed Europe,
FTSE Emerging, MSCI EAFE, MSCI
Emerging Markets, FTSE 100, and FTSE
China 50 Index options.
The Commission believes that the
changes proposed in Amendment No. 1
act to limit the scope of certain aspects
of the original proposal, as described
above,29 and do not raise any new
substantive issues or unique regulatory
concerns not originally subjected to the
proposal’s full 21-day comment period,
during which no comments were
received. Therefore, the Commission
finds that good cause exists to approve
the proposal, as modified by
Amendment No. 1, on an accelerated
basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,30 that the
proposed rule change (SR–CBOE–2016–
049), as modified by Amendment No. 1,
be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Brent J. Fields,
Secretary.
[FR Doc. 2016–21643 Filed 9–7–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78749; File No. SR–
NASDAQ–2016–121]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change
Related to the NASDAQ Options
Market LLC’s Pricing at Chapter XV,
Section 2(6)
September 1, 2016.
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 August
29, 2016, The Nasdaq Stock Market LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
29 See
supra note 5.
U.S.C. 78s(b)(2).
31 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
30 15
PO 00000
Frm 00141
Fmt 4703
Sfmt 4703
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes related to the
NASDAQ Options Market LLC’s
(‘‘NOM’’) pricing at chapter XV, section
2(6).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to file to
provide notice that Execution Access,
LLC 3 will offer a credit to its clients
authorized to transact business at EA,
provided those clients, who are also
NOM Participants (‘‘dual access
client’’), qualify for one of the two
highest Market Access and Routing
Subsidy or ‘‘MARS’’ Payment tiers
available on NOM. The NOM
Participant must qualify for the MARS
Payment tier in order for the dual access
client to receive a credit on EA. The
dual access client may be an affiliate
entity of the NOM Participant at EA.4
The qualification and credit are
explained further below.5 The purpose
3 Execution Access, LLC (‘‘EA’’) is a broker-dealer
that operates a fully electronic central limit order
book known as eSpeed. EA facilitates the matching
of client orders in U.S. Treasury securities.
4 Affiliates would include other legal entities
under common control.
5 Nasdaq believes that EA is not a ‘‘facility’’ of the
Exchange. 15 U.S.C. 78c(a)(2). The Act defines
‘‘facility’’ to include an exchange’s ‘‘premises,
tangible or intangible property whether on the
premises or not, any right to the use of such
premises or property or any service thereof for the
purpose of effecting or reporting a transaction on an
exchange (including, among other things, any
system of communication to or from the exchange,
by ticker or otherwise, maintained by or with the
consent of the exchange), and any right of the
exchange to the use of any property or service.’’ EA
is a distinct entity that is separate from NOM and
engages in a discrete line of business that is not ‘‘for
E:\FR\FM\08SEN1.SGM
08SEN1
]]>Agencies
[Federal Register Volume 81, Number 174 (Thursday, September 8, 2016)]
[Notices]
[Pages 62208-62212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21643]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78760; File No. SR-CBOE-2016-049]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To List and Trade Options That Overlie the FTSE
Developed Europe Index and the FTSE Emerging Index and To Amend the
Maintenance Listing Criteria Applicable to Certain Index Options
September 2, 2016.
I. Introduction
On June 15, 2016, 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 and trade options that
overlie the FTSE Developed Europe Index and the FTSE Emerging Index, to
raise the comprehensive surveillance agreement (``CSA'') percentages
applicable to options that overlie the MSCI EAFE Index and the MSCI
Emerging Markets Index, and to amend the maintenance listing criteria
applicable to MSCI EAFE, MSCI Emerging Markets, FTSE 100, and FTSE
China 50 Index options. The proposed rule change was published for
comment in the Federal Register on July 1, 2016.\3\ On August 9, 2016,
the Commission extended the time period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\4\ On August 25, 2016, the Exchange filed Amendment No. 1 to
the proposed rule change.\5\ The Commission received no comments on the
proposed rule change. The Commission is publishing this notice to
solicit comment on Amendment No. 1 to the proposed rule change from
interested persons and is approving the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 78177 (Jun. 28,
2016), 81 FR 43308 (``Notice'').
\4\ See Securities Exchange Act Release No. 78511, 81 FR 54173
(Aug. 15, 2016).
\5\ Pursuant to Amendment No. 1, the Exchange proposes to (i)
retain the current CSA percentages applicable to the initial and
continued listing of MSCI EAFE and MSCI Emerging Markets Index
options at 25% and 27.5%, respectively (the original proposal would
have raised such CSA percentages to 50%) and (ii) decrease the
proposed CSA percentages applicable to the initial and continued
listing of FTSE Developed Europe and FTSE Emerging Index options to
32.5% and 35%, respectively (the original proposal would have set
such CSA percentages at 50%). Thus, as amended by Amendment No. 1,
proposed Rule 24.2, Interpretation and Policy .01(a)(7) provides
that ``non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than: (i) Twenty-five percent (25%) of the
weight of the [MSCI] EAFE Index, (ii) twenty-seven and a half
percent (27.5%) of the weight of the [MSCI Emerging Markets] Index,
(iii) thirty-two and a half percent (32.5%) of the weight of the
FTSE Developed [Europe] Index, and (iv) thirty-five percent (35%) of
the weight of the FTSE Emerging Index.'' In addition, Amendment No.
1 amends the proposed maintenance listing criteria applicable to
FTSE Developed Europe, FTSE Emerging, MSCI EAFE, MSCI Emerging
Markets, FTSE 100, and FTSE China 50 Index options to require that
the CSA percentages applicable to such products be satisfied as of
the first day of the month following the Reporting Authority's
review of the weighting of the constituents in the applicable index,
but in no case less than on a quarterly basis (the original proposal
would have provided that the CSA requirements for such products must
only be satisfied as of the first day of the January and July in
each year). Amendment No. 1 is available at: https://www.cboe.com/publish/RuleFilingsSEC/SR-CBOE-2016-049.a1.pdf.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
A. Listing and Trading of FTSE Developed Europe Index and FTSE Emerging
Index Options
The Exchange proposes to list and trade P.M. cash-settled,
European-style options on the FTSE Developed Europe Index and the FTSE
Emerging Index.\6\ The following discussion is a summary of the
Exchange's description of its proposed listing criteria for the FTSE
Developed Europe and FTSE Emerging Index options.\7\
---------------------------------------------------------------------------
\6\ The Exchange proposes to list up to twelve near-term
expiration months for the FTSE Developed Europe and FTSE Emerging
Index options. The Exchange also proposes to list LEAPS on the FTSE
Developed Europe Index and the FTSE Emerging Index. The Exchange
proposes that options on the FTSE Developed Europe Index and the
FTSE Emerging Index would be eligible for all other expirations
permitted for other broad-based indexes (e.g., End of Week/End of
Month/Wednesday Expirations, Short Term Option Series, and Quarterly
Options Series). In addition, the Exchange proposes to designate the
FTSE Developed Europe Index and the FTSE Emerging Index as eligible
for trading as FLEX options.
\7\ For a more complete description of the FTSE Developed Europe
Index and the FTSE Emerging Index, and CBOE's proposed listing
criteria for options on these indexes, see Notice, supra note 3.
---------------------------------------------------------------------------
According to the Exchange, the FTSE Developed Europe Index is a
weighted index representing the performance of large- and mid-cap
companies in Developed European markets. The FTSE Developed Europe
Index is comprised of over 500 securities from 15 countries. According
to the Exchange, the FTSE Emerging Index is a weighted index
representing the performance of large- and mid-cap companies in
advanced and secondary emerging markets. The FTSE Emerging Index is
comprised of approximately 950 securities from 22 countries.\8\ The
Exchange states that the indexes are monitored and maintained by FTSE
International Limited (``FTSE'').\9\ Adjustments to the indexes can be
made on a daily basis, and FTSE reviews the indexes semi-annually.
---------------------------------------------------------------------------
\8\ The Exchange states that the FTSE Developed Europe Index and
the FTSE Emerging Index each meet the definition of a broad-based
index as set forth in Exchange Rule 24.1(i)(1).
\9\ The Exchange proposes to designate FTSE as the reporting
authority for the FTSE Developed Europe Index and the FTSE Emerging
Index.
---------------------------------------------------------------------------
According to the Exchange, the FTSE Developed Europe Index is
calculated and published in U.S. dollars on a real-time basis during
U.S. trading hours from 2:00 a.m. to 10:30 a.m. (Chicago time). At
10:30 a.m. (Chicago time) the real-time index closes using the closing
prices from the London Stock Exchange and between 10:30 a.m. and 3:15
p.m. (Chicago time) the FTSE Developed Europe Index level is a static
value that market participants can access via data vendors. The FTSE
Emerging Index is calculated and published in U.S. dollars on a real-
time basis during U.S. trading hours from 6:30 p.m. (Chicago time,
prior day) to 3:10 p.m. (Chicago time, next day). At 3:10 p.m. (Chicago
time) the real-time index closes using the closing prices from Brazil,
Chile, Peru, and Mexico and between 3:10 p.m. and 3:15 p.m. (Chicago
time) the FTSE Emerging Index level is a static value that market
participants can access via data vendors.
The methodologies used to calculate the FTSE Developed Europe Index
and the FTSE Emerging Index are similar to the methodology used to
calculate the value of other benchmark market-
[[Page 62209]]
capitalization weighted indexes.\10\ Real-time data is distributed at
least every 15 seconds while the indexes are being calculated using
FTSE's real-time calculation engine to Bloomberg L.P. (``Bloomberg''),
Thomson Reuters (``Reuters''), and other major vendors. End of day data
is distributed daily to clients through FTSE as well as through major
quotation vendors, including Bloomberg and Reuters.
---------------------------------------------------------------------------
\10\ Specifically, the indexes are governed by the Ground Rules
for the FTSE Global Equity Index Series. Further detail regarding
this methodology can be found in the Notice, supra note 3, at notes
7 and 11 and accompanying text.
---------------------------------------------------------------------------
The Exchange proposes that trading hours for FTSE Developed Europe
Index options would be from 8:30 a.m. (Chicago Time) to 3:15 p.m.
(Chicago Time), except that trading in expiring FTSE Developed Europe
Index options would end upon the close of the London Stock Exchange
(usually 10:30 a.m. Chicago time) \11\ on their expiration date. The
Exchange proposes that trading hours for FTSE Emerging Index options
would be from 8:30 a.m. (Chicago Time) to 3:15 p.m. (Chicago Time).
---------------------------------------------------------------------------
\11\ For example, Daylight Saving Time began in Chicago on March
13, 2016, and in London on March 27, 2016. If an expiration were to
occur after Daylight Savings was observed in Chicago but prior to
observance in London, trading in expiring FTSE Developed Europe
Index options would end at 11:30 a.m. (Chicago time). FTSE Emerging
Index options are not affected by Daylight Savings as trading in
expiring FTSE Emerging Index options ends at 3:15 p.m. (Chicago
Time) on their expiration date.
---------------------------------------------------------------------------
The Exchange proposes that FTSE Developed Europe and FTSE Emerging
Index options would expire on the third Friday of the expiration
month.\12\ The exercise settlement value would be the official closing
values of the FTSE Developed Europe Index and the FTSE Emerging Index
as reported by FTSE on the last trading day of the expiring contract.
The exercise settlement amount would be equal to the difference between
the exercise-settlement value and the exercise price of the option,
multiplied by the contract multiplier ($100).\13\ Exercise would result
in delivery of cash on the business day following expiration.
---------------------------------------------------------------------------
\12\ According to the Exchange, when the last trading day/
expiration date is moved because of an Exchange holiday or closure,
the last trading day/expiration date for expiring options would be
the immediately preceding business day.
\13\ According to the Exchange, if the exercise settlement value
is not available or the normal settlement procedure cannot be
utilized due to a trading disruption or other unusual circumstance,
the settlement value would be determined in accordance with the
rules and bylaws of the Options Clearing Corporation.
---------------------------------------------------------------------------
The Exchange proposes to apply the initial and maintenance listing
criteria in Interpretation and Policy .01(a) to Rule 24.2, currently
only applicable to MSCI EAFE and MSCI Emerging Markets Index options,
to options on the FTSE Developed Europe Index and the FTSE Emerging
Index. Specifically, the Exchange proposes to amend Interpretation and
Policy .01(a) to Rule 24.2 to provide that the Exchange may trade FTSE
Developed Europe and FTSE Emerging Index options if each of the
following conditions is satisfied: (1) The index is broad-based, as
defined in Exchange Rule 24.1(i)(1); (2) options on the index are
designated as P.M.-settled index options; (3) the index is
capitalization-weighted, price-weighted, modified capitalization-
weighted, or equal dollar-weighted; (4) the index consists of 500 or
more component securities; (5) all of the component securities of the
index will have a market capitalization of greater than $100 million;
(6) no single component security accounts for more than fifteen percent
(15%) of the weight of the index, and the five highest weighted
component securities in the index do not, in the aggregate, account for
more than fifty percent (50%) of the weight of the index; (7) non-U.S.
component securities (stocks or American Depositary Receipts) that are
not subject to CSAs do not, in the aggregate, represent more than: (a)
Thirty-two and a half percent (32.5%) of the weight of the FTSE
Developed Europe Index, and (b) thirty-five percent (35%) of the weight
of the FTSE Emerging Index; \14\ (8) during the time options on the
index are traded on the Exchange, the current index value is widely
disseminated at least once every fifteen (15) seconds by one or more
major market data vendors; however, the Exchange may continue to trade
FTSE Developed Europe and FTSE Emerging Index options after trading in
all component securities has closed for the day and the index level is
no longer widely disseminated at least once every fifteen (15) seconds
by one or more major market data vendors, provided that FTSE Developed
Europe or FTSE Emerging Index futures contracts are trading and prices
for those contracts may be used as a proxy for the current index value;
(9) the Exchange reasonably believes it has adequate system capacity to
support the trading of options on the index, based on a calculation of
the Exchange's current Independent System Capacity Advisor (ISCA)
allocation and the number of new messages per second expected to be
generated by options on such index; and (10) the Exchange has written
surveillance procedures in place with respect to surveillance of
trading of options on the index.
---------------------------------------------------------------------------
\14\ See Amendment No. 1, supra note 5. Other than proposed
listing criteria 7 of Rule 24.2.01(a) and maintenance listing
criteria 1 of Rule 24.2.01(b), the Exchange is proposing to adopt
the same listing criteria for FTSE Developed Europe and FTSE
Emerging Index options that are currently applicable to MSCI EAFE
and MSCI Emerging Markets Index options.
---------------------------------------------------------------------------
Additionally, the Exchange proposes to amend Interpretation and
Policy .01(b) to Rule 24.2 to set forth the following maintenance
listing standards for options on the FTSE Developed Europe Index and
the FTSE Emerging Index: (1) the conditions set forth in subparagraphs
.01(a)(1), (2), (3), (4), (8), (9), and (10) must continue to be
satisfied; the conditions set forth in subparagraphs .01(a)(5) and (6)
must be satisfied only as of the first day of January and July in each
year; and the conditions set forth in subparagraph .01(a)(7) must be
satisfied as of the first day of the month following the Reporting
Authority's review of the weighting of the constituents in the
applicable index, but in no case less than a quarterly basis; \15\ and
(2) the total number of component securities in the index may not
increase or decrease by more than thirty-five percent (35%) from the
number of component securities in the index at the time of its initial
listing. In the event a class of index options listed on the Exchange
pursuant to Interpretation and Policy .01(a) fails to satisfy these
maintenance listing standards, the Exchange shall not open for trading
any additional series of options of that class unless the continued
listing of that class of index options has been approved by the
Commission under Section 19(b)(2) of the Act.
---------------------------------------------------------------------------
\15\ See Amendment No. 1, supra note 5.
---------------------------------------------------------------------------
The contract multiplier for the FTSE Developed Europe and FTSE
Emerging Index options would be $100. The Exchange proposes that the
minimum tick size for series trading below $3 would be 0.05 ($5.00),
and at or above $3 would be 0.10 ($10.00). The Exchange also proposes
that the strike price interval for FTSE Developed Europe and FTSE
Emerging Index options would be no less than $5, except that the strike
price interval would be no less than $2.50 if the strike price is less
than $200.
The Exchange proposes to apply the default position limits for
broad-based index options of 25,000 contracts on the same side of the
market (and 15,000 contracts near-term limit) to FTSE Developed Europe
and FTSE Emerging Index options. All position limit hedge exemptions
would apply. The exercise limits for FTSE Developed Europe and FTSE
Emerging Index options would be
[[Page 62210]]
equivalent to the near-term position limits for those options. In
addition, the Exchange proposes that the position limits for FLEX
options on the FTSE Developed Europe Index and the FTSE Emerging Index
would be equal to the position limits for non-FLEX options on the FTSE
Developed Europe Index and the FTSE Emerging Index. The exercise limits
for FLEX options on the FTSE Developed Europe Index and the FTSE
Emerging Index would be equivalent to the position limits for those
options.
The Exchange states that, except as modified by the proposal,
Exchange Rules in Chapters I through XIX, XXIV, XXIVA, and XXIVB would
equally apply to FTSE Developed Europe and FTSE Emerging Index options.
The Exchange also states that FTSE Developed Europe and FTSE Emerging
Index options would be subject to the same rules that currently govern
other CBOE index options, including sales practice rules, margin
requirements,\16\ and trading rules.\17\
---------------------------------------------------------------------------
\16\ The Exchange states that FTSE Developed Europe and FTSE
Emerging Index options would be margined as broad-based index
options.
\17\ See, e.g., Exchange Rule Chapters IX (Doing Business with
the Public), XII (Margins), IV (Business Conduct), VI (Doing
Business on the Trading Floor), VIII (Market-Makers, Trading Crowds
and Modified Trading Systems), and XXIV (Index Options).
---------------------------------------------------------------------------
The Exchange represents that it has an adequate surveillance
program in place for FTSE Developed Europe and FTSE Emerging Index
options and intends to use the same surveillance procedures currently
utilized for each of the Exchange's other index options to monitor
trading in the proposed options. The Exchange also states that it is a
member of the Intermarket Surveillance Group; is an affiliate member of
the International Organization of Securities Commissions; and has
entered into various CSAs, Memoranda of Understanding, and/or
information sharing agreements with various stock exchanges. Finally,
the Exchange represents that it believes it 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 would result from the introduction of FTSE Developed Europe and
FTSE Emerging Index options.
B. Amendment to Maintenance Listing Criteria Applicable to Certain
Index Options
The Exchange also proposes to amend Exchange Rule 24.2,
Interpretation and Policy .01(b)(1), .02(b)(1), and .03(b)(1) to modify
the maintenance listing criteria applicable to MSCI EAFE, MSCI Emerging
Markets, FTSE 100, and FTSE China 50 Index options, and that will be
applicable to the proposed FTSE Developed Europe and FTSE Emerging
Index options. The Exchange proposes to amend Exchange Rules
24.2.01(b)(1), 24.2.02(b)(1), and 24.2.03(b)(1) \18\ to specify that
the listing criteria set forth in subparagraphs .01(a)(7), .02(a)(7),
and .03(a)(7) to Rule 24.2 need only be met as of the first day of the
month following the Reporting Authority's review of the weighting of
the constituents in the applicable index, but in no case less than a
quarterly basis.\19\ The listing criteria set forth in subparagraphs
.01(a)(7), .02(a)(7), and .03(a)(7) to Rule 24.2 generally provides
that non-U.S. component securities (stocks or American Depositary
Receipts) that are not subject to CSAs do not, in the aggregate,
represent more than a certain percent of the weight of the applicable
index. Currently, Rules 24.2.01(b)(1), 24.2.02(b)(1), and 24.2.03(b)(1)
provide that this listing criteria must continue to be satisfied.
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\18\ The Exchange also proposes to amend Rule 24.2.03(b) to
correct a technical error in which Current Rule 24.2.03(b) and
(b)(1) mistakenly reference paragraph .02(a), instead of .03(a).
\19\ See Amendment No. 1, supra note 5.
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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.\20\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\21\ 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.
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\20\ 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).
\21\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the listing and trading of FTSE
Developed Europe Index options should broaden trading and hedging
opportunities for investors by providing an options instrument based on
an index representing the performance of large- and mid-cap companies
in Developed European markets. Similarly, the Commission believes that
the listing and trading of FTSE Emerging Index options should broaden
trading and hedging opportunities for investors by providing an options
instrument based on an index representing the performance of large- and
mid-cap companies in advanced and secondary emerging markets. Moreover,
the Exchange states that FTSE Developed Europe and FTSE Emerging Index
futures contracts are listed for trading on the Chicago Mercantile
Exchange (``CME'') and that FTSE Developed Europe and FTSE Emerging
Index options are designed to provide additional opportunities for
investors to hedge or speculate on the market risk associated with the
FTSE Developed and FTSE Emerging Indexes by listing an option directly
on these indexes.
Because the FTSE Developed Europe Index and the FTSE Emerging Index
are broad-based indexes composed of actively-traded, well-capitalized
stocks, the trading of options on these indexes does not raise unique
regulatory concerns. The Commission believes that the listing
standards, which are substantially similar to the listing standards for
MSCI EAFE and MSCI Emerging Markets Index options, are consistent with
the Act,\22\ for the reasons discussed below.
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\22\ See Securities Exchange Act Release No. 74687 (April 8,
2015), 80 FR 20032 (April 14, 2015) (SR-CBOE-2015-023) (order
approving the listing of MSCI EAFE and MSCI Emerging Markets Index
options on the Exchange).
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The Commission notes that the proposed listing standards would
require that the FTSE Developed Europe Index and the FTSE Emerging
Index each consist of 500 or more component securities. Further, for
options on the FTSE Developed Europe Index and the FTSE Emerging Index
to trade, each of the minimum of 500 component securities would need to
have a market capitalization of greater than $100 million. The
Commission notes that, according to the Exchange, the FTSE Developed
Europe Index has more than 500 components and the FTSE Emerging Index
has more than 900 components, all of which must meet the market
capitalization requirement to permit options on these indexes to begin
trading.
The Commission notes that the proposed listing standards for
options on the FTSE Developed Europe Index and the FTSE Emerging Index
would not permit any single component security to account for more than
15% of the weight of the index, and would not permit the five highest
weighted component securities to account for more than 50% of the
weight of the
[[Page 62211]]
index in the aggregate. The Commission believes that, in view of the
requirement on the number of securities in each index, the number of
countries represented in each index, and the market capitalization,
this concentration standard is consistent with the Act. Further, the
Exchange states that no single component accounts for more than 5% of
either index. As noted above, the Exchange represents that it has an
adequate surveillance program in place for FTSE Developed Europe and
FTSE Emerging Index options and intends to use the same surveillance
procedures currently utilized for each of the Exchange's other index
options to monitor trading in the proposed options.
The proposed listing standards would require that non-U.S.
component securities of the FTSE Developed Europe Index that are not
subject to CSAs will not, in the aggregate, represent more than 32.5%
of the weight of the index. With respect to the FTSE Emerging Index,
the proposed listing standards would require that non-U.S. component
securities that are not subject to CSAs must not, in the aggregate,
represent more than 35% of the weight of the index. The Exchange stated
that both indexes are broad-based indexes and have high market
capitalizations. Given the high number of constituents and the overall
high capitalization of the FTSE Developed Europe and FTSE Emerging
Indexes and the deep and liquid markets for the securities underlying
these indexes, the Exchange believes that the concerns for market
manipulation or disruption in the underlying markets are greatly
reduced. Additionally, in its filing, the Exchange represented that it
has an adequate surveillance program for FTSE Developed Europe and FTSE
Emerging Index options and intends to use the same surveillance
procedures currently utilized for each of the Exchange's other index
options to monitor trading in these products.
The proposed listing standards require that, during the time
options on the FTSE Developed Europe Index and the FTSE Emerging Index
are traded on the Exchange, the current index value is widely
disseminated at least once every 15 seconds by one or more major market
data vendors. However, the Exchange may continue to trade FTSE
Developed Europe and FTSE Emerging Index options after trading in all
component securities has closed for the day and the index level is no
longer widely disseminated at least once every 15 seconds by one or
more major market data vendors, provided that FTSE Developed Europe
Index futures contracts or FTSE Emerging Index futures contracts,
respectively, are trading and prices for those contracts may be used as
a proxy for the current index value.\23\
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\23\ The Exchange notes that, because trading in the components
of the FTSE Developed Europe Index ends at approximately 10:30 a.m.
(Chicago Time), there will not be a current FTSE Developed Europe
Index level calculated and disseminated during a portion of the time
when FTSE Developed Europe Index options would be traded (from
approximately 10:30 a.m. (Chicago Time) to 3:15 p.m. (Chicago
Time)). However, the Exchange states that FTSE Developed Europe
Index futures contracts will be trading during this time period and
that the futures prices would be a proxy for the current FTSE
Developed Europe Index level during this time period. The Exchange
states that E-mini FTSE Developed Europe Index futures contracts are
listed for trading on CME. Similarly, because trading in the
components of the FTSE Emerging Index ends at approximately 3:10
p.m. (Chicago Time), there will not be a current FTSE Emerging Index
level calculated and disseminated during a portion of the time when
FTSE Emerging Index options would be traded (from approximately 3:10
p.m. (Chicago Time) to 3:15 p.m. (Chicago Time)). However, the
Exchange states that FTSE Emerging Index futures contracts will be
trading during this time period and that the futures prices would be
a proxy for the current FTSE Emerging Index level during this time
period. The Exchange states that E-mini FTSE Emerging Index futures
contracts are listed for trading on CME.
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In addition, the proposed listing standards require the Exchange to
reasonably believe that it has adequate system capacity to support the
trading of options on the FTSE Developed Europe Index and the FTSE
Emerging Index. As noted above, the Exchange represents that it
believes it and the OPRA have the necessary systems capacity to handle
the additional traffic associated with the listing of new series that
would result from the introduction of FTSE Developed Europe and FTSE
Emerging Index options.
As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\24\ 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. As
noted above, the Exchange states that, except as modified by the
proposal, Exchange Rules in Chapters I through XIX, XXIV, XXIVA, and
XXIVB would equally apply to FTSE Developed Europe and FTSE Emerging
Index options. The Exchange also states that FTSE Developed Europe and
FTSE Emerging Index options would be subject to the same rules that
currently govern other CBOE index options, including sales practice
rules, margin requirements, and trading rules.
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\24\ 15 U.S.C. 78f(b)(1).
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The Commission further believes that the Exchange's proposed
position and exercise limits, trading hours, margin, strike price
intervals, minimum tick size, series openings, and other aspects of the
proposed rule change related to the listing and trading of FTSE
Developed Europe and FTSE Emerging Index options are appropriate and
consistent with the Act.
Finally, the Exchange has proposed to modify the maintenance
listing criteria applicable to current MSCI EAFE, MSCI Emerging
Markets, FTSE 100, and FTSE China 50 Index options, and to be applied
to FTSE Developed Europe and FTSE Emerging Index options, to specify
that the listing criteria set forth in subparagraphs .01(a)(7),
.02(a)(7), and .03(a)(7) of Rule 24.2, which generally provide that
non-U.S. component securities (stocks or American Depositary Receipts)
that are not subject to CSAs do not, in the aggregate, represent more
than a certain percent of the weight of the applicable indexes, be met
as of the first day of the month following the Reporting Authority's
review of the weighting of the constituents in the applicable index,
but in no case less than a quarterly basis. According to the Exchange,
any change to the CSA percentages described in subparagraph 7 of Rules
24.2.01(a), 24.2.02(a), and 24.2.03(a) would most likely occur during
the rebalancing process by which constituent securities are added or
removed from the indexes.\25\ Further, the Exchange states that the
relevant indexes are rebalanced no more frequently than quarterly.\26\
Based on these representations, the Commission believes that the
proposed amendment to the maintenance listing criteria is appropriate
and consistent with the Act.
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\25\ See Amendment No. 1, supra note 5.
\26\ See id.
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IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
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-2016-049 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
[[Page 62212]]
All submissions should refer to File Number SR-CBOE-2016-049. 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-CBOE-2016-049 and should be
submitted on or before September 29, 2016.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\27\ for approving the proposed rule change, as modified by
Amendment No. 1, prior to the 30th day after the date of publication of
notice of Amendment No. 1 in the Federal Register. As noted above, the
Commission previously approved the listing and trading of options on
the MSCI EAFE Index and the MSCI Emerging Markets Index on the
Exchange,\28\ and the current proposal is substantially similar to the
rules applicable to MSCI EAFE and MSCI Emerging Markets Index options
that were approved by the Commission. The original proposal was subject
to a full 21-day comment period and no comments were received on the
proposal. In Amendment No. 1, the Exchange proposed changes to limit
the scope of its original proposal with respect to (1) the CSA
requirements applicable to FTSE Developed Europe, FTSE Emerging, MSCI
EAFE, and MSCI Emerging Markets Index options; and (2) the maintenance
listing criteria applicable to FTSE Developed Europe, FTSE Emerging,
MSCI EAFE, MSCI Emerging Markets, FTSE 100, and FTSE China 50 Index
options.
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\27\ 15 U.S.C. 78s(b)(2).
\28\ See supra note 22.
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The Commission believes that the changes proposed in Amendment No.
1 act to limit the scope of certain aspects of the original proposal,
as described above,\29\ and do not raise any new substantive issues or
unique regulatory concerns not originally subjected to the proposal's
full 21-day comment period, during which no comments were received.
Therefore, the Commission finds that good cause exists to approve the
proposal, as modified by Amendment No. 1, on an accelerated basis.
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\29\ See supra note 5.
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\30\ that the proposed rule change (SR-CBOE-2016-049), as modified
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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\30\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-21643 Filed 9-7-16; 8:45 am]
BILLING CODE 8011-01-P
