Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Permit the Listing and Trading of Options That Overlie the Mini-SPX Index, the Russell 2000 Index, and the Dow Jones Industrial Average, 42330-42340 [2018-17957]
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to amend its own routing fees so that it
can recoup costs associated with routing
orders to such away markets. The
Exchange believes that the proposed
fees for orders routed to IEX are
reasonable and equitable because they
reflect the costs associated with
executing orders on IEX and additional
operational expenses incurred by the
Exchange. The Exchange is proposing to
increase its routing fees due to an
announced change in IEX’s fee schedule
that would result in a significant
increase in the transaction fees being
charged by IEX to some orders,
including orders routed by the
Exchange.15 The Exchange believes that
it is reasonable and equitable to pass
these increased costs to Members that
use the Exchange to route orders to that
market. Members that do not wish to
pay the proposed fee can send their
routable orders directly to IEX instead of
using routing functionality provided by
the Exchange. The Exchange also
believes that this change is equitable
and not unfairly discriminatory because
the proposed fees would apply equally
to all Members that use the Exchange to
route orders to IEX using the DIRC
routing strategy. Routing through the
Exchange is voluntary, and the
Exchange operates in a competitive
environment where market participants
can readily direct order flow to
competing venues or providers of
routing services if they deem fee levels
to be excessive.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
The proposed changes to the nondisplayed remove fees are designed to
incentivize displayed liquidity, which
the Exchange believes will benefit all
market participants by encouraging a
transparent and competitive market.
Furthermore, the proposed change to
the IEX routing fee is meant to recoup
costs associated with executing orders
on that market, and is therefore not
designed to have any significant impact
on competition. The Exchange operates
in a highly competitive market in which
market participants can readily direct
their order flow to competing venues. In
such an environment, the Exchange
must continually review, and consider
adjusting, its fees and rebates to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed fee
changes reflect this competitive
environment.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act16 and paragraph (f) of Rule
19b–4 thereunder.17 At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGA–2018–014 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.
All submissions should refer to File
Number SR–CboeEDGA–2018–014. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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
SR–IEX–2018–16 (pending publication).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–17960 Filed 8–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83852; File No. SR–
CboeBZX–2018–058]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To Permit the
Listing and Trading of Options That
Overlie the Mini-SPX Index, the Russell
2000 Index, and the Dow Jones
Industrial Average
August 15, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 2,
2018, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
16 15
15 See
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 website 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 this
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGA–2018–014 and
should be submitted on or before
September 11, 2018.
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f).
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Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
permit the listing and trading of options
that overlie the Mini-SPX Index (‘‘XSP
options’’), the Russell 2000 Index (‘‘RUT
options’’), and the Dow Jones Industrial
Average (‘‘DJX options’’).
The text of the proposed rule change
is available at the Exchange’s website at
www.markets.cboe.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The proposed rule change amends the
Exchange’s index rules to permit the
listing and trading of XSP options, RUT
options, and DJX options. XSP options
are options on the Mini SPX Index, the
current value of which is 1/10th the
value of the Standard & Poor’s 500
‘‘Stock Index reported by the reporting
authority.3 RUT options are options on
the Russell 2000 Index. DJX options are
options based on 1/100th of the value of
the Dow Jones Industrial Average. The
index underlying each of XSP, RUT, and
DJX options satisfies the criteria of a
broad-based index for the initial listing
of options on that index, as set forth in
Rule 29.3(b):
(1) The index is broad-based index, as
defined in Rule 29.2(j) (an index
designed to be representative of a stock
market as a whole or of a range of
companies in unrelated industries);
(2) the options are designated as A.M.settled;
(3) the index is capitalizationweighted, modified capitalizationweighted, price-weighted or equal
dollar-weighted;
3 See proposed Rule 29.11, Interpretation and
Policy .01.
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(4) the index consists of 50 or more
component securities;
(5) component securities that account
for at least 95% of the weight of the
index have a market capitalization of at
least $75 million, except that
component securities that account for at
least 65% of the weight of the index
have a market capitalization of at least
$100 million;
(6) component securities that account
for at least 80% of the weight of the
index satisfy the requirements of Rule
19.3 applicable to individual underlying
securities;
(7) each component security that
accounts for at least 1% of the weight
of the index has an average daily trading
volume of at least 90,000 shares during
the last six-month period;
(8) no single component security
accounts for more than 10% 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 33% of the
weight of the index;
(9) each component security must be
an ‘‘NMS stock’’ as defined in Rule 600
of Regulation NMS under the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’);
(10) non-U.S. component securities
(stocks or ADRs) that are not subject to
comprehensive surveillance agreements
do not, in the aggregate, represent more
than 20% of the weight of the index;
(11) the current underlying index
value is widely disseminated at least
once every 15 seconds by OPRA, CTA/
CQ, NIDS, or one or more major market
data vendors during the time the index
options are traded on the Exchange;
(12) 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 ISCA allocation and
the number of new messages per second
expected to be generated by options on
such index;
(13) an equal dollar-weighted index is
rebalanced at least once every calendar
quarter;
(14) if an index is maintained by a
broker-dealer, the index is calculated by
a third party who is not a broker-dealer,
and the broker-dealer has erected an
information barrier around its personnel
who have access to information
concerning changes in, and adjustments
to, the index; and
(15) the Exchange has written
surveillance procedures in place with
respect to surveillance of trading of
options on the index.
XSP, RUT, and DJX options will be
subject to the maintenance listing
standards set forth in Rule 29.3(c):
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(1) The conditions stated in (1)
through (3) and (9) through (15) above
must continue to be satisfied, provided
that the requirements in (5) through (8)
must be satisfied only as of the first day
of January and July in each year; and
(2) the total number of component
securities in the index may not increase
or decrease by more than 10% from the
number of component securities in the
index at the time of its initial listing.4
Reporting Authority
S&P Dow Jones Indices is the
reporting authority for the Mini-SPX
Index and the Dow Jones Industrial
Average, and Frank Russell Company is
the reporting authority for the Russell
2000 Index. The proposed rule change
adds these indexes and reporting
authorities to Rule 29.2, Interpretation
and Policy .01. The proposed rule
change also lists the reporting
authorities in Rule 29.13(b), which is
the disclaimer for reporting authorities.
Rule 29.13(b) would apply to these
reporting authorities even if not
specifically listed; however, the
proposed rule change adds the names of
the reporting authority to the rule for
transparency and clarification.
Minimum Increments
Rule 29.11(a) states bids and offers are
expressed in terms of dollars and cents
per unit of the index. The minimum
increment applicable to index options is
set forth in Rule 21.5. The proposed rule
change adds Interpretation and Policy
.02 to Rule 21.5, which states for so long
as SPDR options (SPY) and Diamonds
options (DIA) participate in the Penny
Pilot Program pursuant to Interpretation
and Policy .01, the minimum
increments for XSP options and DJX
options, respectively, will be the same
as SPY and DIA, respectively for all
option series (including long-term
option series). Such minimum
increment would be $0.01 for all SPY
series, regardless of price, and $0.01 for
DJX series trading at less than $3.00 and
$0.05 for DJX series trading at $3.00 or
higher, respectively, as set forth in Rule
21.5(a).
SPY options are options on the SPDR
S&P 500 exchange-traded fund (ETF),
which is an ETF that tracks the
performance of 1/10th the value of the
S&P 500 Index. DIA options are options
on the SPDR Dow Jones Industrial
4 In the event XSP, RUT, or DJX options fails to
satisfy the maintenance listing standards set forth
herein, the Exchange will 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 Securities and Exchange
Commission (the ‘‘Commission’’) under Section
19(b)(2) of the Exchange Act.
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Average ETF, which is an ETF that
tracks the performance of the Dow Jones
Industrial Average. SPY and DIA
options currently participate in the
Penny Pilot Program. XSP options are
also based on the S&P 500 Index, and
DJX options are also based on the Dow
Jones Industrial Average, as discussed
above. The Exchange believes it is
important that these products have the
same minimum increments for
consistency and competitive reasons.
The proposed rule change is also the
same as another options exchange.5
The minimum increment for RUT will
be as set forth in current Rule 21.5: Five
cents if the series is trading below $3.00,
and ten cents if the series is trading at
or above $3.00.
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Settlement and Exercise Style
RUT, XSP, and DJX options will be
A.M., cash-settled contracts with
European-style exercise. A.M.settlement is consistent with the generic
listing criteria for broad-based indexes,6
and thus it is common for index options
to be A.M.-settled. The Exchange
proposes to amend Rule 29.11(a)(5)(B)
to add XSP, RUT, and DJX options to
the list of other A.M.-settled options.
The Exchange proposes to amend Rule
29.11(a)(4) to add XSP, RUT, and DJX
options to the list of other Europeanstyle index options.
Long-Term Index Options
Rule 29.11(b)(1) currently states the
Exchange may list long-term index
options series that expire from 12 to 60
months from the date of issuance. The
proposed rule change permits listing of
long-term index options series that
expire from 12 to 180 months from the
date of issuance. The Exchange
understands that market participants
may enter into over-the-counter
(‘‘OTC’’) positions with longer-dated
expirations than currently available on
the Exchange. The proposed rule change
will permit the Exchange to list longterm index options contracts with
longer-dated expirations. The Exchange
believes expanding the eligible term for
long-term index options contracts to 180
months is important and necessary to
the Exchange’s efforts to offer products
in an exchange-traded environment that
compete with OTC products. The
Exchange believes long-term index
options contracts provide market
participants and investors with a
competitive comparable alternative to
the OTC market in long-term index
options, which can take on contract
characteristics similar to long-term
index options contracts but are not
subject to the same maximum term
restriction. By expanding the eligible
term for long-term index options
contracts, market participants will now
have greater flexibility in determining
whether to execute their long-term
index options in an exchange
environment or in the OTC market. The
Exchange believes market participants
can benefit from being able to trade
these long-term index options in an
exchange environment in several ways,
including, but not limited to the
following: (1) Enhanced efficiency in
initiating and closing out positions; (2)
increased market transparency; and (3)
heightened contra-party
creditworthiness due to the role of OCC
as issuer and guarantor of long-term
index options contracts.
The Exchange has confirmed with the
OCC that OCC can configure its systems
to support long-term equity options
contracts that have a maximum term of
180 months (15 years). The proposed
rule change is also consistent with the
rules of other options exchanges.7
Pursuant to the proposed rule change,
the Exchange may list XSP, RUT, and
DJX options with expirations from 12 to
180 months from the date of issuance.8
Rule 29.11(b)(2) provides that
reduced-value long-term option series
may be approved for trading on
specified indices.9 A reduced-value
long-term option series is an option
series overlying an index that trades in
units based upon a percentage of the
value of the underlying index (such as
10%). As set forth in current Rule
29.11(b)(2)(B), reduced-value long-term
options series may expire at six-month
intervals. The proposed rule change
adds RUT to the list of indices on which
the Exchange may list reduced-value
long-term option series. Reduced-value
long-term RUT series will be subject to
the same trading rules as long-term RUT
series, except the minimum strike price
interval will be $2.50 for all premiums,
as discussed below.10 For reduced-value
long-term RUT series, the underlying
value will be computed at 10% of the
value of the Russell 2000.
Rule 29.11(b)(1)(A) also states strike
price intervals, bid/ask differential, and
continuity rules do not apply to longterm index options series until the time
to expiration is less than twelve months.
Rule 29.11(c) describes the strike price
intervals applicable to long-term index
options. Additionally, Rule 22.6(d)
7 See,
5 See Cboe Options Rule 6.42, Interpretation and
Policy .03.
6 See Rule 29.3(b).
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e.g., Cboe Options Rule 24.9(b)(1).
8 See id.
9 See proposed Rule 29.11(b)(2)(A).
10 See proposed Rule 29.11(c)(1).
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describes continuous quoting
requirements for Market Makers.11 The
Exchange has no rules imposing bid/ask
differential requirements. The Exchange
views these other Rules regarding strike
price interval and quote continuity
requirements as superseding the
language proposed to be deleted.
Additionally, stating bid/ask different
rules do not apply to long-term index
option contracts is unnecessary, as no
such rules are included in the
Exchange’s Rules. The Exchange
believes deletion of the language Rule
29.11(b)(1)(A) will provide additional
clarity and eliminate any confusion on
the applicability of the strike price
interval and quote continuity
requirements that may otherwise result
by including duplicative rules on these
topics.
Strike Intervals
RUT Options
The proposed rule change amends
Rule 29.11(c)(1) to provide that the
interval between strike prices will be no
less than $2.50 for RUT options (if the
strike price is less than $200) and
reduced-value long-term option series.
This is the same strike interval that
applies to RUT options and reducedvalue long-term option series pursuant
to rules of other options exchanges.12
XSP Options
Additionally, the proposed rule
change adds Rule 29.11(c)(5), which
provides that the strike prices for new
and additional series of XSP options are
subject to the following:
(1) If the current value of the MiniSPX Index is less than or equal to 20,
the Exchange will not list XSP option
series with a strike price of more than
100% above or below the current value
of the Mini-SPX Index;
(2) if the current value of the MiniSPX Index is greater than 20, the
Exchange will not list XSP option series
with a strike price of more than 50%
above or below the current value of the
Mini-SPX Index; and
(3) the lowest strike price interval that
may be listed for standard XSP option
series is $1, including the long-term
option series, and the lowest strike price
interval that may be listed for XSP
option series under the Short Term
Option Series Program in paragraph (h)
of Rule 29.11.
The proposed strike prices for XSP
options will permit strike prices closely
11 This rule excludes series with time to
expiration of nine months or more from Market
Makers’ quoting obligations.
12 See, e.g., Cboe Options Rule 24.9,
Interpretation and Policy .01(a); and Nasdaq PHLX
LLC (‘‘Phlx’’) Rule 1101A(a).
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aligned with SPX options.13
Additionally, the proposed strike price
range limitations for XSP options are
closely aligned with the strike price
range limitations for equity and
exchange-traded fund (‘‘ETF’’)
options.14 The proposed strike prices
and limitations for XSP options are the
same as those on another options
exchange.15 XSP options allow smallerscale investors to gain broad exposure to
the SPX options market and hedge S&P
500 Index cash positions.16 As a result,
XSP options provide retail investors
with the benefit of trading the broad
market in a manageably sized contract.
Current Rule 29.11(c)(1) provides that
strike prices are permitted only in
intervals of at least $5. SPX options may
be listed in intervals of at least $5.17 If
the S&P 500 Index value was 2700, then
the Mini-S&P 500 value would be 270.
SPX options would be permitted to be
listed with strikes of 2710, 2720, and
2730. Corresponding XSP options
strikes would be 271, 272, and 273;
however, under the current rule, the
Exchange could only list strikes of 270
and 275 for XSP options. The proposed
$1 strike interval for XSP options will
permit the listing of series with strikes
that correspond to SPX option strikes.
Additionally, current Rule 29.11(c)(3)
requires the exercise price of each series
of index options to be reasonably related
to the current index value of the
underlying index to which the series
relates at or about the time the series of
options is first opened for trading on the
Exchange. Pursuant to Rule 29.11(c)(4),
the term ‘‘reasonably related to the
current index value of the underlying
index’’ means the exercise price must be
within 30% of the current index value.
The Exchange may also open for trading
additional series of index options that
are more than 30% away from the
current index value, provided that
demonstrated customer interest exists
for the series. The Options Listing
Procedures Plan sets forth exercise price
range limitations for equity and ETF
options (which are the same as those
being proposed for XSP options). Those
limitations differ from the limitations
set forth in the current Rule. For
example, if the underlying price of an
equity or ETF option is $200, the
13 See Cboe Options Rule 24.9, Interpretation and
Policy .01(a).
14 See Rule 19.6, Interpretations and Policies
.02(b), .04(c) [sic], and .05(c).
15 See Cboe Options Rule 24.9, Interpretation and
Policy .11.
16 See Securities Exchange Act Release No. 32893
(September 14, 1993), 58 FR 49070 (September 21,
1993) (SR–CBOE–93–12) (order approving listing of
XSP options).
17 See Cboe Options Rule 24.9, Interpretation and
Policy .01(a).
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Exchange would be permitted to list
strikes ranging from $100 through $300
(50% above and below the current
value). However, if the value of the
Mini-SPX Index was $200, the Exchange
would only be permitted to list strikes
ranging from $140 to $260. To put XSP
options on equal standing with equity
and ETF options with respect to
exercise price range limitations, the
Exchange proposes to impose exercise
price range limitations on XSP options
that are equal to those applicable to
equity and ETF exercise price range
limitations.18
The Exchange believes these
permitted strike prices will permit the
Exchange to list XSP options with
strikes that more closely reflect the
current values of the S&P 500 Index, as
they provide more flexibility and allow
the Exchange to better respond to
customer demand for XSP option strike
prices that relate to current S&P 500
Index values. In addition, the Exchange
believes that because the number of
strikes that may be listed would be
contained by the percentages above and
below the current XSP Index value,
there is no need to restrict the use of $1
strike price intervals based on the
amount of the strike price.
The Exchange recognizes the
proposed approach does not achieve full
harmonization between strikes in XSP
options and SPX options. For example,
if there is a 2715 strike in SPX options,
the Exchange is not seeking the ability
to list a 271.5 strike in XSP options. The
Exchange believes being able to list the
271 and 272 strikes in XSP options
would provide the marketplace with a
sufficient number of strike prices over a
range of XSP values.19 The Exchange
believes this proposed rule change
would allow retail investors to better
use XSP options to gain exposure to the
SPX options market and hedge S&P 500
cash positions in the event that the S&P
500 Index value continues to increase.
The S&P 500 Index is widely used to
gauge large cap U.S. equities, and as a
result, investors often use S&P 500
Index-related products to diversify their
portfolios and benefit from market
trends. Full-size SPX options offer these
benefits to investors, but may be
expensive given its large notional value.
Those options are primarily used by
institutional market participants. By
contrast, XSP options offer individual
investors a lower cost options to obtain
18 See
proposed Rule 29.11(c)(5).
in this rule filing precludes the
Exchange from submitting a future rule filing
requesting even finer strike price increments for
XSP options.
19 Nothing
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42333
the potential benefits of options on the
S&P 500 Index.
DJX Options
Proposed Rule 29.11(c)(6) provides
the interval between strike prices may
be no less than $0.50 for options based
on 1/100th of the value of the Dow Jones
Industrial Average, including for series
listed under the Short Term Options
Program.20 As noted above, current Rule
29.11(c)(1) provides that strike prices
are permitted only in intervals of at least
$5. As noted above, DJX options are
based on 1/100th the value of the Dow
Jones Industrial Average. For example,
if the value of the Dow Jones Industrial
Average was 25100, series of an option
based on the full value of that average
could be listed with strike prices of
25105, 25110, and 25115. One-one
hundredth of the value of the Dow Jones
Industrial Average would be 251.05,
251.10, and 251.15, but the Exchange
would only be able to list series with
strike prices of $250 and $255. Pursuant
to the proposed rule change, the
Exchange could list series with strike
prices of 251.50, 252, 252.50, and 253.
The Exchange recognizes the proposed
approach does not achieve full
harmonization between strikes in DJX
options and the full value of the Dow
Jones Industrial Average. However, the
Exchange believes being able to list the
DJX options at strike intervals of $0.50
would provide the marketplace with a
sufficient number of strike prices over a
range of DJX values.21 The Exchange
believes this proposed rule change
would allow retail investors to better
use DJX options to gain exposure to the
market and hedge Dow Jones Industrial
Average cash positions in the event that
the value continues to increase. The
proposed strike price interval for DJX
options is the same as those on another
options exchange.22
Opening Process
The proposed rule change adds
paragraph (c) to Rule 21.7 to describe
the opening process for index options.
Current Rule 21.7(b) states the System
will open index options for trading at
9:30 a.m. Eastern time. Pursuant to the
current opening process, following 9:30
a.m., the System will determine a price
at which a particular series will be
opened (the ‘‘Opening Price’’) within 30
20 See Rule 29.11, Interpretation and Policy .05
[sic] for a description of the Short Term Options
Program.
21 Nothing in this rule filing precludes the
Exchange from submitting a future rule filing
requesting even finer strike price increments for
DJX options.
22 See Cboe Options Rule 24.9, Interpretation and
Policy .01(b).
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seconds of that time. Where there are no
contracts in a particular series that
would execute at any price, the System
will open such options for trading
without determining an Opening Price.
The Opening Price of a series must be
a Valid Price, as determined by current
subparagraph (a)(2), and will be:
• The midpoint of the NBBO (the
‘‘NBBO Midpoint’’);
• Where there is no NBBO Midpoint
at a Valid Price, the last regular way
print disseminated pursuant to the
OPRA Plan after 9:30 a.m. Eastern Time
(the ‘‘Print’’);
• Where there is both no NBBO
Midpoint and no Print at a Valid Price,
the last regular way transaction from the
previous trading day as disseminated
pursuant to the OPRA Plan (the
‘‘Previous Close’’); or
• Where there is no NBBO Midpoint,
no Print, and no Previous Close at a
Valid Price, the Order Entry Period may
be extended by 30 seconds or less or the
series may be opened for trading at the
discretion of the Exchange.
A NBBO Midpoint, a Print, and a
Previous Close will be at a Valid Price:
• Where there is no NBB and no
NBO;
• Where there is either a NBB and no
NBO or a NBO and no NBB and the
price is equal to or greater than the NBB
or equal to or less than the NBO; or
• Where there is both a NBB and
NBO, the price is equal to or within the
NBBO, and the price is less than a
specified minimum amount away from
the NBB or NBO for the series.
Under this Opening Process, if a
series has not opened yet on another
exchange on a trading (and thus there is
no NBBO and no Last Print), if there is
a Previous Close Price, it will be a valid
price and will be the Opening Price.
Additionally, if there are no crossed
contracts in a series, the series opens
immediately following the time period
referenced above.
The Exchange proposes to modify this
process with respect to index options.
Pursuant to the proposed rule change,
for index options, the System will
determine the Opening Price within 30
seconds of an away options exchange(s)
disseminating a quote in a series.
Following an away options exchange’s
dissemination of a quote in a series, if
there are no contracts in a series that
would execute at any price, the System
opens the series for trading without
determining an Opening Price. The
Opening Price, if valid, of a series will
be the NBBO Midpoint. Pursuant to
proposed subparagraph (c)(2), for index
options, the NBBO Midpoint is a valid
price if it is less than a specified
minimum amount away from the NBB
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or NBO for the series.23 If the NBBO
Midpoint is not valid, the Exchange in
its discretion may extend the order
entry period by up to 30 seconds or
open the series for trading. In other
words, the proposed rule change
provides that an index option series will
not open (with or without a trade) until
after the series is open on another
exchange. To the extent the Exchange
receives a quote from another Exchange
within the time period referenced
above, and there are contracts that may
trade, the Opening Process will
essentially be the same, and a series will
open with the NBBO Midpoint as an
Opening Price (if valid). Additionally,
the Exchange will continue to have the
ability to use a contingent opening to
open a series for trading if there is no
valid Opening Price. The proposed rule
change delays opening of a series on the
Exchange in an index option series if
there are no crossed contracts, and
eliminates the possibility to open using
the Last Print or Previous Close (as
those will generally not be necessary if
the Exchange waits for another
exchange to open).
Currently, RUT options trade on Cboe
Options and C2 Exchange, Inc. (‘‘C2’’),
and XSP options trade on Cboe Options,
which are affiliated exchanges of the
Exchange. Under current Rule 21.7, if a
RUT series was open on Cboe Options,
and if there are crossed orders on the
Exchange, the RUT series on the
Exchange would open with an Opening
Price equal to the NBBO Midpoint (if
valid). If a RUT series was not yet open
on another Exchange after 9:30 a.m.
(eastern), and there was a Previous
Close for the series, the series would
open on the Exchange with the Previous
Close as the Opening Price. If there are
no crossing orders on the Exchange, a
RUT series would open without an
opening price, possibly before the RUT
series was open on Cboe Options.
RUT options on Cboe Options
generally open within 30 seconds after
9:30 a.m., and thus the Exchange
expects RUT options to open for trading
within 30 seconds (as set forth in the
rule) at an Opening Price equal to the
NBBO Midpoint if there are orders that
can be crossed. However, it will be
possible for a RUT series to open prior
to the opening of that series on Cboe
23 There
are currently three criteria for an opening
price to be valid. See current Rule 21.7(a)(2)
(proposed Rule 21.7(b)(2)). Since the proposed rule
change provides that an index option series will
only open once it receives an NBBO from another
exchange, in which case there will always be an
NBB and NBO and thus an NBBO midpoint, the
only criteria for an opening price to be valid that
would apply to index options is the criteria
regarding how far away the NBBO midpoint is from
the NBB or NBO.
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Options. This is significant because, on
certain dates, Cboe Options uses prices
of RUT options trading on Cboe Options
to determine settlement values for
volatility index derivatives.24 While
trading in these options on volatility
index derivative settlement days also
generally opens within a few seconds
after 9:30 a.m., there have been times
when series being used to determine the
settlement value took longer to open.
Under the proposed rule, series on the
Exchange would open without an
Opening Price (if there are no crossed
orders) or with an Opening Price equal
to the Previous Close (if there are
crossed orders) prior to the settlement
value determination being completed on
Cboe Options. If this were to occur,
trading on the Exchange may then be
occurring at very different prices than
what is ultimately the opening trade
price on Cboe Options. Trading on
another Exchange while Cboe Options is
not yet open may impact the volatility
settlement value determination and
disrupt trading of volatility index
derivatives. The proposed rule change
eliminates the possibility of RUT
options on the Exchange automatically
opening for trading prior to those
options being open on Cboe Options
and thus interfering with the calculation
of volatility index derivative settlement
values.
The proposed rule change is the same
as the opening process for index options
on C2.25 Additionally, the opening
process on Nasdaq BX, LLC (‘‘BX’’) is
similar to the proposed rule change.
Pursuant to BX Chapter VI, Section 8(b),
if there is a possible trade on BX, a
series will open with a valid width
NBBO.26 This is similar to the proposed
rule change, in that a valid NBBO
Midpoint must be present for an index
option series to open with a trade
(which on the Exchange would only
occur if another exchange was open for
trading, because on the Exchange, the
NBBO that is used to determine the
Opening Price is based on disseminated
quotes of other exchanges and does not
include orders and quotes on the
Exchange prior to the opening of
trading 27). Additionally, if no trade is
possible on BX, then BX will depend on
one of the following to open: (1) A valid
24 See Cboe Options Rule 6.2, Interpretation and
Policy .01.
25 See C2 Rule 6.11(a)(2)(B).
26 On BX, a valid width NBBO means a
combination of all away market quotes and any
combination of BX Options-registered MarketMaker orders and quotes received over a BXprovided system component through which MarketMakers communicate their quotes within a
specified bid/ask differential established by BX. See
BX Chapter VI, Section 8(a)(6).
27 See Rule 16.1(a)(29) (definition of NBBO).
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width NBBO, (2) a certain number of
other options exchanges (as determined
by BX) having disseminated a firm
quote on OPRA, or (3) a certain period
of time (as determined by the Exchange)
has elapsed. As proposed, if no trade is
possible, the Exchange will open an
index option series after another
exchange as disseminated a quote,
which is consistent with number (2)
above (for example, under BX’s rule, it
could determine to open if one other
options exchange was open). While the
proposed rule change does not
explicitly provide for additional
alternatives in the event no trade is
possible, pursuant to Rule 21.7(f), the
Exchange may adjust the timing of the
Opening Process in a class if it believes
it is necessary in the interests of a fair
and orderly market.28 Therefore, like
BX, the Exchange could open a series
after a certain amount of time has
passed if the series does not open on
another exchange.
Once the System determines an
opening price for an index option, it
will open a series with an opening trade
in the same manner as it does for equity
options. The proposed rule change
moves the description of this process
from current Rule 21.7(a)(3) to proposed
Rule 21.7(d). The proposed rule change
also adds to proposed paragraph (d) that
the System cancels any OPG (also called
at the open orders) (or unexecuted
portions) that do not execute during the
opening process. This is consistent with
the behavior of orders with the OPG
time-in-force instruction.29
Additionally, the proposed rule change
moves the description of a contingent
open, which will also apply to index
and equity options, from current Rule
21.7(a)(4) to proposed Rule 21.7(e).30
The proposed rule change makes other
nonsubstantive changes (e.g. adding
headings and updating paragraph
lettering and numbering). Additionally,
the proposed rule change clarifies in
Rule 21.7(a) that re-opening after
regulatory halts applies only to equity
options, as regulatory halts only occur
in equity options.
sradovich on DSK3GMQ082PROD with NOTICES
Trading Halts
Current Rule 29.10(b) describes when
the Exchange may halt trading in an
index option. It permits the Exchange to
halt trading in an index option when, in
28 Number (1) above would not apply because, as
noted above, the NBBO on the Exchange prior to
the opening of trading does not include orders and
quotes on the Exchange.
29 See Rule 21.1(f)(6).
30 The proposed rule change makes
nonsubstantive changes to this provision, including
to make the rule plain English and eliminate
passive voice.
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17:31 Aug 20, 2018
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its 31 judgment, such action is
appropriate in the interests of a fair and
orderly market and to protect investors.
The Exchange may consider the
following factors, among others:
• Whether all trading has been halted
or suspended in the market that is the
primary market for a plurality of the
underlying stocks;
• Whether the current calculation of
the index derived from the current
market prices of the stocks is not
available;
• The extent to which the opening
has been completed or other factors
regarding the status of the opening; and
• Other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present, including, but not
limited to, the activation of price limits
on futures exchanges.
The proposed rule change amends the
first factor to state the Exchange may
consider the extent to which trading is
not occurring in the stocks or options
underlying the index. This provides the
Exchange with additional flexibility to
consider trading on all markets on
which the underlying components trade
when determining whether to halt
trading in an index option. The
Exchange believes flexibility is
appropriate when determining whether
to halt trading in an index option so it
can make such a determination based on
then-current circumstances to determine
what will contribute to a fair and
orderly market. For example, less than
a ‘‘plurality’’ of underlying components
may trade on one market, but if trading
on that market is halted, the Exchange
may determine halting trading in the
index option is in the interests of a fair
and orderly market because of the
specific components that are not
trading. This proposed change is
consistent with the rules of another
options exchange.32
Rule 29.10 also states trading on the
Exchange will be halted or suspended
whenever trading in underlying
securities whose weighted value
represents more than 20%, in the case
of a broad-based index, and 10% for all
other indices, of the index value is
halted or suspended. The proposed rule
change deletes this provision. The first
factor, as amended by this proposed rule
change, permits the Exchange to
determine to halt trading in an index
option in this specific circumstance.
This provision provides the Exchange
with no flexibility to determine what is
31 The
proposed rule change modifies the rule to
say ‘‘its’’ (as the sentence refers to the Exchange)
rather than ‘‘his or her.’’
32 See, e.g., Cboe Options Rule 24.7(a).
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42335
in the interests of a fair and orderly
market. The rules of other exchanges do
not have this provision.33
Expirations Listed on Other Exchanges
Proposed Rule 29.11(j) permits the
Exchange to list additional expiration
months on option classes opened for
trading on the Exchange if such
expiration months are opened for
trading on at least one other registered
national securities exchange. As noted
above, Rule 29.11(a)(3) permits the
Exchange to list up to six expiration
months at any one time for an index
option class. Other options exchange
have rules that permit them to list
additional expiration months if they are
opened for trading on at least one other
options exchange.34 This proposed rule
change will allow the Exchange to
compete with other exchanges by
matching the expiration months that
other exchanges list.
The Exchange notes that the proposed
rule change affords additional flexibility
in that it will permit the exchange to list
those additional expiration months that
have an actual demand from market
participants thereby potentially
reducing the proliferation of classes and
series. The Exchange believes the
proposed rule change is proper, and
indeed necessary, in light of the need to
have rules that permit the listing of
identical expiration months across
exchanges for products that multiplylisted and fungible with one another.
The Exchange believes that the
proposed rule change should encourage
competition and be beneficial to traders
and market participants by providing
them with a means to trade on the
Exchange securities that are listed and
traded on other exchanges.
Obvious Error
The proposed rule change adds to
Rule 20.6(g) and (h) language to clarify
that, for purposes of determining
whether a trade resulted from an
erroneous print or quote in the
underlying, the underlying may include
index values (as well as Fund Shares
and HOLDRs, which may also underlie
options trading on the Exchange
pursuant to Rule 19.3(g) and (i),
33 See, e.g., Cboe Options Rule 24.7(a); Phlx Rule
1047A(c).
34 See, e.g., Cboe Options Rule 24.9,
Interpretation and Policy .13; and NASDAQ ISE,
LLC Rule 2009, Supplementary Material .04.
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respectively).35 This is consistent with
the rules of another options exchange.36
Restrictions on Contracts
The proposed rule change adds Rule
29.15, which states contracts provided
for in Chapter 29 of the Rules will not
be subject to the restriction in Rule
18.12(b). Rule 18.12(b) states whenever
the issue of a security underlying a call
option traded on the Exchange is
engaged or proposes to engage in a
public underwritten distribution
(‘‘public distribution’’) of such
underlying security or securities
exchangeable for or convertible into
such underlying security, the
underwriters may request that the
exchange impose restrictions upon all
opening writing transactions in such
options at a discount where the
resulting short position will be
uncovered. The rule includes additional
conditions that are necessary to impose
these restrictions.
Rule 18.12(b) applies to equity
options, and to restrictions the issuer of
the security underlying the equity
option may request. As there is no
issuer of an ‘‘index,’’ and thus there is
no possibility of a public distribution of
an index, the Rule does not apply to
index options. Rule 29.15 merely states
this explicitly in the Rules. This will
also ensure it is clear in the Rules that
an issuer of a security that is a
component of an index may not request
restrictions on the index options, as the
Exchange does not believe it would be
appropriate for an issuer of a single
underlying component to have the
ability to restrict trading in the index
option. The proposed rule change is
consistent with the rules of at least one
other options exchange.37
sradovich on DSK3GMQ082PROD with NOTICES
Capacity and Surveillance
The Exchange represents it has an
adequate surveillance program in place
for index options. The Exchange is a
member of the Intermarket Surveillance
Group (‘‘ISG’’), which is comprised of
an international group of exchanges,
market centers, and market regulators.
The purpose of ISG is to provide a
framework for the sharing of
information and the coordination of
regulatory efforts among exchanges
trading securities and related products
to address potential intermarket
35 While adding language in this rule provision
regarding Fund Shares and HOLDRs is unrelated to
the purpose of this filing, which is to permit the
listing and trading of certain index options on the
Exchange, the Exchange believes it is appropriate to
include this language in the proposed rule text to
ensure continued harmonization of obvious error
rules across all exchanges.
36 See, e.g., Cboe Options Rule 6.25(g) and (h).
37 See Cboe Options Rule 24.10.
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Jkt 244001
manipulations and trading abuses. ISG
plays a crucial role in information
sharing among markets that trade
securities, options on securities,
security futures products, and futures
and options on broad-based security
indexes. A list of identifying current ISG
members is available at https://
www.isgportal.org/isgPortal/public/
members.htm.
The Exchange has analyzed its
capacity and represents that it believes
the Exchange and OPRA have the
necessary systems capacity to handle
the additional traffic associated with the
listing of XSP, RUT, and DJX options up
to the proposed number of possible
expirations and strike prices. The
Exchange believes any additional traffic
that would be generated from the
introduction of XSP, RUT, and DJX
options will be manageable. The
Exchange believes its Members will not
have a capacity issue as a result of this
proposed rule change. The Exchange
also represents that it does not believe
this expansion will cause fragmentation
of liquidity. The Exchange will monitor
the trading volume associated with the
additional options series listed as a
result of this proposed rule change and
the effect (if any) of these additional
series on market fragmentation and on
the capacity of the Exchange’s
automated systems.
Position Limits and Margin
XSP, RUT, and DJX options will be
subject to the margin requirements set
forth in Chapter 28 and the position
limits set forth in Rule 29.5. Chapter 28
imposes the margin requirements of
either Cboe Options or the New York
Stock Exchange on Exchange Options
Members. Similarly, Rule 29.5 imposes
position (and exercise) limits for broadbased index options of Cboe Options on
Exchange Options Members. XSP, RUT,
and DJX options are currently listed and
traded on Cboe Options,38 and thus the
same margin requirements and position
and exercise limits that apply to these
products as traded on Cboe Options will
apply to these products when listed and
traded on the Exchange.
The Exchange Rules and Cboe
Options rules regarding position and
exercise limits and margin requirements
are substantially the same as each other,
as the Exchange rules currently refer to
the corresponding Cboe Options rules.
Therefore, Options Members must
comply with these Cboe Options rules
pursuant to the Exchange Rules.
38 Similarly, pursuant to Cboe Options Chapter
12, Cboe Options Trading Permit Holders may
request to have New York Stock Exchange margin
requirements apply to their trading.
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Pursuant to the proposed rule change,
the Exchange will be trading index
options also authorized for trading on
Cboe Options, so the position and
exercise limits and margin requirements
currently applicable to these index
options that trade on Cboe Options will
apply to these index options that may be
listed for trading on the Exchange. The
proposed rule regarding the listing and
trading of XSP, RUT, and DJX are
substantially the same as Cboe Options
rules regarding the listing and trading of
XSP, RUT, and DJX, which rules were
previously approved by the Commission
and thus they are consistent with the
Act. Additionally, the rules regarding
position and exercise limits and margin
requirements that will apply to XSP,
RUT, and DJX options listed for trading
on the Exchange were previously
approved by the Commission, and thus
they are consistent with the Act. The
proposed rule change will also result in
similar regulatory treatment for similar
option products.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.39 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 40 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 41 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The index underlying each of XSP,
RUT, and DJX options satisfies the
initial listing criteria of a broad-based
index in the Exchange’s Rules. The
proposed rule change adds these
indexes to the table regarding reporting
authorities for indexes, to the list of
European-style exercise index options,
39 15
40 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
41 Id.
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and to the list of A.M.-settled index
options. These changes are consistent
with the Exchange’s existing Rules.42
The proposed rule change related to
the minimum increment for XSP and
DJX options will permit consistency
between pricing of SPY options and
XSP options, which are both based, in
some manner, on the value of the S&P
500 Index, and between DIA options
and DJX options, which are both based,
in some manner, on the value of the
Dow Jones Industrial Average. As a
result, the Exchange believes it is
important that these products have the
same minimum increments for
competitive reasons. The proposed rule
change is also the same as another
options exchange.43
The proposed rule change to permit
listing of long-term index options
contracts with terms up to 180 months
is designed to promote just and
equitable principles of trade in that the
availability of long-term index options
contracts with longer dated expirations
will give market participants an
alternative to trading similar products in
the OTC market. By trading a product in
an exchange-traded environment (that is
currently being used in the OTC
market), the Exchange will be able to
compete more effectively with the OTC
market. The Exchange believes the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that it will
hopefully lead to the migration of
options currently trading in the OTC
market to trading to the Exchange. Also,
any migration to the Exchange from the
OTC market will result in increased
market transparency. Additionally, the
Exchange believes the proposed rule
change is designed to remove
impediments to and to perfect the
mechanism for a free and open market
and a national market system, and, in
general, to protect investors and the
public interest in that it should create
greater trading and hedging
opportunities and flexibility. The
proposed rule change should also result
in enhanced efficiency in initiating and
closing out positions and heightened
contra-party creditworthiness due to the
role of OCC as issuer and guarantor of
long-term index option series. Further,
the proposed rule change will result in
increased competition by permitting the
Exchange to offer products that are
currently used in the OTC market and
on other exchanges. Additionally, the
proposed rule change is consistent with
the series listing rules of other
exchanges.44
The proposed rule change to
eliminate the rule provision regarding
the applicability of strike price
intervals, bid/ask differentials and quote
continuity requirements to long-term
index option contracts will protect
investors by eliminating potential
confusion that may result from
inclusion of duplicative rules. As
discussed above, other rules address
requirements related to strike price
intervals and quote continuity
requirements and supersede the
language regarding these topics, and the
Exchange has no rules imposing bid/ask
differential requirements (and thus no
such requirements apply to long-term
equity option contracts), thus rendering
this language unnecessary. The
Exchange will continue to impose these
requirements in the manner it does
today, consistent with the provisions in
other existing rules, and thus this
proposed rule change has no impact on
how the Exchange imposes these
requirements. The rules of other options
exchanges do not include this
provision.45
The proposed minimum strike
interval for RUT options (if the strike
price is less than $200) and reducedvalue long-term option series is the
same as that on another options
exchanges.46
With respect to the proposed strike
prices for XSP options, the proposed
rule change would more closely align
XSP option strike prices with those of
SPX option strike prices, and would
more closely align strike price range
limitations on XSP options with those of
equity and ETF options. This would
provide more flexibility and allow the
Exchange to better respond to customer
demand for XSP option strike prices
that relate to current S&P 500 Index
values. The Exchange believes this
proposed rule change would allow retail
investors to better use XSP options to
gain exposure to the SPX options market
and hedge S&P 500 cash positions in the
event that the S&P 500 Index value
continues to increase. The Exchange
does not believe the proposed rule
change will create additional capacity
issues. In addition, the Exchange
believes that because the number of
strikes that may be listed would be
contained by the percentages above and
below the current XSP Index value, the
number of XSP strikes that may be listed
will not be unbounded. The proposed
XSP strike prices and restrictions are the
same as those on another options
exchange.47
With respect to the proposed strike
prices for DJX options, the proposed
rule change would more closely align
DJX option strike prices with 1/100th
the value of the Dow Jones Industrial
Average. This would provide more
flexibility and allow the Exchange to
better respond to customer demand for
DJX option strike prices that relate to
current Dow Jones Industrial Average
values. The Exchange believes this
proposed rule change would allow retail
investors to better use DJX options to
gain exposure to the market and hedge
Dow Jones Industrial Average cash
positions in the event that the Dow
Jones Industrial Average value
continues to increase. The Exchange
does not believe the proposed rule
change will create additional capacity
issues. The proposed DJX strike prices
are the same as those on another options
exchange.48
The proposed rule change that
permits the Exchange to list additional
expiration months if they are listed on
another options exchange will permit
the Exchange to accommodate requests
made by its Trading Permit Holders and
other market participants to list the
additional expiration months and thus
encourage competition without harming
investors or the public interest.
The proposed rule change with
respect to the opening process for index
options eliminates the possibility of
RUT options on the Exchange
automatically opening for trading prior
to those options being open on Cboe
Options and thus interfering with the
calculation of volatility index derivative
settlement values, which promotes just
and equitable principles of trade and
perfects the mechanism of a free and
open market and national market
system. As discussed above, under
certain circumstances, the proposed rule
change is expected to have a de minimis
impact on the opening of index option
series on the Exchange because, to the
extent the Exchange receives a quote
from another Exchange within the time
period following 9:30 a.m., and there are
contracts that may trade, the Opening
Process will essentially be the same, and
a series will open with the NBBO
Midpoint as an Opening Price (if valid).
Additionally, the Exchange will
continue to have the ability to use a
contingent opening to open a series for
44 See,
42 See
also Cboe Options Rules 24.1,
Interpretation and Policy .01 and 24.9(a)(3) and (4).
43 See Cboe Options Rule 6.42, Interpretation and
Policy .03.
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e.g., Cboe Options Rule 24.9(b)(1).
e.g., Cboe Options Rule 24.9.
46 See, e.g., Cboe Options Rule 24.9,
Interpretation and Policy .01(a); and Nasdaq PHLX
LLC (‘‘Phlx’’) Rule 1101A(a).
42337
45 See,
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
47 See Cboe Options Rule 24.9, Interpretation and
Policy .11.
48 See Cboe Options Rule 24.9, Interpretation and
Policy .01(b).
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sradovich on DSK3GMQ082PROD with NOTICES
trading if there is no valid Opening
Price. Therefore, if an index option
series is not yet open on another
exchange, the Exchange will still have
the ability to open the series for trading.
As discussed above, the proposed rule
change is the same as the opening
process for index options on C2,49 and
similar to the opening process of
another options exchange, which also
provides that opening for trading may
be dependent on whether another
options exchange is open.50
The proposed rule change to permit
the Exchange to list additional
expiration months on option classes
opened for trading on the Exchange if
such expiration months are opened for
trading on at least one other registered
national securities exchange is the same
as rules of other options exchanges.51
The proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by
allowing the Exchange to match the
expiration months that other exchanges
list. This will promote competition
among exchanges, which benefits
investors.
The proposed rule change regarding
when the Exchange may halt trading in
index options promotes just and
equitable principles of trade and
protects the public interest by providing
the Exchange with additional flexibility
when determine whether to halt trading
in an index option, so it can make such
a determination based on then-current
circumstances to determine what it will
contribute to a fair and orderly market.
The proposed change is consistent with
the rules of another options exchange.52
The proposed rule change to clarify
that, for purposes of determining
whether a trade resulted from an
erroneous print or quote in the
underlying, the underlying may include
index values (as well as Fund Shares
and HOLDRs, which may also underlie
options trading on the Exchange
pursuant to Rule 19.3(g) and (i),
respectively) further harmonizes the
Exchange’s rule related to the
adjustment and nullification of
erroneous options transactions with
those of other options exchanges. The
proposed rule change is based on the
rules of another options exchange.53
Proposed Rule 29.15 is merely stating
explicitly in the Rules that Rule 18.12(b)
49 See
C2 Rule 6.11(a)(2)(B).
BX Rule [sic] Section 8(b).
51 See, e.g., Cboe Options Rule 24.9,
Interpretation and Policy .13; and NASDAQ ISE,
LLC Rule 2009, Supplementary Material .04.
52 See, e.g., Cboe Options Rule 24.7(a); see also
Phlx Rule 1047A(c).
53 Cboe Options Rule 6.25(g) and (h).
50 See
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does not apply to index options, which
is consistent with the current rule. The
proposed rule change is based on the
rules of another options exchange.54
The Exchange Rules and Cboe
Options rules regarding position and
exercise limits and margin requirements
are substantially the same as each other,
as the Exchange rules currently refer to
the corresponding Cboe Options rules.
Therefore, Options Members must
comply with these Cboe Options rules
pursuant to the Exchange Rules.
Pursuant to the proposed rule change
the Exchange will be trading index
options also authorized for trading on
Cboe Options, the Cboe Options
position and exercise limits and margin
requirements applicable to these index
options will apply to these index
options that may be listed for trading on
the Exchange. Additionally, the
previously approved Cboe Options rules
regarding listing of XSP, RUT, and DJX
index options on the Exchange pursuant
to this proposed rule change are subject
to these also previously approved Cboe
Options rules regarding position and
exercise limits and margin
requirements, and thus they are
consistent with the Act. The proposed
rule change will also result in similar
regulatory treatment for similar option
products.
The Exchange represents it has an
adequate surveillance program in place
for index options. The Exchange is a
member of the Intermarket Surveillance
Group (‘‘ISG’’), which is comprised of
an international group of exchanges,
market centers, and market regulators.
The purpose of ISG is to provide a
framework for the sharing of
information and the coordination of
regulatory efforts among exchanges
trading securities and related products
to address potential intermarket
manipulations and trading abuses. ISG
plays a crucial role in information
sharing among markets that trade
securities, options on securities,
security futures products, and futures
and options on broad-based security
indexes. A list of identifying current ISG
members is available at https://
www.isgportal.org/isgPortal/public/
members.htm.
The Exchange has analyzed its
capacity and represents that it believes
the Exchange and OPRA have the
necessary systems capacity to handle
the additional traffic associated with the
listing of XSP, RUT, and DJX options up
to the proposed number of possible
expirations and strike prices. The
Exchange believes any additional traffic
that would be generated from the
54 Cboe
PO 00000
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Frm 00087
Fmt 4703
Sfmt 4703
introduction of XSP, RUT, and DJX
options will be manageable. The
Exchange believes its Members will not
have a capacity issue as a result of this
proposed rule change. The Exchange
also represents that it does not believe
this expansion will cause fragmentation
of liquidity. The Exchange will monitor
the trading volume associated with the
additional options series listed as a
result of this proposed rule change and
the effect (if any) of these additional
series on market fragmentation and on
the capacity of the Exchange’s
automated systems.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The index underlying each of XSP,
RUT, and DJX options satisfies the
initial listing criteria of a broad-based
index in the Exchange’s Rules. The
proposed rule change adds these
indexes to the table regarding reporting
authorities for indexes, to the list of
European-style exercise index options,
and to the list of A.M.-settled index
options. These changes are consistent
with the Exchange’s existing Rules,55 as
well as Cboe Options’ rules.56
The proposed rule change related to
the minimum increment for XSP and
DJX options will permit consistency
between pricing of SPY options and
XSP options, which are both based, in
some manner, on the value of the S&P
500 Index, and between pricing of DIA
options and DJX options, which are both
based, in some manner, on the value of
the Dow Jones Industrial Average. As a
result, the Exchange believes it is
important that these products have the
same minimum increments for
competitive reasons. The proposed rule
change is also the same as another
options exchange.57
The proposed rule change to permit
listing of long-term index options
contracts with terms up to 180 months
will give market participants an
alternative to trading similar products in
the OTC market. By trading a product in
an exchange-traded environment (that is
currently being used in the OTC
market), the Exchange will be able to
compete more effectively with the OTC
market. Additionally, the Exchange
believes that the proposed rule change
55 See Rules 29.2, Interpretation and Policy .01
and 29.11(a)(4) and (5).
56 See Cboe Options Rules 24.1, Interpretation
and Policy .01 and 24.9(a)(3) and (4).
57 See Cboe Options Rule 6.42, Interpretation and
Policy .03.
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will create greater trading and hedging
opportunities and flexibility. The
proposed rule change should also result
in enhanced efficiency in initiating and
closing out positions and heightened
contra-party creditworthiness due to the
role of OCC as issuer and guarantor of
long-term index options contracts.
Further, the proposal will result in
increased competition by permitting the
Exchange to offer products that are
currently used in the OTC market.
Additionally, the proposed rule change
is consistent with the series listing rules
of other exchanges.58
The proposed rule change to
eliminate the rule provision regarding
the applicability of strike price
intervals, bid/ask differentials and quote
continuity requirements to long-term
index option contracts will have no
impact on Members, as this merely
eliminates potential confusion that may
result from inclusion of duplicative
rules that have been superseded by
other rules. The Exchange will continue
to impose these requirements in the
manner it does today, consistent with
the provisions in other existing rules,
and thus this proposed rule change has
no impact on how the Exchange
imposes these requirements. The rules
of other options exchanges do not
include this provision.59
The proposed minimum strike
interval for RUT options (if the strike
price is less than $200) and reducedvalue long-term option series is the
same as that on another options
exchanges.60
The proposed strike prices for XSP
options will be available to all market
participants that choose to trade XSP
options on the Exchange. Additionally,
the proposed XSP strike prices and
restrictions are the same as those on
another options exchange.61 The
proposed strike prices for DJX options
will be available to all market
participants that choose to trade DJX
options on the Exchange. Additionally,
the proposed DJX strike prices and
restrictions are the same as those on
another options exchange.62
With respect to the proposed rule
change related to the opening process,
the amended opening process will apply
in the same manner to all market
participants that participate in the
Exchange’s Opening Process for index
Cboe Options Rule 24.9(b)(1).
Cboe Options Rule 24.9.
60 See, e.g., Cboe Options Rule 24.9,
Interpretation and Policy .01(a); and Nasdaq PHLX
LLC (‘‘Phlx’’) Rule 1101A(a).
61 See Cboe Options Rule 24.9, Interpretation and
Policy .11.
62 See Cboe Options Rule 24.9, Interpretation and
Policy .01(b).
options. The Exchange believes it is
appropriate to limit the proposed
change to index options, because some,
such as RUT, are used to determine the
settlement value for volatility index
derivatives. A similar process does not
occur for equity options, and thus, the
risk of opening trading in an equity
option interfering with a settlement
process on another exchange is not
present. As discussed above, the
proposed rule change is the same as the
opening process for index options on
C2,63 and similar to the opening process
of another options exchange, which also
provides that opening for trading may
be dependent on whether another
options exchange is open.64
The proposed rule change regarding
when the Exchange may halt trading in
index options will apply to all market
participants in the same manner to the
extent the Exchange halts trading
pursuant to the proposed rule. The rule
provides the Exchange with additional
flexibility when determine whether to
halt trading in an index option, so it can
make such a determination based on
then-current circumstances to determine
what it will contribute to a fair and
orderly market. The proposed change is
consistent with the rules of another
options exchange.65
The proposed rule change to permit
the Exchange to list additional
expiration months on option classes
opened for trading on the Exchange if
such expiration months are opened for
trading on at least one other registered
national securities exchange is the same
as rules of other options exchanges.66
This proposed rule change will allow
the Exchange to compete with other
exchanges by matching the expiration
months that other exchanges list.
The proposed rule change to clarify
that, for purposes of determining
whether a trade resulted from an
erroneous print or quote in the
underlying, the underlying may include
index values (as well as Fund Shares
and HOLDRs, which may also underlie
options trading on the Exchange
pursuant to Rule 19.3(g) and (i),
respectively) further harmonizes the
Exchange’s rule related to the
adjustment and nullification of
erroneous options transactions with
those of other options exchanges. The
proposed rule change is based on the
rules of another options exchange.67
58 See
59 See
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Jkt 244001
63 See
C2 Rule 6.11(a)(2)(B).
BX Rule [sic] Section 8(b).
65 See, e.g., Cboe Options Rule 24.7(a); see also
Phlx Rule 1047A(c).
66 See, e.g., Cboe Options Rule 24.9,
Interpretation and Policy .13; and NASDAQ ISE,
LLC Rule 2009, Supplementary Material .04.
67 Cboe Options Rule 6.25(g) and (h).
64 See
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
42339
Proposed Rule 29.15 is merely stating
explicitly in the Rules that Rule 18.12(b)
does not apply to index options, which
is consistent with the current rule. The
proposed rule change is based on the
rules of another options exchange.68
The Exchange Rules and Cboe
Options rules regarding position and
exercise limits and margin requirements
are substantially the same as each other,
as the Exchange rules currently refer to
the corresponding Cboe Options rules.
Therefore, Options Members must
comply with these Cboe Options rules
pursuant to the Exchange Rules.
Pursuant to the proposed rule change,
the Exchange will be trading index
options also authorized for trading on
Cboe Options, so the position and
exercise limits and margin requirements
currently applicable to these index
options that trade on Cboe Options will
apply to these index options that may be
listed for trading on the Exchange. The
proposed rule regarding the listing and
trading of XSP, RUT, and DJX are
substantially the same as Cboe Options
rules regarding the listing and trading of
XSP, RUT, and DJX, which rules were
previously approved by the Commission
and thus they are consistent with the
Act. Additionally, the rules regarding
position and exercise limits and margin
requirements that will apply to XSP,
RUT, and DJX options listed for trading
on the Exchange were previously
approved by the Commission, and thus
they are consistent with the Act. The
proposed rule change will also result in
similar regulatory treatment for similar
option products.
The Exchange believes that the
proposed rule change will relieve any
burden on, or otherwise promote,
competition, as the rules are
substantially the same as those of other
options exchanges, as noted above.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
68 Cboe
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the Commission will: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2018–058 on the subject line.
Paper Comments
sradovich on DSK3GMQ082PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2018–058. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2018–058, and
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should be submitted on or before
September 11, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–17957 Filed 8–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Securities Exchange Act of 1934; Release
No. 34–83856/August 15, 2018]
Order Granting Petition for Review and
Scheduling Filing of Statements
In the Matter of Financial Industry
Regulatory Authority, Inc.
For an Order Granting the Approval of
Proposed Rule Change to Adopt FINRA
Rule 1113 (Restriction Pertaining to New
Member Applications) and to Amend the
FINRA Rule 9520 Series (Eligibility
Proceedings) (File No. SR–FINRA–2010–
056)
This matter comes before the
Securities and Exchange Commission
(‘‘Commission’’) on petition to review
the approval, pursuant to delegated
authority, of the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
proposed rule change to adopt FINRA
Rule 1113 (Restriction Pertaining to
New Member Applications) and to
amend the FINRA Rule 9520 Series
(Eligibility Proceedings).
On November 15, 2010, the
Commission issued a notice of filing of
the proposed rule change filed with the
Commission pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 2 thereunder.3 The proposed rule
change was published for comment in
the Federal Register on November 22,
2010.4 On February 18, 2011, after
consideration of the record for the
proposed rule change, the Division of
Trading and Markets (‘‘Division’’),
pursuant to delegated authority,5
approved the proposed rule change
(‘‘Approval Order’’).6
On March 4, 2011, pursuant to
Commission Rule of Practice 430,7
Manuel P. Asensio (‘‘Asensio’’) filed a
69 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Exchange Act Release No. 63316 (Nov. 15,
2010), 75 FR 71166 (Nov. 22, 2010) (File No. SR–
FINRA–2010–056).
4 See Id.
5 17 CFR 200.30 3(a)(12).
6 See Exchange Act Release No. 63933 (Feb. 18,
2011), 76 FR 10629 (Feb. 25, 2011).
7 17 CFR 201.430.
1 15
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
petition for review of the Approval
Order. Pursuant to Commission Rule of
Practice 431(e), the Approval Order was
stayed by the filing with the
Commission of a notice of intention to
petition for review.8 Pursuant to Rule
431 of the Rules of Practice,9 the
petition for review of the Approval
Order is granted. Further, the
Commission hereby establishes that any
party to the action or other person may
file a written statement in support of or
in opposition to the Approval Order on
or before September 5.
For the reasons stated above, it is
hereby:
Ordered that Asensio’s petition for
review of the Division’s action to
approve the proposed rule change by
delegated authority be Granted; and
It is further Ordered that any party or
other person may file a statement in
support of or in opposition to the action
made pursuant to delegated authority on
or before September 5.
It is further Ordered that the Approval
Order shall remain stayed pending
further order by the Commission.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–17958 Filed 8–20–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83850; File No. SR–FICC–
2018–008]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing of Proposed Rule Change To
Apply Government Securities Division
Corporation Default Rule to Sponsored
Members and Make Other Changes
August 15, 2018.
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 6,
2018, Fixed Income Clearing
Corporation (‘‘FICC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the clearing agency. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
8 17
CFR 201.431(e).
CFR 201.431.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
9 17
E:\FR\FM\21AUN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 162 (Tuesday, August 21, 2018)]
[Notices]
[Pages 42330-42340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17957]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83852; File No. SR-CboeBZX-2018-058]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Permit the Listing and Trading of
Options That Overlie the Mini-SPX Index, the Russell 2000 Index, and
the Dow Jones Industrial Average
August 15, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 2, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 42331]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to permit the listing and trading of
options that overlie the Mini-SPX Index (``XSP options''), the Russell
2000 Index (``RUT options''), and the Dow Jones Industrial Average
(``DJX options'').
The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change amends the Exchange's index rules to
permit the listing and trading of XSP options, RUT options, and DJX
options. XSP options are options on the Mini SPX Index, the current
value of which is 1/10th the value of the Standard & Poor's 500 ``Stock
Index reported by the reporting authority.\3\ RUT options are options
on the Russell 2000 Index. DJX options are options based on 1/100th of
the value of the Dow Jones Industrial Average. The index underlying
each of XSP, RUT, and DJX options satisfies the criteria of a broad-
based index for the initial listing of options on that index, as set
forth in Rule 29.3(b):
---------------------------------------------------------------------------
\3\ See proposed Rule 29.11, Interpretation and Policy .01.
---------------------------------------------------------------------------
(1) The index is broad-based index, as defined in Rule 29.2(j) (an
index designed to be representative of a stock market as a whole or of
a range of companies in unrelated industries);
(2) the options are designated as A.M.-settled;
(3) the index is capitalization-weighted, modified capitalization-
weighted, price-weighted or equal dollar-weighted;
(4) the index consists of 50 or more component securities;
(5) component securities that account for at least 95% of the
weight of the index have a market capitalization of at least $75
million, except that component securities that account for at least 65%
of the weight of the index have a market capitalization of at least
$100 million;
(6) component securities that account for at least 80% of the
weight of the index satisfy the requirements of Rule 19.3 applicable to
individual underlying securities;
(7) each component security that accounts for at least 1% of the
weight of the index has an average daily trading volume of at least
90,000 shares during the last six-month period;
(8) no single component security accounts for more than 10% 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 33% of the
weight of the index;
(9) each component security must be an ``NMS stock'' as defined in
Rule 600 of Regulation NMS under the Securities Exchange Act of 1934
(the ``Exchange Act'');
(10) non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than 20% of the weight of the index;
(11) the current underlying index value is widely disseminated at
least once every 15 seconds by OPRA, CTA/CQ, NIDS, or one or more major
market data vendors during the time the index options are traded on the
Exchange;
(12) 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 ISCA allocation and the number of
new messages per second expected to be generated by options on such
index;
(13) an equal dollar-weighted index is rebalanced at least once
every calendar quarter;
(14) if an index is maintained by a broker-dealer, the index is
calculated by a third party who is not a broker-dealer, and the broker-
dealer has erected an information barrier around its personnel who have
access to information concerning changes in, and adjustments to, the
index; and
(15) the Exchange has written surveillance procedures in place with
respect to surveillance of trading of options on the index.
XSP, RUT, and DJX options will be subject to the maintenance
listing standards set forth in Rule 29.3(c):
(1) The conditions stated in (1) through (3) and (9) through (15)
above must continue to be satisfied, provided that the requirements in
(5) through (8) must be satisfied only as of the first day of January
and July in each year; and
(2) the total number of component securities in the index may not
increase or decrease by more than 10% from the number of component
securities in the index at the time of its initial listing.\4\
---------------------------------------------------------------------------
\4\ In the event XSP, RUT, or DJX options fails to satisfy the
maintenance listing standards set forth herein, the Exchange will
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 Securities and Exchange Commission (the
``Commission'') under Section 19(b)(2) of the Exchange Act.
---------------------------------------------------------------------------
Reporting Authority
S&P Dow Jones Indices is the reporting authority for the Mini-SPX
Index and the Dow Jones Industrial Average, and Frank Russell Company
is the reporting authority for the Russell 2000 Index. The proposed
rule change adds these indexes and reporting authorities to Rule 29.2,
Interpretation and Policy .01. The proposed rule change also lists the
reporting authorities in Rule 29.13(b), which is the disclaimer for
reporting authorities. Rule 29.13(b) would apply to these reporting
authorities even if not specifically listed; however, the proposed rule
change adds the names of the reporting authority to the rule for
transparency and clarification.
Minimum Increments
Rule 29.11(a) states bids and offers are expressed in terms of
dollars and cents per unit of the index. The minimum increment
applicable to index options is set forth in Rule 21.5. The proposed
rule change adds Interpretation and Policy .02 to Rule 21.5, which
states for so long as SPDR options (SPY) and Diamonds options (DIA)
participate in the Penny Pilot Program pursuant to Interpretation and
Policy .01, the minimum increments for XSP options and DJX options,
respectively, will be the same as SPY and DIA, respectively for all
option series (including long-term option series). Such minimum
increment would be $0.01 for all SPY series, regardless of price, and
$0.01 for DJX series trading at less than $3.00 and $0.05 for DJX
series trading at $3.00 or higher, respectively, as set forth in Rule
21.5(a).
SPY options are options on the SPDR S&P 500 exchange-traded fund
(ETF), which is an ETF that tracks the performance of 1/10th the value
of the S&P 500 Index. DIA options are options on the SPDR Dow Jones
Industrial
[[Page 42332]]
Average ETF, which is an ETF that tracks the performance of the Dow
Jones Industrial Average. SPY and DIA options currently participate in
the Penny Pilot Program. XSP options are also based on the S&P 500
Index, and DJX options are also based on the Dow Jones Industrial
Average, as discussed above. The Exchange believes it is important that
these products have the same minimum increments for consistency and
competitive reasons. The proposed rule change is also the same as
another options exchange.\5\
---------------------------------------------------------------------------
\5\ See Cboe Options Rule 6.42, Interpretation and Policy .03.
---------------------------------------------------------------------------
The minimum increment for RUT will be as set forth in current Rule
21.5: Five cents if the series is trading below $3.00, and ten cents if
the series is trading at or above $3.00.
Settlement and Exercise Style
RUT, XSP, and DJX options will be A.M., cash-settled contracts with
European-style exercise. A.M.-settlement is consistent with the generic
listing criteria for broad-based indexes,\6\ and thus it is common for
index options to be A.M.-settled. The Exchange proposes to amend Rule
29.11(a)(5)(B) to add XSP, RUT, and DJX options to the list of other
A.M.-settled options. The Exchange proposes to amend Rule 29.11(a)(4)
to add XSP, RUT, and DJX options to the list of other European-style
index options.
---------------------------------------------------------------------------
\6\ See Rule 29.3(b).
---------------------------------------------------------------------------
Long-Term Index Options
Rule 29.11(b)(1) currently states the Exchange may list long-term
index options series that expire from 12 to 60 months from the date of
issuance. The proposed rule change permits listing of long-term index
options series that expire from 12 to 180 months from the date of
issuance. The Exchange understands that market participants may enter
into over-the-counter (``OTC'') positions with longer-dated expirations
than currently available on the Exchange. The proposed rule change will
permit the Exchange to list long-term index options contracts with
longer-dated expirations. The Exchange believes expanding the eligible
term for long-term index options contracts to 180 months is important
and necessary to the Exchange's efforts to offer products in an
exchange-traded environment that compete with OTC products. The
Exchange believes long-term index options contracts provide market
participants and investors with a competitive comparable alternative to
the OTC market in long-term index options, which can take on contract
characteristics similar to long-term index options contracts but are
not subject to the same maximum term restriction. By expanding the
eligible term for long-term index options contracts, market
participants will now have greater flexibility in determining whether
to execute their long-term index options in an exchange environment or
in the OTC market. The Exchange believes market participants can
benefit from being able to trade these long-term index options in an
exchange environment in several ways, including, but not limited to the
following: (1) Enhanced efficiency in initiating and closing out
positions; (2) increased market transparency; and (3) heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of long-term index options contracts.
The Exchange has confirmed with the OCC that OCC can configure its
systems to support long-term equity options contracts that have a
maximum term of 180 months (15 years). The proposed rule change is also
consistent with the rules of other options exchanges.\7\ Pursuant to
the proposed rule change, the Exchange may list XSP, RUT, and DJX
options with expirations from 12 to 180 months from the date of
issuance.\8\
---------------------------------------------------------------------------
\7\ See, e.g., Cboe Options Rule 24.9(b)(1).
\8\ See id.
---------------------------------------------------------------------------
Rule 29.11(b)(2) provides that reduced-value long-term option
series may be approved for trading on specified indices.\9\ A reduced-
value long-term option series is an option series overlying an index
that trades in units based upon a percentage of the value of the
underlying index (such as 10%). As set forth in current Rule
29.11(b)(2)(B), reduced-value long-term options series may expire at
six-month intervals. The proposed rule change adds RUT to the list of
indices on which the Exchange may list reduced-value long-term option
series. Reduced-value long-term RUT series will be subject to the same
trading rules as long-term RUT series, except the minimum strike price
interval will be $2.50 for all premiums, as discussed below.\10\ For
reduced-value long-term RUT series, the underlying value will be
computed at 10% of the value of the Russell 2000.
---------------------------------------------------------------------------
\9\ See proposed Rule 29.11(b)(2)(A).
\10\ See proposed Rule 29.11(c)(1).
---------------------------------------------------------------------------
Rule 29.11(b)(1)(A) also states strike price intervals, bid/ask
differential, and continuity rules do not apply to long-term index
options series until the time to expiration is less than twelve months.
Rule 29.11(c) describes the strike price intervals applicable to long-
term index options. Additionally, Rule 22.6(d) describes continuous
quoting requirements for Market Makers.\11\ The Exchange has no rules
imposing bid/ask differential requirements. The Exchange views these
other Rules regarding strike price interval and quote continuity
requirements as superseding the language proposed to be deleted.
Additionally, stating bid/ask different rules do not apply to long-term
index option contracts is unnecessary, as no such rules are included in
the Exchange's Rules. The Exchange believes deletion of the language
Rule 29.11(b)(1)(A) will provide additional clarity and eliminate any
confusion on the applicability of the strike price interval and quote
continuity requirements that may otherwise result by including
duplicative rules on these topics.
---------------------------------------------------------------------------
\11\ This rule excludes series with time to expiration of nine
months or more from Market Makers' quoting obligations.
---------------------------------------------------------------------------
Strike Intervals
RUT Options
The proposed rule change amends Rule 29.11(c)(1) to provide that
the interval between strike prices will be no less than $2.50 for RUT
options (if the strike price is less than $200) and reduced-value long-
term option series. This is the same strike interval that applies to
RUT options and reduced-value long-term option series pursuant to rules
of other options exchanges.\12\
---------------------------------------------------------------------------
\12\ See, e.g., Cboe Options Rule 24.9, Interpretation and
Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a).
---------------------------------------------------------------------------
XSP Options
Additionally, the proposed rule change adds Rule 29.11(c)(5), which
provides that the strike prices for new and additional series of XSP
options are subject to the following:
(1) If the current value of the Mini-SPX Index is less than or
equal to 20, the Exchange will not list XSP option series with a strike
price of more than 100% above or below the current value of the Mini-
SPX Index;
(2) if the current value of the Mini-SPX Index is greater than 20,
the Exchange will not list XSP option series with a strike price of
more than 50% above or below the current value of the Mini-SPX Index;
and
(3) the lowest strike price interval that may be listed for
standard XSP option series is $1, including the long-term option
series, and the lowest strike price interval that may be listed for XSP
option series under the Short Term Option Series Program in paragraph
(h) of Rule 29.11.
The proposed strike prices for XSP options will permit strike
prices closely
[[Page 42333]]
aligned with SPX options.\13\ Additionally, the proposed strike price
range limitations for XSP options are closely aligned with the strike
price range limitations for equity and exchange-traded fund (``ETF'')
options.\14\ The proposed strike prices and limitations for XSP options
are the same as those on another options exchange.\15\ XSP options
allow smaller-scale investors to gain broad exposure to the SPX options
market and hedge S&P 500 Index cash positions.\16\ As a result, XSP
options provide retail investors with the benefit of trading the broad
market in a manageably sized contract.
---------------------------------------------------------------------------
\13\ See Cboe Options Rule 24.9, Interpretation and Policy
.01(a).
\14\ See Rule 19.6, Interpretations and Policies .02(b), .04(c)
[sic], and .05(c).
\15\ See Cboe Options Rule 24.9, Interpretation and Policy .11.
\16\ See Securities Exchange Act Release No. 32893 (September
14, 1993), 58 FR 49070 (September 21, 1993) (SR-CBOE-93-12) (order
approving listing of XSP options).
---------------------------------------------------------------------------
Current Rule 29.11(c)(1) provides that strike prices are permitted
only in intervals of at least $5. SPX options may be listed in
intervals of at least $5.\17\ If the S&P 500 Index value was 2700, then
the Mini-S&P 500 value would be 270. SPX options would be permitted to
be listed with strikes of 2710, 2720, and 2730. Corresponding XSP
options strikes would be 271, 272, and 273; however, under the current
rule, the Exchange could only list strikes of 270 and 275 for XSP
options. The proposed $1 strike interval for XSP options will permit
the listing of series with strikes that correspond to SPX option
strikes.
---------------------------------------------------------------------------
\17\ See Cboe Options Rule 24.9, Interpretation and Policy
.01(a).
---------------------------------------------------------------------------
Additionally, current Rule 29.11(c)(3) requires the exercise price
of each series of index options to be reasonably related to the current
index value of the underlying index to which the series relates at or
about the time the series of options is first opened for trading on the
Exchange. Pursuant to Rule 29.11(c)(4), the term ``reasonably related
to the current index value of the underlying index'' means the exercise
price must be within 30% of the current index value. The Exchange may
also open for trading additional series of index options that are more
than 30% away from the current index value, provided that demonstrated
customer interest exists for the series. The Options Listing Procedures
Plan sets forth exercise price range limitations for equity and ETF
options (which are the same as those being proposed for XSP options).
Those limitations differ from the limitations set forth in the current
Rule. For example, if the underlying price of an equity or ETF option
is $200, the Exchange would be permitted to list strikes ranging from
$100 through $300 (50% above and below the current value). However, if
the value of the Mini-SPX Index was $200, the Exchange would only be
permitted to list strikes ranging from $140 to $260. To put XSP options
on equal standing with equity and ETF options with respect to exercise
price range limitations, the Exchange proposes to impose exercise price
range limitations on XSP options that are equal to those applicable to
equity and ETF exercise price range limitations.\18\
---------------------------------------------------------------------------
\18\ See proposed Rule 29.11(c)(5).
---------------------------------------------------------------------------
The Exchange believes these permitted strike prices will permit the
Exchange to list XSP options with strikes that more closely reflect the
current values of the S&P 500 Index, as they provide more flexibility
and allow the Exchange to better respond to customer demand for XSP
option strike prices that relate to current S&P 500 Index values. In
addition, the Exchange believes that because the number of strikes that
may be listed would be contained by the percentages above and below the
current XSP Index value, there is no need to restrict the use of $1
strike price intervals based on the amount of the strike price.
The Exchange recognizes the proposed approach does not achieve full
harmonization between strikes in XSP options and SPX options. For
example, if there is a 2715 strike in SPX options, the Exchange is not
seeking the ability to list a 271.5 strike in XSP options. The Exchange
believes being able to list the 271 and 272 strikes in XSP options
would provide the marketplace with a sufficient number of strike prices
over a range of XSP values.\19\ The Exchange believes this proposed
rule change would allow retail investors to better use XSP options to
gain exposure to the SPX options market and hedge S&P 500 cash
positions in the event that the S&P 500 Index value continues to
increase.
---------------------------------------------------------------------------
\19\ Nothing in this rule filing precludes the Exchange from
submitting a future rule filing requesting even finer strike price
increments for XSP options.
---------------------------------------------------------------------------
The S&P 500 Index is widely used to gauge large cap U.S. equities,
and as a result, investors often use S&P 500 Index-related products to
diversify their portfolios and benefit from market trends. Full-size
SPX options offer these benefits to investors, but may be expensive
given its large notional value. Those options are primarily used by
institutional market participants. By contrast, XSP options offer
individual investors a lower cost options to obtain the potential
benefits of options on the S&P 500 Index.
DJX Options
Proposed Rule 29.11(c)(6) provides the interval between strike
prices may be no less than $0.50 for options based on 1/100th of the
value of the Dow Jones Industrial Average, including for series listed
under the Short Term Options Program.\20\ As noted above, current Rule
29.11(c)(1) provides that strike prices are permitted only in intervals
of at least $5. As noted above, DJX options are based on 1/100th the
value of the Dow Jones Industrial Average. For example, if the value of
the Dow Jones Industrial Average was 25100, series of an option based
on the full value of that average could be listed with strike prices of
25105, 25110, and 25115. One-one hundredth of the value of the Dow
Jones Industrial Average would be 251.05, 251.10, and 251.15, but the
Exchange would only be able to list series with strike prices of $250
and $255. Pursuant to the proposed rule change, the Exchange could list
series with strike prices of 251.50, 252, 252.50, and 253. The Exchange
recognizes the proposed approach does not achieve full harmonization
between strikes in DJX options and the full value of the Dow Jones
Industrial Average. However, the Exchange believes being able to list
the DJX options at strike intervals of $0.50 would provide the
marketplace with a sufficient number of strike prices over a range of
DJX values.\21\ The Exchange believes this proposed rule change would
allow retail investors to better use DJX options to gain exposure to
the market and hedge Dow Jones Industrial Average cash positions in the
event that the value continues to increase. The proposed strike price
interval for DJX options is the same as those on another options
exchange.\22\
---------------------------------------------------------------------------
\20\ See Rule 29.11, Interpretation and Policy .05 [sic] for a
description of the Short Term Options Program.
\21\ Nothing in this rule filing precludes the Exchange from
submitting a future rule filing requesting even finer strike price
increments for DJX options.
\22\ See Cboe Options Rule 24.9, Interpretation and Policy
.01(b).
---------------------------------------------------------------------------
Opening Process
The proposed rule change adds paragraph (c) to Rule 21.7 to
describe the opening process for index options. Current Rule 21.7(b)
states the System will open index options for trading at 9:30 a.m.
Eastern time. Pursuant to the current opening process, following 9:30
a.m., the System will determine a price at which a particular series
will be opened (the ``Opening Price'') within 30
[[Page 42334]]
seconds of that time. Where there are no contracts in a particular
series that would execute at any price, the System will open such
options for trading without determining an Opening Price. The Opening
Price of a series must be a Valid Price, as determined by current
subparagraph (a)(2), and will be:
The midpoint of the NBBO (the ``NBBO Midpoint'');
Where there is no NBBO Midpoint at a Valid Price, the last
regular way print disseminated pursuant to the OPRA Plan after 9:30
a.m. Eastern Time (the ``Print'');
Where there is both no NBBO Midpoint and no Print at a
Valid Price, the last regular way transaction from the previous trading
day as disseminated pursuant to the OPRA Plan (the ``Previous Close'');
or
Where there is no NBBO Midpoint, no Print, and no Previous
Close at a Valid Price, the Order Entry Period may be extended by 30
seconds or less or the series may be opened for trading at the
discretion of the Exchange.
A NBBO Midpoint, a Print, and a Previous Close will be at a Valid
Price:
Where there is no NBB and no NBO;
Where there is either a NBB and no NBO or a NBO and no NBB
and the price is equal to or greater than the NBB or equal to or less
than the NBO; or
Where there is both a NBB and NBO, the price is equal to
or within the NBBO, and the price is less than a specified minimum
amount away from the NBB or NBO for the series.
Under this Opening Process, if a series has not opened yet on
another exchange on a trading (and thus there is no NBBO and no Last
Print), if there is a Previous Close Price, it will be a valid price
and will be the Opening Price. Additionally, if there are no crossed
contracts in a series, the series opens immediately following the time
period referenced above.
The Exchange proposes to modify this process with respect to index
options. Pursuant to the proposed rule change, for index options, the
System will determine the Opening Price within 30 seconds of an away
options exchange(s) disseminating a quote in a series. Following an
away options exchange's dissemination of a quote in a series, if there
are no contracts in a series that would execute at any price, the
System opens the series for trading without determining an Opening
Price. The Opening Price, if valid, of a series will be the NBBO
Midpoint. Pursuant to proposed subparagraph (c)(2), for index options,
the NBBO Midpoint is a valid price if it is less than a specified
minimum amount away from the NBB or NBO for the series.\23\ If the NBBO
Midpoint is not valid, the Exchange in its discretion may extend the
order entry period by up to 30 seconds or open the series for trading.
In other words, the proposed rule change provides that an index option
series will not open (with or without a trade) until after the series
is open on another exchange. To the extent the Exchange receives a
quote from another Exchange within the time period referenced above,
and there are contracts that may trade, the Opening Process will
essentially be the same, and a series will open with the NBBO Midpoint
as an Opening Price (if valid). Additionally, the Exchange will
continue to have the ability to use a contingent opening to open a
series for trading if there is no valid Opening Price. The proposed
rule change delays opening of a series on the Exchange in an index
option series if there are no crossed contracts, and eliminates the
possibility to open using the Last Print or Previous Close (as those
will generally not be necessary if the Exchange waits for another
exchange to open).
---------------------------------------------------------------------------
\23\ There are currently three criteria for an opening price to
be valid. See current Rule 21.7(a)(2) (proposed Rule 21.7(b)(2)).
Since the proposed rule change provides that an index option series
will only open once it receives an NBBO from another exchange, in
which case there will always be an NBB and NBO and thus an NBBO
midpoint, the only criteria for an opening price to be valid that
would apply to index options is the criteria regarding how far away
the NBBO midpoint is from the NBB or NBO.
---------------------------------------------------------------------------
Currently, RUT options trade on Cboe Options and C2 Exchange, Inc.
(``C2''), and XSP options trade on Cboe Options, which are affiliated
exchanges of the Exchange. Under current Rule 21.7, if a RUT series was
open on Cboe Options, and if there are crossed orders on the Exchange,
the RUT series on the Exchange would open with an Opening Price equal
to the NBBO Midpoint (if valid). If a RUT series was not yet open on
another Exchange after 9:30 a.m. (eastern), and there was a Previous
Close for the series, the series would open on the Exchange with the
Previous Close as the Opening Price. If there are no crossing orders on
the Exchange, a RUT series would open without an opening price,
possibly before the RUT series was open on Cboe Options.
RUT options on Cboe Options generally open within 30 seconds after
9:30 a.m., and thus the Exchange expects RUT options to open for
trading within 30 seconds (as set forth in the rule) at an Opening
Price equal to the NBBO Midpoint if there are orders that can be
crossed. However, it will be possible for a RUT series to open prior to
the opening of that series on Cboe Options. This is significant
because, on certain dates, Cboe Options uses prices of RUT options
trading on Cboe Options to determine settlement values for volatility
index derivatives.\24\ While trading in these options on volatility
index derivative settlement days also generally opens within a few
seconds after 9:30 a.m., there have been times when series being used
to determine the settlement value took longer to open. Under the
proposed rule, series on the Exchange would open without an Opening
Price (if there are no crossed orders) or with an Opening Price equal
to the Previous Close (if there are crossed orders) prior to the
settlement value determination being completed on Cboe Options. If this
were to occur, trading on the Exchange may then be occurring at very
different prices than what is ultimately the opening trade price on
Cboe Options. Trading on another Exchange while Cboe Options is not yet
open may impact the volatility settlement value determination and
disrupt trading of volatility index derivatives. The proposed rule
change eliminates the possibility of RUT options on the Exchange
automatically opening for trading prior to those options being open on
Cboe Options and thus interfering with the calculation of volatility
index derivative settlement values.
---------------------------------------------------------------------------
\24\ See Cboe Options Rule 6.2, Interpretation and Policy .01.
---------------------------------------------------------------------------
The proposed rule change is the same as the opening process for
index options on C2.\25\ Additionally, the opening process on Nasdaq
BX, LLC (``BX'') is similar to the proposed rule change. Pursuant to BX
Chapter VI, Section 8(b), if there is a possible trade on BX, a series
will open with a valid width NBBO.\26\ This is similar to the proposed
rule change, in that a valid NBBO Midpoint must be present for an index
option series to open with a trade (which on the Exchange would only
occur if another exchange was open for trading, because on the
Exchange, the NBBO that is used to determine the Opening Price is based
on disseminated quotes of other exchanges and does not include orders
and quotes on the Exchange prior to the opening of trading \27\).
Additionally, if no trade is possible on BX, then BX will depend on one
of the following to open: (1) A valid
[[Page 42335]]
width NBBO, (2) a certain number of other options exchanges (as
determined by BX) having disseminated a firm quote on OPRA, or (3) a
certain period of time (as determined by the Exchange) has elapsed. As
proposed, if no trade is possible, the Exchange will open an index
option series after another exchange as disseminated a quote, which is
consistent with number (2) above (for example, under BX's rule, it
could determine to open if one other options exchange was open). While
the proposed rule change does not explicitly provide for additional
alternatives in the event no trade is possible, pursuant to Rule
21.7(f), the Exchange may adjust the timing of the Opening Process in a
class if it believes it is necessary in the interests of a fair and
orderly market.\28\ Therefore, like BX, the Exchange could open a
series after a certain amount of time has passed if the series does not
open on another exchange.
---------------------------------------------------------------------------
\25\ See C2 Rule 6.11(a)(2)(B).
\26\ On BX, a valid width NBBO means a combination of all away
market quotes and any combination of BX Options-registered Market-
Maker orders and quotes received over a BX-provided system component
through which Market-Makers communicate their quotes within a
specified bid/ask differential established by BX. See BX Chapter VI,
Section 8(a)(6).
\27\ See Rule 16.1(a)(29) (definition of NBBO).
\28\ Number (1) above would not apply because, as noted above,
the NBBO on the Exchange prior to the opening of trading does not
include orders and quotes on the Exchange.
---------------------------------------------------------------------------
Once the System determines an opening price for an index option, it
will open a series with an opening trade in the same manner as it does
for equity options. The proposed rule change moves the description of
this process from current Rule 21.7(a)(3) to proposed Rule 21.7(d). The
proposed rule change also adds to proposed paragraph (d) that the
System cancels any OPG (also called at the open orders) (or unexecuted
portions) that do not execute during the opening process. This is
consistent with the behavior of orders with the OPG time-in-force
instruction.\29\ Additionally, the proposed rule change moves the
description of a contingent open, which will also apply to index and
equity options, from current Rule 21.7(a)(4) to proposed Rule
21.7(e).\30\ The proposed rule change makes other nonsubstantive
changes (e.g. adding headings and updating paragraph lettering and
numbering). Additionally, the proposed rule change clarifies in Rule
21.7(a) that re-opening after regulatory halts applies only to equity
options, as regulatory halts only occur in equity options.
---------------------------------------------------------------------------
\29\ See Rule 21.1(f)(6).
\30\ The proposed rule change makes nonsubstantive changes to
this provision, including to make the rule plain English and
eliminate passive voice.
---------------------------------------------------------------------------
Trading Halts
Current Rule 29.10(b) describes when the Exchange may halt trading
in an index option. It permits the Exchange to halt trading in an index
option when, in its \31\ judgment, such action is appropriate in the
interests of a fair and orderly market and to protect investors. The
Exchange may consider the following factors, among others:
---------------------------------------------------------------------------
\31\ The proposed rule change modifies the rule to say ``its''
(as the sentence refers to the Exchange) rather than ``his or her.''
---------------------------------------------------------------------------
Whether all trading has been halted or suspended in the
market that is the primary market for a plurality of the underlying
stocks;
Whether the current calculation of the index derived from
the current market prices of the stocks is not available;
The extent to which the opening has been completed or
other factors regarding the status of the opening; and
Other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present, including,
but not limited to, the activation of price limits on futures
exchanges.
The proposed rule change amends the first factor to state the
Exchange may consider the extent to which trading is not occurring in
the stocks or options underlying the index. This provides the Exchange
with additional flexibility to consider trading on all markets on which
the underlying components trade when determining whether to halt
trading in an index option. The Exchange believes flexibility is
appropriate when determining whether to halt trading in an index option
so it can make such a determination based on then-current circumstances
to determine what will contribute to a fair and orderly market. For
example, less than a ``plurality'' of underlying components may trade
on one market, but if trading on that market is halted, the Exchange
may determine halting trading in the index option is in the interests
of a fair and orderly market because of the specific components that
are not trading. This proposed change is consistent with the rules of
another options exchange.\32\
---------------------------------------------------------------------------
\32\ See, e.g., Cboe Options Rule 24.7(a).
---------------------------------------------------------------------------
Rule 29.10 also states trading on the Exchange will be halted or
suspended whenever trading in underlying securities whose weighted
value represents more than 20%, in the case of a broad-based index, and
10% for all other indices, of the index value is halted or suspended.
The proposed rule change deletes this provision. The first factor, as
amended by this proposed rule change, permits the Exchange to determine
to halt trading in an index option in this specific circumstance. This
provision provides the Exchange with no flexibility to determine what
is in the interests of a fair and orderly market. The rules of other
exchanges do not have this provision.\33\
---------------------------------------------------------------------------
\33\ See, e.g., Cboe Options Rule 24.7(a); Phlx Rule 1047A(c).
---------------------------------------------------------------------------
Expirations Listed on Other Exchanges
Proposed Rule 29.11(j) permits the Exchange to list additional
expiration months on option classes opened for trading on the Exchange
if such expiration months are opened for trading on at least one other
registered national securities exchange. As noted above, Rule
29.11(a)(3) permits the Exchange to list up to six expiration months at
any one time for an index option class. Other options exchange have
rules that permit them to list additional expiration months if they are
opened for trading on at least one other options exchange.\34\ This
proposed rule change will allow the Exchange to compete with other
exchanges by matching the expiration months that other exchanges list.
---------------------------------------------------------------------------
\34\ See, e.g., Cboe Options Rule 24.9, Interpretation and
Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material
.04.
---------------------------------------------------------------------------
The Exchange notes that the proposed rule change affords additional
flexibility in that it will permit the exchange to list those
additional expiration months that have an actual demand from market
participants thereby potentially reducing the proliferation of classes
and series. The Exchange believes the proposed rule change is proper,
and indeed necessary, in light of the need to have rules that permit
the listing of identical expiration months across exchanges for
products that multiply-listed and fungible with one another. The
Exchange believes that the proposed rule change should encourage
competition and be beneficial to traders and market participants by
providing them with a means to trade on the Exchange securities that
are listed and traded on other exchanges.
Obvious Error
The proposed rule change adds to Rule 20.6(g) and (h) language to
clarify that, for purposes of determining whether a trade resulted from
an erroneous print or quote in the underlying, the underlying may
include index values (as well as Fund Shares and HOLDRs, which may also
underlie options trading on the Exchange pursuant to Rule 19.3(g) and
(i),
[[Page 42336]]
respectively).\35\ This is consistent with the rules of another options
exchange.\36\
---------------------------------------------------------------------------
\35\ While adding language in this rule provision regarding Fund
Shares and HOLDRs is unrelated to the purpose of this filing, which
is to permit the listing and trading of certain index options on the
Exchange, the Exchange believes it is appropriate to include this
language in the proposed rule text to ensure continued harmonization
of obvious error rules across all exchanges.
\36\ See, e.g., Cboe Options Rule 6.25(g) and (h).
---------------------------------------------------------------------------
Restrictions on Contracts
The proposed rule change adds Rule 29.15, which states contracts
provided for in Chapter 29 of the Rules will not be subject to the
restriction in Rule 18.12(b). Rule 18.12(b) states whenever the issue
of a security underlying a call option traded on the Exchange is
engaged or proposes to engage in a public underwritten distribution
(``public distribution'') of such underlying security or securities
exchangeable for or convertible into such underlying security, the
underwriters may request that the exchange impose restrictions upon all
opening writing transactions in such options at a discount where the
resulting short position will be uncovered. The rule includes
additional conditions that are necessary to impose these restrictions.
Rule 18.12(b) applies to equity options, and to restrictions the
issuer of the security underlying the equity option may request. As
there is no issuer of an ``index,'' and thus there is no possibility of
a public distribution of an index, the Rule does not apply to index
options. Rule 29.15 merely states this explicitly in the Rules. This
will also ensure it is clear in the Rules that an issuer of a security
that is a component of an index may not request restrictions on the
index options, as the Exchange does not believe it would be appropriate
for an issuer of a single underlying component to have the ability to
restrict trading in the index option. The proposed rule change is
consistent with the rules of at least one other options exchange.\37\
---------------------------------------------------------------------------
\37\ See Cboe Options Rule 24.10.
---------------------------------------------------------------------------
Capacity and Surveillance
The Exchange represents it has an adequate surveillance program in
place for index options. The Exchange is a member of the Intermarket
Surveillance Group (``ISG''), which is comprised of an international
group of exchanges, market centers, and market regulators. The purpose
of ISG is to provide a framework for the sharing of information and the
coordination of regulatory efforts among exchanges trading securities
and related products to address potential intermarket manipulations and
trading abuses. ISG plays a crucial role in information sharing among
markets that trade securities, options on securities, security futures
products, and futures and options on broad-based security indexes. A
list of identifying current ISG members is available at https://www.isgportal.org/isgPortal/public/members.htm.
The Exchange has analyzed its capacity and represents that it
believes the Exchange and OPRA have the necessary systems capacity to
handle the additional traffic associated with the listing of XSP, RUT,
and DJX options up to the proposed number of possible expirations and
strike prices. The Exchange believes any additional traffic that would
be generated from the introduction of XSP, RUT, and DJX options will be
manageable. The Exchange believes its Members will not have a capacity
issue as a result of this proposed rule change. The Exchange also
represents that it does not believe this expansion will cause
fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
Position Limits and Margin
XSP, RUT, and DJX options will be subject to the margin
requirements set forth in Chapter 28 and the position limits set forth
in Rule 29.5. Chapter 28 imposes the margin requirements of either Cboe
Options or the New York Stock Exchange on Exchange Options Members.
Similarly, Rule 29.5 imposes position (and exercise) limits for broad-
based index options of Cboe Options on Exchange Options Members. XSP,
RUT, and DJX options are currently listed and traded on Cboe
Options,\38\ and thus the same margin requirements and position and
exercise limits that apply to these products as traded on Cboe Options
will apply to these products when listed and traded on the Exchange.
---------------------------------------------------------------------------
\38\ Similarly, pursuant to Cboe Options Chapter 12, Cboe
Options Trading Permit Holders may request to have New York Stock
Exchange margin requirements apply to their trading.
---------------------------------------------------------------------------
The Exchange Rules and Cboe Options rules regarding position and
exercise limits and margin requirements are substantially the same as
each other, as the Exchange rules currently refer to the corresponding
Cboe Options rules. Therefore, Options Members must comply with these
Cboe Options rules pursuant to the Exchange Rules. Pursuant to the
proposed rule change, the Exchange will be trading index options also
authorized for trading on Cboe Options, so the position and exercise
limits and margin requirements currently applicable to these index
options that trade on Cboe Options will apply to these index options
that may be listed for trading on the Exchange. The proposed rule
regarding the listing and trading of XSP, RUT, and DJX are
substantially the same as Cboe Options rules regarding the listing and
trading of XSP, RUT, and DJX, which rules were previously approved by
the Commission and thus they are consistent with the Act. Additionally,
the rules regarding position and exercise limits and margin
requirements that will apply to XSP, RUT, and DJX options listed for
trading on the Exchange were previously approved by the Commission, and
thus they are consistent with the Act. The proposed rule change will
also result in similar regulatory treatment for similar option
products.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\39\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \40\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \41\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78f(b).
\40\ 15 U.S.C. 78f(b)(5).
\41\ Id.
---------------------------------------------------------------------------
The index underlying each of XSP, RUT, and DJX options satisfies
the initial listing criteria of a broad-based index in the Exchange's
Rules. The proposed rule change adds these indexes to the table
regarding reporting authorities for indexes, to the list of European-
style exercise index options,
[[Page 42337]]
and to the list of A.M.-settled index options. These changes are
consistent with the Exchange's existing Rules.\42\
---------------------------------------------------------------------------
\42\ See also Cboe Options Rules 24.1, Interpretation and Policy
.01 and 24.9(a)(3) and (4).
---------------------------------------------------------------------------
The proposed rule change related to the minimum increment for XSP
and DJX options will permit consistency between pricing of SPY options
and XSP options, which are both based, in some manner, on the value of
the S&P 500 Index, and between DIA options and DJX options, which are
both based, in some manner, on the value of the Dow Jones Industrial
Average. As a result, the Exchange believes it is important that these
products have the same minimum increments for competitive reasons. The
proposed rule change is also the same as another options exchange.\43\
---------------------------------------------------------------------------
\43\ See Cboe Options Rule 6.42, Interpretation and Policy .03.
---------------------------------------------------------------------------
The proposed rule change to permit listing of long-term index
options contracts with terms up to 180 months is designed to promote
just and equitable principles of trade in that the availability of
long-term index options contracts with longer dated expirations will
give market participants an alternative to trading similar products in
the OTC market. By trading a product in an exchange-traded environment
(that is currently being used in the OTC market), the Exchange will be
able to compete more effectively with the OTC market. The Exchange
believes the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices in that it will hopefully lead to the
migration of options currently trading in the OTC market to trading to
the Exchange. Also, any migration to the Exchange from the OTC market
will result in increased market transparency. Additionally, the
Exchange believes the proposed rule change is designed to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest in that it should create greater trading and
hedging opportunities and flexibility. The proposed rule change should
also result in enhanced efficiency in initiating and closing out
positions and heightened contra-party creditworthiness due to the role
of OCC as issuer and guarantor of long-term index option series.
Further, the proposed rule change will result in increased competition
by permitting the Exchange to offer products that are currently used in
the OTC market and on other exchanges. Additionally, the proposed rule
change is consistent with the series listing rules of other
exchanges.\44\
---------------------------------------------------------------------------
\44\ See, e.g., Cboe Options Rule 24.9(b)(1).
---------------------------------------------------------------------------
The proposed rule change to eliminate the rule provision regarding
the applicability of strike price intervals, bid/ask differentials and
quote continuity requirements to long-term index option contracts will
protect investors by eliminating potential confusion that may result
from inclusion of duplicative rules. As discussed above, other rules
address requirements related to strike price intervals and quote
continuity requirements and supersede the language regarding these
topics, and the Exchange has no rules imposing bid/ask differential
requirements (and thus no such requirements apply to long-term equity
option contracts), thus rendering this language unnecessary. The
Exchange will continue to impose these requirements in the manner it
does today, consistent with the provisions in other existing rules, and
thus this proposed rule change has no impact on how the Exchange
imposes these requirements. The rules of other options exchanges do not
include this provision.\45\
---------------------------------------------------------------------------
\45\ See, e.g., Cboe Options Rule 24.9.
---------------------------------------------------------------------------
The proposed minimum strike interval for RUT options (if the strike
price is less than $200) and reduced-value long-term option series is
the same as that on another options exchanges.\46\
---------------------------------------------------------------------------
\46\ See, e.g., Cboe Options Rule 24.9, Interpretation and
Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a).
---------------------------------------------------------------------------
With respect to the proposed strike prices for XSP options, the
proposed rule change would more closely align XSP option strike prices
with those of SPX option strike prices, and would more closely align
strike price range limitations on XSP options with those of equity and
ETF options. This would provide more flexibility and allow the Exchange
to better respond to customer demand for XSP option strike prices that
relate to current S&P 500 Index values. The Exchange believes this
proposed rule change would allow retail investors to better use XSP
options to gain exposure to the SPX options market and hedge S&P 500
cash positions in the event that the S&P 500 Index value continues to
increase. The Exchange does not believe the proposed rule change will
create additional capacity issues. In addition, the Exchange believes
that because the number of strikes that may be listed would be
contained by the percentages above and below the current XSP Index
value, the number of XSP strikes that may be listed will not be
unbounded. The proposed XSP strike prices and restrictions are the same
as those on another options exchange.\47\
---------------------------------------------------------------------------
\47\ See Cboe Options Rule 24.9, Interpretation and Policy .11.
---------------------------------------------------------------------------
With respect to the proposed strike prices for DJX options, the
proposed rule change would more closely align DJX option strike prices
with 1/100th the value of the Dow Jones Industrial Average. This would
provide more flexibility and allow the Exchange to better respond to
customer demand for DJX option strike prices that relate to current Dow
Jones Industrial Average values. The Exchange believes this proposed
rule change would allow retail investors to better use DJX options to
gain exposure to the market and hedge Dow Jones Industrial Average cash
positions in the event that the Dow Jones Industrial Average value
continues to increase. The Exchange does not believe the proposed rule
change will create additional capacity issues. The proposed DJX strike
prices are the same as those on another options exchange.\48\
---------------------------------------------------------------------------
\48\ See Cboe Options Rule 24.9, Interpretation and Policy
.01(b).
---------------------------------------------------------------------------
The proposed rule change that permits the Exchange to list
additional expiration months if they are listed on another options
exchange will permit the Exchange to accommodate requests made by its
Trading Permit Holders and other market participants to list the
additional expiration months and thus encourage competition without
harming investors or the public interest.
The proposed rule change with respect to the opening process for
index options eliminates the possibility of RUT options on the Exchange
automatically opening for trading prior to those options being open on
Cboe Options and thus interfering with the calculation of volatility
index derivative settlement values, which promotes just and equitable
principles of trade and perfects the mechanism of a free and open
market and national market system. As discussed above, under certain
circumstances, the proposed rule change is expected to have a de
minimis impact on the opening of index option series on the Exchange
because, to the extent the Exchange receives a quote from another
Exchange within the time period following 9:30 a.m., and there are
contracts that may trade, the Opening Process will essentially be the
same, and a series will open with the NBBO Midpoint as an Opening Price
(if valid). Additionally, the Exchange will continue to have the
ability to use a contingent opening to open a series for
[[Page 42338]]
trading if there is no valid Opening Price. Therefore, if an index
option series is not yet open on another exchange, the Exchange will
still have the ability to open the series for trading. As discussed
above, the proposed rule change is the same as the opening process for
index options on C2,\49\ and similar to the opening process of another
options exchange, which also provides that opening for trading may be
dependent on whether another options exchange is open.\50\
---------------------------------------------------------------------------
\49\ See C2 Rule 6.11(a)(2)(B).
\50\ See BX Rule [sic] Section 8(b).
---------------------------------------------------------------------------
The proposed rule change to permit the Exchange to list additional
expiration months on option classes opened for trading on the Exchange
if such expiration months are opened for trading on at least one other
registered national securities exchange is the same as rules of other
options exchanges.\51\ The proposed rule change will remove impediments
to and perfect the mechanism of a free and open market and a national
market system by allowing the Exchange to match the expiration months
that other exchanges list. This will promote competition among
exchanges, which benefits investors.
---------------------------------------------------------------------------
\51\ See, e.g., Cboe Options Rule 24.9, Interpretation and
Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material
.04.
---------------------------------------------------------------------------
The proposed rule change regarding when the Exchange may halt
trading in index options promotes just and equitable principles of
trade and protects the public interest by providing the Exchange with
additional flexibility when determine whether to halt trading in an
index option, so it can make such a determination based on then-current
circumstances to determine what it will contribute to a fair and
orderly market. The proposed change is consistent with the rules of
another options exchange.\52\
---------------------------------------------------------------------------
\52\ See, e.g., Cboe Options Rule 24.7(a); see also Phlx Rule
1047A(c).
---------------------------------------------------------------------------
The proposed rule change to clarify that, for purposes of
determining whether a trade resulted from an erroneous print or quote
in the underlying, the underlying may include index values (as well as
Fund Shares and HOLDRs, which may also underlie options trading on the
Exchange pursuant to Rule 19.3(g) and (i), respectively) further
harmonizes the Exchange's rule related to the adjustment and
nullification of erroneous options transactions with those of other
options exchanges. The proposed rule change is based on the rules of
another options exchange.\53\
---------------------------------------------------------------------------
\53\ Cboe Options Rule 6.25(g) and (h).
---------------------------------------------------------------------------
Proposed Rule 29.15 is merely stating explicitly in the Rules that
Rule 18.12(b) does not apply to index options, which is consistent with
the current rule. The proposed rule change is based on the rules of
another options exchange.\54\
---------------------------------------------------------------------------
\54\ Cboe Options Rule 24.10.
---------------------------------------------------------------------------
The Exchange Rules and Cboe Options rules regarding position and
exercise limits and margin requirements are substantially the same as
each other, as the Exchange rules currently refer to the corresponding
Cboe Options rules. Therefore, Options Members must comply with these
Cboe Options rules pursuant to the Exchange Rules. Pursuant to the
proposed rule change the Exchange will be trading index options also
authorized for trading on Cboe Options, the Cboe Options position and
exercise limits and margin requirements applicable to these index
options will apply to these index options that may be listed for
trading on the Exchange. Additionally, the previously approved Cboe
Options rules regarding listing of XSP, RUT, and DJX index options on
the Exchange pursuant to this proposed rule change are subject to these
also previously approved Cboe Options rules regarding position and
exercise limits and margin requirements, and thus they are consistent
with the Act. The proposed rule change will also result in similar
regulatory treatment for similar option products.
The Exchange represents it has an adequate surveillance program in
place for index options. The Exchange is a member of the Intermarket
Surveillance Group (``ISG''), which is comprised of an international
group of exchanges, market centers, and market regulators. The purpose
of ISG is to provide a framework for the sharing of information and the
coordination of regulatory efforts among exchanges trading securities
and related products to address potential intermarket manipulations and
trading abuses. ISG plays a crucial role in information sharing among
markets that trade securities, options on securities, security futures
products, and futures and options on broad-based security indexes. A
list of identifying current ISG members is available at https://www.isgportal.org/isgPortal/public/members.htm.
The Exchange has analyzed its capacity and represents that it
believes the Exchange and OPRA have the necessary systems capacity to
handle the additional traffic associated with the listing of XSP, RUT,
and DJX options up to the proposed number of possible expirations and
strike prices. The Exchange believes any additional traffic that would
be generated from the introduction of XSP, RUT, and DJX options will be
manageable. The Exchange believes its Members will not have a capacity
issue as a result of this proposed rule change. The Exchange also
represents that it does not believe this expansion will cause
fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The index underlying each of XSP, RUT, and DJX options satisfies
the initial listing criteria of a broad-based index in the Exchange's
Rules. The proposed rule change adds these indexes to the table
regarding reporting authorities for indexes, to the list of European-
style exercise index options, and to the list of A.M.-settled index
options. These changes are consistent with the Exchange's existing
Rules,\55\ as well as Cboe Options' rules.\56\
---------------------------------------------------------------------------
\55\ See Rules 29.2, Interpretation and Policy .01 and
29.11(a)(4) and (5).
\56\ See Cboe Options Rules 24.1, Interpretation and Policy .01
and 24.9(a)(3) and (4).
---------------------------------------------------------------------------
The proposed rule change related to the minimum increment for XSP
and DJX options will permit consistency between pricing of SPY options
and XSP options, which are both based, in some manner, on the value of
the S&P 500 Index, and between pricing of DIA options and DJX options,
which are both based, in some manner, on the value of the Dow Jones
Industrial Average. As a result, the Exchange believes it is important
that these products have the same minimum increments for competitive
reasons. The proposed rule change is also the same as another options
exchange.\57\
---------------------------------------------------------------------------
\57\ See Cboe Options Rule 6.42, Interpretation and Policy .03.
---------------------------------------------------------------------------
The proposed rule change to permit listing of long-term index
options contracts with terms up to 180 months will give market
participants an alternative to trading similar products in the OTC
market. By trading a product in an exchange-traded environment (that is
currently being used in the OTC market), the Exchange will be able to
compete more effectively with the OTC market. Additionally, the
Exchange believes that the proposed rule change
[[Page 42339]]
will create greater trading and hedging opportunities and flexibility.
The proposed rule change should also result in enhanced efficiency in
initiating and closing out positions and heightened contra-party
creditworthiness due to the role of OCC as issuer and guarantor of
long-term index options contracts. Further, the proposal will result in
increased competition by permitting the Exchange to offer products that
are currently used in the OTC market. Additionally, the proposed rule
change is consistent with the series listing rules of other
exchanges.\58\
---------------------------------------------------------------------------
\58\ See Cboe Options Rule 24.9(b)(1).
---------------------------------------------------------------------------
The proposed rule change to eliminate the rule provision regarding
the applicability of strike price intervals, bid/ask differentials and
quote continuity requirements to long-term index option contracts will
have no impact on Members, as this merely eliminates potential
confusion that may result from inclusion of duplicative rules that have
been superseded by other rules. The Exchange will continue to impose
these requirements in the manner it does today, consistent with the
provisions in other existing rules, and thus this proposed rule change
has no impact on how the Exchange imposes these requirements. The rules
of other options exchanges do not include this provision.\59\
---------------------------------------------------------------------------
\59\ See Cboe Options Rule 24.9.
---------------------------------------------------------------------------
The proposed minimum strike interval for RUT options (if the strike
price is less than $200) and reduced-value long-term option series is
the same as that on another options exchanges.\60\
---------------------------------------------------------------------------
\60\ See, e.g., Cboe Options Rule 24.9, Interpretation and
Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a).
---------------------------------------------------------------------------
The proposed strike prices for XSP options will be available to all
market participants that choose to trade XSP options on the Exchange.
Additionally, the proposed XSP strike prices and restrictions are the
same as those on another options exchange.\61\ The proposed strike
prices for DJX options will be available to all market participants
that choose to trade DJX options on the Exchange. Additionally, the
proposed DJX strike prices and restrictions are the same as those on
another options exchange.\62\
---------------------------------------------------------------------------
\61\ See Cboe Options Rule 24.9, Interpretation and Policy .11.
\62\ See Cboe Options Rule 24.9, Interpretation and Policy
.01(b).
---------------------------------------------------------------------------
With respect to the proposed rule change related to the opening
process, the amended opening process will apply in the same manner to
all market participants that participate in the Exchange's Opening
Process for index options. The Exchange believes it is appropriate to
limit the proposed change to index options, because some, such as RUT,
are used to determine the settlement value for volatility index
derivatives. A similar process does not occur for equity options, and
thus, the risk of opening trading in an equity option interfering with
a settlement process on another exchange is not present. As discussed
above, the proposed rule change is the same as the opening process for
index options on C2,\63\ and similar to the opening process of another
options exchange, which also provides that opening for trading may be
dependent on whether another options exchange is open.\64\
---------------------------------------------------------------------------
\63\ See C2 Rule 6.11(a)(2)(B).
\64\ See BX Rule [sic] Section 8(b).
---------------------------------------------------------------------------
The proposed rule change regarding when the Exchange may halt
trading in index options will apply to all market participants in the
same manner to the extent the Exchange halts trading pursuant to the
proposed rule. The rule provides the Exchange with additional
flexibility when determine whether to halt trading in an index option,
so it can make such a determination based on then-current circumstances
to determine what it will contribute to a fair and orderly market. The
proposed change is consistent with the rules of another options
exchange.\65\
---------------------------------------------------------------------------
\65\ See, e.g., Cboe Options Rule 24.7(a); see also Phlx Rule
1047A(c).
---------------------------------------------------------------------------
The proposed rule change to permit the Exchange to list additional
expiration months on option classes opened for trading on the Exchange
if such expiration months are opened for trading on at least one other
registered national securities exchange is the same as rules of other
options exchanges.\66\ This proposed rule change will allow the
Exchange to compete with other exchanges by matching the expiration
months that other exchanges list.
---------------------------------------------------------------------------
\66\ See, e.g., Cboe Options Rule 24.9, Interpretation and
Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material
.04.
---------------------------------------------------------------------------
The proposed rule change to clarify that, for purposes of
determining whether a trade resulted from an erroneous print or quote
in the underlying, the underlying may include index values (as well as
Fund Shares and HOLDRs, which may also underlie options trading on the
Exchange pursuant to Rule 19.3(g) and (i), respectively) further
harmonizes the Exchange's rule related to the adjustment and
nullification of erroneous options transactions with those of other
options exchanges. The proposed rule change is based on the rules of
another options exchange.\67\
---------------------------------------------------------------------------
\67\ Cboe Options Rule 6.25(g) and (h).
---------------------------------------------------------------------------
Proposed Rule 29.15 is merely stating explicitly in the Rules that
Rule 18.12(b) does not apply to index options, which is consistent with
the current rule. The proposed rule change is based on the rules of
another options exchange.\68\
---------------------------------------------------------------------------
\68\ Cboe Options Rule 24.10.
---------------------------------------------------------------------------
The Exchange Rules and Cboe Options rules regarding position and
exercise limits and margin requirements are substantially the same as
each other, as the Exchange rules currently refer to the corresponding
Cboe Options rules. Therefore, Options Members must comply with these
Cboe Options rules pursuant to the Exchange Rules. Pursuant to the
proposed rule change, the Exchange will be trading index options also
authorized for trading on Cboe Options, so the position and exercise
limits and margin requirements currently applicable to these index
options that trade on Cboe Options will apply to these index options
that may be listed for trading on the Exchange. The proposed rule
regarding the listing and trading of XSP, RUT, and DJX are
substantially the same as Cboe Options rules regarding the listing and
trading of XSP, RUT, and DJX, which rules were previously approved by
the Commission and thus they are consistent with the Act. Additionally,
the rules regarding position and exercise limits and margin
requirements that will apply to XSP, RUT, and DJX options listed for
trading on the Exchange were previously approved by the Commission, and
thus they are consistent with the Act. The proposed rule change will
also result in similar regulatory treatment for similar option
products.
The Exchange believes that the proposed rule change will relieve
any burden on, or otherwise promote, competition, as the rules are
substantially the same as those of other options exchanges, as noted
above.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents,
[[Page 42340]]
the Commission will: (a) By order approve or disapprove such proposed
rule change, or (b) institute proceedings to determine whether the
proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2018-058 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.
All submissions should refer to File Number SR-CboeBZX-2018-058. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2018-058, and should be
submitted on or before September 11, 2018.
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\69\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17957 Filed 8-20-18; 8:45 am]
BILLING CODE 8011-01-P
