Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change Relating To Adopt Flexible Exchange Options (“FLEX Options”) With a Contract Multiplier of One (“FLEX Micro Options”), 10491-10495 [2020-03532]
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Federal Register / Vol. 85, No. 36 / Monday, February 24, 2020 / Notices
products, and, in general, to protect
investors, municipal entities, obligated
persons, and the public interest.58
For the reasons set forth below, the
Commission believes that the proposed
rule change would promote the
protection of investors and the public
interest, and prevent fraudulent and
manipulative acts and practices, and is
therefore consistent with Section
15B(b)(2)(C) of the Act.
The Commission has long been
concerned with disclosure in both the
primary and secondary markets for
municipal securities, and has regularly
encouraged municipal issuers to
provide timely and accurate information
to investors and the trading markets.59
For example, in the 1994 Interpretive
Release, the Commission observed that
‘‘[t]he timeliness of financial
information is a major factor in its
usefulness.’’ 60 In the 2008 Adopting
Release, through which the Commission
designated EMMA as the sole repository
for issuer and obligated person
continuing disclosures, the Commission
noted that its ‘‘objective of encouraging
greater availability of municipal
securities information remains
unchanged.’’ 61 More recently, the
Commission has noted that, among
other things, timeliness of disclosures is
a major challenge in the secondary
market for municipal securities.62
The Commission believes that the
changes to the EMMA Portal
contemplated by the proposed rule
change would promote the protection of
investors and the public interest by
increasing their awareness and
understanding of the type and timing of
financial information available in the
municipal securities market, which
could enable investors to make more
informed investment decisions. The
Commission believes that the changes to
the EMMA Portal contemplated by the
proposed rule change also would enable
investors and others to more readily
locate and access the financial
information available on the EMMA
Portal and provide investors and others
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58 15
U.S.C. 78o–4(b)(2)(C).
59 See Exchange Act Release No. 34961
(November 10, 1994), 59 FR 59590 (November 17,
1994); Exchange Act Release No. 33741 (March 9,
1994), 59 FR 12748 (March 17, 1994) (the ‘‘1994
Interpretive Release’’); Exchange Act Release No.
59062 (December 5, 2008), 73 FR 76104, 76108
(December 15, 2008) (‘‘2008 Adopting Release’’);
Securities and Exchange Commission, Report on the
Municipal Securities Market (July 31, 2012) (‘‘2012
Report’’), available at https://www.sec.gov/news/
studies/2012/munireport073112.pdf; Exchange Act
Release No. 83885 (August 20, 2018), 83 FR 44700
(August 31, 2018).
60 See 1994 Interpretive Release, 59 FR at 12753.
61 See 2008 Adopting Release, 73 FR at 76108.
62 See 2012 Report at 74.
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with additional tools to evaluate an
issuer’s disclosure practices.
The Commission further believes that
the proposed rule change would
promote the prevention of fraudulent
and manipulative acts and practices by
fostering a better understanding among
investors and other market participants
of the type and timing of annual
financial information available in the
municipal securities market by making
the type and timing of financial
information more readily apparent on
the EMMA Portal. In the Commission’s
view, the proposed rule change could
mitigate certain information
asymmetries that may exist in the
market and thereby enable investors to
make more informed investment
decisions and protect themselves from
fraud.
In approving the proposed rule
change, the Commission has considered
the proposed rule change’s impact on
efficiency, competition, and capital
formation.63 Section 15B(b)(2)(C) of the
Act 64 requires that MSRB rules not be
designed to impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The Commission
does not believe that the proposed rule
change would impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act, because it would
not require issuers and other submitters
of information to EMMA to provide any
additional information in their
submissions. Furthermore, the
Commission believes that the potential
for increased transparency and
awareness regarding the timing of
financial information available on the
EMMA Portal could improve
competition by assisting investors in
their analysis of a municipal security’s
financial information by clearly and
prominently displaying a measure of the
timing of that information.
The Commission has reviewed the
record for the proposed rule change and
notes that the record does not contain
any information to indicate that the
proposed rule change would have a
negative effect on capital formation. The
Commission believes that the proposed
rule change includes provisions that
help promote efficiency. By promoting
transparency and awareness of the
timing of annual financial information,
the proposed rule change could enable
more efficient analysis by investors and
others of the age of the financial
information available about an issuer
and its securities.
As noted above, the Commission
received five comment letters on the
filing. The Commission believes that the
MSRB, through its responses, has
addressed commenters’ concerns. For
the reasons noted above, the
Commission believes that the proposed
rule change is consistent with the Act.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,65 that the
proposed rule change (SR–MSRB–2019–
13) be, and hereby is, approved.
For the Commission, pursuant to delegated
authority.66
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020–03531 Filed 2–21–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88232; File No. SR–CBOE–
2020–010]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change Relating To
Adopt Flexible Exchange Options
(‘‘FLEX Options’’) With a Contract
Multiplier of One (‘‘FLEX Micro
Options’’)
February 18, 2020.
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 February
4, 2020, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to adopt
flexible exchange options (‘‘FLEX
options’’) with a contract multiplier of
one (‘‘FLEX Micro Options’’). The text
of the proposed rule change is provided
in Exhibit 5.
65 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
66 17
63 15
64 15
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U.S.C. 78o–4(b)(2)(C).
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The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The proposed rule change adopts
FLEX Micro Options, which are FLEX
Options with a contract multiplier of
one. Rule 4.21(b) provides that a FLEX
Trader 3 must include all terms of a
FLEX Option series when submitting a
FLEX Order.4 Currently, the contract
multiplier for all FLEX Options is 100.5
The proposed rule change amends Rule
4.21(b)(1) to state that when identifying
the underlying security or index, the
FLEX Trader must also include whether
the contract multiplier is one or 100,
and defines FLEX Options with a
multiplier of one as FLEX Micro
Options. In other words, 100 FLEX
Micro Options are equivalent to one
standard FLEX Option.6 Because nonFLEX Options have multipliers of 100,
FLEX Micro Options will not be
fungible with any non-FLEX Options,
and thus will only be available for
trading pursuant to FLEX trading
procedures in Chapter 5, Section F of
the Rules.7
For example, on January 28, 2020, the
S&P 500 Index was at 3273.76 intraday.
Therefore, at that time, one S&P 500
Index option (‘‘SPX option’’) contract
had a notional value of $327,376 (100
times 3273.76). The SPX Feb 3300 call
option was trading at $30.20, making
the cost of the standard contract
overlying 100 units of the index was be
$3,020. Proportionately equivalent
FLEX Micro Option contracts on SPX
would provide investors with the ability
to manage and hedge their positions and
portfolio risk on their underlying
investment, at a price of $30.20 per
contract. The table below demonstrates
the proposed differences between a
FLEX Micro Options contract and a
standard FLEX Option contract with an
exercise price of $3025 and a bid or
offer of $3.20:
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Term
Standard
Micro
Contract Multiplier ....................................................................................................................................................
Strike Price ..............................................................................................................................................................
Bid/offer ....................................................................................................................................................................
100
3025
3.20
1
3025
3.20
Total Value of Deliverable ................................................................................................................................
$302,500
$3,025
Total Value of Contract ....................................................................................................................................
$320
$3.20
The Exchange believes there is a
demand from investors for FLEX Micro
Options, and that the proposed rule
change will expand investors’ choices
and flexibility with respect to the
trading of FLEX Options. These options
will provide investors with additional
granularity with respect to the prices at
which they may execute and exercise
their FLEX Options on the Exchange, as
investors may execute and exercise
over-the-counter options with this
smaller contract multiplier. The
Exchange believes this additional
granularity will appeal to investors, as
it will provide them with an additional
tool to manage their positions based on
notional value, which currently may
equal a fraction of a standard contract.
For example, suppose a FLEX Trader
holds a security portfolio of
$10,000,000. The FLEX Trader desires
to hedge its portfolio with FLEX SPX
Options. Assume the current value of
the S&P 500 Index is 3,253.82. With a
100 multiplier, a standard FLEX SPX
Option contract would have a notional
value of $325,382.00. In order to hedge
the entire portfolio, the FLEX Trader
would need to trade 30.73 contracts
($10,000,000/$325,382). The nearest
whole number of contracts would 31
contracts, which would have a total
notional value of $10,086,842. As a
result, the FLEX Trader could only
hedge within $86,842 of its portfolio
value with standard FLEX Options.
With a one multiplier, a FLEX SPX
Micro Option contract would have a
notional value of $3,253.82. In order to
hedge the entire $10,000,000 portfolio,
the FLEX Trader would need to trade
3,073.3 ($10,000,000/$3,253.82). The
nearest whole number of contracts
would be 3,073 FLEX Micro SPX Option
contracts, which would have a total
notional value of $9,998,988.86.8 This
will allow the FLEX Trader to hedge
within $1,011.14 of its portfolio value.
Therefore, the availability of FLEX
Micro Options would permit this FLEX
Trader to hedge its portfolio with far
greater precision ($85,830.86).
FLEX Micro Options will be traded in
the same manner as all other FLEX
Options pursuant to Chapter 5, Section
F of the Rules. As demonstrated above,
there are two important distinctions
between standard FLEX Options and
3 A ‘‘FLEX Trader’’ is a Trading Permit Holder the
Exchange has approved to trade FLEX Options on
the Exchange.
4 These terms include the underlying equity
security or index, the type of options (put or call),
exercise style, expiration date, settlement type, and
exercise price. See Rule 4.21(b). A FLEX’’ Order’’
is an order submitted in FLEX Options. The
submission of a FLEX Order makes the FLEX
Option series in that order eligible for trading. See
Rule 5.72(b).
5 Rule 4.21(b)(1). The proposed rule change
clarifies in Rule 4.21(b)(1) that the contract
multiplier for both FLEX Equity and Index Options
is 100, as the current rule only provides that the
index multiplier is 100 for FLEX Index Options.
This is not a substantive change and merely a
clarification in the Rules regarding the current
multiplier for FLEX Options.
6 The proposed rule change also amends Rule
5.74(a)(4) to provide that the minimum size of an
agency order for a FLEX solicitation auction
mechanism (‘‘SAM’’) will be 50,000 FLEX Micro
Option contracts, which is equivalent to 500
standard FLEX option contracts, the current
minimum size of agency orders for SAM auctions.
This corresponds to the minimum size of 5,000
mini-options.
7 See proposed Rule 4.22(d).
8 The FLEX Trader could also trade 30 standard
FLEX SPX Option contracts (for a total notional
value of $9,761,460) and 73 FLEX SPX Micro
Option contracts (for a total notional value of
$237,528.86), which would have the same total
notional value.
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FLEX Micro Options due to the
difference in multipliers. The proposed
rule change amends certain Rules
describing the exercise prices and bids
and offers of FLEX Options to reflect
these distinctions. The proposed rule
change amends Rule 4.21(b)(6) to
describe the difference between the
meaning of the exercise price of a
standard FLEX Option and a FLEX
Micro Option. Specifically, the
proposed rule change states that
exercise prices for FLEX Micro Options
are set at the same level as they are for
standard FLEX Options. For example, a
standard FLEX Equity Option series
with an exercise price to deliver 100
shares of the underlying security at $50
has a total deliverable value of $5,000,
and would have an exercise price of 50.
This is true today, and merely adds an
example to the rule regarding the
exercise price of a standard FLEX
Option series, the deliverables for which
are equal to the exercise price times the
100 contract multiplier to determine the
deliverable dollar value. The proposed
rule change also adds how the
deliverable dollar value will be
determined for a FLEX Micro Option. A
FLEX Micro Equity Option series with
an exercise price to deliver one share of
the underlying security at $50 has a
total deliverable value of $50, and
would have an exercise price of 50.9
Because a FLEX Micro Option has a
multiplier of 1/100 of the multiplier of
a standard FLEX Option, the value of a
FLEX Micro Option’s deliverable as a
result is 1/100 of the value of a standard
FLEX Option’s deliverable.
Similarly, the proposed rule change
amends Rule 5.3(e)(3) to describe the
difference between the meaning of bids
and offers for standard FLEX Options
and FLEX Micro Options. Currently,
that rule states that bids and offers for
FLEX Options must be expressed in (a)
U.S. dollars and decimals if the exercise
price for the FLEX Option series is a
fixed price, or (b) a percentage, if the
exercise price for the FLEX Option
series is a percentage of the closing
value of the underlying equity security
or index on the trade date, per unit. As
noted above, a standard FLEX Option
9 This corresponds to the calculation of exercise
prices for other types of options with reduced
multiplier. For example, Rule 4.5, Interpretation
and Policy .18(b) provides that strike prices (i.e.,
exercise prices) for mini-options (which have
multipliers of 10 rather than 100, as set forth in
Rule 4.5, Interpretation and Policy .18(a)) are set at
the same level as for standard options. For example,
a call series strike price to deliver 10 shares of stock
at $125 per share has a total deliverable value of
$1,250 (10 × 125) if the strike is 125. A standard
non-FLEX option with a strike price of 125 would
have a total deliverable value of $12,500 (100 ×
125).
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contract unit consists of 100 shares of
the underlying security or 100 times the
value of the underlying index, as they
currently have a 100 contract
multiplier.10 The proposed rule change
clarifies that bids and offers are
expressed per unit, if a standard FLEX
Option, and adds an example.
Specifically, the proposed rule change
states that for a standard FLEX Option
with an exercise price expressed as U.S.
dollars and decimals, a bid of ‘‘0.50’’
represents a bid of $50 (0.50 times 100).
The proposed rule change also adds to
Rule 5.3(e)(3) the meaning of FLEX
Micro Option bids and offers.
Specifically, bids and offers for FLEX
Micro Options must be expressed in (a)
U.S. dollars and decimals if the exercise
price for the FLEX Option series is a
fixed price, or (b) a percentage, if the
exercise price for the FLEX Option
series is a percentage of the closing
value of the underlying equity security
or index on the trade date, per 1/100th
unit of the underlying security or index,
as applicable.11 Additionally, the
proposed rule change states that for a
FLEX Micro Option, a bid of ‘‘0.50’’
represents a bid of $0.50 (0.50 times
one). The Exchange believes this
approach identifies a clear, transparent
description of the differences between
standard FLEX Options and FLEX Micro
Options. Additionally, the Exchange
believes the proposed terms of FLEX
Micro Options are consistent with the
terms of the Options Disclosure
Document.12
The proposed rule change amends
Rule 8.35(a) regarding position limits for
FLEX Options to describe how FLEX
Micro Options will be counted for
purposes of determining compliance
with position limits. Because 100 FLEX
Micro Options are equivalent to one
10 See
current Rule 4.21(b)(1).
corresponds to the meaning of bids and
offers for other types of options with reduced
multiplier. For example, Rule 5.3(c) provides that
bids and offers for an option contract overlying 10
shares (i.e., mini-options) must be expressed in
terms of dollars per 1/10th part of the total value
of the contract (for example, an offer of 0.50
represents an offer of $5.00 for an option contract
having a unit of trading consisting of 10 shares, as
opposed to $50 for a standard option contract
having a unit of trading consisting of 100 shares).
12 The Options Disclosure Document (‘‘ODD’’) is
available at https://www.theocc.com/about/
publications/character-risks.jsp. The ODD states
that the exercise price of a stock option is
multiplied by the number of shares underlying the
option to determine the aggregate exercise price and
aggregate premium of that option. See ODD at 18.
Similarly, the ODD states that the total exercise
price for an index option is the exercise price
multiplied by the multiplier, and the aggregate
premium is the premium multiplied by the
multiplier. See ODD at 8, 9, and 125. Per the ODD,
the amount of the underlying interest may be a
variable term with respect to flexibly structured
options (i.e., FLEX Options).
11 This
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10493
standard FLEX Option due to the
difference in contract multipliers,
proposed Rule 8.35(a)(7) states that for
purposes of determining compliance
with the position limits under Rule
8.35, 100 FLEX Micro Option contracts
equal one standard FLEX Option
contract with the same underlying
security or underlying index.13 The
proposed rule change adds paragraph (g)
to Rule 8.42 to make a corresponding
statement regarding the application of
exercise limits to FLEX Micro Options.
The margin requirements set forth in
Chapter 10 of the Rules will apply to
FLEX Micro Options (as they currently
do to all FLEX Options).
The proposed rule change also
corrects an administrative error in Rule
8.35(a). Currently, there are two
subparagraphs numbered as (a)(5). The
proposed rule change amends paragraph
(a) to renumber the second
subparagraph (a)(5) to be subparagraph
(a)(6).
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority have the necessary
systems capacity to handle the potential
additional traffic associated with the
listing and trading of FLEX Micro
Options. The Exchange also
understands that the Options Clearing
Corporation will be able to
accommodate the listing and trading of
FLEX Micro Options.14
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.15 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
13 The proposed rule change makes a
corresponding change to Rule 8.35(b) to clarify that,
like reduced-value FLEX contracts, FLEX Micro
Option contracts will be aggregated with full-value
contracts and counted by the amount by which they
equal a full-value contract for purposes of the
reporting obligation in that provision (i.e., 100
FLEX Micro Options will equal one standard FLEX
Option overlying the same index).
14 FLEX Micro Options will be listed with
different trading symbols than FLEX Options with
the same underlying to reduce any potential
confusion. For example, a standard FLEX Option
for class ABC may have symbol 4ABC, while a
FLEX Micro Option for class ABC may have symbol
4ABC9.
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
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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) 17 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed rule change will benefit
investors by expanding investors’
choices and flexibility with respect to
the trading of FLEX Options. These
options will provide investors with
additional granularity with respect to
the prices at which they may execute
and exercise their FLEX Options on the
Exchange, as investors may execute and
exercise over-the-counter options with
this smaller contract multiplier. The
Exchange believes this additional
granularity will provide investors with
an additional tool to manage more
efficiently their positions based on
notional value so that they equal whole
contracts, as opposed to fractions of a
standard contract as currently may
happen. Given the various trading and
hedging strategies employed by
investors, this additional granularity
may provide them with more control
over the trading of their FLEX strategies.
FLEX Micro Options will trade in the
same manner as all other FLEX Options,
with premiums (i.e., bids and offers) and
exercise prices adjusted proportionately
to reflect the difference in multiplier,
and thus the difference in the
deliverable value of the underlying. The
Exchange believes the proposed rule
change adds transparency and clarity to
the Rules regarding the distinctions
between standard FLEX Options and
FLEX Micro Options due to the different
multipliers will benefit investors. These
proposed rule changes include (1)
providing examples of the meaning of
the exercise prices and premiums (i.e.,
bids and offers) of both standard FLEX
Options and FLEX Micro Options, (2)
stating that FLEX Micro Options will
not be fungible with any non-FLEX
Options, as they cannot have the same
terms as any non-FLEX Options (as no
non-FLEX Options have multipliers of
one), and (3) including the
corresponding minimum size for a FLEX
SAM Agency Order consisting of FLEX
Micro Options. This proposal is similar
17 Id.
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to rules regarding other reduced-value
options.18
The Exchange believes the proposed
rule change regarding the treatment of
FLEX Micro Options with respect to
determining compliance with position
and exercise limits is designed to
prevent fraudulent and manipulative
acts and practices and promote just and
equitable principles of trade, as FLEX
Micro Options will be counted for
purposes of those limits in a
proportional manner to standard FLEX
Options. This is similar to limits
imposed on other reduced-value
options.19 The Exchange believes its
enhanced surveillances continue to be
designed to deter and detect violations
of Exchange Rules, including position
and exercise limits and possible
manipulative behavior, and those
surveillance will apply to FLEX Micro
Options.
By permitting FLEX Options to trade
with the same multiplier currently
available to customized options in the
OTC market, the Exchange believes the
proposed rule change will remove
impediments to and perfects the
mechanism of a free and open market
and a national market system by further
improving a comparable alternative to
the OTC market in customized options.
By enhancing our FLEX trading
platform to provide additional flexible
terms available in the OTC market but
not currently available in the listed
options market, the Exchange believes it
may be a more attractive alternative to
the OTC market. The Exchange believes
market participants benefit from being
able to trade customized 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 The
Options Clearing Corporation (‘‘OCC’’)
as issuer and guarantor of FLEX
Options.
The Exchange believes the proposed
nonsubstantive changes (to clarify the
current contract multiplier for standard
FLEX Options in Rule 4.21(b) and to
18 See, e.g., Rules 4.5, Interpretation and Policy
.18 (description of strike prices for mini-options,
which have a multiplier of 10), 5.3(c) (description
of bids and offers for mini-options), and 5.74(a)(4)
(description of minimum size of FLEX Agency
Order for mini-options). Just as terms for minioptions, which have a multiplier of 1/10th the size
of standard options, equal 1/10th of the same terms
for standard options, the proposed terms for FLEX
Micro Options, which have a multiplier 1/100th the
size of standard FLEX Options equal 1/100th of the
same terms as standard FLEX Options.
19 See, e.g., Rule 8.30, Interpretation and Policy
.08 (describing position limits for mini-options).
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correct the numbering of subparagraphs
in Rule 8.35(a)) will protect investors, as
they enhance transparency and clarity
in the Rules. Additionally, the
correction to subparagraph numbering
will enable investors to more easily
reference rule provisions in different
subparagraphs.
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
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
Exchange does not believe the proposed
rule change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, because all
FLEX Micro Options will be available
for all underlying securities and indexes
currently eligible for FLEX trading, and
all FLEX Traders may trade FLEX Micro
Options. FLEX Micro Options will trade
in the same manner as all standard
FLEX Options, with certain terms
proportionately adjusted to reflect the
different contract multipliers. The
Exchange does not believe the proposed
rule change will impose any burden on
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, because the
proposed rule change relates solely to
products that may be listed for trading
on the Exchange. Other options
exchanges may offer flexible options,
including with a different contract
multiplier. To the extent the proposed
rule change makes the Exchange a more
attractive trading venue for market
participants on other exchanges, those
market participants may elect to become
Exchange market participants.
The Exchange believes that the
proposed rule change may relieve any
burden on, or otherwise promote,
competition. The Exchange believes this
is an enhancement to a comparable
alternative to the OTC market in
customized options. By enhancing our
FLEX trading platform to provide
additional contract granularity that
available in the OTC market but not
currently available in the listed options
market, the Exchange believes it may be
a more attractive alternative to the OTC
market. The Exchange believes market
participants will benefit from being able
to trade customized options in an
exchange environment in several ways,
including but not limited to the
E:\FR\FM\24FEN1.SGM
24FEN1
Federal Register / Vol. 85, No. 36 / Monday, February 24, 2020 / Notices
following: (1) Enhanced efficiency in
initiating and closing out position; (2)
increased market transparency; and (3)
heightened contra-party
creditworthiness due to the role of OCC
as issuer and guarantor of FLEX
Options.
The proposed nonsubstantive changes
(to clarify the current contract
multiplier for standard FLEX Options in
Rule 4.21(b) and to correct the
numbering of subparagraphs in Rule
8.35(a)) will have no impact on
competition, as they merely clarify or
correct, as applicable, information in the
Rules and make no changes to how
FLEX Options trade.
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.
lotter on DSKBCFDHB2PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
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–CBOE–2020–010, and
should be submitted on or before March
16, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Jill M. Peterson,
Assistant Secretary.
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:
[FR Doc. 2020–03532 Filed 2–21–20; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2020–010 on the subject line.
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Equities Fees and Charges and the
NYSE Arca Options Fees and Charges
Related to Co-Location Services
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–CBOE–2020–010. This file
number should be included on the
February 18, 2020.
VerDate Sep<11>2014
18:30 Feb 21, 2020
Jkt 250001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88230; File No. SR–
NYSEARCA–2020–13]
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
10495
notice is hereby given that, on February
4, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’
or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(the ‘‘Equities Fee Schedule’’) and the
NYSE Arca Options Fees and Charges
(the ‘‘Options Fee Schedule’’ and,
together with the Equities Fee Schedule,
the ‘‘Fee Schedules’’) related to colocation services to (a) update the text
of General Note 1 to correct a
typographical error, make a nonsubstantive change, and to include
reference to NYSE Chicago, Inc. (‘‘NYSE
Chicago’’) and (b) make non-substantive
changes to the text of General Note 4.
The proposed rule change is available
on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Overview
The Exchange proposes to amend its
Fee Schedules related to co-location 4
4 The Exchange initially filed rule changes
relating to its co-location services with the
Securities and Exchange Commission
(‘‘Commission’’) in 2010. See Securities Exchange
Act Release No. 63275 (November 8, 2010), 75 FR
70048 (November 16, 2010) (SR–NYSEArca–2010–
100). The Exchange operates a data center in
Continued
E:\FR\FM\24FEN1.SGM
24FEN1
]]>Agencies
[Federal Register Volume 85, Number 36 (Monday, February 24, 2020)]
[Notices]
[Pages 10491-10495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03532]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88232; File No. SR-CBOE-2020-010]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change Relating To Adopt Flexible Exchange
Options (``FLEX Options'') With a Contract Multiplier of One (``FLEX
Micro Options'')
February 18, 2020.
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 February 4, 2020, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to adopt flexible exchange options (``FLEX options'') with a contract
multiplier of one (``FLEX Micro Options''). The text of the proposed
rule change is provided in Exhibit 5.
[[Page 10492]]
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change adopts FLEX Micro Options, which are FLEX
Options with a contract multiplier of one. Rule 4.21(b) provides that a
FLEX Trader \3\ must include all terms of a FLEX Option series when
submitting a FLEX Order.\4\ Currently, the contract multiplier for all
FLEX Options is 100.\5\ The proposed rule change amends Rule 4.21(b)(1)
to state that when identifying the underlying security or index, the
FLEX Trader must also include whether the contract multiplier is one or
100, and defines FLEX Options with a multiplier of one as FLEX Micro
Options. In other words, 100 FLEX Micro Options are equivalent to one
standard FLEX Option.\6\ Because non-FLEX Options have multipliers of
100, FLEX Micro Options will not be fungible with any non-FLEX Options,
and thus will only be available for trading pursuant to FLEX trading
procedures in Chapter 5, Section F of the Rules.\7\
---------------------------------------------------------------------------
\3\ A ``FLEX Trader'' is a Trading Permit Holder the Exchange
has approved to trade FLEX Options on the Exchange.
\4\ These terms include the underlying equity security or index,
the type of options (put or call), exercise style, expiration date,
settlement type, and exercise price. See Rule 4.21(b). A FLEX''
Order'' is an order submitted in FLEX Options. The submission of a
FLEX Order makes the FLEX Option series in that order eligible for
trading. See Rule 5.72(b).
\5\ Rule 4.21(b)(1). The proposed rule change clarifies in Rule
4.21(b)(1) that the contract multiplier for both FLEX Equity and
Index Options is 100, as the current rule only provides that the
index multiplier is 100 for FLEX Index Options. This is not a
substantive change and merely a clarification in the Rules regarding
the current multiplier for FLEX Options.
\6\ The proposed rule change also amends Rule 5.74(a)(4) to
provide that the minimum size of an agency order for a FLEX
solicitation auction mechanism (``SAM'') will be 50,000 FLEX Micro
Option contracts, which is equivalent to 500 standard FLEX option
contracts, the current minimum size of agency orders for SAM
auctions. This corresponds to the minimum size of 5,000 mini-
options.
\7\ See proposed Rule 4.22(d).
---------------------------------------------------------------------------
For example, on January 28, 2020, the S&P 500 Index was at 3273.76
intraday. Therefore, at that time, one S&P 500 Index option (``SPX
option'') contract had a notional value of $327,376 (100 times
3273.76). The SPX Feb 3300 call option was trading at $30.20, making
the cost of the standard contract overlying 100 units of the index was
be $3,020. Proportionately equivalent FLEX Micro Option contracts on
SPX would provide investors with the ability to manage and hedge their
positions and portfolio risk on their underlying investment, at a price
of $30.20 per contract. The table below demonstrates the proposed
differences between a FLEX Micro Options contract and a standard FLEX
Option contract with an exercise price of $3025 and a bid or offer of
$3.20:
------------------------------------------------------------------------
Term Standard Micro
------------------------------------------------------------------------
Contract Multiplier..................... 100 1
Strike Price............................ 3025 3025
Bid/offer............................... 3.20 3.20
-------------------------------
Total Value of Deliverable.......... $302,500 $3,025
-------------------------------
Total Value of Contract............. $320 $3.20
------------------------------------------------------------------------
The Exchange believes there is a demand from investors for FLEX
Micro Options, and that the proposed rule change will expand investors'
choices and flexibility with respect to the trading of FLEX Options.
These options will provide investors with additional granularity with
respect to the prices at which they may execute and exercise their FLEX
Options on the Exchange, as investors may execute and exercise over-
the-counter options with this smaller contract multiplier. The Exchange
believes this additional granularity will appeal to investors, as it
will provide them with an additional tool to manage their positions
based on notional value, which currently may equal a fraction of a
standard contract.
For example, suppose a FLEX Trader holds a security portfolio of
$10,000,000. The FLEX Trader desires to hedge its portfolio with FLEX
SPX Options. Assume the current value of the S&P 500 Index is 3,253.82.
With a 100 multiplier, a standard FLEX SPX Option contract would have a
notional value of $325,382.00. In order to hedge the entire portfolio,
the FLEX Trader would need to trade 30.73 contracts ($10,000,000/
$325,382). The nearest whole number of contracts would 31 contracts,
which would have a total notional value of $10,086,842. As a result,
the FLEX Trader could only hedge within $86,842 of its portfolio value
with standard FLEX Options. With a one multiplier, a FLEX SPX Micro
Option contract would have a notional value of $3,253.82. In order to
hedge the entire $10,000,000 portfolio, the FLEX Trader would need to
trade 3,073.3 ($10,000,000/$3,253.82). The nearest whole number of
contracts would be 3,073 FLEX Micro SPX Option contracts, which would
have a total notional value of $9,998,988.86.\8\ This will allow the
FLEX Trader to hedge within $1,011.14 of its portfolio value.
Therefore, the availability of FLEX Micro Options would permit this
FLEX Trader to hedge its portfolio with far greater precision
($85,830.86).
---------------------------------------------------------------------------
\8\ The FLEX Trader could also trade 30 standard FLEX SPX Option
contracts (for a total notional value of $9,761,460) and 73 FLEX SPX
Micro Option contracts (for a total notional value of $237,528.86),
which would have the same total notional value.
---------------------------------------------------------------------------
FLEX Micro Options will be traded in the same manner as all other
FLEX Options pursuant to Chapter 5, Section F of the Rules. As
demonstrated above, there are two important distinctions between
standard FLEX Options and
[[Page 10493]]
FLEX Micro Options due to the difference in multipliers. The proposed
rule change amends certain Rules describing the exercise prices and
bids and offers of FLEX Options to reflect these distinctions. The
proposed rule change amends Rule 4.21(b)(6) to describe the difference
between the meaning of the exercise price of a standard FLEX Option and
a FLEX Micro Option. Specifically, the proposed rule change states that
exercise prices for FLEX Micro Options are set at the same level as
they are for standard FLEX Options. For example, a standard FLEX Equity
Option series with an exercise price to deliver 100 shares of the
underlying security at $50 has a total deliverable value of $5,000, and
would have an exercise price of 50. This is true today, and merely adds
an example to the rule regarding the exercise price of a standard FLEX
Option series, the deliverables for which are equal to the exercise
price times the 100 contract multiplier to determine the deliverable
dollar value. The proposed rule change also adds how the deliverable
dollar value will be determined for a FLEX Micro Option. A FLEX Micro
Equity Option series with an exercise price to deliver one share of the
underlying security at $50 has a total deliverable value of $50, and
would have an exercise price of 50.\9\ Because a FLEX Micro Option has
a multiplier of 1/100 of the multiplier of a standard FLEX Option, the
value of a FLEX Micro Option's deliverable as a result is 1/100 of the
value of a standard FLEX Option's deliverable.
---------------------------------------------------------------------------
\9\ This corresponds to the calculation of exercise prices for
other types of options with reduced multiplier. For example, Rule
4.5, Interpretation and Policy .18(b) provides that strike prices
(i.e., exercise prices) for mini-options (which have multipliers of
10 rather than 100, as set forth in Rule 4.5, Interpretation and
Policy .18(a)) are set at the same level as for standard options.
For example, a call series strike price to deliver 10 shares of
stock at $125 per share has a total deliverable value of $1,250 (10
x 125) if the strike is 125. A standard non-FLEX option with a
strike price of 125 would have a total deliverable value of $12,500
(100 x 125).
---------------------------------------------------------------------------
Similarly, the proposed rule change amends Rule 5.3(e)(3) to
describe the difference between the meaning of bids and offers for
standard FLEX Options and FLEX Micro Options. Currently, that rule
states that bids and offers for FLEX Options must be expressed in (a)
U.S. dollars and decimals if the exercise price for the FLEX Option
series is a fixed price, or (b) a percentage, if the exercise price for
the FLEX Option series is a percentage of the closing value of the
underlying equity security or index on the trade date, per unit. As
noted above, a standard FLEX Option contract unit consists of 100
shares of the underlying security or 100 times the value of the
underlying index, as they currently have a 100 contract multiplier.\10\
The proposed rule change clarifies that bids and offers are expressed
per unit, if a standard FLEX Option, and adds an example. Specifically,
the proposed rule change states that for a standard FLEX Option with an
exercise price expressed as U.S. dollars and decimals, a bid of
``0.50'' represents a bid of $50 (0.50 times 100). The proposed rule
change also adds to Rule 5.3(e)(3) the meaning of FLEX Micro Option
bids and offers. Specifically, bids and offers for FLEX Micro Options
must be expressed in (a) U.S. dollars and decimals if the exercise
price for the FLEX Option series is a fixed price, or (b) a percentage,
if the exercise price for the FLEX Option series is a percentage of the
closing value of the underlying equity security or index on the trade
date, per 1/100th unit of the underlying security or index, as
applicable.\11\ Additionally, the proposed rule change states that for
a FLEX Micro Option, a bid of ``0.50'' represents a bid of $0.50 (0.50
times one). The Exchange believes this approach identifies a clear,
transparent description of the differences between standard FLEX
Options and FLEX Micro Options. Additionally, the Exchange believes the
proposed terms of FLEX Micro Options are consistent with the terms of
the Options Disclosure Document.\12\
---------------------------------------------------------------------------
\10\ See current Rule 4.21(b)(1).
\11\ This corresponds to the meaning of bids and offers for
other types of options with reduced multiplier. For example, Rule
5.3(c) provides that bids and offers for an option contract
overlying 10 shares (i.e., mini-options) must be expressed in terms
of dollars per 1/10th part of the total value of the contract (for
example, an offer of 0.50 represents an offer of $5.00 for an option
contract having a unit of trading consisting of 10 shares, as
opposed to $50 for a standard option contract having a unit of
trading consisting of 100 shares).
\12\ The Options Disclosure Document (``ODD'') is available at
https://www.theocc.com/about/publications/character-risks.jsp. The
ODD states that the exercise price of a stock option is multiplied
by the number of shares underlying the option to determine the
aggregate exercise price and aggregate premium of that option. See
ODD at 18. Similarly, the ODD states that the total exercise price
for an index option is the exercise price multiplied by the
multiplier, and the aggregate premium is the premium multiplied by
the multiplier. See ODD at 8, 9, and 125. Per the ODD, the amount of
the underlying interest may be a variable term with respect to
flexibly structured options (i.e., FLEX Options).
---------------------------------------------------------------------------
The proposed rule change amends Rule 8.35(a) regarding position
limits for FLEX Options to describe how FLEX Micro Options will be
counted for purposes of determining compliance with position limits.
Because 100 FLEX Micro Options are equivalent to one standard FLEX
Option due to the difference in contract multipliers, proposed Rule
8.35(a)(7) states that for purposes of determining compliance with the
position limits under Rule 8.35, 100 FLEX Micro Option contracts equal
one standard FLEX Option contract with the same underlying security or
underlying index.\13\ The proposed rule change adds paragraph (g) to
Rule 8.42 to make a corresponding statement regarding the application
of exercise limits to FLEX Micro Options. The margin requirements set
forth in Chapter 10 of the Rules will apply to FLEX Micro Options (as
they currently do to all FLEX Options).
---------------------------------------------------------------------------
\13\ The proposed rule change makes a corresponding change to
Rule 8.35(b) to clarify that, like reduced-value FLEX contracts,
FLEX Micro Option contracts will be aggregated with full-value
contracts and counted by the amount by which they equal a full-value
contract for purposes of the reporting obligation in that provision
(i.e., 100 FLEX Micro Options will equal one standard FLEX Option
overlying the same index).
---------------------------------------------------------------------------
The proposed rule change also corrects an administrative error in
Rule 8.35(a). Currently, there are two subparagraphs numbered as
(a)(5). The proposed rule change amends paragraph (a) to renumber the
second subparagraph (a)(5) to be subparagraph (a)(6).
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority have the necessary systems capacity
to handle the potential additional traffic associated with the listing
and trading of FLEX Micro Options. The Exchange also understands that
the Options Clearing Corporation will be able to accommodate the
listing and trading of FLEX Micro Options.\14\
---------------------------------------------------------------------------
\14\ FLEX Micro Options will be listed with different trading
symbols than FLEX Options with the same underlying to reduce any
potential confusion. For example, a standard FLEX Option for class
ABC may have symbol 4ABC, while a FLEX Micro Option for class ABC
may have symbol 4ABC9.
---------------------------------------------------------------------------
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.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable
[[Page 10494]]
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) \17\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change will
benefit investors by expanding investors' choices and flexibility with
respect to the trading of FLEX Options. These options will provide
investors with additional granularity with respect to the prices at
which they may execute and exercise their FLEX Options on the Exchange,
as investors may execute and exercise over-the-counter options with
this smaller contract multiplier. The Exchange believes this additional
granularity will provide investors with an additional tool to manage
more efficiently their positions based on notional value so that they
equal whole contracts, as opposed to fractions of a standard contract
as currently may happen. Given the various trading and hedging
strategies employed by investors, this additional granularity may
provide them with more control over the trading of their FLEX
strategies.
FLEX Micro Options will trade in the same manner as all other FLEX
Options, with premiums (i.e., bids and offers) and exercise prices
adjusted proportionately to reflect the difference in multiplier, and
thus the difference in the deliverable value of the underlying. The
Exchange believes the proposed rule change adds transparency and
clarity to the Rules regarding the distinctions between standard FLEX
Options and FLEX Micro Options due to the different multipliers will
benefit investors. These proposed rule changes include (1) providing
examples of the meaning of the exercise prices and premiums (i.e., bids
and offers) of both standard FLEX Options and FLEX Micro Options, (2)
stating that FLEX Micro Options will not be fungible with any non-FLEX
Options, as they cannot have the same terms as any non-FLEX Options (as
no non-FLEX Options have multipliers of one), and (3) including the
corresponding minimum size for a FLEX SAM Agency Order consisting of
FLEX Micro Options. This proposal is similar to rules regarding other
reduced-value options.\18\
---------------------------------------------------------------------------
\18\ See, e.g., Rules 4.5, Interpretation and Policy .18
(description of strike prices for mini-options, which have a
multiplier of 10), 5.3(c) (description of bids and offers for mini-
options), and 5.74(a)(4) (description of minimum size of FLEX Agency
Order for mini-options). Just as terms for mini-options, which have
a multiplier of 1/10th the size of standard options, equal 1/10th of
the same terms for standard options, the proposed terms for FLEX
Micro Options, which have a multiplier 1/100th the size of standard
FLEX Options equal 1/100th of the same terms as standard FLEX
Options.
---------------------------------------------------------------------------
The Exchange believes the proposed rule change regarding the
treatment of FLEX Micro Options with respect to determining compliance
with position and exercise limits is designed to prevent fraudulent and
manipulative acts and practices and promote just and equitable
principles of trade, as FLEX Micro Options will be counted for purposes
of those limits in a proportional manner to standard FLEX Options. This
is similar to limits imposed on other reduced-value options.\19\ The
Exchange believes its enhanced surveillances continue to be designed to
deter and detect violations of Exchange Rules, including position and
exercise limits and possible manipulative behavior, and those
surveillance will apply to FLEX Micro Options.
---------------------------------------------------------------------------
\19\ See, e.g., Rule 8.30, Interpretation and Policy .08
(describing position limits for mini-options).
---------------------------------------------------------------------------
By permitting FLEX Options to trade with the same multiplier
currently available to customized options in the OTC market, the
Exchange believes the proposed rule change will remove impediments to
and perfects the mechanism of a free and open market and a national
market system by further improving a comparable alternative to the OTC
market in customized options. By enhancing our FLEX trading platform to
provide additional flexible terms available in the OTC market but not
currently available in the listed options market, the Exchange believes
it may be a more attractive alternative to the OTC market. The Exchange
believes market participants benefit from being able to trade
customized 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 The Options Clearing Corporation (``OCC'') as issuer and
guarantor of FLEX Options.
The Exchange believes the proposed nonsubstantive changes (to
clarify the current contract multiplier for standard FLEX Options in
Rule 4.21(b) and to correct the numbering of subparagraphs in Rule
8.35(a)) will protect investors, as they enhance transparency and
clarity in the Rules. Additionally, the correction to subparagraph
numbering will enable investors to more easily reference rule
provisions in different subparagraphs.
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 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 Exchange does not believe the proposed rule
change will impose any burden on intramarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act,
because all FLEX Micro Options will be available for all underlying
securities and indexes currently eligible for FLEX trading, and all
FLEX Traders may trade FLEX Micro Options. FLEX Micro Options will
trade in the same manner as all standard FLEX Options, with certain
terms proportionately adjusted to reflect the different contract
multipliers. The Exchange does not believe the proposed rule change
will impose any burden on intermarket competition that is not necessary
or appropriate in furtherance of the purposes of the Act, because the
proposed rule change relates solely to products that may be listed for
trading on the Exchange. Other options exchanges may offer flexible
options, including with a different contract multiplier. To the extent
the proposed rule change makes the Exchange a more attractive trading
venue for market participants on other exchanges, those market
participants may elect to become Exchange market participants.
The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition. The Exchange believes
this is an enhancement to a comparable alternative to the OTC market in
customized options. By enhancing our FLEX trading platform to provide
additional contract granularity that available in the OTC market but
not currently available in the listed options market, the Exchange
believes it may be a more attractive alternative to the OTC market. The
Exchange believes market participants will benefit from being able to
trade customized options in an exchange environment in several ways,
including but not limited to the
[[Page 10495]]
following: (1) Enhanced efficiency in initiating and closing out
position; (2) increased market transparency; and (3) heightened contra-
party creditworthiness due to the role of OCC as issuer and guarantor
of FLEX Options.
The proposed nonsubstantive changes (to clarify the current
contract multiplier for standard FLEX Options in Rule 4.21(b) and to
correct the numbering of subparagraphs in Rule 8.35(a)) will have no
impact on competition, as they merely clarify or correct, as
applicable, information in the Rules and make no changes to how FLEX
Options trade.
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 up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2020-010 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-CBOE-2020-010. 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-CBOE-2020-010, and should be submitted
on or before March 16, 2020.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03532 Filed 2-21-20; 8:45 am]
BILLING CODE 8011-01-P
