Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Certain Rules To Accommodate the Listing and Trading of Index Options With an Index Multiplier of One, 2006-2018 [2021-00199]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 6 (Monday, January 11, 2021)]
[Notices]
[Pages 2006-2018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00199]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90853; File No. SR-CBOE-2020-117]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Certain Rules To Accommodate 
the Listing and Trading of Index Options With an Index Multiplier of 
One

January 5, 2021.
    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 December 23, 2020, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of this proposed rule change is to amend certain rules 
to accommodate the listing and trading of index options with an index 
multiplier of one (``micro-options'').\3\
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    \3\ The Exchange intends to file a Form 19b-4(e) with the 
Commission for any index option it lists for trading with an index 
multiplier of one pursuant to Rule 19b-4(e) of the Act. As further 
discussed below, the proposed rule change would also permit the 
Exchange to list flexible index options (``FLEX Index Options'') 
with an index multiplier of one (``FLEX Micro Options''). Unless the 
context otherwise requires, the term ``micro-options'' as used in 
this rule filing includes FLEX Micro Options.
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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 purpose of this proposed rule change is to amend certain rules 
to accommodate the listing and trading of index options with an index 
multiplier of one (``micro-options'').\4\ The Exchange may list options 
on indexes that satisfy the initial and maintenance criteria in Rule 
4.10, and currently lists options on 19 indexes. The following table 
lists the current indexes on which the Exchange currently lists 
options, as well as the current value of the index as of the close of 
trading on November 25, 2020, which indexes satisfy the initial and 
maintenance criteria for broad-based, narrow-based indexes, or the 
specific indexes in Rule 4.10:
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    \4\ The Exchange intends to file a Form 19b-4(e) with the 
Commission for any index option it lists for trading with an index 
multiplier of one pursuant to Rule 19b-4(e) of the Act. As further 
discussed below, the proposed rule change would also permit the 
Exchange to list flexible index options (``FLEX Index Options'') 
with an index multiplier of one (``FLEX Micro Options''). Unless the 
context otherwise requires, the term ``micro-options'' as used in 
this rule filing includes FLEX Micro Options.

------------------------------------------------------------------------
                  Index (option symbol)                    Current value
------------------------------------------------------------------------
S&P 500 Index (SPX).....................................         3629.65
Mini-S&P 500 Index (XSP)................................          362.97
Russell 2000 Index (RUT)................................         1845.02
Cboe Volatility Index (VIX).............................           21.25
Dow Jones Industrial Average (DJX)......................    \5\ 29872.47
S&P 100 Index (OEX and XEO).............................         1662.28
S&P 500 ESG Index (SPESG)...............................          309.24
S&P Materials Select Sector Index (SIXB)................          754.63

[[Page 2007]]

 
S&P Industrials Select Sector Index (SIXI)..............          894.23
S&P Financial Select Sector Index (SIXM)................          350.98
S&P Real Estate Select Sector Index (SIXRE).............          178.53
S&P Utilities Select Sector Index (SIXU)................          649.19
S&P Health Care Select Sector Index (SIXV)..............        1,093.10
MSCI EAFE Index (MXEA)..................................        2,065.60
MSCI Emerging Markets Index (MXEF)......................        1,218.29
Russell 1000 Growth Index (RLG).........................        2,300.88
Russell 1000 Value Index (RLV)..........................        1,315.93
Russell 1000 Index (RUI)................................        2,040.23
FTSE 100 Mini-Index (UKXM)..............................          637.97
------------------------------------------------------------------------
\5\ Options are based on \1/100\\th\ of the index value.

    Pursuant to the definition of index multiplier \6\ in Rule 4.11, 
the Exchange may determine the index multiplier of an option, which it 
generally does in the specifications for an index option.\7\ Similarly, 
Article I, Section 1, I(3) of the Options Clearing Corporation 
(``OCC'') By-Laws defines ``index multiplier'' as the dollar amount (as 
specified by the Exchange on which such contract is traded) by which 
the current index value is to be multiplied to obtain the aggregate 
current index value. Unlike the definition of a unit of trading for 
stock options in the OCC By-Laws, which states the unit of trading in 
is designated by OCC but is 100 shares if not otherwise specified, the 
definition of index multiplier includes no such default.\8\ Therefore, 
the Exchange believes the current index multiplier definition in the 
OCC By-Laws (which would have previously been filed with the 
Commission) permits any index multiplier specified by the listing 
Exchange given the lack of a default index multiplier for index options 
(and the inclusion of a default unit of trading for equity options). 
This is consistent with the lack of default number in Exchange's 
definition of index multiplier and the ability for the Exchange to 
specify the index multiplier, as noted above. However, certain other 
Rules reflect an index multiplier of 100, and the proposed rule change 
updates those Rules to reflect the potential for an index multiplier of 
one.
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    \6\ Rule 4.11 defines the term ``index multiplier'' as the 
amount specified in the contract by which the current index value is 
to be multiplied to arrive at the value required to be delivered to 
the holder of a call or by the holder of a put upon valid exercise 
of the contract. The Exchange included the proposed index multiplier 
in rule filings for certain products.
    \7\ Option specifications are available on the Exchange's public 
website, available at cboe.com/tradable_products/. Currently, the 
Exchange has designated an index multiplier of 100 for indexes it 
currently lists for trading.
    \8\ See OCC Bylaws Article I, Section 1, U(5).
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    Additionally, the Exchange believes micro-options are covered by 
the disclosures in the Options Disclosure Document (``ODD''). The ODD 
reflects the possibility of differing values of index multipliers when 
describing features of index options.\9\ Specifically, the ODD states 
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.\10\ As a result, the risk disclosures 
regarding index options in the ODD currently cover any risks associated 
with option index options with multipliers of one (and other amounts).
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    \9\ The 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.
    \10\ See ODD at 8, 9, and 125.
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    The Exchange believes micro-options will expand investors' choices 
and flexibility by listing and trading option contracts on index 
options, which provide investors with the ability to gain exposure to 
the market or specific industries, with a notional value of \1/100\\th\ 
of the value of current index options. The Exchange believes lower-
valued micro-options may appeal to retail investors who currently may 
not participate in the trading of index options, because index options 
are generally higher-priced securities due to the high levels of the 
indexes. The Exchange believes that investors, most notably the average 
retail investor, will benefit from micro-options, which will make 
options overlying indexes more readily available as investing and 
hedging tools at more affordable and realistic prices, which would 
ultimately reduce investment risk. For example, with SPX at a value of 
3629.65 on November 25, 2020, the notional value of an SPX option with 
an index multiplier of 100 was $362,965. On that date, the Dec 4 SPX 
3630 call was traded at $32.05, making the cost of that option $3,205 
given the index multiplier of 100. Proportionately equivalent SPX 
micro-options would have provided investors with the ability to trade 
at the much lower price of $32.05 per contract.
    Additionally, the Exchange believes the additional granularity 
provided by micro-options with respect to the prices at which investors 
may execute and exercise index options on the Exchange will appeal to 
all investors by providing them with an additional exchange-traded tool 
to manage the positions and associated risk in their portfolios more 
precisely based on notional value, which currently may equal a fraction 
of a standard contract. For example, suppose an investor holds a 
security portfolio of $10,000,000 and desires to hedge its portfolio 
with SPX options. In order to hedge the entire portfolio with SPX 
options, the investor would need to trade 27.55 contracts ($10,000,000/
$362,965). The nearest whole number of contracts would be 28 contracts, 
which would have a total notional value of $10,163,020. As a result, 
the investor could only hedge within $163,020 of its portfolio value 
with SPX options with an index multiplier of 100. However, with SPX 
micro-options, the investor would need to trade 2,755.09 contracts 
($10,000,000/$3629.65) or equivalently, 27 SPX and 55.09 SPX micro-
options. The nearest whole number of contracts would be 2,755 SPX 
micro-options or 27 SPX and 55 SPX micro-options, which would have a 
total notional value of $9,999,686.75. This will allow the investor to 
hedge within $315 of its portfolio value. Therefore, the proposed rule 
change would permit this investor to hedge its portfolio more 
effectively with far greater precision.
    The Exchange notes investors may currently execute and exercise 
options with this smaller contract multiplier in the unregulated over-
the-counter

[[Page 2008]]

(``OTC'') options market. The Exchange understands that investors may 
prefer to trade such options in a listed environment to receive the 
benefits of trading listing options, including (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 all listed options. The 
Exchange believes the proposed rule change may shift liquidity from the 
OTC market onto the Exchange, which the Exchange believes would 
increase market transparency as well as enhance the process of price 
discovery conducted on the Exchange through increased order flow.
Micro-Options
    Currently, the Exchange has designated an index multiplier of 100 
for all index options it lists for trading. The proposed rule change 
amends various rules regarding index options to permit the Exchange to 
designate an index multiplier of one for indexes on which it may list 
options. Micro-options will trade in the same manner as index 
options.\11\ The table below demonstrates the differences between a 
micro-option and a standard index option on the SPX Index:
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    \11\ The proposed rule change defines ``micro-options'' in Rule 
4.11 as an index option with an index multiplier of one. The 
proposed rule change adds that references to ``index option'' in the 
Rules include ``micro-option'' unless the context otherwise 
requires.

------------------------------------------------------------------------
                                             Standard
                                              (index       Micro (index
                  Term                     multiplier of   multiplier of
                                               100)             1)
------------------------------------------------------------------------
Strike Price............................            3630            3630
Bid or offer............................           32.05           32.05
Total Value of Deliverable..............        $363,000          $3,630
Total Value of Contract.................          $3,205          $32.05
------------------------------------------------------------------------

    To the extent the Exchange lists a micro-option on an index on 
which it also lists a standard index option, it will be listed with a 
different trading symbol than the standard index option with the same 
underlying index to reduce any potential confusion.\12\ The Exchange 
believes that the clarity of this approach is appropriate and 
transparent. The Exchange recognizes the need to differentiate micro-
option contracts from standard option contracts and believes the 
proposed rule change will provide the necessary differentiation.
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    \12\ For example, a standard index option for index ABC with an 
index multiplier of 100 may have symbol ABC, while a micro-option 
for index ABC with a multiplier of one may have symbol ABC9.
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FLEX Micro Options \13\
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    \13\ The Exchange notes that SR-CBOE-2020-034 is currently 
pending with the Securities and Exchange Commission (the 
``Commission'') and proposes nearly identical changes to FLEX 
(except that rule filing applies to full-value indexes only). To the 
extent the Commission approves that filing prior to this filing, the 
Exchange will amend this filing to incorporate the approved changes. 
If the Commission approves this filing prior to that filing, the 
Exchange would withdraw SR-CBOE-2020-034.
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    Currently, Rule 4.21(b)(1) states the index multiplier for FLEX 
Index Options is 100 (which as noted above is currently the index 
multiplier designated by the Exchange for all non-FLEX Index Options). 
The proposed rule change deletes the parenthetical with that provision 
from current Rule 4.21(b)(1), and instead proposes to describe the 
index multiplier for FLEX Index Options in proposed Rule 4.20(b). 
Options with the same underlying but different units of trading or 
index multipliers, as applicable, are different classes.\14\ An index 
multiplier applies to all series in the class.\15\ The Exchange, 
therefore, believes including the provision regarding the index 
multiplier of FLEX Index Options in Rule 4.20, which describes which 
classes the Exchange may authorize for trading, is more 
appropriate.\16\
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    \14\ For example, the Exchange may list for trading on five 
securities mini-options, which are options with a unit of trading of 
ten shares, which is ten times lower than the standard-sized option 
of 100 shares. See Rule 4.5, Interpretation and Policy .18. While a 
mini-option has the same underlying as a standard-sized option, they 
are separate products. See Securities Exchange Act Release No. 68656 
(January 15, 2013), 78 FR 4526 (January 22, 2013) (SR-CBOE-2013-
001). As proposed, the Exchange may list for trading micro-options 
and standard options on the same indexes, which will be separate 
products (and thus separate classes).
    \15\ In other words, SPX micro-options would be a different 
class than standard SPX options, just as SPX options are a different 
class than XSP options.
    \16\ Current Rule 4.20 provides that the Exchange may authorize 
for trading a FLEX Option class on any equity security or index if 
it may authorize for trading a non-FLEX Option class on that equity 
security or index pursuant to Rules 4.3 and 4.10, respectively, even 
if the Exchange does not list that non-FLEX Option class for 
trading. Therefore, if the proposed rule change to adopt micro-
options is approved, the Exchange may authorize FLEX Micro Options 
on an index to be listed for trading even if the Exchange is not 
listing a micro-option on that same index.
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    The provision in proposed Rule 4.20(b) that states the index 
multiplier for FLEX Index Options may be 100 merely restates the 
provision in the parenthetical from current Rule 4.21(b)(1) in a more 
appropriate part of the Rules, and thus is a nonsubstantive change. 
Proposed Rule 4.20(b) also provides that the index multiplier for FLEX 
Index options may also be one (a ``FLEX Micro Option'') (in addition to 
the current index multiplier of 100).\17\ Like non-FLEX Options (as 
discussed above), 100 contracts for a FLEX Micro Option are 
economically equivalent to one contract for a FLEX Index Option with a 
multiplier of 100. FLEX Micro Options will be listed with different 
trading symbols than FLEX Index Options with a multiplier of 100 with 
the same underlying to reduce any potential confusion.\18\
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    \17\ Proposed Rule 4.20(b) also clarifies that references to 
``FLEX Index Option'' in the Rules include ``FLEX Micro Option'' 
unless the context otherwise requires.
    \18\ For example, a FLEX ABC Index Option with a multiplier of 
100 may have symbol 4ABC (the ``4'' is the designation generally 
used for FLEX Options to distinguish from the non-FLEX Option with 
the same underlying), while a FLEX ABC Micro Option may have symbol 
4ABC9.
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    Additionally, proposed Rule 4.20(a) states that the unit of trading 
for FLEX Equity Options is the same as the unit of trading for non-FLEX 
Equity Options overlying the same equity security. The unit of trading 
for equity options (both FLEX and non-FLEX) that may be listed on the 
Exchange is 100,\19\ except for mini-options, which have a unit of 
trading of 10.\20\ This is not a substantive change, but rather is 
merely a clarification in the Rules regarding the current unit of 
trading for FLEX Equity Options. Therefore, the proposed rule change 
has no impact on which FLEX

[[Page 2009]]

Equity Options may be traded on the Exchange. The ``unit of trading'' 
in respect of any series of options means the number of units (i.e., 
shares in the case of equity options) of the underlying interest 
subject to a single option contract in the series.\21\
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    \19\ See OCC By-Laws Article I, Section I(U)(5), which defines 
``unit of trading'' in respect of any series of options as the 
number of units of the underlying interest designated by OCC as the 
minimum number to be the subject of a single option contract in such 
series, and stating that in the absence of any such designation for 
a series of options in which the underlying security is a common 
stock, the unit of trading is 100 shares.
    \20\ See Rule 4.5, Interpretation and Policy .18(a).
    \21\ See Rule 4.21(b)(1); and OCC Bylaws Article I, Section 1, 
U(5).
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    When submitting a FLEX Order, the submitting FLEX Trader \22\ must 
include all required terms of a FLEX Option series.\23\ Pursuant to 
current Rule 4.21(b)(1), the submitting FLEX Trader must include the 
underlying equity security or index (i.e., the FLEX Option class) on 
the FLEX Order. The proposed rule change amends Rule 4.21(b)(1) to 
state that if a FLEX Trader specifies an index on a FLEX Order, the 
FLEX Trader must also include whether the index option has an index 
multiplier of 100 or 1 when identifying the class of FLEX Order. The 
Exchange is specifying it may list FLEX Index Option classes with an 
index multiplier of either one or 100. Therefore, each FLEX Index 
Option series in a FLEX Micro Option class will include the same 
flexible terms as any other FLEX Option series, including strike price, 
settlement, expiration date, and exercise style as required by Rule 
4.21(b).\24\
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    \22\ A ``FLEX Trader'' is a Trading Permit Holder the Exchange 
has approved to trade FLEX Options on the Exchange.
    \23\ These terms include, in addition to 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).
    \24\ As discussed below, these are the terms designated by the 
Commission as those that constitute standardized options, and 
therefore, the Exchange believes the proposed rule change is 
consistent with Section 9(b) of the Act. See Securities Exchange Act 
Release No. 31910 (February 23, 1993), 58 FR 12056 (March 2, 1993) 
(``1993 FLEX Approval Order'').
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    FLEX Micro Options will be traded in the same manner as all other 
FLEX Options pursuant to Chapter 5, Section F of the Rules. Like micro-
options, as demonstrated above, there are two important distinctions 
between FLEX Index Options with a multiplier of 100 and 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, in a similar manner as 
it proposes to do for non-FLEX Options (as further described below).
    The Rules permit trading in a put or call FLEX Option series only 
if it does not have the same exercise style, same expiration date, and 
same exercise price as a non-FLEX Option series on the same underlying 
security or index that is already available for trading.\25\ In other 
words, a FLEX Option series may not have identical terms as a non-FLEX 
Option series listed for trading. Rule 1.1 defines the term ``series'' 
as all option contracts of the same class that are the same type of 
option and have the same exercise price and expiration date. Therefore, 
a FLEX Option series in one class may have the same exercise style, 
same expiration date, settlement, and same exercise price as a non-FLEX 
Option series in a different class, even if they are on the same 
underlying security or index. For example, pursuant to the Exchange's 
Rules, a FLEX Option overlying Apple stock that is a mini-option (i.e. 
a multiplier of 10) may be listed with the same exercise style, 
expiration date, settlement, and same exercise price as a non-FLEX 
Option overlying Apple stock that is not a mini-option (i.e. a 
multiplier of 100). The Exchange may also list a FLEX XSP Option with 
the same exercise style, expiration date, settlement, and same exercise 
price as a non-FLEX SPX Option. As these series are in different 
classes, they are permissible under Rule 4.21(a)(1). Similarly, 
pursuant to the proposed rule change, an SPX FLEX Micro Option may have 
the same exercise style, expiration date, settlement, and same exercise 
price as a standard SPX option with an index multiplier of 100 (which 
is non-FLEX), as they would be in different classes.
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    \25\ See Rule 4.21(a)(1).
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    Pursuant to Rule 4.22(a), a FLEX Option position becomes fungible 
with a non-FLEX option that becomes listed with identical terms. As 
discussed above, options with different multipliers are different 
classes, and an option series in one class cannot be fungible with an 
option series in another classes, even if they are economically 
equivalent. Fungibility is only possible for series with identical 
terms. This is similar to how a FLEX XSP Index Option series is not 
fungible with an economically equivalent non-FLEX SPX Option series. 
Therefore, a FLEX Micro Option would become fungible with a non-FLEX 
micro-option with the same terms pursuant to Rule 4.22(a), but would 
not be fungible with a non-FLEX option overlying the same index with a 
multiplier of 100 with the same expiration date, settlement, and 
exercise price.
Trading Hours
    Micro-options will be available for trading during the same hours 
as standard index options pursuant to Rule 5.1(b)(2).\26\ Therefore, 
Regular Trading Hours for micro-options will generally be 9:30 a.m. to 
4:15 p.m. Eastern time.\27\ To the extent an index option is authorized 
for trading during Global Trading Hours, the Exchange may also list 
micro-options during that trading session as well, the hours for which 
trading session are 3:00 a.m. to 9:15 a.m. Eastern time.
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    \26\ Pursuant to Rule 5.1(b)(3)(A) and (c)(1), FLEX Micro 
Options may trade at the same time as index options with the same 
underlying index.
    \27\ Certain indexes close trading at 4:00 p.m. Eastern time. 
See Rule 5.1.
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Expiration, Settlement, and Exercise Style
    The Exchange may list a micro-option on an index with the same 
expirations, settlements, and exercise styles as the standard index 
option overlying the same index.\28\ Consistent with existing rules for 
index options, the Exchange will generally allow up to six standard 
monthly expirations for micro-options \29\ as well as up to 10 
expiration months for LEAPS.\30\ For certain specified index options 
(including EAFE, EM, UKXM, the S&P Select Sector Indexes, and SPESG 
options) and any class that the Exchange (as the Reporting Authority) 
uses to calculate a volatility index (currently, only SPX options are 
used by the Exchange to calculate a volatility index), the Exchange may 
list up to 12 standard monthly expirations for micro-options on those 
indexes, up to six weekly expirations and up to 12 standard (monthly) 
expirations in VIX micro-options.\31\ The Exchange may also list up to 
the same maximum number of expirations permitted in Rule 4.13(a)(2) for 
micro-options on broad-based index options with nonstandard expirations 
in accordance with the Nonstandard Expirations Pilot Program (as 
further discussed below).\32\ Micro-options on broad-based and narrow-
based indexes will be cash-settled contracts with European-style 
exercise in accordance with the listing criteria for those options.\33\ 
Micro-options, like standard index options, with third-Friday 
expiration will also be A.M.-settled or P.M.-settled, as applicable, in

[[Page 2010]]

accordance with the applicable listing criteria.\34\
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    \28\ See Rule 4.13. In accordance with Rule 4.21(b), FLEX 
Traders may designate the exercise style, expiration date, and 
settlement type of FLEX Micro Options.
    \29\ See Rule 4.13(a)(2).
    \30\ See Rule 4.13(b). Index LEAPS may expire 12 to 180 months 
from the date of issuance.
    \31\ See Rule 4.13(a).
    \32\ See Rule 4.13(e).
    \33\ See Rule 4.10(b) (narrow-based initial listing criteria), 
(f) (broad-based initial listing criteria), (h) (EAFE, EM, FTSE 
Emerging, and FTSE Developed), and (j) (FTSE 100); see also Rule 
4.13(a)(3).
    \34\ See id.
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    As it does for certain standard index options, the Exchange may 
list micro-options over the same indexes with P.M.-settlement in 
certain instances (in addition to A.M.-settlement in accordance with 
the generic listing terms). Specifically, pursuant to Rule 4.13(c), the 
Exchange may open for trading Quarterly Index Expirations (``QIXs'') on 
certain specified index options. QIXs are index option contracts that 
expire on the last business day of a calendar quarter, and the Exchange 
may list up to eight near-term quarterly expirations for trading.\35\ 
Currently, the index multiplier for QIXs may be 100 or 500. The 
proposed rule change amends Rule 4.13(c) to permit the index multiplier 
to also be one to accommodate the listing of QIX micro-options on the 
specified indexes.
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    \35\ See Rule 4.13(c).
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    In addition, the Exchange's Nonstandard Expirations Pilot Program 
currently allows it to list Weekly and End of Month (``EOM'') 
Expirations on any broad-based index.\36\ Weekly and EOM options are 
P.M.-settled and may expire on any Monday, Wednesday, or Friday (other 
than the third Friday of the month or days that coincide with an EOM 
expiration) or on the last trading day of the month. Like standard 
index options with Weekly and EOM Expirations, micro-options on broad-
based indexes with Weekly and EOM Expirations will be P.M.-settled and 
otherwise treated the same as options on the same underlying index that 
expire on the third Friday of the month. The maximum number of 
expirations that may be listed for each of Weeklys and EOMs in a micro-
option is the same as the maximum number of expirations permitted in 
Rule 4.13(a)(2) (as described above) for micro-options on the same 
broad-based index.\37\ The Exchange may currently list Weekly and EOM 
Expirations on broad-based indexes as a pilot, which pilot period 
currently expires on May 3, 2021. The Exchange currently submits 
regular reports and data to the Commission regarding the Nonstandard 
Expirations Pilot Program. To the extent the Exchange lists any micro-
options with Weekly or EOM Expirations pursuant to this pilot program, 
the Exchange will include the same information with respect to micro-
options that it does for standard options in the reports it submits to 
the Commission in accordance with the pilot program.
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    \36\ See Rule 4.13(e).
    \37\ See id.
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    Similarly, the Exchange also currently has in place a pilot program 
under Rule 4.13, Interpretation and Policy .13 that allows the Exchange 
to list options on specified indexes that expire on the third Friday of 
the month that are P.M.-settled. The Exchange, therefore, may list 
micro-options on those same indexes pursuant to this pilot program, 
which pilot period currently expires on May 3, 2021 as well. As it will 
for the Nonstandard Expirations Pilot Program, to the extent the 
Exchange lists micro-options on the specified indexes pursuant to this 
P.M.-settlement pilot program, the Exchange will include the same 
information with respect to micro-options that it does for standard 
options in the reports it submits to the Commission in accordance with 
the pilot program.
    Each micro-option will be on an index that already satisfies 
initial and maintenance listing criteria in Rule 4.10, and thus the 
underlying index of each micro-option consists of the same components 
as the underlying index of each standard index option. A micro-option 
will merely have \1/100\\th\ the value of a standard option overlying 
the same index. Because micro-options and standard index options may 
overlie the same indexes, market participants may use micro-options as 
a hedging vehicle to meet their investment needs in connection with 
index-related products and cash positions in a similar manner as they 
do with standard index options, but as a more manageably sized 
contract. The smaller-sized contract will also provide market 
participants with more precision to hedge their portfolios. 
Additionally, the smaller size makes a micro-option a lower cost option 
than a standard index option, making it a more affordable and lower 
risk investment choice for investors, particularly retail investors. 
Therefore, the Exchange believes it is appropriate to be able to list 
the same expirations and settlements for micro-options as it may for 
standard index options.
Exercise Prices
    The Exchange proposes to adopt Rule 4.13, Interpretation and Policy 
.01(l) to provide that, notwithstanding any other provision regarding 
strike price intervals in Rule 4.13, Interpretation and Policy .01, the 
interval between strike prices of series of micro-options will be $0.50 
or greater. Because of the smaller contract size of micro-options, the 
Exchange believes it is appropriate to be able to list micro-options 
with smaller strike price intervals than standard index options.\38\ 
The Exchange believes finer strike intervals will more closely align 
micro-options with their purpose of being a lower-cost investment tool 
to investors.\39\ The Exchange believes that smaller strike intervals 
for micro-options will provide market participants with more efficient 
hedging and trading opportunities. The proposed $0.50 strike setting 
regime would permit strikes on a more refined scale, which the Exchange 
believes will allow investors, particularly retail investors, to more 
affordably and efficiently gain exposure to equity markets, hedge their 
positions in instrument and cash positions in their portfolios, and 
more precisely tailor their investment strategies.
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    \38\ Pursuant to Rule 4.13, Interpretation and Policy .01, the 
interval between strike prices of standard index options is 
generally $5.00 except for lower-priced strikes, for which the 
smallest interval is $2.50, subject to certain exceptions (including 
reduced-value index options, which may have strike intervals of no 
less than $0.50 or $1).
    \39\ This is consistent with lower permissible strike intervals 
for certain reduced-value index options, which have the same 
practical effect as index options with a smaller multiplier. See id.
---------------------------------------------------------------------------

    As demonstrated above, there are two important distinctions between 
micro-options and standard options due to the difference in 
multipliers, one of which is how the total deliverable value is 
calculated (the other is the meaning of bids and offers, as further 
discussed below). Proposed Rule 4.13, Interpretation and Policy .01(l) 
describes the difference between the meaning of the exercise price of 
micro-option and a standard index option. Specifically, the proposed 
rule change states that strike prices for micro-options are set at the 
same level as index options with an index multiplier of 100. For 
example, a micro-option call series with a strike price of 3250 has a 
total deliverable value of $3,250 (3250 x $1), while a standard option 
call series with a strike price of 3250 has a total deliverable value 
of $325,000 (3250 x $100).\40\
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    \40\ This corresponds to the calculation of exercise prices for 
other types of options with a reduced multiplier. For example, Rule 
4.5, Interpretation and Policy .18(b) provides that strike 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, 
while a call series strike price to deliver 100 shares of stock at 
$125 per share has a total deliverable value of $12,500 (100 x 125).
---------------------------------------------------------------------------

    The proposed rule change amends Rule 4.21(b)(6) to describe the 
difference between the meaning of the exercise price of a FLEX Index 
Option with a multiplier of 100 and a FLEX Micro Option. Specifically, 
the proposed rule

[[Page 2011]]

change states that the exercise price for a FLEX Micro Option series is 
set at the same level as the exercise price for a FLEX Index Option 
series in a class with a multiplier of 100. The proposed rule change 
also adds the following examples to Rule 4.21(b)(6) regarding how the 
deliverable for a FLEX Micro Option will be calculated (as well as for 
a FLEX Index Option with a multiplier of 100 and a FLEX Equity Option, 
for additional clarity and transparency): If the exercise price of a 
FLEX Option series is a fixed price of 50, it will deliver: (A) 100 
shares of the underlying security at $50 (with a total deliverable of 
$5,000) if a FLEX Equity Option; (B) cash equal to 100 (i.e. the index 
multiplier) times 50 (with a total deliverable value of $5,000) if a 
FLEX Index Option with a multiplier of 100; and (C) cash equal to one 
(i.e. the index multiplier) times 50 (with a total deliverable value of 
$50) if a FLEX Micro Option. If the exercise price of a FLEX Option 
series is 50% of the closing value of the underlying security or index, 
as applicable, on the trade date, it will deliver: (A) 100 shares of 
the underlying security at a price equal to 50% of the closing value of 
the underlying security on the trade date (with a total deliverable of 
100 times that percentage amount) if a FLEX Equity Option; (B) cash 
equal to 100 (i.e. the index multiplier) times a value equal to 50% of 
the closing value of the underlying index on the trade date (with a 
total deliverable of 100 times that percentage amount) if a FLEX Index 
Option with a multiplier of 100; and (C) cash equal to one (i.e. the 
index multiplier) times a value equal to 50% of the closing value of 
the underlying index on the trade date (with a total deliverable of one 
times that percentage amount) if a FLEX Micro Option. The descriptions 
of exercise prices for FLEX Equity Options and FLEX Index Options with 
a multiplier of 100 are true today, and merely add for purposes of 
clarity examples to the rule regarding the exercise price of a FLEX 
Equity Option or a FLEX Index Option with a multiplier of 100, the 
deliverables for which are equal to the exercise price times the 100 
contract multiplier to determine the deliverable dollar value. Because 
a FLEX Micro Option has a multiplier of \1/100\ of the multiplier of a 
FLEX Index Option with a multiplier of 100, the value of the 
deliverable of a FLEX Micro Option as a result is \1/100\ of the value 
of the deliverable of a FLEX Index Option with a deliverable of 100.
Minimum Increments
    The Exchange proposes to amend Rule 5.4 to provide that a micro-
option will have the same minimum increment for bids and offers as the 
minimum increment for a standard index option on the same index.\41\ 
Similar to the proposed rule change above to describe the difference 
between the meaning of strike prices of micro-options and standard 
index options, the proposed rule change amends the Rules to describe 
the difference between the meaning of bids and offers for micro-options 
and standard index options. Specifically, proposed Rule 5.3(c)(2) 
provides that notwithstanding Rule 5.3(a),\42\ bids and offers for a 
micro-option must be expressed in terms of dollars per \1/100\\th\ part 
of the total value of the contract. For example, an offer of ``0.50'' 
represents an offer of $0.50 for a micro-option.\43\
---------------------------------------------------------------------------

    \41\ See Rule 5.4(a). This corresponds to the provision 
regarding the minimum increment for mini-options.
    \42\ Rule 5.3(a) states that except as otherwise provided in 
Rule 5.3, must be expressed in terms of dollar and decimals per unit 
of the underlying security or index. The Exchange believes that the 
proposed rule change is consistent with this provision, as a bid of 
7 will represent a bid of 7 for an option contract having an index 
multiplier (i.e., unit of trading) of one. However, the Exchange 
proposes to add a specific provision regarding the meaning of bids 
and offers for micro-options to provide complete clarity in the 
Rules, and to maintain consistency in the Rules, which currently 
contain a separate provision for mini-options, which as discussed 
above, have a reduced multiplier compared to standard options as 
micro-options do.
    \43\ An offer of ``0.50'' represents an offer of $50 for a 
standard index option with an index multiplier of 100.
---------------------------------------------------------------------------

    Similarly, the proposed rule change amends Rule 5.3(e)(3) to 
describe the difference between the meaning of bids and offers for FLEX 
Equity Options, FLEX Index Options with a multiplier of 100, 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.\44\ As noted above, a 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.\45\ The proposed rule change clarifies that bids 
and offers are expressed per unit, if a FLEX Equity Option or a FLEX 
Index Option with a multiplier of 100, and adds an example (as set 
forth below). This is true today, and merely adds clarity to the Rules.
---------------------------------------------------------------------------

    \44\ The proposed rule change reorganizes the language in this 
provision to make clear that the phrase ``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'' applies to 
the entire clause (B) of 5.4(e)(3).
    \45\ See current Rule 4.21(b)(1).
---------------------------------------------------------------------------

    The proposed rule change also adds to Rule 5.3(e)(3) the meaning of 
bids and offers for FLEX Micro Options. 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 1/100\th\ unit. Additionally, 
the proposed rule change adds examples of the meaning of bids and 
offers of FLEX Options: If the exercise price of a FLEX Option series 
is a fixed price, a bid of ``0.50'' represents a bid of (A) $50 (0.50 
times 100 shares) for a FLEX Equity Option; (B) $50 (0.50 times an 
index multiplier of 100) for a FLEX Index Option with a multiplier of 
100; and (C) $0.50 (0.50 times an index multiplier of one) for a FLEX 
Micro Option.
    If the exercise price of a FLEX Option series is a percentage of 
the closing value of the underlying equity security, a bid of ``0.50'' 
represents a bid of (A) 50% (0.50 times 100 shares) of the closing 
value of the underlying equity security on the trade date if a FLEX 
Equity Option; (B) 50% (0.50 times an index multiplier of 100) of the 
closing value of the underlying index on the trade date if a FLEX Index 
Option with a multiplier of 100; and (C) 0.50% (0.50 times an index 
multiplier of one) of the closing value of the underlying index on the 
trade date if a FLEX Micro Option. The Exchange believes this approach 
identifies a clear, transparent description of the differences between 
FLEX Index Options with a multiplier of 100 and FLEX Micro Options. The 
proposed rule change also provides additional clarity regarding the 
meaning of bids and offers of FLEX Equity Options and FLEX Index 
Options with a multiplier of 100.
    The proposed rule change also clarifies that the System rounds bids 
and offers and offers of FLEX Options to the nearest minimum increment 
following application of the designated percentage to the closing value 
of the underlying security or index. This is consistent with current 
functionality and is merely a clarification in the Rules. For example, 
suppose a FLEX Trader enters a bid of 0.27 for a FLEX Equity Option, 
and the underlying security has a closing value of 24.52 on the trade 
date. Following the close on the trade date, the System calculates the 
bid to be 6.6204 (0.27 x 24.52). Because the minimum increment for bids 
and

[[Page 2012]]

offers in a FLEX Option class is $0.01, the System rounds 6.6204 to the 
nearest penny, which would be a bid of $6.62.
Appointment Weights
    The Exchange proposes to add micro-options each as a Tier AA class 
with a Market-Maker appointment weight of .001.\46\ This is the same 
appointment weight as a majority of the other Tier AA options classes. 
The Exchange determines appointment weights of Tier AA classes based on 
several factors, including, but not limited to, competitive forces and 
trading volume. The Exchange believes the proposed initial appointment 
weight of .001 for each micro-option will foster competition by 
incentivizing Market-Makers to obtain an appointment in these newly 
listed options and provide increased liquidity in a newly listed class, 
to the benefit of all investors.
---------------------------------------------------------------------------

    \46\ See Rule 5.50(g). While the appointment weights of Tier AA 
classes are not subject to quarterly rebalancing under Rule 
5.50(g)(1), the Exchange regularly reviews the appointment weights 
of Tier AA classes to ensure that they continue to be appropriate. 
The Exchange determines appointment weights of Tier AA classes based 
on several factors, including, but not limited to, competitive 
forces and trading volume.
---------------------------------------------------------------------------

Contract Size Limits
    The proposed rule change updates various other provisions in the 
following Rules to reflect that one-hundred micro-contracts overlying 
an index will be economically equivalent to one contract for a standard 
index option overlying the same index:
     Rules 1.1 (definition of ``complex order'') and 5.65(d) 
(definition of ``complex trade''): The definition of ``complex order'' 
in Rule 1.1 provides, among other things that for purposes of Rules 
5.33 and 5.85(b)(1), the term ``complex order'' means a complex order 
with any ratio equal to or greater than one-to-three (.333) and less 
than or equal to three-to-one (3.00), an Index Combo order, a stock-
option order, or a security future-option order.\47\ Similarly, in Rule 
5.65(d), the definition of ``complex trade'' (for purposes of the 
options linkage plan) means the execution of an order in an option 
series in conjunction with the execution of one or more related 
order(s) in different option series in the same underlying security 
occurring at or near the same time in a ratio that is equal to or 
greater than one-to-three (.333) and less than or equal to three-to-one 
(3.0) and for the purpose of executing a particular investment strategy 
(for the purpose of applying the aforementioned ratios to complex 
trades comprised of both mini-option contracts and standard option 
contracts, ten (10) mini-option contracts will represent one (1) 
standard option contract. The proposed rule change adds to the 
definition in each of Rules 1.1 and 5.65(d) that for the purposes of 
applying these ratios to complex orders comprised of legs for both 
micro-options and standard options, 100 micro-option contracts 
represent one standard option contract.\48\
---------------------------------------------------------------------------

    \47\ The proposed rule change also conforms the definition of 
``complex order'' in Rule 1.1 to the definition of ``complex trade'' 
in Rule 5.65 to say that it may be comprised of different series in 
the same ``underlying security'' rather than the same ``class.'' As 
discussed above, micro-options will be a different class than 
standard index options overlying the same index. This accommodates, 
for example, the fact that a complex order could be comprised of 
mini-options and standard options overlying the same stock (as 
contemplated by the current definition) despite being in different 
classes. The proposed rule change also expands the definitions of 
complex order in Rule 1.1 and complex trade in Rule 5.65 to provide 
that it may similarly be comprised of different series in the same 
``underlying index.'' The Exchange notes that full-value indexes and 
reduced-value indexes are separate indexes under the Exchange Rules, 
so to the extent a multi-legged order whose legs overly different 
indexes (such as one leg with a full-value index and one leg with a 
reduced-value index) would not qualify for the definition of 
``complex trade.''
    \48\ This corresponds to the provision in those definitions 
regarding mini-options, which states that for the purpose of 
applying these ratios to complex orders comprised of legs for both 
mini-options and standard options, ten mini-option contracts 
represent one standard option contract.
---------------------------------------------------------------------------

     Rules 5.37 and 5.38: Rules 5.37 and 5.38 describe the 
Exchange's Automated Improvement Mechanism for simple (``AIM'') and 
complex orders (``C-AIM''), respectively. There is no minimum size for 
an order submitted into an AIM or C-AIM Auction. However, in an AIM 
Auction for orders less than 50 standard option contracts (or 500 mini-
option contracts), the stop price must be at least one minimum 
increment better than the then-current national best-bid or offer or 
the order's limit price (if the order is a limit price), whichever is 
better. For orders of 50 standard option contracts (or 500 mini-option 
contracts) or more, the stop price must be at or better than the then-
current national best-bid or offer or the order's limit price (if the 
order is a limit price), whichever is better.\49\ The proposed rule 
change adds to Rule 5.37(b) that 5,000 micro-option contracts is the 
corresponding size for these stop price restrictions. Additionally, 
Rule 5.37(c) and 5.38(c) provide that no concurrent AIM or C-AIM 
Auctions, respectively, are permitted for orders less than 50 standard 
option contracts (or 500 mini-option contracts) (for C-AIM Auctions, 
the size is determined by the smallest leg of the complex order), but 
are permitted for orders of 50 standard option contracts (or 500 mini-
option contracts) or greater (for C-AIM Auctions, the size is 
determined by the smallest leg of the complex order). The proposed rule 
change adds that 5,000 micro-option contracts is the corresponding size 
for determining whether concurrent auctions are permissible.
---------------------------------------------------------------------------

    \49\ See Rules 5.37(b).
---------------------------------------------------------------------------

     Rules 5.39, 5.40, and 5.74: Rules 5.39, 5.40, and 5.74 
describe the Exchange's Solicitation Auction Mechanism for simple 
(``SAM''), complex (``C-SAM''), and FLEX (``FLEX SAM'') orders, 
respectively. An order, or the smallest leg of a complex order, must be 
for at least the minimum size designated by the Exchange (which may not 
be less than 500 standard option contracts or 5,000 mini-option 
contracts). The proposed rule change adds that 50,000 micro-option 
contracts or FLEX Micro Options, as applicable, is the corresponding 
minimum size for orders submitted into SAM, C-SAM, or FLEX SAM 
Auctions.
     Rule 5.87: Rule 5.87(f) describes when a Floor Broker is 
entitled to cross a certain percentage of an order, subject to the 
requirements in that paragraph. Under that Rule, the Exchange may 
determine on a class-by-class basis the eligible size for an order that 
may be transacted pursuant to this paragraph; however, the eligible 
order size may not be less than 50 standard option contracts (or 500 
mini-option contracts). The proposed rule change adds that 5,000 micro-
option contracts is the corresponding minimum size for orders that may 
be crossed in accordance with this provision. Additionally, Rule 5.87, 
Interpretation and Policy .07(a) provides that Rule 5.86(e) \50\ does 
not prohibit a Trading Permit Holder (``TPH'') from buying or selling a 
stock, security

[[Page 2013]]

futures or futures position following receipt of an order, including an 
option order, but prior to announcing such order to the trading crowd, 
provided that the option order is in a class designated as eligible for 
``tied hedge'' transactions and within the eligibility size parameters, 
which are determined by the Exchange and may not be smaller than 500 
standard option contracts (or 5,000 mini-option contracts). The 
proposed rule change adds that 50,000 micro-option contracts is the 
corresponding minimum size for orders that may qualify as tied hedge 
transactions and not be deemed a violation of Rule 5.86(e).
---------------------------------------------------------------------------

    \50\ Rule 5.86(e) provides that it will be considered conduct 
inconsistent with just and equitable principles of trade for any TPH 
or person associated with a TPH, who has knowledge of all material 
terms and conditions of an original order and a solicited order, 
including a facilitation order, that matches the original order's 
limit, the execution of which are imminent, to enter, based on such 
knowledge, an order to buy or sell an option of the same class as an 
option that is the subject of the original order, or an order to buy 
or sell the security underlying such class, or an order to buy or 
sell any related instrument until either (1) all the terms and 
conditions of the original order and any changes in the terms and 
conditions of the original order of which that Trading Permit Holder 
or associated person has knowledge are disclosed to the trading 
crowd or (2) the solicited trade can no longer reasonably be 
considered imminent in view of the passage of time since the 
solicitation. An order to buy or sell a ``related instrument,'' 
means, in reference to an index option, an order to buy or sell 
securities comprising ten percent or more of the component 
securities in the index or an order to buy or sell a futures 
contract on any economically equivalent index.
---------------------------------------------------------------------------

Position and Exercise Limits \51\
---------------------------------------------------------------------------

    \51\ This discussion focuses on position and exercise limits 
with respect to indexes on which the Exchange currently lists 
standard options and may also list micro-options. To the extent the 
Exchange lists micro-options on other indexes in the future, they 
would be subject to the same position and exercise limits set forth 
in the applicable Rules, and similarly aggregated with standard 
options on the same indexes, as proposed.
---------------------------------------------------------------------------

    Rule 8.31 governs position limits for broad-based index options, 
and currently provides that there are no position limits for broad-
based index option contracts (including reduced-value option contracts) 
on DJX, OEX, XEO, RUT, and SPX classes (among others). With respect to 
the other broad-based index options that the Exchange currently lists 
for trading, the Exchange fixes the position limits, which may not be 
larger than the limits in the following table:

------------------------------------------------------------------------
                                           Standard limit  (on the same
           Broad-based index                   side of the market)
------------------------------------------------------------------------
Russell 1000 Russell 1000 Growth         50,000 contracts (no more than
 Russell 1000 Value.                      30,000 near-term).
MSCI Emerging Markets Index MSCI EAFE    50,000 contracts.
 Index.
Other..................................  25,000 contracts (no more than
                                          15,000 near-term).
------------------------------------------------------------------------

    The proposed rule change adds Rule 8.31(f) to provide that 
positions in micro-options (with an index multiplier of one) will be 
aggregated with positions in standard options (including reduced-value 
option contracts) (with an index multiplier of 100) on the same broad-
based index and, for purposes of determining compliance with the 
position limits under Rule 8.31, 100 micro-option contracts with an 
index multiplier of one equal one standard option contract with an 
index multiplier of 100. This is consistent with Rule 8.31(d), which 
similarly provides that positions in reduced-value index options are 
aggregated with positions in full-value index options based on economic 
equivalent values of those options.\52\
---------------------------------------------------------------------------

    \52\ As noted above, an index option with a reduced multiplier 
has the same practical effect as an index option on a reduced-value 
index. A micro-option is the economic equivalent to a reduced-value 
index that is \1/100\\th\ of the full-value index.
---------------------------------------------------------------------------

    Rule 8.32 governs position limits for industry index options, and 
currently provides that industry index options are subject to the 
following position limits:
    (1) 18,000 contracts if the Exchange determines, at the time of a 
review conducted pursuant to Rule 8.32(b),\53\ that any single 
underlying stock accounted, on average, for 30% or more of the index 
value during the 30-day period immediately preceding the review; or
---------------------------------------------------------------------------

    \53\ Rule 8.32(b) provides the Exchange will make these 
determinations with respect to options on each industry index at the 
commencement of trading of such options on the Exchange and 
thereafter review the determination semi-annually on January 1 and 
July 1.
---------------------------------------------------------------------------

    (2) 24,000 contracts if the Exchange determines, at the time of a 
review conducted pursuant to Rule 8.32(b), that any single underlying 
stock accounted, on average, for 20% or more of the index value or that 
any five underlying stocks together accounted, on average, for more 
than 50% of the index value, but that no single stock in the group 
accounted, on average, for 30% or more of the index value, during the 
30-day period immediately preceding the review; or
    (3) 31,500 contracts if the Exchange determines that the conditions 
specified above which would require the establishment of a lower limit 
have not occurred.\54\
---------------------------------------------------------------------------

    \54\ These position limits are subject to Rule 8.32(c), which 
provides that if the Exchange determines, at the time of a semi-
annual review, that the position limit in effect with respect to 
options on a particular industry index is lower than the maximum 
position limit permitted by the criteria set forth in Rule 8.32(a), 
the Exchange may effect an appropriate position limit increase 
immediately. If the Exchange determines, at the time of a semi-
annual review, that the position limit in effect with respect to 
options on a particular industry index exceeds the maximum position 
limit permitted by the criteria set forth in Rule 8.32(a), the 
Exchange shall reduce the position limit applicable to such options 
to a level consistent with such criteria; provided, however, that 
such a reduction shall not become effective until after the 
expiration date of the most distantly expiring option series 
relating to the industry index, which is open for trading on the 
date of the review; and provide further that such a reduction shall 
not become effective if the Exchange determines, at the next 
succeeding semi-annual review, that the existing position limit 
applicable to such options is consistent with the criteria set forth 
in Rule 8.32(a).
---------------------------------------------------------------------------

    The proposed rule change adds Rule 8.32(g) to provide that 
positions in micro-options (with an index multiplier of one) will be 
aggregated with positions in standard options (including reduced-value 
option contracts) (with an index multiplier of 100) on the same 
industry index and, for purposes of determining compliance with the 
position limits under Rule 8.32, 100 micro-option contracts with an 
index multiplier of one equal one standard option contract with an 
index multiplier of 100. This is consistent with Rule 8.32(e), which 
similarly provides that positions in reduced-value index options are 
aggregated with positions in full-value index options based on economic 
equivalent values of those options.\55\
---------------------------------------------------------------------------

    \55\ As noted above, an index option with a reduced multiplier 
has the same practical effect as an index option on a reduced-value 
index. A micro-option is the economic equivalent to a reduced-value 
index that is \1/100\\th\ of the full-value index.
---------------------------------------------------------------------------

    Rule 8.42(b) governs exercise limits for index options, and 
provides that exercise limits for index option contracts will be 
equivalent to the position limits prescribed for option contracts with 
the nearest expiration date in Rule 8.31, 8.32, or 8.34. As is the case 
for certain broad-based index options as noted above, there will be no 
exercise limits for broad-based index options (including reduced-value 
option contracts). The proposed rule change adds to Rule 8.42(b) that 
there will similarly be no exercise limits on micro-option contracts on 
those same broad-based indexes.
    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.\56\ Because 100 FLEX Micro Options are equivalent to one FLEX 
Index Option with a multiplier of 100 overlying the same index due to 
the difference in contract multipliers, proposed Rule 8.35(a)(7)

[[Page 2014]]

states that for purposes of determining compliance with the position 
limits under Rule 8.35, 100 FLEX Micro Option contracts equal one FLEX 
Index Option contract with a multiplier of 100 with the same underlying 
index. 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 FLEX Index Option contract with a 
multiplier of 100 overlying the same index). This is consistent with 
the current treatment of other reduced-value FLEX Index Options with 
respect to position limits. 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).\57\
---------------------------------------------------------------------------

    \56\ 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).
    \57\ Pursuant to Rule 8.43(j), FLEX Index Options with a 
multiplier of one will be aggregated with non-FLEX Index Options on 
the same underlying index in the same manner as all other FLEX Index 
Options.
---------------------------------------------------------------------------

Capacity
    The Exchange has analyzed its capacity and represents that it 
believes the Exchange and Options Price Reporting Authority (``OPRA'') 
have the necessary systems capacity to handle the additional traffic 
associated with the listing of new series that may result from the 
introduction of the micro-options. Because the proposed rule change is 
limited to equity index options, which currently represent only 19 of 
the option classes listed on the Exchange, the Exchange believes any 
additional traffic that may be generated from the introduction of 
micro-options will be manageable. The Exchange also understands that 
the OCC will be able to accommodate the listing and trading of micro-
options.
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.\58\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \59\ 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) \60\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78f(b).
    \59\ 15 U.S.C. 78f(b)(5).
    \60\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, protect investors 
and the public interest. The Exchange believes the proposed rule change 
will expand investor choice and flexibility by providing investors with 
the ability to gain exposure to the market or specific industries using 
index options with a notional value of \1/100\\th\ of the value of 
current index options. The Exchange believes there is unmet market 
demand from market participants for micro-options. The availability of 
micro-options may broaden the base of investors that use options to 
manage their trading and investment risk, as the Exchange believes they 
will appeal to retail investors who currently may not participate in 
the trading of index options. Due to the larger-value of indexes (which 
generally result in options with five and six figure notional values, 
as demonstrated above), the Exchange believes that investors, most 
notably average retail investors, would benefit from the availability 
of micro-options by making currently high-priced options more readily 
available as an investing tool and at more affordable and realistic 
prices and thus with reduced investment risk. Micro-options will make 
available to investors a relatively low-cost method to hedge or 
speculate on market risk and meet their investment needs associated 
with index options. The lower cost of micro-options will allow 
investors to trade index options and hedge their portfolios with a 
smaller outlay of capital, and thus with less investment risk. This may 
facilitate overall investor participation in the markets for index 
options, which may increase the depth and liquidity of these markets, 
to the benefit of all investors.
    Additionally, the Exchange will further remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest by 
providing additional granularity with respect to the prices at which 
investors may execute and exercise index options on the Exchange. 
Micro-options will provide investors with an exchange-traded tool to 
manage more precisely based on notional value the positions and 
associated risk in their portfolios, which currently may equal a 
fraction of a standard contract. Because micro-options and standard 
index options will overlie the same indexes, market participants may 
use them as hedging vehicles to meet their investment needs in 
connection with index-related products and cash positions in a similar 
manner as they currently do with standard index options, but as a more 
manageably sized contract. The smaller-sized contract will provide all 
market participants with more precision with respect to hedging their 
portfolios more effectively with far greater precision. Given the 
various trading and hedging strategies employed by investors, this 
additional granularity may provide investors with more control over the 
trading of their investment strategies and management of their 
positions and risk associated with option positions in their 
portfolios.
    Additionally, micro-options will provide investors with the ability 
to execute and exercise options with a smaller index multiplier in a 
listed market environment as opposed to in the unregulated OTC options 
market. The proposed rule change may shift liquidity from the OTC 
market onto the Exchange, which the Exchange believes would increase 
market transparency as well as enhance the process of price discovery 
conducted on the Exchange through increased order flow to the benefit 
of all investors. By permitting index options to trade with the same 
multiplier currently available to customized options in the OTC market, 
the Exchange believes the proposed rule change will also promote 
competition and 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 Exchange products to provide additional terms available 
in the OTC market but not currently available in the listed options 
market,

[[Page 2015]]

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 OCC as issuer and guarantor of all listed 
options.
    The Exchange believes the ability to list micro-options is 
consistent with several current rules. Particularly, the underlying 
indexes on which micro-options (and FLEX Micro Options) would be listed 
satisfied the initial listing standards for index in the Exchange's 
current Rules and would need to continue to satisfy the maintenance 
listing criteria in the Rules.\61\ Pursuant to the definition of index 
multiplier \62\ in Rule 4.11, the Exchange may determine the index 
multiplier of an option, which it generally does in the specifications 
for an index option.\63\ Similarly, Article I, Section 1, I(3) of the 
OCC By-Laws defines ``index multiplier'' as the dollar amount (as 
specified by the Exchange on which such contract is traded) by which 
the current index value is to be multiplied to obtain the aggregate 
current index value. Unlike the definition of a unit of trading in the 
OCC By-Laws, which states the unit of trading in is designated by OCC 
but is 100 shares if not otherwise specified, the definition of index 
multiplier includes no such default.\64\ Therefore, the Exchange 
believes the current index multiplier definition in the OCC By-Laws 
(which would have previously been filed with the Commission) permits 
any index multiplier specified by the listing Exchange given the lack 
of a default index multiplier for index options (and the inclusion of a 
default unit of trading for equity options). This is consistent with 
the lack of default number in Exchange's definition of index multiplier 
and the ability for the Exchange to specify the index multiplier, as 
noted above. Additionally, the Exchange believes any potential risks of 
index options with a multiplier of one are covered by disclosures of 
the ODD, as it considers the possibility of differing values of index 
multipliers.\65\ However, certain other Rules reflect an index 
multiplier of 100, and the proposed rule change updates those Rules to 
reflect the potential listing of an index option with an index 
multiplier of one.
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    \61\ See Rule 4.10.
    \62\ Rule 4.11 defines the term ``index multiplier'' as the 
amount specified in the contract by which the current index value is 
to be multiplied to arrive at the value required to be delivered to 
the holder of a call or by the holder of a put upon valid exercise 
of the contract.
    \63\ Option specifications are available on the Exchange's 
public website, available at cboe.com/tradable_products/.
    \64\ See OCC Bylaws Article I, Section 1, U(5).
    \65\ The 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.
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    The listing of micro-options has the same practical effect as the 
listing of reduced-index value options, which the Exchange (and other 
options exchanges) currently has the authority to do with respect to 
several indexes (in accordance with previously Commission-approved 
rules). For example, the Exchange may list options on both the S&P 500 
Index (SPX options) and the Mini-S&P 500 Index (XSP options), which is 
\1/10\\th\ the value of the S&P 500 Index.\66\ This is economically 
equivalent to if the Exchange listed an S&P 500 Index option with an 
index multiplier of 100 and with an index multiplier of 10, 
respectively. The proposed rule change will permit the Exchange to make 
reduced-value options on all indexes available without relying on a 
reporting authority to create and disseminate a reduced-value index at 
a reduced-value level that the Exchange believes may be beneficial to 
the marketplace. The Commission also previously approved a proposed 
rule change of at least one other options exchange to list reduced-
value options on a ``micro-index''(which has \1/100\\th\ the value of 
the full index) as well as the full-value index and ``mini-index'' 
(which has \1/10\\th\ the value of the full index).\67\ Similarly, 
designated contract markets also list index futures (with which the 
Exchange's options contracts compete) with varying multipliers. For 
example, the Chicago Mercantile Exchange currently lists standard, 
mini-, and micro- futures on the S&P 500 Index, the Russell 2000, and 
the DJIA with multipliers of $250, $50 and $5 (which is \1/50\\th\ the 
size of the full-size future), respectively.\68\ Therefore, the 
Exchange believes the availability of micro-options will increase 
investor choice and promote competition in the listed derivatives 
markets.
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    \66\ The Exchange notes if it desired to list a reduced-value 
index option on other indexes, or list an option on a micro-level 
index (i.e., an index with \1/100\\th\ the value of the full-sized 
index), it could do so without Commission approval if the underlying 
index satisfied the generic listing criteria in Rule 4.12.
    \67\ See, e.g., Securities Exchange Act Release No. 53484 (March 
14, 2006), 71 FR 14268 (March 21, 2006) (SR-ISE-2005-25) (order 
approving proposed change to permit International Securities 
Exchange (``ISE'') to list and trade options on the FTSE 100 Index 
and FTSE 250 Index based on the full-value of the indexes, one-tenth 
of the value of the indexes, and one-hundredth of the value of the 
indexes.
    \68\ See CME contract specifications, available at https://www.cmegroup.com/trading/equity-index/us-index/e-mini-sandp500_contract_specifications.html. In addition to these indexes, 
CME also lists index futures with multipliers of $250 and $50 on 
several other indexes on which the Exchange also lists index options 
(and on which the Exchange would be able to list micro-options 
pursuant to the proposed rule change, including the FTSE Developed 
Europe Index, the FTSE Emerging Markets Index, the S&P Select Sector 
Indexes, the Russell 1000 Index, the Russell 1000 Growth Index, and 
the Russell 1000 Value Index.
---------------------------------------------------------------------------

    As described above, the proposal contains a number of features 
designed to protect investors by reducing investor confusion. For 
example, micro-options will be designated by different trading symbols 
from their related standard contracts. Additionally, the proposed rule 
change describes in the Rules the differences regarding the meanings of 
bids and offers, exercise prices (and thus deliverables), and minimum 
sizes of index options contracts with a multiplier of one and a 
multiplier of 100, all of which are adjusted proportionately to reflect 
the difference in multiplier, and thus the difference in the 
deliverable value of the underlying.\69\ The Exchange believes the 
transparency and clarity the proposed rule change adds to the Rules 
regarding the distinctions between index options due to the different 
multipliers will benefit investors. These proposed changes are not 
novel, as they correspond to similar rule provisions regarding other 
reduced-value options.\70\
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    \69\ These proposed changes correspond to similar provisions for 
mini-options, which also have a smaller multiplier than standard-
sized options.
    \70\ 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 \1/10\\th\ the size of standard options, equal \1/
10\\th\ of the same terms for standard options, the proposed terms 
for FLEX Index Options with a multiplier of one, which have a 
multiplier \1/100\\th\ the size of FLEX Index Options with a 
multiplier of 100, equal \1/100\\th\ of the same terms as FLEX Index 
Options with a multiplier of 100.
---------------------------------------------------------------------------

    Other than these differences, micro-options will trade in the same 
manner as index options (and FLEX Micro Options will trade in the same 
manner

[[Page 2016]]

as all other FLEX Index Options). Each micro-option will be on an index 
consisting of the same components as the underlying index of standard 
index options that may currently be listed on the Exchange, but with 
\1/100\\th\ the value of those indexes. Because micro-options and 
standard index options overlie the same indexes, market participants 
may use micro-options as hedging vehicles to meet their investment 
needs in connection with index-related products and cash positions in a 
similar manner as they do with standard index options, but as a more 
manageably sized contract. The smaller-sized contract may provide 
market participants with more precision with respect to hedging their 
portfolios. Additionally, the smaller size makes micro-options a lower 
cost option, making it a more affordable and lower risk option for 
investors, particularly retail investors. Therefore, the Exchange 
believes it is reasonable and appropriate to be able to list the same 
expirations and settlements for micro-options as it may for standard 
index options.
    The Exchange believes the proposed rule change for the minimum 
price increment for micro-options to be the same as the minimum price 
increment for index options overlying the same index will benefit 
investors, as it may lessen investor and marketplace confusion. While 
price protection between micro-options and standard options on the same 
index is not required, the Exchange believes that consistency between 
micro-options and standard options as to the minimum price variation is 
desirable and is designed to promote just and equitable principles of 
trade. Matching the minimum price increment between micro-options and 
standard options on the same index would help to eliminate any 
unnecessary arbitrage opportunities that could result from having 
contracts on the same underlying index traded in different minimum 
price increments. Similarly, the Exchange believes matched minimum 
pricing may generate enhanced competition among liquidity providers. 
The Exchange believes that matched pricing for micro-options and 
standard options on the same index would attract additional liquidity 
providers who would make markets in micro-options and standard options 
on the same index. In addition to the possibility of more liquidity 
providers, the Exchange believes that the ability to quote micro-
options and standard options on the same index in the same minimum 
increments would hopefully result in more efficient pricing via 
arbitrage and possible price improvement in both contracts on the same 
index. Finally, having the same minimum increment for micro-options and 
standard options would be beneficial from a logistical perspective 
since firms' existing systems are generally configured using the ``root 
symbol'' of an underlying index, and it may be difficult and resource-
intensive for firms to assign different minimum pricing to micro-
options and standard options on the same index.
    The Exchange believes the proposed rule change regarding the 
treatment of 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. Index options with a multiplier of one will be 
counted for purposes of those limits in a proportional manner to index 
options (including reduced-value indexes) with a multiplier of 100 and 
aggregated with options overlying the same index (including reduced-
value indexes) in the same manner as index options currently are. This 
is equivalent to current limits imposed on reduced-value options. As 
noted above, while the multipliers of reduced-value indexes are $100, a 
reduced-value index option has an economically equivalent effect to an 
index option with a smaller multiplier. An index option with a 
multiplier of one corresponds to an option overlying a reduced-valued 
index that is \1/100\\th\ the value of the full-value index. It just 
uses a different multiplier rather than a different value of the 
underlying index.\71\ The Exchange believes its 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 index options with a 
multiplier of one that the Exchange determines to list for trading. 
Ultimately, the Exchange does not believe that this proposed rule 
change raises any unique regulatory concerns because existing 
safeguards--such as position and exercise limits (and the aggregation 
of options overlying the same index (including reduced-value indexes)) 
and reporting requirements--would continue to apply.
---------------------------------------------------------------------------

    \71\ This is also similar to position limits for other options 
with multipliers less than 100. See, e.g., Rule 8.30, Interpretation 
and Policy .08 (describing position limits for mini-options).
---------------------------------------------------------------------------

    The Exchange also believes the proposed initial low appointment 
weight for micro-options will promote competition and efficiency by 
incentivizing more Market-Makers to obtain an appointment in each 
micro-option the Exchange lists. The Exchange believes this may result 
in liquidity and competitive pricing in this class, which ultimately 
benefits investors. The Exchange does not believe that the proposed 
rule change is unfairly discriminatory, as the appointment weight will 
apply to all Market-Makers in the class. Additionally, the proposed 
appointment weight is the same as the appointment weight for a majority 
of other Tier AA options classes, as well as a recently listed index 
option classes to likewise promote Market-Maker appointment, liquidity 
and competitive
    Finally, the Exchange represents that it has the necessary systems 
capacity to support the new option series given these proposed 
specifications. The Exchange believes that its existing surveillance 
and reporting safeguards are designed to deter and detect possible 
manipulative behavior which might arise from listing and trading micro-
options. The Exchange further notes that current Exchange Rules that 
apply to the trading of other index options traded on the Exchange will 
also apply to the trading of micro-options, such as Exchange Rules 
governing customer accounts, margin requirements and trading halt 
procedures. The Exchange understands that market participants may 
currently, and currently do, execute orders in options like the ones 
being proposed in the unregulated OTC options market, where neither the 
Exchange nor the Commission has oversight over market participants that 
may be purposely trading at prices through the listed market. As 
discussed below, the proposed rule change may encourage these orders to 
be submitted to the Exchange, which could bring these orders into a 
regulated market and be subject to surveillance and oversight to which 
they are currently not subject with respect to execution of these 
option orders.
    A robust and competitive market requires that exchanges respond to 
investors' evolving needs by constantly improving their offerings. When 
Congress charged the Commission with supervising the development of a 
``national market system'' for securities, Congress stated its intent 
that the ``national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.\72\ Consistent with this purpose, Congress and the Commission 
have repeatedly stated their preference for competition, rather than 
regulatory intervention to determine products and

[[Page 2017]]

services in the securities markets.\73\ This consistent and considered 
judgment of Congress and the Commission is correct, particularly in 
light of evidence of robust competition in the options trading 
industry. The fact that an exchange proposed something new is a reason 
to be receptive, not skeptical--innovation is the life-blood of a 
vibrant competitive market--and that is particularly so given the 
continued internalization of the securities markets, as exchanges 
continue to implement new products and services to compete not only in 
the United States but throughout the world. Options exchanges 
continuously adopt new and different products and trading services in 
response to industry demands in order to attract order flow and 
liquidity to increase their trading volume. This competition has led to 
a growth in investment choices, which ultimately benefits the 
marketplace and the public. The Exchange believes that the proposed 
rule change will help further competition by providing market 
participants with yet another investment option for the listed options 
market.
---------------------------------------------------------------------------

    \72\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.).
    \73\ See S. Rep. No. 94-75, 94th Cong., 1st Sess. 8 (1975) 
(``The objective [in enacting the 1975 amendments to the Exchange 
Act] would be to enhance competition and to allow economic forces, 
interacting within a fair regulatory field, to arrive at appropriate 
variations in practices and services.''); Order Approving Proposed 
Rule Change Relating to NYSE Arca Data, Securities Exchange Act 
Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) 
(``The Exchange Act and its legislative history strongly support the 
Commission's reliance on competition, whenever possible, in meeting 
its regulatory responsibilities for overseeing the [self-regulatory 
organizations] and the national market system. Indeed, competition 
among multiple markets and market participants trading the same 
products is the hallmark of the national market system.''); and 
Regulation NMS, 70 FR at 37499 (observing that NMS regulation ``has 
been remarkably successful in promoting market competition in [the] 
forms that are most important to investors and listed companies'').
---------------------------------------------------------------------------

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 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as any micro-options the 
Exchange lists for trading will be available for all market 
participants in the same manner who wish to trade such options. The 
Exchange may list micro-options on all indexes currently authorized to 
be listed on the Exchange, subject to the same listing criteria. These 
options will trade in the same manner as index options and FLEX Index 
Options, as applicable, with a multiplier of 100, with certain terms 
proportionately adjusted to reflect the different contract multipliers. 
Additionally, the Exchange believes that the proposed rule change will 
enhance competition by allowing products on the same index to be priced 
in the same minimum price increments. The Exchange also believes the 
proposed initial low Market-Maker appointment cost for micro-options 
will apply equally to all Market-Makers with an appointment in micro-
options and will promote competition by incentivizing more Market-
Makers to obtain an appointment in the newly listed class, resulting in 
liquidity and competitive pricing within the class.
    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 micro-
options may only be listed for trading on the Exchange. To the extent 
that the availability of these products makes the Exchange a more 
attractive marketplace to market participants at other exchanges, 
market participants are free to elect to become market participants on 
the Exchange. As noted above, other derivative products related to 
these indexes are listed for trading on other exchanges. Additionally, 
the Exchange notes that listing and trading micro-options on the 
Exchange will subject such options to transparent exchange-based rules 
as well as price discovery and liquidity, as opposed to alternatively 
trading these products in the OTC market.
    The Exchange believes that the proposed rule change may relieve any 
burden on, or otherwise promote, competition. The proposal is designed 
to increase competition for order flow on the Exchange in a manner that 
is beneficial to investors by providing them with a lower-cost option 
to hedge their investment portfolios. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily direct order flow to competing venues who offer similar 
products. The Exchange believes the proposed rule change encourages 
competition amongst market participants to provide lower-priced (and 
thus lower risk) and more granular option products, which may appeal to 
all market participants, including retail investors.
    Additionally, the Exchange believes this is an enhancement to a 
comparable alternative to the OTC market in customized options. By 
enhancing our 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 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 all listed options.
    The proposed nonsubstantive changes (to move and clarify the 
current contract multiplier for FLEX Equity Options and FLEX Index 
Options with a multiplier of 100 in Rule 4.21(b) and to correct the 
numbering of subparagraphs in Rule 8.35(a), as well as examples of the 
exercise prices and the meanings of bids and offers) 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:

[[Page 2018]]

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-2020-117 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-2020-117. 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-2020-117, and should be submitted 
on or before February 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
---------------------------------------------------------------------------

    \74\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00199 Filed 1-8-21; 8:45 am]
BILLING CODE 8011-01-P