Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Add Options on the Mini-Russell 2000 Index to Its P.M. Pilot Program, 9108-9110 [2021-02780]
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9108
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices
All submissions should refer to File
Number SR–PEARL–2021–02. 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–PEARL–2021–02 and
should be submitted on or before March
4, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02776 Filed 2–10–21; 8:45 am]
khammond on DSKJM1Z7X2PROD with NOTICES
[Release No. 34–91067; File No. SR–CBOE–
2020–116]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Order Approving a
Proposed Rule Change, as Modified by
Amendment No. 1, To Add Options on
the Mini-Russell 2000 Index to Its P.M.
Pilot Program
February 5, 2021.
I. Introduction
On December 18, 2020, Cboe
Exchange, Inc. (‘‘Cboe’’ or ‘‘Exchange’’)
CFR 200.30–3(a)(12).
16:39 Feb 10, 2021
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90749
(December 21, 2020), 85 FR 85752 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange (i)
represented that its existing surveillance and
reporting safeguards in place are adequate to deter
and detect possible manipulative behavior which
might arise from listing and trading P.M.-settled
MRUT options and (ii) stated that the trading of
P.M.-settled MRUT options will be subject to
Exchange Rules governing customer accounts,
position and exercise limits, margin requirements
and trading halt procedures. Because Amendment
No. 1 to the proposed rule change does not
materially alter the substance of the proposed rule
change and makes conforming and technical
changes, Amendment No. 1 is not subject to notice
and comment. Amendment No. 1 is available at:
https://www.sec.gov/comments/sr-cboe-2020-116/
srcboe2020116-8302266-228358.pdf.
5 See Securities Exchange Act Release No. 90263
(October 23, 2020), 85 FR 68611 (October 29, 2020)
(CBOE–2020–100). See also Securities Exchange
Act Release No. 70087 (July 31, 2013), 78 FR 47809
(August 6, 2013) (SR–CBOE–2013–055) (‘‘P.M.settled XSP Approval Order’’).
2 17
SECURITIES AND EXCHANGE
COMMISSION
VerDate Sep<11>2014
II. Description of the Proposal, as
Modified by Amendment No. 1
The Exchange is proposing to amend
its rules to permit it to list and trade, on
a pilot basis, cash-settled MRUT options
with Expiration Friday expiration dates,
for which the exercise settlement value
will be based on the index value derived
from the closing prices of the
component securities (‘‘P.M.-settled’’).
MRUT options are options on the MiniRUT Index, the value of which is 1/10th
the value of the Russell 2000 (‘‘RUT’’)
Index.
The Exchange proposes to add P.M.settled MRUT options to the Exchange’s
pilot program under Interpretation and
Policy .13 to Rule 4.13 that allows the
listing of P.M. settled options that
expire on Expiration Friday (‘‘P.M. Pilot
Program’’). The Exchange notes that the
existing P.M. Pilot Program, which is set
to end on May 3, 2021, includes options
on the Mini-SPX Index (‘‘XSP’’), the
value of which is 1/10th the value of the
S&P 500 Index.5 Cboe has proposed to
1 15
BILLING CODE 8011–01–P
43 17
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to add Mini-Russell 2000 Index
(‘‘Mini-RUT’’ or ‘‘MRUT’’) options to
the Exchange’s pilot program for P.M.
settled options with third-Friday-of-themonth expiration dates (‘‘Expiration
Friday’’). The proposed rule change was
published for comment in the Federal
Register on December 29, 2020.3 On
January 28, 2021, the Exchange filed
Amendment No. 1 to the proposed rule
change.4 The Commission received no
comment letters on the proposed rule
change. The Commission is approving
the proposed rule change.
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add P.M.-settled MRUT options to that
pilot so that the end of the pilot period
for P.M.-settled MRUT options would
also be May 3, 2021.
The Exchange notes that trading in
P.M.-settled MRUT options would
operate in the same manner as provided
in the proposal to list and trade MiniRUT options on the Exchange. That is,
P.M.-settled MRUT options would have
the same European-style exercise, same
number of permissible expirations, same
exercise interval prices and limitations,
same position and exercise limits, and
will trade in the same minimum price
increment.6
The Exchange proposes to abide by
the same reporting requirements for the
trading of P.M.-settled MRUT options
that it does for the trading of P.M.settled XSP options.7 The Exchange
proposes to include data regarding P.M.settled MRUT options as it does for
P.M.-settled XSP options in the pilot
program report that it submits to the
Commission at least two months prior to
the expiration date of the P.M. Pilot
Program (the ‘‘annual report’’).8
Specifically, the Exchange submits
annual reports to the Commission that
contain an analysis of volume, open
interest, and trading patterns in
connection with products in the P.M.
Pilot Program. The analysis examines
trading in products in the P.M. Pilot
Program, as well as trading in the
securities that comprise the underlying
index. Additionally, for series that
exceed certain minimum open interest
parameters, the annual reports provide
analysis of index price volatility and
share trading activity.
Going forward, the Exchange would
include the same analysis of P.M.settled MRUT options, as well as trading
in securities that comprise the RUT
Index (as MRUT options are based on 1/
10th the value of the RUT Index), in the
annual reports. Also, like it currently
does for P.M.-settled XSP options, the
Exchange would submit periodic
interim reports for P.M.-settled MRUT
options that contain some, but not all,
of the information contained in the
annual reports.
The pilot reports will both contain the
following volume and open interest
data:
6 See Notice, supra note 3, fn. 3 at 85753. The
Exchange represents that its existing surveillance
and reporting safeguards in place are adequate to
deter and detect possible manipulative behavior
which might arise from listing and trading P.M.settled MRUT options. See Amendment No. 1,
supra note 4.
7 See P.M.-settled XSP Approval Order supra note
4.
8 See P.M.-settled XSP Approval Order, supra
note 4.
E:\FR\FM\11FEN1.SGM
11FEN1
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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices
(1) Monthly volume aggregated for all
trades;
(2) monthly volume aggregated by
expiration date;
(3) monthly volume for each
individual series;
(4) month-end open interest
aggregated for all series;
(5) month-end open interest for all
series aggregated by expiration date; and
(6) month-end open interest for each
individual series.
The annual reports will also contain
the information noted in Items (1)
through (6) above for Expiration Friday,
A.M.-settled, RUT index options traded
on Cboe, as well as the following
analysis of trading patterns in P.M.settled MRUT options series in the Pilot
Program:
(1) A time series analysis of open
interest; and
(2) an analysis of the distribution of
trade sizes.
Finally, for series that exceed certain
minimum parameters, the annual
reports will contain the following
analysis related to index price changes
and underlying share trading volume at
the close on Expiration Fridays:
(1) A comparison of index price
changes at the close of trading on a
given Expiration Friday with
comparable price changes from a control
sample. The data includes a calculation
of percentage price changes for various
time intervals and compare that
information to the respective control
sample. Raw percentage price change
data as well as percentage price change
data normalized for prevailing market
volatility, as measured by the Cboe
Volatility Index (VIX), is provided; and
(2) a calculation of share volume for
a sample set of the component securities
representing an upper limit on share
trading that could be attributable to
expiring in-the-money series. The data
includes a comparison of the calculated
share volume for securities in the
sample set to the average daily trading
volumes of those securities over a
sample period.
The minimum open interest
parameters, control sample, time
intervals, method for randomly selecting
the component securities, and sample
periods are determined by the Exchange
and the Commission. Additionally, the
Exchange would provide the
Commission with any additional data or
analyses the Commission requests
because it deems such data or analyses
necessary to determine whether the
P.M. Pilot Program, including P.M.settled MRUT options as proposed, is
consistent with the Exchange Act. As it
does for current P.M. Pilot products, the
Exchange would make public any data
VerDate Sep<11>2014
16:39 Feb 10, 2021
Jkt 253001
and analyses in connection with P.M.settled MRUT options it submits to the
Commission under the Pilot Program.9
Further, the Exchange proposes to
amend Rule 5.1, which governs trading
days and hours, in conjunction with the
proposed addition of MRUT options to
the P.M. Pilot Program. Cboe Rule
5.1(b)(2)(C) currently provides that on
their last trading day, Regular Trading
Hours for P.M.-settled XSP options are
between 9:30 a.m. and 4:00 p.m. Eastern
Time (as opposed to the 9:30 a.m. to
4:15 p.m. Regular Trading Hours for
options with those expirations that are
non-expiring). The proposed rule
change amends Rule 5.1(b)(2)(C) to
apply these time frames to the trading
of P.M.-settled MRUT options on their
last trading day.
With regard to the impact of this
proposal on system capacity, the
Exchange has analyzed its capacity and
represents that it and the Options Price
Reporting Authority have the necessary
systems capacity to handle any potential
additional traffic associated with trading
of P.M.-settled MRUT options.10 The
Exchange believes that its Trading
Permit Holders will not experience a
capacity issue as a result of this
proposal. Cboe represents that it will
monitor the trading volume associated
with any possible additional options
series listed as a result of this proposal
and the effect (if any) of these additional
series on market fragmentation and on
the capacity of the Exchange’s
automated systems.11
III. Discussion and Commission
Findings
After careful consideration of the
proposal, the Commission finds that the
proposed rule is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange,12 and, in
particular, the requirements of Section 6
of the Act.13 Specifically, the
Commission finds that the proposed
rule change to allow the Exchange to
add P.M.-settled MRUT options to the
P.M. Pilot Program is consistent with
Section 6(b)(5) of the Act,14 which
requires that an exchange have rules
designed to remove impediments to and
perfect the mechanism of a free and
9 P.M. Pilot products data and analyses are made
available at https://www.cboe.com/aboutcboe/legalregulatory/national-market-system-plans/pmsettlement-spxpm-data.
10 See Notice supra, note 3 at 85754.
11 See Notice supra, note 3 at 85754.
12 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
13 15 U.S.C. 78f.
14 15 U.S.C. 78(f)(b)(5).
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Sfmt 4703
9109
open market and to protect investors
and the public interest.
As the Commission noted in its orders
approving the listing and trading of
P.M.-settled options on the S&P 500
Index (‘‘SPXPM’’), the Commission has
had concerns about the potential
adverse effects and impact of P.M.
settlement upon market volatility and
the operation of fair and orderly markets
on the underlying cash markets at or
near the close of trading, including for
cash-settled derivatives contracts based
on a broad-based index.15 The potential
impact today remains unclear, given the
significant changes in the closing
procedures of the primary markets in
recent decades. The Commission is
mindful of the historical experience
with the impact of P.M. settlement of
cash-settled index derivatives on the
underlying cash markets, but recognizes
that these risks may be mitigated today
by the enhanced closing procedures that
are now in use at the primary equity
markets.
For the reasons described below, the
Commission believes that the
Exchange’s proposal to add P.M.-settled
MRUT options to the P.M. Pilot Program
is designed to mitigate concerns
regarding P.M. settlement and will
provide additional trading opportunities
for investors while providing the
Commission with data to monitor the
effects of MRUT options and the impact
of P.M. settlement on the markets. To
assist the Commission in assessing any
potential impact of a P.M.-settled MiniRUT index option on the options market
as well as the underlying cash equities
markets, Cboe will be required to submit
data to the Commission in connection
with the P.M. Pilot Program. The
Commission believes that Cboe’s P.M.
Pilot Program, together with the data
and analysis that the Exchange will
provide to the Commission, will allow
Cboe and the Commission to monitor for
and assess any potential for adverse
market effects of allowing P.M.
settlement for Mini-RUT index options,
including on the underlying component
stocks. In particular, the data collected
from Cboe’s P.M. Pilot Program will
help inform the Commission’s
consideration of whether the P.M. Pilot
15 See Securities Exchange Act Release No. 68888
(February 8, 2013), 78 FR 10668, 10669 (February
14, 2013) (order approving the listing and trading
of SPXPM on CBOE). See also Securities Exchange
Act Release Nos. 64599 (June 3, 2011), 76 FR 33798,
33801–02 (June 9, 2011) (order instituting
proceedings to determine whether to approve or
disapprove a proposed rule change to allow the
listing and trading of SPXPM options); and 65256
(September 2, 2011), 76 FR 55969, 55970–76
(September 9, 2011) (order approving proposed rule
change to establish a pilot program to list and trade
SPXPM options).
E:\FR\FM\11FEN1.SGM
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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Notices
Program should be modified,
discontinued, extended, or permanently
approved. Furthermore, the Exchange’s
ongoing analysis of the P.M. Pilot
Program should help it monitor any
potential risks from large P.M.-settled
positions and take appropriate action on
a timely basis if warranted.
The Exchange represents that it has
adequate surveillance procedures to
monitor trading in these options thereby
helping to ensure the maintenance of a
fair and orderly market 16 and has
represented that it has sufficient
capacity to handle additional traffic
associated with this new listing.17
For the reasons discussed above, the
Commission finds that Cboe’s proposal
is consistent with the Act, including
Section 6(b)(5) thereof, in that it is
designed to remove impediments to and
perfect the mechanism of a free and
open market, and, in general, to protect
investors and the public interest. In
light of the enhanced closing procedures
at the underlying markets and the
potential benefits to investors discussed
by the Exchange in the Notice,18 the
Commission finds that it is appropriate
and consistent with the Act to approve
Cboe’s proposal on a pilot basis. The
collection of data during the P.M. Pilot
Program and Cboe’s active monitoring of
any effects of P.M.-settled MRUT
options on the markets will help Cboe
and the Commission assess any impact
of P.M. settlement in today’s market.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,19 that the
proposed rule change (SR–CBOE–2020–
116), as modified by Amendment No. 1,
be, and hereby is, approved, subject to
a pilot period set to expire on May 3,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02780 Filed 2–10–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91070; File No. SR–FINRA–
2020–037]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change To Amend the
By-Laws of FINRA Regulation, Inc. To
Align the Grounds for Member
Removal From the NAC With an
Existing Provision in the FINRA ByLaws
February 5, 2021.
I. Introduction
On October 22, 2020, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend a provision in the ByLaws of FINRA Regulation, Inc.
(‘‘FINRA Regulation’’), FINRA’s
regulatory subsidiary. The proposed
rule change would further align the
grounds in the FINRA Regulation ByLaws for removal of a member from the
National Adjudicatory Council (‘‘NAC’’)
with an existing provision in the FINRA
By-Laws for removal of a governor from
the FINRA Board of Governors (‘‘FINRA
Board’’).3
The proposed rule change was
published for comment in the Federal
Register on November 9, 2020.4 The
Commission received no comments on
the proposed rule change. This order
approves the proposed rule change.
II. Description of the Proposal
As described in the Notice, FINRA
Regulation is the regulatory subsidiary
of FINRA and operates according to the
Plan of Allocation and Delegation of
Functions by FINRA to Subsidiaries (the
‘‘Plan’’).5 The FINRA Regulation ByLaws authorize the NAC to function on
behalf of the FINRA Board in several
capacities.6 For example, FINRA
explains that the NAC presides over
disciplinary matters that have been
appealed to or called for review by the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See infra Section II.
4 See Exchange Act Release No. 90324 (November
3, 2020), 85 FR 71387 (November 9, 2020) (File No.
SR–FINRA–2020–037) (the ‘‘Notice’’).
5 See id. at 71388, n.4 (citing the Plan, Sec. II.,
FINRA Regulation, Inc., https://www.finra.org/
rules-guidance/rulebooks/corporate-organization/iifinra-regulation-inc).
6 See id. (citing Article V, Sec. 5.1 of the FINRA
Regulation By-Laws).
khammond on DSKJM1Z7X2PROD with NOTICES
2 17
16 See
Amendment No. 1, supra note 4.
Notice, supra note 3 at 85754.
18 See Notice, supra note 3 at 85755.
19 15 U.S.C. 78s(b)(2).
20 17 CFR 200.30–3(a)(12).
17 See
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16:39 Feb 10, 2021
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NAC and also acts on applications in
statutory disqualification and
membership proceedings.7 In most
matters that the NAC considers, FINRA
states that the NAC prepares proposed
written decisions that become final
FINRA action if the FINRA Board does
not call for review of those decisions.8
FINRA also states that it periodically
reviews its and FINRA Regulation’s ByLaws to ensure adherence to effective
governance practices.9 Based on that
review, FINRA explains that currently,
Article V, Section 5.8 of the FINRA
Regulation By-Laws provides that,
‘‘[a]ny or all of the members of the
[NAC] may be removed from office at
any time for refusal, failure, neglect, or
inability to discharge the duties of such
office by majority vote of the FINRA
Board.’’ 10 By comparison, however, the
FINRA By-Laws provide that a governor
may be removed for those grounds as
well as ‘‘for any cause affecting the best
interests of [FINRA] the sufficiency of
which the Board shall be the sole
judge.’’ 11 As a result, FINRA proposes
to amend the FINRA Regulation ByLaws to add this ground for removal of
a NAC member to further align the bases
for removal of a NAC member with the
bases for removal of a FINRA Board
governor.12 Specifically, the proposed
rule change would amend the FINRA
Regulation By-Laws to permit a NAC
member to be removed by a majority
vote of the FINRA Board ‘‘for any cause
affecting the best interests of the [NAC]
the sufficiency of which the FINRA
Board shall be the sole judge.’’ 13
FINRA further explains that the
removal of a NAC member would
continue to require a majority vote of
the FINRA Board, while a vote to
remove a FINRA Board governor
requires a two-thirds vote.14 In
7 See id. FINRA states that the NAC also exercises
exemption authority and acts in other proceedings
as set forth in the FINRA Rule 9000 Series (Code
of Procedure). The FINRA Board may also delegate
other powers and duties to the NAC as the FINRA
Board deems appropriate and in a manner not
inconsistent with the Plan. See id.
8 See id.
9 See id.
10 See id. As FINRA explains, the FINRA
Regulation By-Laws were amended in 2008 to,
among other things, designate the FINRA Board as
the body authorized to oversee the NAC and
empowered to remove NAC members for the
grounds mentioned above. See id. (citing Exchange
Act Release No. 58909 (November 6, 2008), 73 FR
68467 (November 18, 2008) (Order Approving File
No. SR–FINRA–2008–046) (the ‘‘FINRA Regulation
By-Laws Approval Order’’).
11 See id. Compare Article VII, Section 1(b) of the
FINRA By-Laws, with Article V, Sec. 5.8 of the
FINRA Regulation By-Laws.
12 See Notice, 85 FR at 71388.
13 See id.
14 See id. As FINRA notes, both FINRA and
FINRA Regulation are corporations organized under
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]]>Agencies
[Federal Register Volume 86, Number 27 (Thursday, February 11, 2021)]
[Notices]
[Pages 9108-9110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02780]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91067; File No. SR-CBOE-2020-116]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To
Add Options on the Mini-Russell 2000 Index to Its P.M. Pilot Program
February 5, 2021.
I. Introduction
On December 18, 2020, Cboe Exchange, Inc. (``Cboe'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to add Mini-Russell 2000 Index (``Mini-RUT'' or
``MRUT'') options to the Exchange's pilot program for P.M. settled
options with third-Friday-of-the-month expiration dates (``Expiration
Friday''). The proposed rule change was published for comment in the
Federal Register on December 29, 2020.\3\ On January 28, 2021, the
Exchange filed Amendment No. 1 to the proposed rule change.\4\ The
Commission received no comment letters on the proposed rule change. The
Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 90749 (December 21,
2020), 85 FR 85752 (``Notice'').
\4\ In Amendment No. 1, the Exchange (i) represented that its
existing surveillance and reporting safeguards in place are adequate
to deter and detect possible manipulative behavior which might arise
from listing and trading P.M.-settled MRUT options and (ii) stated
that the trading of P.M.-settled MRUT options will be subject to
Exchange Rules governing customer accounts, position and exercise
limits, margin requirements and trading halt procedures. Because
Amendment No. 1 to the proposed rule change does not materially
alter the substance of the proposed rule change and makes conforming
and technical changes, Amendment No. 1 is not subject to notice and
comment. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-cboe-2020-116/srcboe2020116-8302266-228358.pdf.
---------------------------------------------------------------------------
II. Description of the Proposal, as Modified by Amendment No. 1
The Exchange is proposing to amend its rules to permit it to list
and trade, on a pilot basis, cash-settled MRUT options with Expiration
Friday expiration dates, for which the exercise settlement value will
be based on the index value derived from the closing prices of the
component securities (``P.M.-settled''). MRUT options are options on
the Mini-RUT Index, the value of which is 1/10th the value of the
Russell 2000 (``RUT'') Index.
The Exchange proposes to add P.M.-settled MRUT options to the
Exchange's pilot program under Interpretation and Policy .13 to Rule
4.13 that allows the listing of P.M. settled options that expire on
Expiration Friday (``P.M. Pilot Program''). The Exchange notes that the
existing P.M. Pilot Program, which is set to end on May 3, 2021,
includes options on the Mini-SPX Index (``XSP''), the value of which is
1/10th the value of the S&P 500 Index.\5\ Cboe has proposed to add
P.M.-settled MRUT options to that pilot so that the end of the pilot
period for P.M.-settled MRUT options would also be May 3, 2021.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 90263 (October 23,
2020), 85 FR 68611 (October 29, 2020) (CBOE-2020-100). See also
Securities Exchange Act Release No. 70087 (July 31, 2013), 78 FR
47809 (August 6, 2013) (SR-CBOE-2013-055) (``P.M.-settled XSP
Approval Order'').
---------------------------------------------------------------------------
The Exchange notes that trading in P.M.-settled MRUT options would
operate in the same manner as provided in the proposal to list and
trade Mini-RUT options on the Exchange. That is, P.M.-settled MRUT
options would have the same European-style exercise, same number of
permissible expirations, same exercise interval prices and limitations,
same position and exercise limits, and will trade in the same minimum
price increment.\6\
---------------------------------------------------------------------------
\6\ See Notice, supra note 3, fn. 3 at 85753. The Exchange
represents that its existing surveillance and reporting safeguards
in place are adequate to deter and detect possible manipulative
behavior which might arise from listing and trading P.M.-settled
MRUT options. See Amendment No. 1, supra note 4.
---------------------------------------------------------------------------
The Exchange proposes to abide by the same reporting requirements
for the trading of P.M.-settled MRUT options that it does for the
trading of P.M.-settled XSP options.\7\ The Exchange proposes to
include data regarding P.M.-settled MRUT options as it does for P.M.-
settled XSP options in the pilot program report that it submits to the
Commission at least two months prior to the expiration date of the P.M.
Pilot Program (the ``annual report'').\8\ Specifically, the Exchange
submits annual reports to the Commission that contain an analysis of
volume, open interest, and trading patterns in connection with products
in the P.M. Pilot Program. The analysis examines trading in products in
the P.M. Pilot Program, as well as trading in the securities that
comprise the underlying index. Additionally, for series that exceed
certain minimum open interest parameters, the annual reports provide
analysis of index price volatility and share trading activity.
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\7\ See P.M.-settled XSP Approval Order supra note 4.
\8\ See P.M.-settled XSP Approval Order, supra note 4.
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Going forward, the Exchange would include the same analysis of
P.M.-settled MRUT options, as well as trading in securities that
comprise the RUT Index (as MRUT options are based on 1/10th the value
of the RUT Index), in the annual reports. Also, like it currently does
for P.M.-settled XSP options, the Exchange would submit periodic
interim reports for P.M.-settled MRUT options that contain some, but
not all, of the information contained in the annual reports.
The pilot reports will both contain the following volume and open
interest data:
[[Page 9109]]
(1) Monthly volume aggregated for all trades;
(2) monthly volume aggregated by expiration date;
(3) monthly volume for each individual series;
(4) month-end open interest aggregated for all series;
(5) month-end open interest for all series aggregated by expiration
date; and
(6) month-end open interest for each individual series.
The annual reports will also contain the information noted in Items
(1) through (6) above for Expiration Friday, A.M.-settled, RUT index
options traded on Cboe, as well as the following analysis of trading
patterns in P.M.-settled MRUT options series in the Pilot Program:
(1) A time series analysis of open interest; and
(2) an analysis of the distribution of trade sizes.
Finally, for series that exceed certain minimum parameters, the
annual reports will contain the following analysis related to index
price changes and underlying share trading volume at the close on
Expiration Fridays:
(1) A comparison of index price changes at the close of trading on
a given Expiration Friday with comparable price changes from a control
sample. The data includes a calculation of percentage price changes for
various time intervals and compare that information to the respective
control sample. Raw percentage price change data as well as percentage
price change data normalized for prevailing market volatility, as
measured by the Cboe Volatility Index (VIX), is provided; and
(2) a calculation of share volume for a sample set of the component
securities representing an upper limit on share trading that could be
attributable to expiring in-the-money series. The data includes a
comparison of the calculated share volume for securities in the sample
set to the average daily trading volumes of those securities over a
sample period.
The minimum open interest parameters, control sample, time
intervals, method for randomly selecting the component securities, and
sample periods are determined by the Exchange and the Commission.
Additionally, the Exchange would provide the Commission with any
additional data or analyses the Commission requests because it deems
such data or analyses necessary to determine whether the P.M. Pilot
Program, including P.M.-settled MRUT options as proposed, is consistent
with the Exchange Act. As it does for current P.M. Pilot products, the
Exchange would make public any data and analyses in connection with
P.M.-settled MRUT options it submits to the Commission under the Pilot
Program.\9\
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\9\ P.M. Pilot products data and analyses are made available at
https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
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Further, the Exchange proposes to amend Rule 5.1, which governs
trading days and hours, in conjunction with the proposed addition of
MRUT options to the P.M. Pilot Program. Cboe Rule 5.1(b)(2)(C)
currently provides that on their last trading day, Regular Trading
Hours for P.M.-settled XSP options are between 9:30 a.m. and 4:00 p.m.
Eastern Time (as opposed to the 9:30 a.m. to 4:15 p.m. Regular Trading
Hours for options with those expirations that are non-expiring). The
proposed rule change amends Rule 5.1(b)(2)(C) to apply these time
frames to the trading of P.M.-settled MRUT options on their last
trading day.
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it and the
Options Price Reporting Authority have the necessary systems capacity
to handle any potential additional traffic associated with trading of
P.M.-settled MRUT options.\10\ The Exchange believes that its Trading
Permit Holders will not experience a capacity issue as a result of this
proposal. Cboe represents that it will monitor the trading volume
associated with any possible additional options series listed as a
result of this proposal and the effect (if any) of these additional
series on market fragmentation and on the capacity of the Exchange's
automated systems.\11\
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\10\ See Notice supra, note 3 at 85754.
\11\ See Notice supra, note 3 at 85754.
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III. Discussion and Commission Findings
After careful consideration of the proposal, the Commission finds
that the proposed rule is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange,\12\ and, in particular, the requirements of
Section 6 of the Act.\13\ Specifically, the Commission finds that the
proposed rule change to allow the Exchange to add P.M.-settled MRUT
options to the P.M. Pilot Program is consistent with Section 6(b)(5) of
the Act,\14\ which requires that an exchange have rules designed to
remove impediments to and perfect the mechanism of a free and open
market and to protect investors and the public interest.
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\12\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78(f)(b)(5).
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As the Commission noted in its orders approving the listing and
trading of P.M.-settled options on the S&P 500 Index (``SPXPM''), the
Commission has had concerns about the potential adverse effects and
impact of P.M. settlement upon market volatility and the operation of
fair and orderly markets on the underlying cash markets at or near the
close of trading, including for cash-settled derivatives contracts
based on a broad-based index.\15\ The potential impact today remains
unclear, given the significant changes in the closing procedures of the
primary markets in recent decades. The Commission is mindful of the
historical experience with the impact of P.M. settlement of cash-
settled index derivatives on the underlying cash markets, but
recognizes that these risks may be mitigated today by the enhanced
closing procedures that are now in use at the primary equity markets.
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\15\ See Securities Exchange Act Release No. 68888 (February 8,
2013), 78 FR 10668, 10669 (February 14, 2013) (order approving the
listing and trading of SPXPM on CBOE). See also Securities Exchange
Act Release Nos. 64599 (June 3, 2011), 76 FR 33798, 33801-02 (June
9, 2011) (order instituting proceedings to determine whether to
approve or disapprove a proposed rule change to allow the listing
and trading of SPXPM options); and 65256 (September 2, 2011), 76 FR
55969, 55970-76 (September 9, 2011) (order approving proposed rule
change to establish a pilot program to list and trade SPXPM
options).
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For the reasons described below, the Commission believes that the
Exchange's proposal to add P.M.-settled MRUT options to the P.M. Pilot
Program is designed to mitigate concerns regarding P.M. settlement and
will provide additional trading opportunities for investors while
providing the Commission with data to monitor the effects of MRUT
options and the impact of P.M. settlement on the markets. To assist the
Commission in assessing any potential impact of a P.M.-settled Mini-RUT
index option on the options market as well as the underlying cash
equities markets, Cboe will be required to submit data to the
Commission in connection with the P.M. Pilot Program. The Commission
believes that Cboe's P.M. Pilot Program, together with the data and
analysis that the Exchange will provide to the Commission, will allow
Cboe and the Commission to monitor for and assess any potential for
adverse market effects of allowing P.M. settlement for Mini-RUT index
options, including on the underlying component stocks. In particular,
the data collected from Cboe's P.M. Pilot Program will help inform the
Commission's consideration of whether the P.M. Pilot
[[Page 9110]]
Program should be modified, discontinued, extended, or permanently
approved. Furthermore, the Exchange's ongoing analysis of the P.M.
Pilot Program should help it monitor any potential risks from large
P.M.-settled positions and take appropriate action on a timely basis if
warranted.
The Exchange represents that it has adequate surveillance
procedures to monitor trading in these options thereby helping to
ensure the maintenance of a fair and orderly market \16\ and has
represented that it has sufficient capacity to handle additional
traffic associated with this new listing.\17\
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\16\ See Amendment No. 1, supra note 4.
\17\ See Notice, supra note 3 at 85754.
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For the reasons discussed above, the Commission finds that Cboe's
proposal is consistent with the Act, including Section 6(b)(5) thereof,
in that it is designed to remove impediments to and perfect the
mechanism of a free and open market, and, in general, to protect
investors and the public interest. In light of the enhanced closing
procedures at the underlying markets and the potential benefits to
investors discussed by the Exchange in the Notice,\18\ the Commission
finds that it is appropriate and consistent with the Act to approve
Cboe's proposal on a pilot basis. The collection of data during the
P.M. Pilot Program and Cboe's active monitoring of any effects of P.M.-
settled MRUT options on the markets will help Cboe and the Commission
assess any impact of P.M. settlement in today's market.
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\18\ See Notice, supra note 3 at 85755.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-CBOE-2020-116), as modified
by Amendment No. 1, be, and hereby is, approved, subject to a pilot
period set to expire on May 3, 2021.
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\19\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02780 Filed 2-10-21; 8:45 am]
BILLING CODE 8011-01-P
