Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 19.6 (Series of Options Contracts Open for Trading) in Connection With Limiting the Number of Strikes Listed for Short Term Option Series Which are Available for Quoting and Trading on the Exchange, 18333-18339 [2021-07200]
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Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices
not proposing a similar 9:25 a.m. cutoff
time for the entry of MOO, LOO, and
OIO orders, market participants may
consider the information in the EOII and
NOII, as applicable, in entering these
orders.45
In addition, as described above, the
Exchange proposes to permit the entry
of LOO orders between 9:28 a.m. and
9:29:30 a.m. if there is either a first
opening reference price or a second
opening reference price, with such
orders priced no more aggressively than
the first opening reference price and the
second opening reference price. The
Commission believes that these
proposed changes would allow
participants to retain control over the
entry of LOO orders until a later time,
and would allow participants to
consider the information contained in
the EOII and the NOII, as well as the
previous day’s closing price, in deciding
whether to enter late LOO orders. The
Commission also believes that the
proposed re-pricing of late LOO orders
such that they are priced no more
aggressively than the first opening
reference price and the second opening
reference price could promote price
stability in the opening cross process.
Accordingly, the Commission believes
that the proposed changes relating to
late LOO orders could encourage
additional participation and reduce
imbalances in the Nasdaq opening cross,
while promoting price stability in the
opening process.46
Finally, the Commission believes that
the Exchange’s proposed technical and
conforming changes to Rules 4702 and
4752 would allow those rules to
consistently reflect the proposed 9:29:30
a.m. cutoff time for entering late LOO
orders and the proposed 9:25 a.m. cutoff
time for cancellations and modifications
of MOO, LOO, and OIO orders, and
would add clarity with respect to how
the Exchange conducts its opening
process and handles orders in
connection with that process.
IV. Conclusion
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It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,47 that the
proposed rule change (SR–NASDAQ–
2021–004), as modified by Amendment
No. 2, be, and hereby is, approved.
45 The Exchange also has a cutoff time for
cancellations or modifications of on-close interest
that aligns with the time that the Exchange begins
disseminating the early order imbalance indicator
for the Nasdaq closing cross. See Rules 4702(b)(11)–
(13) and 4754(b)(1).
46 The Exchange also has a similar late LOC order
type for the Nasdaq closing cross. See Rule
4702(b)(12).
47 15 U.S.C. 78s(b)(2).
48 17 CFR 200.30–3(a)(12).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.48
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–07197 Filed 4–7–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91469; File No. SR–
CboeEDGX–2021–016]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Rule
19.6 (Series of Options Contracts Open
for Trading) in Connection With
Limiting the Number of Strikes Listed
for Short Term Option Series Which
are Available for Quoting and Trading
on the Exchange
April 2, 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 March 26,
2021, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX Options’’)
proposes to amend Rule 19.6 (Series of
Options Contracts Open for Trading) in
connection with limiting the number of
strikes listed for Short Term Option
Series which are available for quoting
and trading on the Exchange. The text
of the proposed rule change is provided
in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1
2
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18333
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 Exchange proposes to amend
Rule 19.6 (Series of Options Contracts
Open for Trading). Specifically, this
proposal seeks to widen the intervals
between strikes in order to limit the
number of strikes listed for multiply
listed equity options classes (excluding
options on Exchange-Traded Funds
(‘‘ETFs’’) and Exchange-Traded Notes
(‘‘ETNs’’)) within the Short Term Option
Series program that have an expiration
date more than 21 days from the listing
date.
Background
Current Rule 19.6 permits the
Exchange, after a particular class of
options has been approved for listing
and trading on the Exchange, to open for
trading series of options therein. The
Exchange may list series of options for
trading on a weekly,5 monthly 6 or
5 The weekly listing program is known as the
Short Term Option Series Program and is described
within Rule 19.6.05.
6 The Exchange will open at least one expiration
month for each class of options open for trading on
the Exchange. See Rule 19.6(e). The monthly
expirations are subject to certain listing criteria for
underlying securities described within Rule 19.3.
Monthly listings expire the third Friday of the
month. The term ‘‘expiration date’’ when used in
respect of a series of binary options other than event
options means the last day on which the options
may be automatically exercised. In the case of a
series of event options (other than credit default
options or credit default basket options) that are be
automatically exercised prior to their expiration
date upon receipt by the Corporation of an event
confirmation, the expiration date is the date
specified by the listing Exchange; provided,
however, that when an event confirmation is
deemed to have been received by the Corporation
with respect to such series of options, the
expiration date will be accelerated to the date on
which such event confirmation is deemed to have
Continued
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quarterly 7 basis. Rule 19.6.01 sets forth
the intervals between strike prices of
series of options on individual stocks
generally,8 and Rule 19.6.05(e)
specifically sets forth intervals between
strike prices on Short Term Option
Series. Additionally, the Exchange may
list series of options pursuant to the $1
Strike Price Interval Program,9 the $0.50
Strike Program,10 the $2.50 Strike Price
Program,11 and the $5 Strike Program.12
The Exchange’s proposal seeks to
amend the listing of weekly series of
options (i.e. Short Term Option Series)
by adopting new Rule 19.6.05(f),13
which widens the permissible intervals
between strikes, thereby limiting the
number of strikes listed, for multiply
listed equity options (excluding options
been received by the Corporation or such later date
as the Corporation may specify. In the case of a
series of credit default options or credit default
basket options, the expiration date is the fourth
business day after the last trading day for such
series as such trading day is specified by the
Exchange on which the series of options is listed;
provided, however, that when an event
confirmation is deemed to have been received by
the Corporation with respect to a series of credit
default options or single payout credit default
basket options prior to the last trading day for such
series, the expiration date for options of that series
will be accelerated to the second business day
following the day on which such event
confirmation is deemed to have been received by
the Corporation. ‘‘Expiration date’’ means, in
respect of a series of range options expiring prior
to February 1, 2015, the Saturday immediately
following the third Friday of the expiration month
of such series, and, in respect of a series of range
options expiring on or after February 1, 2015 means
the third Friday of the expiration month of such
series, or if such Friday is a day on which the
Exchange on which such series is listed is not open
for business, the preceding day on which such
Exchange is open for business. See The Options
Clearing Corporation (‘‘OCC’’) By-Laws at Section 1.
7 The quarterly listing program is known as the
Quarterly Options Series Program and is described
within Rule 19.6.04.
8 The interval between strike prices of series of
options on individual stocks may be $2.50 or
greater where the strike price is $25 or less,
provided however, that EDGX Options may not list
$2.50 intervals below $50 (e.g. $12.50, $17.50) for
any class included within the $1 Strike Price
Program, as detailed below in Interpretations and
Policy .02, if the addition of $2.50 intervals would
cause the class to have strike price intervals that are
$0.50 apart. For series of options on 283 ExchangeTraded Fund Shares that satisfy the criteria set forth
in Rule 19.3(i), the interval of strike prices may be
$1 or greater where the strike price is $200 or less
or $5 or greater where the strike price is over $200.
Exceptions to the strike price intervals above are set
forth in Interpretations and Policies .02 and .03. See
Rule 19.6.01.
9 The $1 Strike Interval Program is described
within Rule 19.6.02.
10 The $0.50 Strike Program is described within
Rule 19.6.06.
11 The $2.50 Strike Price Program is described
within Rule 19.6.03.
12 The $5 Strike Program is described within Rule
19.6(d)(5).
13 As a result, the proposed rule change
subsequently updates current Rule 19.6.05(f) and (g)
to (g) and (h), respectively.
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on ETFs 14 and ETNs 15) that have an
14 The term ‘‘ETF’’ (Exchange-Traded Fund) (or
‘‘Fund Shares’’) has the same meaning as the term
‘‘exchange-traded fund’’ as defined in Rule 6c–11
under the Investment Company Act of 1940. See
Rule 14.2(c)(2); see also Rule 19.3(i). Securities
deemed appropriate for options trading shall
include shares or other securities (‘‘Fund Shares’’),
including but not limited to Partnership Units as
defined in this Rule, that are principally traded on
a national securities exchange and are defined as an
‘‘NMS stock’’ under Rule 600 of Regulation NMS,
and that (1) represent interests in registered
investment companies (or series thereof) organized
as open-end management investment companies,
unit investment trusts or similar entities, and that
hold portfolios of securities comprising or
otherwise based on or representing investments in
indexes or portfolios of securities (or that hold
securities in one or more other registered
investment companies that themselves hold such
portfolios of securities) (‘‘Funds ’’) and/or financial
instruments including, but not limited to, stock
index futures contracts, options on futures, options
on securities and indexes, equity caps, collars and
floors, swap agreements, forward contracts,
repurchase agreements and reverse repurchase
agreements (the ‘‘Financial Instruments’’), and
money market instruments, including, but not
limited to, U.S. government securities and
repurchase agreements (the ‘‘Money Market
Instruments’’) constituting or otherwise based on or
representing an investment in an index or portfolio
of securities and/or Financial Instruments and
Money Market Instruments, or (2) represent
commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing
portfolios or baskets of securities, commodity
futures contracts, options on commodity futures
contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency
(‘‘Commodity Pool ETFs’’) or (3) represent interests
in a trust or similar entity that holds a specified
non- U.S. currency or currencies deposited with the
trust or similar entity when aggregated in some
specified minimum number may be surrendered to
the trust by the beneficial owner to receive the
specified non-U.S. currency or currencies and pays
the beneficial owner interest and other distributions
on the deposited non-U.S. currency or currencies,
if any, declared and paid by the trust (‘‘Currency
Trust Shares’’), or (4) represent interests in the
SPDR Gold Trust or are issued by the iShares
COMEX Gold Trust or iShares Silver Trust).
15 Securities deemed appropriate for options
trading shall include shares or other securities
(‘‘Equity Index-Linked Securities,’’ ‘‘CommodityLinked Securities,’’ ‘‘Currency-Linked Securities,’’
‘‘Fixed Income Index-Linked Securities,’’ ‘‘FuturesLinked Securities,’’ and ‘‘Multifactor Index-Linked
Securities,’’ collectively known as ‘‘Index- Linked
Securities’’) (or ‘‘ETNs’’) that are principally traded
on a national securities exchange and an ‘‘NMS
Stock’’ (as defined in Rule 600 of Regulation NMS
under the Securities Exchange Act of 1934), and
represent ownership of a security that provides for
the payment at maturity. Equity Index-Linked
Securities are securities that provide for the
payment at maturity of a cash amount based on the
performance of an underlying index or indexes of
equity securities (‘‘Equity Reference Asset’’);
Commodity-Linked Securities are securities that
provide for the payment at maturity of a cash
amount based on the performance of one or more
physical commodities or commodity futures,
options on commodities, or other commodity
derivatives or Commodity-Based Trust Shares or a
basket or index of any of the foregoing
(‘‘Commodity Reference Asset’’); Currency-Linked
Securities are securities that provide for the
payment at maturity of a cash amount based on the
performance of one or more currencies, or options
on currencies or currency futures or other currency
derivatives or Currency Trust Shares (as defined in
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expiration date more than 21 days from
the listing date. This proposal does not
amend the monthly or quarterly listing
rules, nor does it amend the $1 Strike
Price Interval Program, the $0.50 Strike
Program, the $2.50 Strike Price Program,
or the $5 Strike Program.
Short Term Option Series Program
After an option class has been
approved for listing and trading on the
Exchange,16 Rule 19.6.05 permits the
this Rule), or a basket or index of any of the
foregoing (‘‘Currency Reference Asset’’); Fixed
Income Index-Linked Securities are securities that
provide for the payment at maturity of a cash
amount based on the performance of one or more
notes, bonds, debentures or evidence of
indebtedness that include, but are not limited to,
U.S. Department of Treasury securities (‘‘Treasury
Securities’’), government-sponsored entity
securities (‘‘GSE Securities’’), municipal securities,
trust preferred securities, supranational debt and
debt of a foreign country or a subdivision thereof
or a basket or index of any of the foregoing (‘‘Fixed
Income Reference Asset’’); Futures-Linked
Securities are securities that provide for the
payment at maturity of a cash amount based on the
performance of an index of (i) futures on Treasury
Securities, GSE Securities, supranational debt and
debt of a foreign country or a subdivision thereof,
or options or other derivatives on any of the
foregoing; or (ii) interest rate futures or options or
derivatives on the foregoing in this subparagraph
(ii) (‘‘Futures Reference Asset’’); and Multifactor
Index-Linked Securities are securities that provide
for the payment at maturity of a cash amount based
on the performance of any combination of two or
more Equity Reference Assets, Commodity
Reference Assets, Currency Reference Assets, Fixed
Income Reference Assets, or Futures Reference
Assets (‘‘Multifactor Reference Asset’’). See 19.3(l).
16 The Exchange may have no more than a total
of five Short Term Option Expiration Dates, not
including any Monday or Wednesday SPY
Expirations as provided in paragraph (g). If EDGX
Options is not open for business on the respective
Thursday or Friday, the Short Term Option
Opening Date will be the first business day
immediately prior to that respective Thursday or
Friday. Similarly, if EDGX Options is not open for
business on the Friday that the options are set to
expire, the Short Term Option Expiration Date will
be the first business day immediately prior to that
Friday. See Rule 19.6.05. The Exchange may open
for trading on any Friday or Monday that is a
business day series of options on the SPDR S&P 500
ETF Trust (‘‘SPY’’) to expire on any Monday of the
month that is a business day and is not a Monday
on which Quarterly Options Series expire
(‘‘Monday SPY Expirations’’), provided that any
Friday on which the Exchange opens for trading a
Monday SPY Expiration is one business week and
one business day prior to expiration. The Exchange
may also open for trading on any Tuesday or
Wednesday that is a business day series of SPY
options to expire on any Wednesday of the month
that is a business day and is not a Wednesday on
which Quarterly Options Series expire
(‘‘Wednesday SPY Expirations’’). The Exchange
may list up to five consecutive Monday SPY
Expirations and up to five consecutive Wednesday
SPY Expirations at one time; the Exchange may
have no more than a total of five Monday SPY
Expirations and no more than a total of five
Wednesday SPY Expirations. Monday and
Wednesday SPY Expirations will be subject to the
provisions of this Rule. See Rule 19.6.05(g). With
the exception of Monday and Wednesday SPY
Expirations, no Short Term Option Series may
expire in the same week in which monthly option
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Exchange to open for trading on any
Thursday or Friday that is a business
day (‘‘Short Term Option Opening
Date’’) series of options on that class
that expire at the close of business on
each of the next five Fridays that are
business days and are not Fridays on
which monthly options series or
Quarterly Options Series expire (‘‘Short
Term Option Expiration Dates’’). The
Exchange may select up to fifty
currently listed option classes on which
Short Term Option Series may be
opened on any Short Term Option
Opening Date. In addition to the fifty
option class restriction, the Exchange
may also list Short Term Option Series
on any option classes that are selected
by other securities exchanges that
employ a similar program under their
respective rules. For each option class
eligible for participation in the Short
Term Option Series Program, the
Exchange may open up to 30 Short
Term Option Series for each expiration
date in that class. The Exchange may
also open Short Term Option Series that
are opened by other securities
exchanges in option classes selected by
such exchanges under their respective
short term option rules.17 Pursuant to
Rule 19.6.05(c), the Exchange may open
up to 30 initial series for each option
class that participates in the Short Term
Option Series Program and, pursuant to
Rule19.6.05(d), if the Exchange opens
less than 30 Short Term Option Series
for a Short Term Option Expiration
Date, additional series may be opened
for trading on the Exchange when the
Exchange deems it necessary to
maintain an orderly market, to meet
customer demand, or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. Rule
19.6(e) provides that, if the class does
not trade in $1 strike price intervals, the
strike price interval for Short Term
Option Series may be: (i) $0.50 or
greater where the strike price is less
than $75; (ii) $1.00 or greater where the
strike price is between $75 and $150; or
(iii) $2.50 or greater for strike prices
greater than $150.18
The Exchange notes that listings in
the weekly program comprise a
significant part of the standard listing in
options markets and that the industry
has observed a notable increase over
approximately the last five years in
compound annual growth rate
(‘‘CAGR’’) of weekly strikes as compared
to CAGR for standard third-Friday
expirations.19
Proposal
The Exchange proposes to widen the
intervals between strikes in order to
limit the number of strikes listed for
equity options (excluding options on
ETFs and ETNs) listed as part of the
Short Term Option Series Program that
have an expiration date more than 21
days from the listing date, by adopting
proposed Rule 19.6.05(f). The Exchange
notes that this proposal is substantively
identical to the strike interval proposal
recently submitted by Nasdaq BX, Inc.
(‘‘BX’’) and approved by the Securities
and Exchange Commission
(‘‘Commission’’).20
The proposal widens intervals
between strikes for expiration dates of
equity option series (excluding options
on ETFs and ETNs) beyond 21 days
utilizing the three-tiered table in
proposed Rule 19.6.05(f) (presented
below) which considers both the Share
Price and Average Daily Volume for the
option series. The table indicates the
applicable strike intervals and
supersedes Rule 19.6.05(d), which
currently permits 10 additional series to
be opened for trading on the Exchange
when the Exchange deems it necessary
to maintain an orderly market, to meet
customer demand or when the market
price of the underlying security moves
substantially from the exercise price or
prices of the series already opened. As
a result of the proposal, 19.6.05(d)
would not permit an additional series of
an equity option to have an expiration
date more than 21 days from the listing
date to be opened for trading on the
Exchange despite the noted
circumstances in paragraph (d) when
such additional series may otherwise be
added.
Share price
Tier
Average daily volume
Less than $25
khammond on DSKJM1Z7X2PROD with NOTICES
1 .............
2 .............
3 .............
Greater than 5,000 ..........................................
Greater than 1,000 to 5,000 21 ........................
0 to 1,000 .........................................................
$25 to less
than $75
$0.50
1.00
2.50
$75 to less
than $150
$1.00
1.00
5.00
$1.00
1.00
5.00
$150 to less
than $500
$5.00
5.00
5.00
$500 or
greater
$5.00
10.00
10.00
Proposed Rule 19.6.05(f)(1) provides
that the Share Price is the closing price
on the primary market on the last day
of the calendar quarter. This value is
used to derive the column from which
to apply strike intervals throughout the
next calendar quarter. Also, proposed
Rule 19.6.05(f)(1) provides that in the
event of a corporate action, the Share
Price of the surviving company is
utilized.22 Proposed Rule19.6.05(f)(2)
provides that the Average Daily Volume
is the total number of option contracts
traded in a given security for the
applicable calendar quarter divided by
the number of trading days in the
applicable calendar quarter. Beginning
on the second trading day in the first
month of each calendar quarter, the
Average Daily Volume is calculated by
utilizing data from the prior calendar
series on the same class expire or, in the case of
Quarterly Options Series, on an expiration that
coincides with an expiration of Quarterly Options
Series on the same class. See Rule 19.6.05(b).
17 See Rule 19.6.05(a).
18 Additionally, Rule 19.6.05(e) provides that the
interval between strike prices on Short Term Option
Series shall be the same as the strike prices for
series in that same option class that expire in
accordance with the normal monthly expiration
cycle. During the expiration week of an option class
that is selected for the Short Term Option Series
Program pursuant to this rule (‘‘Short Term
Option’’), the strike price intervals for the related
non-Short Term Option (‘‘Related non-Short Term
Option’’) shall be the same as the strike price
intervals for the Short Term Option.
19 See Securities Exchange Act Release No. 91125
(February 12, 2021), 86 FR 10375 (February 19,
2021) (SR–BX–2020–032) (‘‘BX Strike Interval
Approval Order’’); and SR–2020–BX–032 as
amended by Amendment No. 1 (February 10, 2021)
available at: https://www.sec.gov/comments/sr-bx2020-032/srbx2020032-8359799-229182.pdf (‘‘BX
proposal’’); see also BX Options Strike Proliferation
Proposal (February 25, 2021) available at: https://
www.nasdaq.com/solutions/bx-options-strikeproliferation-proposal).
20 See BX Strike Interval Approval Order, id.
21 The Exchange notes that while the term
‘‘greater than’’ is not present in this cell in the
corresponding BX rule, the Exchange has inserted
it for clarity, otherwise an Average Daily Volume
of 1,000 contracts could be read to fall into two
categories.
22 The Exchange notes that corporate actions
resulting in change ownership would result in a
surviving company, such as a merger of two
publicly listed companies, and the Share Price of
the surviving company would be used to determine
strike intervals pursuant to the proposed table.
Corporate actions that do not result in a change of
ownership, such as stock-splits or distribution of
special cash dividends, would not result in a
‘‘surviving company,’’ therefore would not impact
which Share Price to apply pursuant to the
proposed Rule.
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quarter based on Customer-cleared
volume at OCC. For options listed on
the first trading day of a given calendar
quarter, the Average Daily Volume is
calculated using the calendar quarter
prior to the last trading calendar
quarter.23 Pursuant to current Rule
19.6.05, if the Exchange is not open for
business on the respective Thursday or
Friday, the Short Term Option Opening
Date will be the first business day
immediately prior to that respective
Thursday or Friday.
By way of example, if the Share Price
for a symbol was $142 at the end of a
calendar quarter, with an Average Daily
Volume greater than 5,000, thereby,
requiring strike intervals to be listed
$1.00 apart, that strike interval would
apply for the calendar quarter,
regardless of whether the Share Price
changed to $150 or greater during that
calendar quarter.24 The proposed table
within Rule 19.6.05(f) takes into account
the notional value of a security, as well
as Average Daily Volume in the
underlying stock, in order to widen the
intervals between strikes and thereby
limit the number of strikes listed for
equity options (excluding options on
ETFs and ETNs) in the Short Term
Option Series listing program. The
Exchange will utilize OCC Customercleared volume, as customer volume is
an appropriate proxy for demand. The
OCC Customer-cleared volume
represents the majority of options
volume executed on the Exchange,
which, in turn, reflects the demand in
the marketplace. The options series
listed on the Exchange are intended to
meet customer demand by offering an
appropriate number of strikes. NonCustomer cleared OCC volume generally
represents the supply side.
The proposal is intended to remove
repetitive and unnecessary strike
listings across the weekly expiries.
Specifically, the proposal seeks to
reduce the number of strikes listed in
the furthest weeklies, which generally
have wider markets and therefore lower
market quality.25 The proposed strike
intervals are intended to widen
permissible strike intervals in multiply
listed equity options (excluding options
23 For example, options listed as of April 1, 2021
would be calculated on April 2, 2021 using the
Average Daily Volume from October 1, 2020 to
December 31, 2020.
24 The Exchange notes that any strike intervals
imposed by the Exchange’s Rules will continue to
apply. In this example, the strikes would be in $1
intervals up to (but not including) $150, which is
the upper limit imposed by Rule 19.6.05(e).
25 See BX proposal, supra note 19, which presents
tables that focus on data for 10 of the most and least
actively traded symbols and demonstrate average
spreads in weekly options during the month of
August 2020.
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on ETFs and ETNs) where there is less
volume as measured by the Average
Daily Volume tiers. Therefore, the lower
the Average Daily Volume, the greater
the proposed spread between strike
intervals. Options classes with higher
volume contain the most liquid symbols
and strikes, which the Exchange
believes makes the finer proposed
spread between strike intervals for those
symbols appropriate. Additionally,
lower-priced shares have finer strike
intervals than higher-priced shares
when comparing the proposed spread
between strike intervals. Today,
weeklies are available on 16% of
underlying products. The proposal
limits the density of strikes listed in
series of options, without reducing the
classes of options available for trading
on the Exchange. Short Term Option
Series with an expiration date greater
than 21 days from the listing date
currently equate to 7.5% of the total
number of strikes in the options market,
which equals 81,000 strikes.26 The
Exchange expects this proposal to result
in the limitation of approximately
20,000 strikes within the Short Term
Option Series, which is approximately
2% of the total strikes in the options
markets.27 The Exchange understands
there has been an inconsistency of
demand for series of options beyond 21
calendar days.28 The proposal takes into
account customer demand for certain
options classes, by considering both the
Share Price and the Average Daily
Volume, in order to remove certain
strike intervals where there exist
clusters of strikes whose characteristics
closely resemble one another and,
therefore, do not serve different trading
needs,29 rendering these strikes less
useful. The Exchange also notes that the
proposal focuses on strikes in multiply
listed equity options, and excludes ETFs
26 The Exchange notes that this proposal is an
initial attempt at reducing strikes and anticipates
filing additional proposals to continue reducing
strikes. The percentage of underlying products and
percentage of and total number of strikes, are
approximations and may vary slightly at the time
of this filing. The Exchange intends to decrease the
overall number of strikes listed on the Cboe Cboeaffiliated options exchanges in a methodical
fashion, so that it may monitor progress and
feedback from its Members. The Exchange also
notes that its affiliated options exchanges, Cboe
Exchange, Inc. (‘‘Cboe Options’’), Cboe C2
Exchange, Inc. (‘‘C2’’) [sic], and Cboe BZX
Exchange, Inc. (‘‘BZX Options’’) plan to submit
identical proposals.
27 From information drawn from time period
between January 2020 and May 2020. See BX
proposal, supra note 19.
28 See BX proposal, supra note 19.
29 For example, two strikes that are densely
clustered may have the same risk properties and
may also be the same percentage out-of-the money.
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and ETNs, as the majority of strikes
reside within equity options.
Additionally, proposed Rule
19.6.05(f)(3) provides that options that
are newly eligible for listing pursuant to
Rule 19.3 and designated to participate
in the Short Term Option Series
program pursuant to Rule19.6.05(f) will
not be subject to subparagraph (f) (as
proposed) until after the end of the first
full calendar quarter following the date
the option class was first listed for
trading on any options market.30 As
proposed, the Exchange is permitted to
list options on newly eligible listings,
without having to apply the wider strike
intervals, until the end of the first full
calendar quarter after such options were
listed. The proposal thereby permits the
Exchange to add strikes to meet
customer demand in a newly listed
options class. A newly eligible option
class may fluctuate in price after its
initial listing; such volatility reflects a
natural uncertainty about the security.
By deferring the application of the
proposed wider strike intervals until
after the end of the first full calendar
quarter, additional information on the
underlying security will be available to
market participants and public
investors, as the price of the underlying
has an opportunity to settle based on the
price discovery that has occurred in the
primary market during this deferment
period. Also, the Exchange has the
ability to list as many strikes as are
permissible for the Short Term Option
Series once the expiry is no more than
21 days. Short Term Option Series that
have an expiration date no more than 21
days from the listing date are not subject
to the proposed strike intervals, which
allows the Exchange to list additional,
and potentially narrower, strikes in the
event of market volatility or other
market events. These metrics are
intended to align expectations for
determining which strike intervals will
be utilized. Finally, proposed Rule
19.6.05(f)(4) provides that,
notwithstanding the strike intervals
imposed in proposed subparagraph (f),
the proposal does not amend the range
of strikes that may be listed pursuant to
subparagraph (e).
While the current listing rules permit
the Exchange to list a number of weekly
strikes on its market, in an effort to
encourage Market Makers to deploy
capital more efficiently, as well as
improve displayed market quality, the
30 For example, if an options class became newly
eligible for listing pursuant to Rule 19.3 on March
1, 2021 (and was actually listed for trading that
day), the first full quarterly lookback would be
available on July 1, 2021. This option would
become subject to the proposed strike intervals on
July 2, 2021.
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proposal aims to reduce the density of
strikes listed in later weeks by widening
the intervals between strikes listed for
equity options (excluding options on
ETFs and ETNs) which have an
expiration date more than 21 days from
the listing date. The Exchange requires
Designated Primary Market Makers
(‘‘DPMs’’) and Market Makers to quote
during a certain amount of time in the
trading day and in a certain percentage
of series in their assigned options
classes to maintain liquidity in the
market.31 With an increasing number of
strikes being listed across options
exchanges, Market Makers must expend
their capital to ensure that they have the
appropriate infrastructure to meet their
quoting obligations on all options
markets in which they are assigned in
option classes. The Exchange believes
that by widening the intervals between
strikes listed for equity options
(excluding options on ETFs and ETNs),
thus reducing the number of strikes
listed on the Exchange, the proposal
will likewise reduce the number of
weekly strikes in which DPMs and
Market Makers are required to quote
and, as a result, allow DPMs and Market
Makers to expend their capital in the
options market in a more efficient
manner. Due to this increased
efficiency, the Exchange believes that
the proposal may improve overall
market quality on the Exchange by
widening the intervals between strikes
in multiply listed equity options
(excluding options on ETFs and ETNs)
that have an expiration date more than
21 days from the listing date. The
proposal is intended to balance the goal
of limiting the number of listed strikes
with the needs of market participants.
The Exchange believes that the various
permissible strike intervals will
continue to offer market participants the
ability to select the appropriate strikes
to meet their investment objectives.
Implementation
The Exchange, along with BX and
other options exchanges that intend to
submit the same strike interval
proposal, intends to begin
implementation of the proposed rule
change prior to June 30, 2021. The
Exchange will issue a notice of the
planned implementation date to its
Members in advance. Once
implemented, the Exchange will
provide notice 32 to its Members of the
31 See
Rule 22.6(d).
32 In its notices disseminated to Members
regarding the Short Term Option Series eligible in
a new quarter to be listed pursuant to Rule
19.6.05(f), the Exchange will include for each
eligible option class: The closing price of the
underlying; the Average Daily Volume of the option
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Short Term Option Series eligible in a
new quarter to be listed pursuant to
Rule 19.6.05(f).
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.33 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 34 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) 35 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The proposal seeks to widen the
permissible intervals between strikes
listed for equity options (excluding
options on ETFs and ETNs) in order to
limit the number of strikes listed in the
Short Term Option Series program that
have an expiration date more than 21
days. The proposal removes
impediments to and perfects the
mechanism of a free and open market
and a national market system by
encouraging Market Makers to deploy
capital more efficiently, which may
improve market quality overall on the
Exchange, by widening the intervals
between strikes when applying the
strike interval table to multiply listed
equity options (excluding options on
ETFs and ETPs) that have an expiration
date more than 21 days from the listing
date. As described above, the Exchange
requires DPMs and Market Makers to
quote during a certain amount of time
in the trading day and in a certain
percentage of series in their assigned
options classes to maintain liquidity in
the market.36 With an increasing
class; and the eligible strike category (per the
proposed table) in which the eligible option class
falls under as a result of the closing price and
Average Daily Volume.
33 15 U.S.C. 78f(b).
34 15 U.S.C. 78f(b)(5).
35 Id.
36 See supra note 31.
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18337
number of strikes due, in part, to tighter
intervals being listed across options
exchanges, Market Makers must expend
their capital to ensure that they have the
appropriate infrastructure to meet their
quoting obligations on all options
markets in which they are assigned in
options classes. The Exchange believes
that this proposal will widen the
intervals between strikes listed on the
Exchange, thereby reducing the number
of weekly options listed on its market in
later weeks in which Market Makers are
required to quote and, in turn, allowing
DPMs and Market Makers to expend
their capital in the options market in a
more efficient manner.
The Exchange believes that limiting
the permissible strikes for multiply
listed equity options (excluding options
on ETFs and ETNs) that have an
expiration date more than 21 days from
the listing date will not significantly
disrupt the market, as the majority of
the volume traded in weekly options
exists in options series which have an
expiration date of 21 days or less. The
proposal will limit the number of strikes
listed in series of options without
reducing the number of classes of
options available for trading on the
Exchange. The proposal allows the
Exchange to determine the weekly strike
intervals for multiply listed equity Short
Term Option Series listed in the later
weeks by taking into account customer
demand for certain options classes by
considering both the Share Price and the
Average Daily Volume in the underlying
security. The Exchange utilizes OCC
Customer-cleared volume, as customer
volume is an appropriate proxy for
demand. Whereas non-Customer cleared
OCC volume generally represents the
supply side, the Exchange believes OCC
Customer-cleared volume represents the
majority of options volume executed on
the Exchange, which, in turn, reflects
the demands in the marketplace and is
therefore intended to assist the
Exchange in meeting customer demand
by offering an appropriate number of
strikes.
The proposal is intended to remove
certain strikes where there exist clusters
of strikes whose characteristics closely
resemble one another and, therefore, do
not serve different trading needs, which
currently results in less useful strikes.
As such, the proposal protects investors
and the general public by removing
unnecessary choices for an options
series, which the Exchange believes may
improve market quality. The proposal
seeks to reduce the number of strikes in
the furthest weeklies, which generally
have wider markets, and, therefore,
lower market quality. The
implementation of the Strike Interval
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table is intended to allow for greater
spreads between strike intervals in
multiply listed equity options where
there is less volume as measured by the
Average Daily Volume tiers. Therefore,
the lower the Average Daily Volume, the
wider the proposed spread between
strike intervals, and the higher the
Average Daily Volume (i.e., the options
classes that contain the most liquid
symbols and strikes), the narrower the
proposed spread between strike
intervals. Additionally, the proposed
strike intervals are finer for lower-priced
shares than higher-priced shares.37 As a
result, the Exchange believes that, by
limiting the permissible strikes for
multiply listed equity options
(excluding options on ETFs and ETNs)
that have an expiration date more than
21 days from the listing date pursuant
to the proposed Strike Interval table, the
proposal may improve overall market
quality on the Exchange, which serves
to protect investors and the general
public.
Further, utilizing the second trading
day of a calendar quarter allows the
Exchange to accumulate data regarding
OCC Customer-cleared volume from the
entire prior calendar quarter and allows
the calculation of Average Daily Volume
to account for trades executed on the
last day of the previous calendar
quarter, which will have settled by the
second trading day.38 The Exchange
believes that applying the previous
calendar quarter for the calculation is
appropriate to reduce the impact of
unusual trading activity as a result of
unique market events, such as a
corporate action (i.e., it may result in a
more reliable measure of Average Daily
Volume than a shorter period).
As stated, the proposal is
substantively identical to the strike
interval proposal recently submitted by
BX and approved by the Commission.39
The Exchange believes that varied strike
intervals will continue to offer market
participants the ability to select the
appropriate strike interval to meet that
market participants’ investment
objectives.
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 the proposed rule change limits the
number of Short Term Option Series
strikes available for quoting and trading
on the Exchange for all market
participants. Therefore, all market
participants will equally be able to
transact in options series in the strikes
listed for trading on the Exchange. The
proposal is intended to reduce the
number of strikes for weekly options
listed in later weeks without reducing
the number of classes of options
available for trading on the Exchange
while also continuing to offer an
appropriate number of strikes the
Exchange believes will meet market
participants’ investment objectives.
The Exchange does not believe that
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
as it only impacts the permissible strike
intervals for certain options series listed
on the Exchange. Additionally, another
options exchange has recently
implemented a substantively identical
rule for listing Short Term Option Series
strike intervals on its exchange,
approved by the Commission.40 The
proposal is a competitive response that
will permit the Exchange to list the
same series in multiply listed options as
another options exchange.
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.
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
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 41 and Rule 19b–
4(f)(6) thereunder.42
37 The Exchange notes that is has discussed the
proposed strike intervals with various Members.
38 Options contracts settle one business day after
trade date. Strike listing determinations are made
the day prior to the start of trading in each series.
39 See BX Strike Interval Approval Order, supra
note 19.
40 See BX Strike Interval Approval Order, supra
note 19.
41 15 U.S.C. 78s(b)(3)(A).
42 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeEDGX–2021–016 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–CboeEDGX–2021–016. 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 20549–1090 on official
business days between the hours of
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
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Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices
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–CboeEDGX–2021–016 and
should be submitted on or before April
29, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–07200 Filed 4–7–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91468; File No. SR–
NYSEArca–2021–20]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 6.90–O
April 2, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on April 1,
2021, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.90–O (Qualified Contingent
Crosses) to clarify the permissible
trading differentials for such orders. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
43
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this rule change is to
amend Rule 6.90–O (Qualified
Contingent Crosses) to clarify the
permissible trading differentials for
such orders.
Rule 6.62–O(bb) provides that a
Qualified Contingent Cross or QCC
Order must be comprised of an
originating order to buy or sell at least
1,000 contracts that is identified as
being part of a qualified contingent
trade, coupled with a contra-side order
or orders to buy or sell an equal number
of contracts.4 As Qualified Contingent
Crosses, QCC Orders are automatically
executed upon entry provided that the
execution (i) is not at the same price as
a Customer Order in the Consolidated
Book and (ii) is at or between the
NBBO.5 In addition, QCC Orders may
only be entered in the regular trading
increments applicable to the options
class under Rule 6.72–O(Trading
4 A ‘‘qualified contingent trade’’ is a transaction
consisting of two or more component orders,
executed as agent or principal, where: (i) At least
one component must be an NMS Stock; (ii) all the
components must be effected with a product price
contingency that either has been agreed to by all the
respective counterparties or arranged for by a
broker-dealer as principal or agent; (iii) the
execution of one component must be contingent
upon the execution of all other components at or
near the same time; (iv) the specific relationship
between the component orders (e.g., the spread
between the prices of the component orders) must
be determined by the time the contingent order is
placed; (v) the component orders must bear a
derivative relationship to one another, represent
different classes of shares of the same issuer, or
involve the securities of participants in mergers or
with intentions to merge that have been announced
or cancelled; and (vi) the transaction must be fully
hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. See Commentary .02 to Rule 6.62–
O.
5 See Rule 6.90–O. QCC Orders that cannot be
executed when entered will automatically cancel.
See Rule 6.90–O(1).
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18339
Differentials).6 Rule 6.72–O subsection
(a) sets forth the minimum quoting
increments for all options traded on the
Exchange and subsection (b) sets forth
the minimum trading increments of one
cent ($0.01) for all series of option
contracts traded on the Exchange.7
The Exchange proposes to modify
Rule 6.90–O(2) to add reference to
paragraph (b) of Rule 6.72–O in the text
of the rule, which would make it clear
that QCCs may be entered in minimum
trading increments of one cent ($0.01).8
The Exchange believes this proposed
change, which aligns with current
functionality, would add clarity,
transparency and internal consistency to
Exchange rules.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’),9 in general, and furthers the
objectives of Section 6(b)(5) of the Act,10
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed modification—to make clear
that QCC Orders may be entered and
traded in minimum trading increments
of a penny would promote just and
equitable principles of trade, as well as
serve to remove impediments to and
perfect the mechanism of a free and
open market because the proposed
change clarifies existing functionality.
In addition, the Exchange believes that
the proposed rule change is consistent
with other options order types and
functionalities that are not displayed in
OPRA’s quote feed. For example,
electronic paired auctions, which are
not displayed in OPRA’s quote feed
before they are executed, provide for
penny trading increments, regardless of
the quoting increment of the options
class.11 As a result, the proposed change
6 See
Rule 6.90–O(2).
Rule 6.72–O(a) and (b), respectively.
Paragraph (2) to Rule 6.90–O provides that QCCs
‘‘may only be entered in the regular trading
increments applicable to the options class under
Rule 6.72–O.’’
8 See proposed Rule 6.90–O(2) (‘‘Qualified
Contingent Cross Orders may only be entered in the
regular trading increments applicable to the options
class under Rule 6.72–O(b)’’).
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
11 See, e.g., NYSE American Rule 971.1NY(b)(7)
(regarding the Customer Best Execution—or
7 See
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]]>Agencies
[Federal Register Volume 86, Number 66 (Thursday, April 8, 2021)]
[Notices]
[Pages 18333-18339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07200]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91469; File No. SR-CboeEDGX-2021-016]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Rule 19.6 (Series of Options Contracts Open for Trading) in
Connection With Limiting the Number of Strikes Listed for Short Term
Option Series Which are Available for Quoting and Trading on the
Exchange
April 2, 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 March 26, 2021, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'')
proposes to amend Rule 19.6 (Series of Options Contracts Open for
Trading) in connection with limiting the number of strikes listed for
Short Term Option Series which are available for quoting and trading on
the Exchange. The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), 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 Exchange proposes to amend Rule 19.6 (Series of Options
Contracts Open for Trading). Specifically, this proposal seeks to widen
the intervals between strikes in order to limit the number of strikes
listed for multiply listed equity options classes (excluding options on
Exchange-Traded Funds (``ETFs'') and Exchange-Traded Notes (``ETNs''))
within the Short Term Option Series program that have an expiration
date more than 21 days from the listing date.
Background
Current Rule 19.6 permits the Exchange, after a particular class of
options has been approved for listing and trading on the Exchange, to
open for trading series of options therein. The Exchange may list
series of options for trading on a weekly,\5\ monthly \6\ or
[[Page 18334]]
quarterly \7\ basis. Rule 19.6.01 sets forth the intervals between
strike prices of series of options on individual stocks generally,\8\
and Rule 19.6.05(e) specifically sets forth intervals between strike
prices on Short Term Option Series. Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\9\
the $0.50 Strike Program,\10\ the $2.50 Strike Price Program,\11\ and
the $5 Strike Program.\12\
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\5\ The weekly listing program is known as the Short Term Option
Series Program and is described within Rule 19.6.05.
\6\ The Exchange will open at least one expiration month for
each class of options open for trading on the Exchange. See Rule
19.6(e). The monthly expirations are subject to certain listing
criteria for underlying securities described within Rule 19.3.
Monthly listings expire the third Friday of the month. The term
``expiration date'' when used in respect of a series of binary
options other than event options means the last day on which the
options may be automatically exercised. In the case of a series of
event options (other than credit default options or credit default
basket options) that are be automatically exercised prior to their
expiration date upon receipt by the Corporation of an event
confirmation, the expiration date is the date specified by the
listing Exchange; provided, however, that when an event confirmation
is deemed to have been received by the Corporation with respect to
such series of options, the expiration date will be accelerated to
the date on which such event confirmation is deemed to have been
received by the Corporation or such later date as the Corporation
may specify. In the case of a series of credit default options or
credit default basket options, the expiration date is the fourth
business day after the last trading day for such series as such
trading day is specified by the Exchange on which the series of
options is listed; provided, however, that when an event
confirmation is deemed to have been received by the Corporation with
respect to a series of credit default options or single payout
credit default basket options prior to the last trading day for such
series, the expiration date for options of that series will be
accelerated to the second business day following the day on which
such event confirmation is deemed to have been received by the
Corporation. ``Expiration date'' means, in respect of a series of
range options expiring prior to February 1, 2015, the Saturday
immediately following the third Friday of the expiration month of
such series, and, in respect of a series of range options expiring
on or after February 1, 2015 means the third Friday of the
expiration month of such series, or if such Friday is a day on which
the Exchange on which such series is listed is not open for
business, the preceding day on which such Exchange is open for
business. See The Options Clearing Corporation (``OCC'') By-Laws at
Section 1.
\7\ The quarterly listing program is known as the Quarterly
Options Series Program and is described within Rule 19.6.04.
\8\ The interval between strike prices of series of options on
individual stocks may be $2.50 or greater where the strike price is
$25 or less, provided however, that EDGX Options may not list $2.50
intervals below $50 (e.g. $12.50, $17.50) for any class included
within the $1 Strike Price Program, as detailed below in
Interpretations and Policy .02, if the addition of $2.50 intervals
would cause the class to have strike price intervals that are $0.50
apart. For series of options on 283 Exchange-Traded Fund Shares that
satisfy the criteria set forth in Rule 19.3(i), the interval of
strike prices may be $1 or greater where the strike price is $200 or
less or $5 or greater where the strike price is over $200.
Exceptions to the strike price intervals above are set forth in
Interpretations and Policies .02 and .03. See Rule 19.6.01.
\9\ The $1 Strike Interval Program is described within Rule
19.6.02.
\10\ The $0.50 Strike Program is described within Rule 19.6.06.
\11\ The $2.50 Strike Price Program is described within Rule
19.6.03.
\12\ The $5 Strike Program is described within Rule 19.6(d)(5).
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The Exchange's proposal seeks to amend the listing of weekly series
of options (i.e. Short Term Option Series) by adopting new Rule
19.6.05(f),\13\ which widens the permissible intervals between strikes,
thereby limiting the number of strikes listed, for multiply listed
equity options (excluding options on ETFs \14\ and ETNs \15\) that have
an expiration date more than 21 days from the listing date. This
proposal does not amend the monthly or quarterly listing rules, nor
does it amend the $1 Strike Price Interval Program, the $0.50 Strike
Program, the $2.50 Strike Price Program, or the $5 Strike Program.
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\13\ As a result, the proposed rule change subsequently updates
current Rule 19.6.05(f) and (g) to (g) and (h), respectively.
\14\ The term ``ETF'' (Exchange-Traded Fund) (or ``Fund
Shares'') has the same meaning as the term ``exchange-traded fund''
as defined in Rule 6c-11 under the Investment Company Act of 1940.
See Rule 14.2(c)(2); see also Rule 19.3(i). Securities deemed
appropriate for options trading shall include shares or other
securities (``Fund Shares''), including but not limited to
Partnership Units as defined in this Rule, that are principally
traded on a national securities exchange and are defined as an ``NMS
stock'' under Rule 600 of Regulation NMS, and that (1) represent
interests in registered investment companies (or series thereof)
organized as open-end management investment companies, unit
investment trusts or similar entities, and that hold portfolios of
securities comprising or otherwise based on or representing
investments in indexes or portfolios of securities (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities) (``Funds '') and/or
financial instruments including, but not limited to, stock index
futures contracts, options on futures, options on securities and
indexes, equity caps, collars and floors, swap agreements, forward
contracts, repurchase agreements and reverse repurchase agreements
(the ``Financial Instruments''), and money market instruments,
including, but not limited to, U.S. government securities and
repurchase agreements (the ``Money Market Instruments'')
constituting or otherwise based on or representing an investment in
an index or portfolio of securities and/or Financial Instruments and
Money Market Instruments, or (2) represent commodity pool interests
principally engaged, directly or indirectly, in holding and/or
managing portfolios or baskets of securities, commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities and/or non-U.S.
currency (``Commodity Pool ETFs'') or (3) represent interests in a
trust or similar entity that holds a specified non- U.S. currency or
currencies deposited with the trust or similar entity when
aggregated in some specified minimum number may be surrendered to
the trust by the beneficial owner to receive the specified non-U.S.
currency or currencies and pays the beneficial owner interest and
other distributions on the deposited non-U.S. currency or
currencies, if any, declared and paid by the trust (``Currency Trust
Shares''), or (4) represent interests in the SPDR Gold Trust or are
issued by the iShares COMEX Gold Trust or iShares Silver Trust).
\15\ Securities deemed appropriate for options trading shall
include shares or other securities (``Equity Index-Linked
Securities,'' ``Commodity-Linked Securities,'' ``Currency-Linked
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,''
collectively known as ``Index- Linked Securities'') (or ``ETNs'')
that are principally traded on a national securities exchange and an
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the
Securities Exchange Act of 1934), and represent ownership of a
security that provides for the payment at maturity. Equity Index-
Linked Securities are securities that provide for the payment at
maturity of a cash amount based on the performance of an underlying
index or indexes of equity securities (``Equity Reference Asset'');
Commodity-Linked Securities are securities that provide for the
payment at maturity of a cash amount based on the performance of one
or more physical commodities or commodity futures, options on
commodities, or other commodity derivatives or Commodity-Based Trust
Shares or a basket or index of any of the foregoing (``Commodity
Reference Asset''); Currency-Linked Securities are securities that
provide for the payment at maturity of a cash amount based on the
performance of one or more currencies, or options on currencies or
currency futures or other currency derivatives or Currency Trust
Shares (as defined in this Rule), or a basket or index of any of the
foregoing (``Currency Reference Asset''); Fixed Income Index-Linked
Securities are securities that provide for the payment at maturity
of a cash amount based on the performance of one or more notes,
bonds, debentures or evidence of indebtedness that include, but are
not limited to, U.S. Department of Treasury securities (``Treasury
Securities''), government-sponsored entity securities (``GSE
Securities''), municipal securities, trust preferred securities,
supranational debt and debt of a foreign country or a subdivision
thereof or a basket or index of any of the foregoing (``Fixed Income
Reference Asset''); Futures-Linked Securities are securities that
provide for the payment at maturity of a cash amount based on the
performance of an index of (i) futures on Treasury Securities, GSE
Securities, supranational debt and debt of a foreign country or a
subdivision thereof, or options or other derivatives on any of the
foregoing; or (ii) interest rate futures or options or derivatives
on the foregoing in this subparagraph (ii) (``Futures Reference
Asset''); and Multifactor Index-Linked Securities are securities
that provide for the payment at maturity of a cash amount based on
the performance of any combination of two or more Equity Reference
Assets, Commodity Reference Assets, Currency Reference Assets, Fixed
Income Reference Assets, or Futures Reference Assets (``Multifactor
Reference Asset''). See 19.3(l).
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Short Term Option Series Program
After an option class has been approved for listing and trading on
the Exchange,\16\ Rule 19.6.05 permits the
[[Page 18335]]
Exchange to open for trading on any Thursday or Friday that is a
business day (``Short Term Option Opening Date'') series of options on
that class that expire at the close of business on each of the next
five Fridays that are business days and are not Fridays on which
monthly options series or Quarterly Options Series expire (``Short Term
Option Expiration Dates''). The Exchange may select up to fifty
currently listed option classes on which Short Term Option Series may
be opened on any Short Term Option Opening Date. In addition to the
fifty option class restriction, the Exchange may also list Short Term
Option Series on any option classes that are selected by other
securities exchanges that employ a similar program under their
respective rules. For each option class eligible for participation in
the Short Term Option Series Program, the Exchange may open up to 30
Short Term Option Series for each expiration date in that class. The
Exchange may also open Short Term Option Series that are opened by
other securities exchanges in option classes selected by such exchanges
under their respective short term option rules.\17\ Pursuant to Rule
19.6.05(c), the Exchange may open up to 30 initial series for each
option class that participates in the Short Term Option Series Program
and, pursuant to Rule19.6.05(d), if the Exchange opens less than 30
Short Term Option Series for a Short Term Option Expiration Date,
additional series may be opened for trading on the Exchange when the
Exchange deems it necessary to maintain an orderly market, to meet
customer demand, or when the market price of the underlying security
moves substantially from the exercise price or prices of the series
already opened. Rule 19.6(e) provides that, if the class does not trade
in $1 strike price intervals, the strike price interval for Short Term
Option Series may be: (i) $0.50 or greater where the strike price is
less than $75; (ii) $1.00 or greater where the strike price is between
$75 and $150; or (iii) $2.50 or greater for strike prices greater than
$150.\18\
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\16\ The Exchange may have no more than a total of five Short
Term Option Expiration Dates, not including any Monday or Wednesday
SPY Expirations as provided in paragraph (g). If EDGX Options is not
open for business on the respective Thursday or Friday, the Short
Term Option Opening Date will be the first business day immediately
prior to that respective Thursday or Friday. Similarly, if EDGX
Options is not open for business on the Friday that the options are
set to expire, the Short Term Option Expiration Date will be the
first business day immediately prior to that Friday. See Rule
19.6.05. The Exchange may open for trading on any Friday or Monday
that is a business day series of options on the SPDR S&P 500 ETF
Trust (``SPY'') to expire on any Monday of the month that is a
business day and is not a Monday on which Quarterly Options Series
expire (``Monday SPY Expirations''), provided that any Friday on
which the Exchange opens for trading a Monday SPY Expiration is one
business week and one business day prior to expiration. The Exchange
may also open for trading on any Tuesday or Wednesday that is a
business day series of SPY options to expire on any Wednesday of the
month that is a business day and is not a Wednesday on which
Quarterly Options Series expire (``Wednesday SPY Expirations''). The
Exchange may list up to five consecutive Monday SPY Expirations and
up to five consecutive Wednesday SPY Expirations at one time; the
Exchange may have no more than a total of five Monday SPY
Expirations and no more than a total of five Wednesday SPY
Expirations. Monday and Wednesday SPY Expirations will be subject to
the provisions of this Rule. See Rule 19.6.05(g). With the exception
of Monday and Wednesday SPY Expirations, no Short Term Option Series
may expire in the same week in which monthly option series on the
same class expire or, in the case of Quarterly Options Series, on an
expiration that coincides with an expiration of Quarterly Options
Series on the same class. See Rule 19.6.05(b).
\17\ See Rule 19.6.05(a).
\18\ Additionally, Rule 19.6.05(e) provides that the interval
between strike prices on Short Term Option Series shall be the same
as the strike prices for series in that same option class that
expire in accordance with the normal monthly expiration cycle.
During the expiration week of an option class that is selected for
the Short Term Option Series Program pursuant to this rule (``Short
Term Option''), the strike price intervals for the related non-Short
Term Option (``Related non-Short Term Option'') shall be the same as
the strike price intervals for the Short Term Option.
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The Exchange notes that listings in the weekly program comprise a
significant part of the standard listing in options markets and that
the industry has observed a notable increase over approximately the
last five years in compound annual growth rate (``CAGR'') of weekly
strikes as compared to CAGR for standard third-Friday expirations.\19\
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\19\ See Securities Exchange Act Release No. 91125 (February 12,
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (``BX Strike
Interval Approval Order''); and SR-2020-BX-032 as amended by
Amendment No. 1 (February 10, 2021) available at: https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf
(``BX proposal''); see also BX Options Strike Proliferation Proposal
(February 25, 2021) available at: https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal).
---------------------------------------------------------------------------
Proposal
The Exchange proposes to widen the intervals between strikes in
order to limit the number of strikes listed for equity options
(excluding options on ETFs and ETNs) listed as part of the Short Term
Option Series Program that have an expiration date more than 21 days
from the listing date, by adopting proposed Rule 19.6.05(f). The
Exchange notes that this proposal is substantively identical to the
strike interval proposal recently submitted by Nasdaq BX, Inc. (``BX'')
and approved by the Securities and Exchange Commission
(``Commission'').\20\
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\20\ See BX Strike Interval Approval Order, id.
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The proposal widens intervals between strikes for expiration dates
of equity option series (excluding options on ETFs and ETNs) beyond 21
days utilizing the three-tiered table in proposed Rule 19.6.05(f)
(presented below) which considers both the Share Price and Average
Daily Volume for the option series. The table indicates the applicable
strike intervals and supersedes Rule 19.6.05(d), which currently
permits 10 additional series to be opened for trading on the Exchange
when the Exchange deems it necessary to maintain an orderly market, to
meet customer demand or when the market price of the underlying
security moves substantially from the exercise price or prices of the
series already opened. As a result of the proposal, 19.6.05(d) would
not permit an additional series of an equity option to have an
expiration date more than 21 days from the listing date to be opened
for trading on the Exchange despite the noted circumstances in
paragraph (d) when such additional series may otherwise be added.
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\21\ The Exchange notes that while the term ``greater than'' is
not present in this cell in the corresponding BX rule, the Exchange
has inserted it for clarity, otherwise an Average Daily Volume of
1,000 contracts could be read to fall into two categories.
----------------------------------------------------------------------------------------------------------------
Share price
Average daily -------------------------------------------------------------------------------
Tier volume $25 to less $75 to less $150 to less $500 or
Less than $25 than $75 than $150 than $500 greater
----------------------------------------------------------------------------------------------------------------
1............. Greater than $0.50 $1.00 $1.00 $5.00 $5.00
5,000.
2............. Greater than 1.00 1.00 1.00 5.00 10.00
1,000 to 5,000
\21\.
3............. 0 to 1,000...... 2.50 5.00 5.00 5.00 10.00
----------------------------------------------------------------------------------------------------------------
Proposed Rule 19.6.05(f)(1) provides that the Share Price is the
closing price on the primary market on the last day of the calendar
quarter. This value is used to derive the column from which to apply
strike intervals throughout the next calendar quarter. Also, proposed
Rule 19.6.05(f)(1) provides that in the event of a corporate action,
the Share Price of the surviving company is utilized.\22\ Proposed
Rule19.6.05(f)(2) provides that the Average Daily Volume is the total
number of option contracts traded in a given security for the
applicable calendar quarter divided by the number of trading days in
the applicable calendar quarter. Beginning on the second trading day in
the first month of each calendar quarter, the Average Daily Volume is
calculated by utilizing data from the prior calendar
[[Page 18336]]
quarter based on Customer-cleared volume at OCC. For options listed on
the first trading day of a given calendar quarter, the Average Daily
Volume is calculated using the calendar quarter prior to the last
trading calendar quarter.\23\ Pursuant to current Rule 19.6.05, if the
Exchange is not open for business on the respective Thursday or Friday,
the Short Term Option Opening Date will be the first business day
immediately prior to that respective Thursday or Friday.
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\22\ The Exchange notes that corporate actions resulting in
change ownership would result in a surviving company, such as a
merger of two publicly listed companies, and the Share Price of the
surviving company would be used to determine strike intervals
pursuant to the proposed table. Corporate actions that do not result
in a change of ownership, such as stock-splits or distribution of
special cash dividends, would not result in a ``surviving company,''
therefore would not impact which Share Price to apply pursuant to
the proposed Rule.
\23\ For example, options listed as of April 1, 2021 would be
calculated on April 2, 2021 using the Average Daily Volume from
October 1, 2020 to December 31, 2020.
---------------------------------------------------------------------------
By way of example, if the Share Price for a symbol was $142 at the
end of a calendar quarter, with an Average Daily Volume greater than
5,000, thereby, requiring strike intervals to be listed $1.00 apart,
that strike interval would apply for the calendar quarter, regardless
of whether the Share Price changed to $150 or greater during that
calendar quarter.\24\ The proposed table within Rule 19.6.05(f) takes
into account the notional value of a security, as well as Average Daily
Volume in the underlying stock, in order to widen the intervals between
strikes and thereby limit the number of strikes listed for equity
options (excluding options on ETFs and ETNs) in the Short Term Option
Series listing program. The Exchange will utilize OCC Customer-cleared
volume, as customer volume is an appropriate proxy for demand. The OCC
Customer-cleared volume represents the majority of options volume
executed on the Exchange, which, in turn, reflects the demand in the
marketplace. The options series listed on the Exchange are intended to
meet customer demand by offering an appropriate number of strikes. Non-
Customer cleared OCC volume generally represents the supply side.
---------------------------------------------------------------------------
\24\ The Exchange notes that any strike intervals imposed by the
Exchange's Rules will continue to apply. In this example, the
strikes would be in $1 intervals up to (but not including) $150,
which is the upper limit imposed by Rule 19.6.05(e).
---------------------------------------------------------------------------
The proposal is intended to remove repetitive and unnecessary
strike listings across the weekly expiries. Specifically, the proposal
seeks to reduce the number of strikes listed in the furthest weeklies,
which generally have wider markets and therefore lower market
quality.\25\ The proposed strike intervals are intended to widen
permissible strike intervals in multiply listed equity options
(excluding options on ETFs and ETNs) where there is less volume as
measured by the Average Daily Volume tiers. Therefore, the lower the
Average Daily Volume, the greater the proposed spread between strike
intervals. Options classes with higher volume contain the most liquid
symbols and strikes, which the Exchange believes makes the finer
proposed spread between strike intervals for those symbols appropriate.
Additionally, lower-priced shares have finer strike intervals than
higher-priced shares when comparing the proposed spread between strike
intervals. Today, weeklies are available on 16% of underlying products.
The proposal limits the density of strikes listed in series of options,
without reducing the classes of options available for trading on the
Exchange. Short Term Option Series with an expiration date greater than
21 days from the listing date currently equate to 7.5% of the total
number of strikes in the options market, which equals 81,000
strikes.\26\ The Exchange expects this proposal to result in the
limitation of approximately 20,000 strikes within the Short Term Option
Series, which is approximately 2% of the total strikes in the options
markets.\27\ The Exchange understands there has been an inconsistency
of demand for series of options beyond 21 calendar days.\28\ The
proposal takes into account customer demand for certain options
classes, by considering both the Share Price and the Average Daily
Volume, in order to remove certain strike intervals where there exist
clusters of strikes whose characteristics closely resemble one another
and, therefore, do not serve different trading needs,\29\ rendering
these strikes less useful. The Exchange also notes that the proposal
focuses on strikes in multiply listed equity options, and excludes ETFs
and ETNs, as the majority of strikes reside within equity options.
---------------------------------------------------------------------------
\25\ See BX proposal, supra note 19, which presents tables that
focus on data for 10 of the most and least actively traded symbols
and demonstrate average spreads in weekly options during the month
of August 2020.
\26\ The Exchange notes that this proposal is an initial attempt
at reducing strikes and anticipates filing additional proposals to
continue reducing strikes. The percentage of underlying products and
percentage of and total number of strikes, are approximations and
may vary slightly at the time of this filing. The Exchange intends
to decrease the overall number of strikes listed on the Cboe Cboe-
affiliated options exchanges in a methodical fashion, so that it may
monitor progress and feedback from its Members. The Exchange also
notes that its affiliated options exchanges, Cboe Exchange, Inc.
(``Cboe Options''), Cboe C2 Exchange, Inc. (``C2'') [sic], and Cboe
BZX Exchange, Inc. (``BZX Options'') plan to submit identical
proposals.
\27\ From information drawn from time period between January
2020 and May 2020. See BX proposal, supra note 19.
\28\ See BX proposal, supra note 19.
\29\ For example, two strikes that are densely clustered may
have the same risk properties and may also be the same percentage
out-of-the money.
---------------------------------------------------------------------------
Additionally, proposed Rule 19.6.05(f)(3) provides that options
that are newly eligible for listing pursuant to Rule 19.3 and
designated to participate in the Short Term Option Series program
pursuant to Rule19.6.05(f) will not be subject to subparagraph (f) (as
proposed) until after the end of the first full calendar quarter
following the date the option class was first listed for trading on any
options market.\30\ As proposed, the Exchange is permitted to list
options on newly eligible listings, without having to apply the wider
strike intervals, until the end of the first full calendar quarter
after such options were listed. The proposal thereby permits the
Exchange to add strikes to meet customer demand in a newly listed
options class. A newly eligible option class may fluctuate in price
after its initial listing; such volatility reflects a natural
uncertainty about the security. By deferring the application of the
proposed wider strike intervals until after the end of the first full
calendar quarter, additional information on the underlying security
will be available to market participants and public investors, as the
price of the underlying has an opportunity to settle based on the price
discovery that has occurred in the primary market during this deferment
period. Also, the Exchange has the ability to list as many strikes as
are permissible for the Short Term Option Series once the expiry is no
more than 21 days. Short Term Option Series that have an expiration
date no more than 21 days from the listing date are not subject to the
proposed strike intervals, which allows the Exchange to list
additional, and potentially narrower, strikes in the event of market
volatility or other market events. These metrics are intended to align
expectations for determining which strike intervals will be utilized.
Finally, proposed Rule 19.6.05(f)(4) provides that, notwithstanding the
strike intervals imposed in proposed subparagraph (f), the proposal
does not amend the range of strikes that may be listed pursuant to
subparagraph (e).
---------------------------------------------------------------------------
\30\ For example, if an options class became newly eligible for
listing pursuant to Rule 19.3 on March 1, 2021 (and was actually
listed for trading that day), the first full quarterly lookback
would be available on July 1, 2021. This option would become subject
to the proposed strike intervals on July 2, 2021.
---------------------------------------------------------------------------
While the current listing rules permit the Exchange to list a
number of weekly strikes on its market, in an effort to encourage
Market Makers to deploy capital more efficiently, as well as improve
displayed market quality, the
[[Page 18337]]
proposal aims to reduce the density of strikes listed in later weeks by
widening the intervals between strikes listed for equity options
(excluding options on ETFs and ETNs) which have an expiration date more
than 21 days from the listing date. The Exchange requires Designated
Primary Market Makers (``DPMs'') and Market Makers to quote during a
certain amount of time in the trading day and in a certain percentage
of series in their assigned options classes to maintain liquidity in
the market.\31\ With an increasing number of strikes being listed
across options exchanges, Market Makers must expend their capital to
ensure that they have the appropriate infrastructure to meet their
quoting obligations on all options markets in which they are assigned
in option classes. The Exchange believes that by widening the intervals
between strikes listed for equity options (excluding options on ETFs
and ETNs), thus reducing the number of strikes listed on the Exchange,
the proposal will likewise reduce the number of weekly strikes in which
DPMs and Market Makers are required to quote and, as a result, allow
DPMs and Market Makers to expend their capital in the options market in
a more efficient manner. Due to this increased efficiency, the Exchange
believes that the proposal may improve overall market quality on the
Exchange by widening the intervals between strikes in multiply listed
equity options (excluding options on ETFs and ETNs) that have an
expiration date more than 21 days from the listing date. The proposal
is intended to balance the goal of limiting the number of listed
strikes with the needs of market participants. The Exchange believes
that the various permissible strike intervals will continue to offer
market participants the ability to select the appropriate strikes to
meet their investment objectives.
---------------------------------------------------------------------------
\31\ See Rule 22.6(d).
---------------------------------------------------------------------------
Implementation
The Exchange, along with BX and other options exchanges that intend
to submit the same strike interval proposal, intends to begin
implementation of the proposed rule change prior to June 30, 2021. The
Exchange will issue a notice of the planned implementation date to its
Members in advance. Once implemented, the Exchange will provide notice
\32\ to its Members of the Short Term Option Series eligible in a new
quarter to be listed pursuant to Rule 19.6.05(f).
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\32\ In its notices disseminated to Members regarding the Short
Term Option Series eligible in a new quarter to be listed pursuant
to Rule 19.6.05(f), the Exchange will include for each eligible
option class: The closing price of the underlying; the Average Daily
Volume of the option class; and the eligible strike category (per
the proposed table) in which the eligible option class falls under
as a result of the closing price and Average Daily Volume.
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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.\33\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \34\ 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) \35\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
\35\ Id.
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The proposal seeks to widen the permissible intervals between
strikes listed for equity options (excluding options on ETFs and ETNs)
in order to limit the number of strikes listed in the Short Term Option
Series program that have an expiration date more than 21 days. The
proposal removes impediments to and perfects the mechanism of a free
and open market and a national market system by encouraging Market
Makers to deploy capital more efficiently, which may improve market
quality overall on the Exchange, by widening the intervals between
strikes when applying the strike interval table to multiply listed
equity options (excluding options on ETFs and ETPs) that have an
expiration date more than 21 days from the listing date. As described
above, the Exchange requires DPMs and Market Makers to quote during a
certain amount of time in the trading day and in a certain percentage
of series in their assigned options classes to maintain liquidity in
the market.\36\ With an increasing number of strikes due, in part, to
tighter intervals being listed across options exchanges, Market Makers
must expend their capital to ensure that they have the appropriate
infrastructure to meet their quoting obligations on all options markets
in which they are assigned in options classes. The Exchange believes
that this proposal will widen the intervals between strikes listed on
the Exchange, thereby reducing the number of weekly options listed on
its market in later weeks in which Market Makers are required to quote
and, in turn, allowing DPMs and Market Makers to expend their capital
in the options market in a more efficient manner.
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\36\ See supra note 31.
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The Exchange believes that limiting the permissible strikes for
multiply listed equity options (excluding options on ETFs and ETNs)
that have an expiration date more than 21 days from the listing date
will not significantly disrupt the market, as the majority of the
volume traded in weekly options exists in options series which have an
expiration date of 21 days or less. The proposal will limit the number
of strikes listed in series of options without reducing the number of
classes of options available for trading on the Exchange. The proposal
allows the Exchange to determine the weekly strike intervals for
multiply listed equity Short Term Option Series listed in the later
weeks by taking into account customer demand for certain options
classes by considering both the Share Price and the Average Daily
Volume in the underlying security. The Exchange utilizes OCC Customer-
cleared volume, as customer volume is an appropriate proxy for demand.
Whereas non-Customer cleared OCC volume generally represents the supply
side, the Exchange believes OCC Customer-cleared volume represents the
majority of options volume executed on the Exchange, which, in turn,
reflects the demands in the marketplace and is therefore intended to
assist the Exchange in meeting customer demand by offering an
appropriate number of strikes.
The proposal is intended to remove certain strikes where there
exist clusters of strikes whose characteristics closely resemble one
another and, therefore, do not serve different trading needs, which
currently results in less useful strikes. As such, the proposal
protects investors and the general public by removing unnecessary
choices for an options series, which the Exchange believes may improve
market quality. The proposal seeks to reduce the number of strikes in
the furthest weeklies, which generally have wider markets, and,
therefore, lower market quality. The implementation of the Strike
Interval
[[Page 18338]]
table is intended to allow for greater spreads between strike intervals
in multiply listed equity options where there is less volume as
measured by the Average Daily Volume tiers. Therefore, the lower the
Average Daily Volume, the wider the proposed spread between strike
intervals, and the higher the Average Daily Volume (i.e., the options
classes that contain the most liquid symbols and strikes), the narrower
the proposed spread between strike intervals. Additionally, the
proposed strike intervals are finer for lower-priced shares than
higher-priced shares.\37\ As a result, the Exchange believes that, by
limiting the permissible strikes for multiply listed equity options
(excluding options on ETFs and ETNs) that have an expiration date more
than 21 days from the listing date pursuant to the proposed Strike
Interval table, the proposal may improve overall market quality on the
Exchange, which serves to protect investors and the general public.
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\37\ The Exchange notes that is has discussed the proposed
strike intervals with various Members.
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Further, utilizing the second trading day of a calendar quarter
allows the Exchange to accumulate data regarding OCC Customer-cleared
volume from the entire prior calendar quarter and allows the
calculation of Average Daily Volume to account for trades executed on
the last day of the previous calendar quarter, which will have settled
by the second trading day.\38\ The Exchange believes that applying the
previous calendar quarter for the calculation is appropriate to reduce
the impact of unusual trading activity as a result of unique market
events, such as a corporate action (i.e., it may result in a more
reliable measure of Average Daily Volume than a shorter period).
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\38\ Options contracts settle one business day after trade date.
Strike listing determinations are made the day prior to the start of
trading in each series.
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As stated, the proposal is substantively identical to the strike
interval proposal recently submitted by BX and approved by the
Commission.\39\ The Exchange believes that varied strike intervals will
continue to offer market participants the ability to select the
appropriate strike interval to meet that market participants'
investment objectives.
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\39\ See BX Strike Interval Approval Order, supra note 19.
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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 the proposed rule change
limits the number of Short Term Option Series strikes available for
quoting and trading on the Exchange for all market participants.
Therefore, all market participants will equally be able to transact in
options series in the strikes listed for trading on the Exchange. The
proposal is intended to reduce the number of strikes for weekly options
listed in later weeks without reducing the number of classes of options
available for trading on the Exchange while also continuing to offer an
appropriate number of strikes the Exchange believes will meet market
participants' investment objectives.
The Exchange does not believe that 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 as it only
impacts the permissible strike intervals for certain options series
listed on the Exchange. Additionally, another options exchange has
recently implemented a substantively identical rule for listing Short
Term Option Series strike intervals on its exchange, approved by the
Commission.\40\ The proposal is a competitive response that will permit
the Exchange to list the same series in multiply listed options as
another options exchange.
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\40\ See BX Strike Interval Approval Order, supra note 19.
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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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \41\ and Rule 19b-
4(f)(6) thereunder.\42\
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\41\ 15 U.S.C. 78s(b)(3)(A).
\42\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2021-016 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-CboeEDGX-2021-016. 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
20549-1090 on official business days between the hours of
[[Page 18339]]
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-CboeEDGX-2021-016 and should
be submitted on or before April 29, 2021.
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\43\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07200 Filed 4-7-21; 8:45 am]
BILLING CODE 8011-01-P
