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]

Download as PDF 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 khammond on DSKJM1Z7X2PROD with NOTICES 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). VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 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 (http://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 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 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 E:\FR\FM\08APN1.SGM 08APN1 18334 Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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. VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 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 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 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 E:\FR\FM\08APN1.SGM 08APN1 18335 Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices 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. VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 E:\FR\FM\08APN1.SGM 08APN1 18336 Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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. VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 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. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 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. E:\FR\FM\08APN1.SGM 08APN1 Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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 VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 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. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 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 E:\FR\FM\08APN1.SGM 08APN1 18338 Federal Register / Vol. 86, No. 66 / Thursday, April 8, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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 VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 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 (http://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 (http://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. E:\FR\FM\08APN1.SGM 08APN1 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 VerDate Sep<11>2014 16:53 Apr 07, 2021 Jkt 253001 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). PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 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 E:\FR\FM\08APN1.SGM Continued 08APN1

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]


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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 (http://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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \20\ See BX Strike Interval Approval Order, id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ Id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \36\ See supra note 31.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \37\ The Exchange notes that is has discussed the proposed 
strike intervals with various Members.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \39\ See BX Strike Interval Approval Order, supra note 19.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \40\ See BX Strike Interval Approval Order, supra note 19.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 (http://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 (http://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