Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Make Permanent the Operation of Its Program (“Pilot Program”) That Allows the Exchange To List P.M.-Settled Third Friday-of-the-Month Mini-SPX Index (“XSP”) Options and Mini-Russell 2000 Index (“MRUT”) Options Series, 26359-26366 [2023-08985]
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Federal Register / Vol. 88, No. 82 / Friday, April 28, 2023 / Notices
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Exchange believes that the continuation
of the FLEX PM Third Friday Pilot
Program as a pilot, including the
gathering, submission and review of the
pilot reports and data, is no longer
necessary and that making the FLEX PM
Third Friday Pilot Program permanent
will allow the Exchange to otherwise
allocate time and resources to other
industry initiatives.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Cboe Options 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 making
the FLEX PM Third Friday Pilot
Program permanent will impose any
unnecessary or inappropriate burden on
intramarket competition because FLEX
PM options will continue to be available
to all market participants who wish to
participate in the FLEX PM options
market. The Exchange believes that the
growth that the P.M.-settled options
market, including FLEX PM options, has
experienced since their reintroduction
through pilot programs indicates strong,
continued investor interest and demand,
warranting a permanent FLEX PM Third
Friday Pilot Program. The Exchange
believes that, for the period that P.M.settled FLEX options have been in
operation as pilot programs, they have
provided investors with a desirable
product with which to trade and wishes
to permanently offer this product to
investors. Furthermore, during the pilot
period, the Exchange has not observed
any significant adverse market effects
nor identified any regulatory concerns
as a result of the FLEX PM Third Friday
Pilot Program, and, as such, the
continuation of the FLEX PM Third
Friday Pilot Program as a pilot,
including the gathering, submission and
review of the pilot reports and data, is
no longer necessary—a permanent FLEX
PM Third Friday Pilot Program will
allow the Exchange to otherwise
allocate time and resources to other
industry initiatives.
The Exchange further does not believe
that making the FLEX PM Third Friday
Pilot Program permanent will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
because it applies to a class of options
listed only for trading on Cboe Options.
The Exchange notes that other
exchanges are free to and do offer
competing products. To the extent that
the permanent offering and continued
trading of FLEX PM options may make
Cboe Options a more attractive
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marketplace to market participants at
other exchanges, such market
participants may elect to become Cboe
Options market participants.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2023–018 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2023–018. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
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26359
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–CBOE–2023–018,
and should be submitted on or before
May 19, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–08987 Filed 4–27–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97366; File No. SR–CBOE–
2023–019]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Make
Permanent the Operation of Its
Program (‘‘Pilot Program’’) That Allows
the Exchange To List P.M.-Settled
Third Friday-of-the-Month Mini-SPX
Index (‘‘XSP’’) Options and MiniRussell 2000 Index (‘‘MRUT’’) Options
Series
April 24, 2023.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 19,
2023, Cboe Exchange, Inc. (‘‘Exchange’’
or ‘‘Cboe Options’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 88, No. 82 / Friday, April 28, 2023 / Notices
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to make
permanent the operation of its program
(‘‘Pilot Program’’) that allows the
Exchange to list P.M.-settled third
Friday-of-the-month Mini-SPX Index
(‘‘XSP’’) options and Mini-Russell 2000
Index (‘‘MRUT’’) options series. The text
of the proposed rule change is provided
below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
Rule 4.13. Series of Index Options
ddrumheller on DSK120RN23PROD with NOTICES1
*
*
*
*
*
Interpretations and Policies
.01–.12 No change.
[based on currently effective rule text]
.13 In addition to A.M.-settled S&P
500 Stock Index (‘‘SPX’’) options, MiniSPX Index (‘‘XSP’’) options, and MiniRUT Index (‘‘MRUT’’) options approved
for trading on the Exchange pursuant to
Rule 4.13, the Exchange may also list
options on SPX, XSP, and MRUT whose
exercise settlement value is derived
from closing prices on the last trading
day prior to expiration (P.M.-settled
third Friday-of-the-month SPX options
series). [The Exchange may also list
options on the Mini-SPX Index (‘‘XSP’’)
and Mini-RUT Index (‘‘MRUT’’) whose
exercise settlement value is derived
from closing prices on the last trading
day prior to expiration (‘‘P.M.-settled’’).
P.M.-settled third Friday-of-the-month
SPX options series and P.M.-settled XSP
and MRUT options will be listed for
trading for a pilot period ending May 8,
2023.]
[based on rule text if SR–CBOE–2023–
005 is approved]
.13 In addition to A.M.-settled S&P
500 Stock Index (‘‘SPX’’) options
approved for trading on the Exchange
pursuant to Rule 4.13, the Exchange
may also list options on SPX whose
exercise settlement value is derived
from closing prices on the last trading
day prior to expiration (P.M.-settled
third Friday-of-the-month SPX options
series).
.14 In addition to A.M.-settled MiniSPX Index (‘‘XSP’’) options and MiniRUT Index (‘‘MRUT’’) options approved
for trading on the Exchange pursuant to
Rule 4.13, t[T]he Exchange may list XSP
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and MRUT options [on the Mini-SPX
Index (‘‘XSP’’) and Mini-RUT Index
(‘‘MRUT’’)] whose exercise settlement
value is derived from closing prices on
the last trading day prior to expiration
(‘‘P.M.-settled’’). [P.M.-settled XSP and
MRUT options will be listed for trading
for a pilot period ending May 8, 2023.]
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to make
permanent its Pilot Program that
permits the Exchange to list XSP and
MRUT options whose exercise
settlement value is derived from closing
prices on the last trading day prior to
expiration (‘‘P.M.-settled’’). The
Securities and Exchange Commission
(the ‘‘Commission’’) approved a rule
change that established the Pilot
Program to allow the Exchange to list
options on the S&P 500 Index (‘‘SPX’’)
whose exercise settlement value is
derived from closing prices on the last
trading day prior to expiration
(‘‘SPXPM’’) on February 8, 2013.3 On
3 See Securities Exchange Act Release No. 68888
(February 8, 2013), 78 FR 10668 (February 14, 2013)
(SR–CBOE–2012–120) (the ‘‘SPXPM Approval
Order’’). Pursuant to Securities Exchange Act
Release No. 80060 (February 17, 2017), 82 FR 11673
(February 24, 2017) (SR–CBOE–2016–091), the
Exchange moved third-Friday P.M.-settled options
into the S&P 500 Index options class, and as a
result, the trading symbol for P.M.-settled S&P 500
Index options that have standard third Friday-ofthe-month expirations changed from ‘‘SPXPM’’ to
‘‘SPXW.’’ This change went into effect on May 1,
2017, pursuant to Cboe Options Regulatory Circular
RG17–054.
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July 31, 2013, the Commission approved
a rule change that amended the Pilot
Program to allow the Exchange to list
XSP options whose exercise settlement
value is derived from closing prices on
the last trading day prior to expiration
(‘‘P.M.-settled XSP’’).4 On February 5,
2021, the Commission approved a rule
change that amended the Pilot Program
to allow the Exchange to list options on
the MRUT options whose exercise
settlement value is derived from closing
prices on the last trading day prior to
expiration (‘‘P.M.-settled MRUT’’) 5
(together, P.M.-settled XSP and P.M.settled MRUT to be referred to herein as
the ‘‘Pilot Products’’).6 The Exchange
has extended the pilot period numerous
times, which, pursuant to Rule 4.13.13,
is currently set to expire on the earlier
of May 8, 2023 or the date on which the
pilot program is approved on a
permanent basis.7 The Exchange hereby
requests that the Commission approve
the Pilot Program for the Pilot Products
on a permanent basis.8
By way of background, when cashsettled 9 index options were first
4 See Securities Exchange Act Release No. 70087
(July 31, 2013), 78 FR 47809 (August 6, 2013) (SR–
CBOE–2013–055) (the ‘‘P.M.-settled XSP Approval
Order’’).
5 See Securities Exchange Act Release No. 91067
(February 5, 2021), 86 FR 9108 (SR–2020–CBOE–
116) (the ‘‘P.M.-settled MRUT Approval Order’’).
6 For more information on the Pilot Products or
the Pilot Program, see the P.M.-settled XSP
Approval Order and the P.M.-settled MRUT
Approval Order.
7 See Securities Exchange Act Release Nos. 71424
(January 28, 2014), 79 FR 6249 (February 3, 2014)
(SR–CBOE–2014–004); 73338 (October 10, 2014), 79
FR 62502 (October 17, 2014) (SR–CBOE–2014–076);
77573 (April 8, 2016), 81 FR 22148 (April 14, 2016)
(SR–CBOE–2016–036); 80386 (April 6, 2017), 82 FR
17704 (April 12, 2017) (SR–CBOE–2017–025);
83166 (May 3, 2018), 83 FR 21324 (May 9, 2018)
(SR–CBOE–2018–036); 84535 (November 5, 2018),
83 FR 56129 (November 9, 2018) (SR–CBOE–2018–
069); 85688 (April 18, 2019), 84 FR 17214 (April 24,
2019) (SR–CBOE–2019–023); 87464 (November 5,
2019), 84 FR 61099 (November 12, 2019) (SR–
CBOE–2019–107); 88674 (April 16, 2020), 85 FR
22479 (April 22, 2020) (SR–CBOE–2020–036);
90263 (October 23, 2020), 85 FR 68611 (October 29,
2020) (SR–CBOE–2020–100); 91698 (April 28,
2021), 86 FR 23761 (May 4, 2021) (SR–CBOE–2021–
027); 93455 (October 28, 2021), 86 FR 60660
(November 3, 2021) (SR–CBOE–2021–062); and
94799 (April 27, 2022), 87 FR 26244 (May 3, 2022)
(SR–CBOE–2022–019).
8 The Exchange notes that it also proposes
nonsubstantive changes to the rule text to conform
the language to that for SPXPM (by referencing the
corresponding A.M.-settled products). As noted
above, the Exchange submitted a previous rule
filing to propose to make the SPXPM Pilot Program
permanent, which is still pending at the
Commission. This rule filing proposes changes to
the rule text that reflect both currently effective rule
text and the rule text if that other rule filing is
approved by the Commission.
9 The seller of a ‘‘cash-settled’’ index option pays
out the cash value of the applicable index on
expiration or exercise. A ‘‘physically settled’’
option, like equity and ETF options, involves the
transfer of the underlying asset rather than cash.
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introduced in the 1980s, settlement was
based on the closing value of the
underlying index on the option’s
expiration date. The Commission later
became concerned about the impact of
P.M.-settled, cash-settled index options
on the markets for the underlying stocks
at the close on expiration Fridays.
Specifically, certain episodes of price
reversals around the close on quarterly
expiration dates attracted the attention
of regulators to the possibility that the
simultaneous expiration of index
futures, futures options, and options
might be inducing abnormal volatility in
the index value around the close.10
Academic research at the time provided
at least some evidence suggesting that
futures and options expirations
contributed to excess volatility and
reversals around the close on those
days.11 In light of the concerns with
P.M.-settlement and to help ameliorate
the price effects associated with
expirations of P.M.-settled, cash-settled
index products, in 1987, the Commodity
Futures Trading Commission (‘‘CFTC’’)
approved a rule change by the Chicago
Mercantile Exchange (‘‘CME’’) to
provide for A.M. settlement 12 for index
futures, including futures on the S&P
500.13 The Commission subsequently
approved a rule change by Cboe Options
to list and trade A.M.-settled SPX
options.14 In 1992, the Commission
approved Cboe Options’ proposal to
transition all of its European-style cashsettled options on the S&P 500 Index to
A.M. settlement; 15 however, in 1993,
the Commission approved a rule
See Characteristics and Risks of Standardized
Options, available at: https://www.theocc.com/
Company-Information/Documents-and-Archives/
Options-Disclosure-Document.
10 The close of trading on the quarterly expiration
Friday (i.e., the third Friday of March, June,
September and December), when options, index
futures, and options on index futures all expire
simultaneously, became known as the ‘‘triple
witching hour.’’
11 See Securities and Exchange Commission,
Division of Economic Risk and Analysis,
Memorandum, Cornerstone Analysis of PM CashSettled Index Option Pilots (February 2, 2021)
(‘‘DERA Staff PM Pilot Memo’’) at 5, available at:
https://www.sec.gov/files/Analysis_of_PM_Cash_
Settled_Index_Option_Pilots.pdf.
12 The exercise settlement value for an A.M.settled index option is determined by reference to
the reported level of the index as derived from the
opening prices of the component securities on the
business day before expiration.
13 See Securities Exchange Act Release No. 24367
(April 17, 1987), 52 FR 13890 (April 27, 1987) (SR–
CBOE–87–11) (noting that CME moved S&P 500
futures contract’s settlement value to opening prices
on the delivery date).
14 See id.
15 See Securities Exchange Act Release No. 30944
(July 21, 1992), 57 FR 33376 (July 28, 1992) (SR–
CBOE–92–09). Thereafter, the Commission
approved proposals by the options markets to
transfer most of their cash-settled index products to
A.M. settlement.
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allowing Cboe Options to list P.M.settled options on certain broad-based
indices, including the S&P 500 Index,
expiring at the end of each calendar
quarter (‘‘Quarterly Index Expirations’’)
(since adopted as permanent).16 Starting
in 2006, the Commission approved
numerous rule changes, on a pilot basis,
permitting Cboe Options to introduce
other index options, including SPX
options, with P.M.-settlement. These
include P.M.-settled index options
expiring weekly (other than the third
Friday) and at the end of each month
(‘‘EOM’’),17 SPXPM,18 as well as the
Pilot Products.19
As stated above, since their inceptions
in 2016 and 2020, the Exchange has
continuously extended the P.M.-settled
XSP Pilot Program and the P.M.-settled
MRUT Pilot Program, respectively, and,
during the course of the these Pilot
Programs and in support of the
extensions of these Pilot Programs, the
Exchange has submitted reports to the
Commission regarding the Pilot
Programs that detail the Exchange’s
experience with the Pilot Programs,
pursuant to the P.M.-settled XSP
Approval Order and the P.M.-settled
MRUT Approval Order (together, the
‘‘Pilot Product Approval Orders’’).20
Specifically, the Exchange has
submitted annual Pilot Programs reports
to the Commission that contain an
analysis of volume, open interest, and
trading patterns. The analysis examines
trading in the Pilot Products, as well as
trading in the securities that comprise
the underlying indexes. Additionally,
for series that exceed certain minimum
open interest parameters, the annual
reports provide analysis of index price
volatility and share trading activity. The
Exchange has also submitted periodic
interim reports that contain some, but
not all, of the information contained in
the annual reports (together with the
16 See Securities Exchange Act Release No. 31800
(February 1, 1993), 58 FR 7274 (February 5, 1993)
(SR–CBOE–92–13); and see Rule 4.13(a)(2)(B); see
also Securities Exchange Act Release Nos. 54123
(July 11, 2006), 71 FR 40558 (July 17, 2006) (SR–
CBOE–2006–65); and 60164 (June 23, 2009), 74 FR
31333 (June 30, 2009) (SR–CBOE–2009–029).
17 See Securities Exchange Act Release Nos.
62911 (September 14, 2010), 75 FR 57539
(September 21, 2010) (SR–CBOE–2009–075); 76529
(November 30, 2015), 80 FR 75695 (December 3,
2015) (SR–CBOE–2015–106); 78132 (June 22, 2016),
81 FR 42018 (June 28, 2016) (SR–CBOE–2016–046);
78531 (August 10, 2016), 81 FR 54643 (August 16,
2016) (SR–CBOE–2016–046); 94682 (April 12,
2022), 87 FR 22993 (April 18, 2022) (SR–CBOE–
2022–005); and 95795 (September 15, 2022), 87 FR
57745 (September 21, 2022) (SR–CBOE–2022–039).
18 See SPXPM Approval Order.
19 See P.M.-settled XSP Approval Order and the
P.M.-settled MRUT Approval Order.
20 See supra notes 3 and 4.
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26361
periodic interim reports, the ‘‘pilot
reports’’).21
The pilot reports contained the
following volume and open interest
data:
(1) monthly volume aggregated for all
trades;
(2) monthly volume aggregated by
expiration date;
(3) monthly volume for each
individual series;
(4) month-end open interest
aggregated for all series;
(5) month-end open interest for all
series aggregated by expiration date; and
(6) month-end open interest for each
individual series.
The annual reports also contained the
information noted in Items (1) through
(6) above for SPX and Expiration Friday,
A.M.-settled RUT index options traded
on Cboe Options, as well as the
following analysis of trading patterns in
the Pilot Products options series in the
Pilot Program:
(1) a time series analysis of open interest;
and
(2) an analysis of the distribution of trade
sizes.
Finally, for series that exceed certain
minimum parameters,22 the annual
reports contained the following analysis
related to index price changes and
underlying share trading volume at the
close on Expiration Fridays:
(1) a comparison of index price changes at
the close of trading on a given Expiration
Friday with comparable price changes from
a control sample. The data includes a
calculation of percentage price changes for
various time intervals and compare that
information to the respective control sample.
Raw percentage price change data as well as
percentage price change data normalized for
prevailing market volatility, as measured by
the Cboe Volatility Index (VIX), is provided;
and
(2) a calculation of share volume for a
sample set of the component securities
representing an upper limit on share trading
that could be attributable to expiring in-themoney series. The data includes a
comparison of the calculated share volume
for securities in the sample set to the average
daily trading volumes of those securities over
a sample period.
Also, during the course of the Pilot
Products Pilot Programs, the Exchange
provided the Commission with any
additional data or analyses the
21 In providing the pilot reports to the
Commission, the Exchange previously requested
confidential treatment of the pilot reports under the
Freedom of Information Act (‘‘FOIA’’). See 5 U.S.C.
552.
22 The Exchange and the Commission determined
the minimum open interest parameters, control
sample, time intervals, method for randomly
selecting the component securities, and sample
periods.
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Commission requested if it deemed such
data or analyses necessary to determine
whether the Pilot Programs were
consistent with the Exchange Act. The
Exchange has made public on its
website all data and analyses previously
submitted to the Commission under the
Pilot Programs,23 and will continue to
make public any data and analyses it
submits to the Commission while the
Pilot Products Pilot Programs are still in
effect.
The Exchange has concluded that the
Pilot Products Pilot Program does not
negatively impact market quality or
raise any unique or prohibitive
regulatory concerns. The Exchange has
not identified any evidence from the
pilot data indicating that the trading of
P.M.-settled XSP or MRUT options has
any adverse impact on fair and orderly
markets on Expiration Fridays for the
Mini-SPX Index, the Mini-RUT Index or
the underlying securities comprising the
underlying indexes, nor have there been
any observations of abnormal market
movements attributable to P.M.-settled
XSP or MRUT options from any market
participants that have come to the
attention of the Exchange.
Based on a study conducted by the
Commission’s Division of Economic and
Risk Analysis (‘‘DERA’’) staff on the
pilot data from 2006 through 2018,24
and the Exchange’s review of the pilot
data from 2019 through 2021, the size of
the market for P.M.-settled SPX options
(including quarterly, weekly, EOM and
third Friday expirations) since 2007 has
grown from a trivial portion of the
overall market to a substantial share
(from around 0.1% of open interest in
2007 to 30% in 2021).25 Notional value
of open interest in P.M.-settled SPX
options increased from approximately a
median of $1.5 billion in 2007 to $1.9
trillion in 2021, approximately 1260
times its value in 2007. Notional open
interest in A.M.-settled SPX options was
23 Available at https://www.cboe.com/aboutcboe/
legal-regulatory/national-market-system-plans/pmsettlement-spxpm-data.
24 See DERA Staff PM Pilot Memo, at 13 (‘‘Option
settlement quantity data for A.M.- and P.M.-settled
options were obtained from the Cboe, including the
number of contracts that settled in-the-money for
each exchange-traded option series on the S&P 500
index . . . on expiration days from January 20,
2006 through December 31, 2018. Daily open
interest and volume data for [SPX] option series
were also obtained from Cboe, including open
interest data from January 3, 2006 through
December 31, 2018 and trading volume data from
January 3, 2006 through December 31, 2018.’’)
25 The DERA staff study reviewed and provided
statistics for market share, median notional value of
open interest and median volume in 2007 and in
2018. The Exchange provides updated statistics for
market share, median notional value of open
interest and median volume in 2021, replacing the
2018 statistics provided in the Commission staff
study.
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18:44 Apr 27, 2023
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already hovering around a median of
$1.4 trillion in 2007, and it has since
increased to approximately $4.4 trillion
in 2021. It is also important to note that
open interest on expiring P.M.-settled
SPX options, as compared to A.M.settled options, is spread out across a
greater number of expiration dates,
which results in a smaller percentage of
open interest expiring on any one date,
thus mitigating concerns that SPXPM
option expiration may have a disruptive
effect on the market.26 Daily trading
volume in P.M.-settled SPX options has
increased from a median of about 700
contracts in 2007 to nearly 1.9 million
contracts in 2021,27 and now exceeds
trading volume in A.M.-settled SPX
options.
Moreover, the DERA staff study of the
P.M.-settled SPX options pilot data
(2006 through 2018) did not identify
any significant economic impact on S&P
500 futures,28 the S&P 500, or the
underlying component securities of the
S&P 500 surrounding the close. For
purposes of the study, volatility was by
and large measured by using the
standard deviation 29 of one-minute
returns of S&P 500 futures values and
the index value during regular hours on
each day reviewed (excluding the first
and last 15 minutes of trading) and then
compared with the standard deviation
of one-minute returns (for S&P 500
futures, the S&P 500, and the underlying
component securities of the S&P 500)
over the last 15 minutes of a trading
day.30 Using this as a general measure,31
26 See
DERA Staff PM Pilot Memo, at 2.
Exchange notes that the DERA staff study
used two-sided volume data for the median volume
in 2007 and in 2018; therefore, the Exchange
provides two-sided volume data for the median
volume in 2021.
28 Futures on the S&P 500 experience high
volume and liquidity both before and after the close
of the underlying market. Therefore, futures are a
useful measure of abnormal volatility surrounding
the close and the open. See DERA Staff PM Pilot
Memo, at 14. The Exchange agrees with this
approach.
29 Standard deviation applied to a rate of return
(in this case, one-minute) of an instrument can
indicate that instrument’s historical volatility. The
greater the standard deviation, the greater the
variance between price and the mean, which
indicates a larger price range, i.e., higher volatility.
30 For example, if on a particular day the standard
deviation of one-minute returns between 3:45 p.m.
ET and 4:00 p.m. ET is 0.004 and the standard
deviation of returns from 9:45 a.m. ET to 3:45 p.m.
ET is 0.002, this metric would take on a value of
2 for that day, indicating that volatility during the
last 15 minutes of the trading day was twice as high
as it was during the rest of the trading day. See
DERA Staff PM Pilot Memo, at 15; see also DERA
Staff PM Pilot Memo, at Section V, which discusses
in detail the metrics used to measure, for the
purposes of the study, the extent to which the
market may experience abnormal volatility
surrounding SPXPM option settlement.
31 See DERA Staff PM Pilot Memo, at Section V,
which discusses in detail the metrics used to
27 The
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the DERA staff study then reviewed
whether, and to what extent, the
settlement quantity of SPXPM options
and the levels of open interest in
SPXPM options on expiration days (as
compared to non-expiration days) may
be associated with general price
volatility and price reversals for S&P
500 futures, the S&P 500, and the
underlying component securities of the
S&P 500 near the close. From its review
of the study, the Exchange agrees that,
although volatility before the market
close is generally higher than during the
rest of the trading day, there is no
evidence of any significant adverse
economic impact to the futures, index,
or underlying index component
securities markets as a result of the
quantity of P.M.-settled SPX options
that settle at the close or the amount of
expiring open interest in P.M.-settled
SPX options. For example, the largest
settlement event that occurred during
the time period of the study (a
settlement of $100.4 billion of notional
on December 29, 2017) had an estimated
impact on the futures price of only
approximately 0.02% (a predicted
impact of $0.54 relative to a closing
futures price of $2,677).
In particular, the DERA staff study
found that an additional P.M.-settled
SPX options settlement quantity equal
to $10 billion in notional value is
associated with a marginal impact on
futures prices during the last 15 minutes
of the trading day of only about $0.06
(where the hypothetical index level is
2,500), additional expiring open interest
in P.M.-settled SPX options equal to $10
billion in notional value is associated
with a marginal impact on futures prices
during the last 15 minutes of the trading
day of only about $0.05 (assumed index
level is 2,500). Also, an additional
increase in settlement quantity or in
expiring open interest, each equal to $20
million in notional value, did not result
in any meaningful futures price
reversals near the close (neither was
found to cause a price reversal of over
one standard deviation 32).
Likewise, the study identified that an
additional total P.M.-settled SPX
options settlement quantity equal to $10
billion in notional value corresponds to
price movement in the S&P 500 of only
about $0.08 (assuming an index level of
2,500) during the last 15 minutes of the
trading day, and that additional expiring
open interest equal to $10 billion in
notional value corresponds to a price
movement in the S&P 500 of only about
measure, for the purposes of the study, the extent
to which the market may experience abnormal
volatility surrounding SPXPM option settlement.
32 See supra note 27.
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$0.06 (assuming an index level of 2,500)
during the last 15 minutes of the trading
day. The study also identified that it
would take an increase of $34 billion in
notional value of total settlement
quantity and of expiring open interest
for one additional S&P 500 price
reversal of greater than two standard
deviations to occur in the last 15
minutes before the market close. Also,
regarding potential impact to S&P 500
component securities, it would take an
increase in total P.M.-settled SPX
options settlement quantity equal to $20
billion to effect a price movement of
only approximately $0.03 for a $200
stock, an increase in expiring open
interest in P.M.-settled SPX options
equal to $10 billion to effect a price
movement less than half a standard
deviation, and an increase in total P.M.settled SPX settlement quantity equal to
$7 billion to achieve a price reversal
greater two standard deviations.
The study employed the same metrics
to determine whether there is greater
price volatility for S&P 500 futures, the
S&P 500, and the component securities
of the S&P 500 related to SPXPM option
settlements during an environment of
high market volatility (i.e., on days in
which the VIX Index was in the top
10% of closing index values) and did
not identify indicators of any significant
economic impact on these markets near
the close as a result of the P.M.-settled
SPX options settlement.33 In addition to
this, the DERA staff study, applying the
same metrics and analysis as for P.M.settled SPX options to A.M.-settled SPX
options, did not identify any evidence
of a statistically significant relationship
between settlement quantity or expiring
open interest of A.M.-settled options
and volatility near the open.
Upon review of the results of the
DERA staff study, the Exchange agrees
that each of the above-described
marginal price movements in S&P 500
futures, the S&P 500, and the S&P 500
component securities affected by
increases in P.M.-settled SPX options
settlement quantity and expiring open
interest appear to be de minimis pricing
changes from those that occur over
regular trading hours (outside of the last
15 minutes of the trading day). Further,
the Exchange has not observed any
significant economic impact or other
adverse effects on the market from
similar reviews of its pilot reports and
data submitted after 2018.34 In its
33 The Exchange also notes that the study did not
identify any evidence that less liquid S&P 500
constituent securities experienced any greater
impact from the settlement of P.M.-settled SPX
options.
34 Total SPX open interest volumes were
examined for expiration dates over a roughly two-
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review of a sample of the pilot data from
2019 through 2021, the Exchange
similarly measured volatility over the
final fifteen minutes of each trading day
by taking the standard deviation of
rolling one-minute returns of the S&P
500 level (excluding the first and last
fifteen minutes of trading) and
comparing such with the standard
deviation of one-minute returns 35 of the
S&P 500 level, over the last 15 minutes
of a trading day. The Exchange
identified an average standard deviation
ratio of 1.42 for the S&P 500 on nonexpiration days and an average standard
deviation ratio of 1.54 for the S&P 500
on expiration days (a ratio between
expiration days and non-expiration days
of 1.09). The Exchange also notes that,
using the same methodology, it
observed that, from 2015 through
2019,36 the average standard deviation
ratio for the S&P 500 on non-expiration
days was 1.11 and the average standard
deviation ratio for the S&P 500 on
expiration days was 1.22 (a ratio
between expiration days and nonexpiration days of 1.10). While the
average standard deviation ratio on both
expiration and non-expiration days was
higher in 2019 through 2021 due to
overall market volatility, the ratios
between the standard deviation ratios
on expiration days and non-expirations
days remained nearly identical between
the 2015 through 2019 timeframe and
the 2019 through 2021. This shows that,
in cases where overall market volatility
may increase, the normalized impact on
expiration days to non-expiration days
generally remains consistent.
In addition to this, the Exchange notes
that the S&P 500 is rebalanced quarterly.
The changes resulting from each
rebalancing coincide with the thirdFriday of the quarterly rebalancing
month (i.e., March, June, September,
October and December) 37 and generally
drive an increase in trading activity
from investors that seek to track the S&P
500. As such, the Exchange measured
volatility on quarterly rebalancing dates
and found that the average standard
deviation ratio was 1.62, which suggests
more closing volatility on quarterly
rebalance dates compared to nonquarterly expiration dates (for which the
average standard deviation ratio was
1.22), thus indicating that the impact
rebalancing may have on the S&P 500 is
year period between October 2019 and November
2021.
35 Calculated at every tick for the prior minute.
36 November 2015 through November 2021.
37 See S&P Dow Jones Indices, Equity Indices
Policies & Practices, Methodology (August 2021), at
15, available at https://www.spglobal.com/spdji/en/
documents/methodologies/methodology-sp-equityindices-policies-practices.pdf.
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greater than any impact that P.M.-settled
SPX options may have on the S&P 500.
The Exchange additionally focused its
study of the post-2018 sample pilot data
on reviewing for potential correlation
between excess market volatility and
price reversals and the hedging activity
of liquidity providers. As explained in
the DERA staff study, potential impact
of P.M.-settled SPX options on the
correlated equity markets is thought to
stem from the hedging activity of
liquidity providers in such options.38 To
determine any such potential
correlation, the Exchange studied the
expected action of liquidity providers
that are the primary source of the
hedging on settlement days. These
liquidity providers generally deltahedge their S&P 500 index exposure via
S&P 500 futures and on settlement day
unwind their futures positions that
correspond with the delta of their inthe-money (ITM) expiring P.M.-settled
SPX options. Assuming such behavior,
the Exchange estimated the Market-OnClose (‘‘MOC’’) 39 volume for the shares
of the S&P 500 component securities
(i.e., ‘‘MOC share volume’’) that could
ultimately result from the unwinding of
the liquidity providers’ futures positions
by equating the notional value of the
futures positions that correspond to
expiring ITM open interest to the
number S&P 500 component security
contracts (based on the weight of each
S&P 500 component security). That is,
the Exchange calculated (an estimate) of
the amount of MOC volume in the S&P
500 component markets attributable
hedging activity as a result of expiring
ITM P.M.-settled SPX options (i.e.,
‘‘hedging MOC’’). The Exchange then:
(1) compared the hedging MOC share
volume to all MOC share volume on
expiration days and non-expiration
trading days; and (2) compared the
notional value of the hedging futures
positions (i.e., that correspond to
expiring ITM P.M.-settled SPX options
open interest) to the notional value of
expiring ITM P.M.-settled SPX options
open interest, the notional value of all
expiring P.M.-settled SPX options open
interest and the notional value of all
P.M.-settled SPX options open interest.
The Exchange observed that, on
average, there were approximately 25%
more MOC shares executed on
expiration days (332 expiration days)
than non-expiration days (209 nonexpiration days). While, at first glance,
the volume of MOC shares executed on
38 See
DERA Staff PM Pilot Memo, at 10–12.
orders allow a market participant to trade
at the closing price. Market participants generally
utilize MOC orders to ensure they exit positions at
the end of the trading day.
39 MOC
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expiration days seems much greater
than the volume executed on nonexpiration days, the Exchange notes that
much of this difference is attributable to
just eight expiration days—the quarterly
index rebalancing dates captured within
the scope of the post-2018 sample pilot
data. The average MOC share volume on
the eight quarterly rebalancing dates
was approximately 4.8 times the average
MOC share volume on the non-quarterly
rebalancing expiration dates; again,
indicating that the impact rebalancing
may have on the S&P 500 Index is
greater than any impact that P.M.-settled
SPX options may have on the S&P 500
Index. That is, the Exchange observed
that the majority of closing volume on
quarterly rebalance dates is driven by
rebalancing of shares in in the S&P 500,
and not by P.M.-settled SPX options
expiration-related hedging activity.
Notwithstanding the MOC share volume
on quarterly rebalancing dates, the
volume of MOC shares executed on
expiration days (324 expiration days)
was only approximately 13% more than
that on non-expiration days,
substantially less than the increase in
volume over non-expiration days
wherein the eight index rebalancing
dates are included in expiration day
volume. In addition to this, the
Exchange observed that the hedging
MOC share volume (i.e., the expected
MOC share volume resulting from
hedging activity in connection with
expiring ITM P.M.-settled SPX options)
was, on average, less than the MOC
share volume on non-expiration days,
and was only approximately 20% of the
total MOC share volume on expiration
days, indicating that other sources of
MOC share volume generally exceed the
volume resulting from hedging activity
of expiring ITM P.M.-settled SPX
options and would more likely be a
source of any potential market volatility.
The Exchange also observed that,
across all third-Friday expirations, the
notional value of the hedging futures
positions was approximately 25% of the
notional value of expiring ITM P.M.settled SPX options, approximately
3.8% of the notional value of all
expiring P.M.-settled SPX options, and
approximately only 0.5% of the notional
value of all P.M.-settled SPX options. As
such, the estimated hedging activity
from liquidity providers on expiration
days is a fraction of the expiring open
interest in P.M.-settled SPX options,
which, the Exchange notes, is only 14%
of the total open interest in P.M.-settled
SPX options; thus, indicating negligible
capacity for hedging activity to increase
volatility in the underlying markets.
While unrelated to the initial
concerns of P.M.-settlement as
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described above, at the request of the
Commission, the Exchange recently
completed an analysis intended to
evaluate whether the introduction of
P.M.-settled options impacted the
quality of the A.M.-settled option
market. Specifically, the Exchange
compared values of key market quality
indicators (specifically, the bid-ask
spread 40 and effective spread 41) in
SPXW options both before and after the
introduction of Tuesday expirations and
Thursday expirations for SPXW options
on April 18 and May 11, 2022,
respectively.42 Options on the Standard
& Poor’s Depositary Receipts S&P 500
ETF (‘‘SPY’’) were used as a control
group to account for any market factors
that might influence key market quality
indicators. The Exchange used data
from January 3, 2022 through March 4,
2022 (the two-month period prior to the
introduction of SPXW options with
Tuesday expirations) and data from May
11, 2022 to July 10, 2022 (the twomonth period following the
introduction of SPXW options with
Thursday expirations).43
Given the time that as passed since
the introduction of the Pilot Products,
the Exchange is unable to analyze
whether the introduction of Pilot
Products significantly impacted the
market quality of A.M.-settled options.
Additionally, the Exchange is unable to
analyze whether the introduction of the
Pilot Products significantly impacted
the market quality of A.M.-settled XSP
or MRUT options, as applicable (which
the Exchange does not list for trading).
However, the Exchange believes
analyzing whether the introduction of
new SPXW P.M.-settled expirations (i.e.,
SPXW options with Tuesday and
Thursday expirations) impacted the
market quality of then-existing SPXW
P.M.-settled expirations (i.e., SPXW
40 The Exchange calculated for each of SPXW
options (with Monday, Wednesday, and Friday
expirations) and SPY Weekly options (with
Monday, Wednesday, and Friday expirations) the
daily time-weighted bid-ask spread on the Exchange
during its regular trading hours session, adjusted for
the difference in size between SPXW options and
SPY options (SPXW options are approximately ten
times the value of SPY options).
41 The Exchange calculated the volume-weighted
average daily effective spread for simple trades for
each of SPXW options (with Monday, Wednesday,
and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations)
as twice the amount of the absolute value of the
difference between an order execution price and the
midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size
between SPXW options and SPY options.
42 For purposes of comparison, the Exchange
paired SPXW options and SPY options with the
same moneyness and same days to expiration.
43 The Exchange observed comparable market
volatility levels during the pre-intervention and
post-intervention time ranges.
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options with Monday, Wednesday, and
Friday expirations) provides a
reasonable substitute to evaluate
whether the introduction of P.M.-settled
index options impacted the market
quality of the underlying cash markets
when the pilot began. The full analysis
is included in Exhibit 3 of this rule
filing.
As a result of this analysis, the
Exchange believes the introduction of
SPX options with Tuesday and
Thursday options had no significant
impact on the market quality of SPXW
options with Monday, Wednesday, and
Friday expirations. With respect to the
majority of series analyzed, the
Exchange observed no statistically
significant difference in the bid-ask
spread or the effective spread of the
series in the period prior to introduction
of the Tuesday and Thursday
expirations and the period following the
introduction of the Tuesday and
Thursday expirations. While
statistically insignificant, the Exchange
notes that in many series, particularly as
they were closer to expiration, the
Exchange observed that the values of
these spreads decreased during the
period following the introduction of the
Tuesday and Thursday expirations.44
To further note, given the significant
changes in the closing procedures of the
primary markets in recent decades,
including considerable advances in
trading systems and technology, the
Exchange believes that the risks of any
potential impact of P.M.-, cash-settled
XSP or MRUT options on the
underlying cash markets are also de
minimis.
The Exchange proposes to make the
Pilot Products Pilot Programs
permanent as P.M.-settled index
products have become an integral part
of the Exchange’s product offerings,
providing investors with greater trading
opportunities and flexibility. As
indicated by the significant growth in
the size of the market for P.M.-settled
options, such options have been, and
continue to be, well-received and
widely used by market participants.
Therefore, the Exchange wishes to be
able to continue to provide investors
with the ability to trade the Pilot
Products on a permanent basis.45 The
Exchange believes that the permanent
continuation of the Pilot Products will
serve to maintain the status quo by
continuing to offer products to which
44 In any series in which the Exchange observed
an increase in the market quality indicators, the
Exchange notes any such increase was also
statistically insignificant.
45 As noted above, the Exchange does not list
A.M.-settled XSP or MRUT options for trading, just
P.M.-settled.
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investors have become accustomed and
have incorporated into their business
models and day-to-day trading
methodologies for nearly ten years. As
such, the Exchange also believes that
ceasing to offer the Pilot Products
options may result in significant market
disruption and investor confusion. The
Exchange has not identified any
significant impact on market quality nor
any unique or prohibitive regulatory
concerns as a result of the Pilot Products
Pilot Programs, and, as such, the
Exchange believes that the continuation
of the Pilot Products Programs as pilots,
including the use of time and resources
to compile and analyze quarterly and
annual pilot reports and pilot data, is no
longer necessary and that making the
Pilot Products Pilot Programs
permanent will allow the Exchange to
otherwise allocate time and resources to
other industry initiatives.
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.46 Specifically,
the Exchange believes the proposed rule
change is consistent with the section
6(b)(5) 47 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.
In particular, the Exchange believes
that the making the Pilot Products Pilot
Programs permanent will allow the
Exchange to be able to continue to offer
the Pilot Products on a continuous and
permanent basis. These products have
been, and continue to be, well-received
and widely used by market participants,
providing investors with greater trading
opportunities and flexibility. The
Exchange believes that the permanent
continuation of the Pilot Products Pilot
Programs will remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest by
continuing to offer products to which
46 15
47 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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investors have become accustomed and
have incorporated into their business
models and day-to-day trading strategies
for nearly seven (XSP) and three
(MRUT) years. The Exchange believes
ceasing to offer the Pilot Products may
result in significant market disruption
and investor confusion, as P.M.-settled
index products have become an integral
part of the Exchange’s product offerings
(the Exchange does not list A.M.-settled
XSP and MRUT options), providing
investors with greater trading
opportunities and flexibility.
The Exchange further believes that
making the Pilot Products Pilot
Programs permanent will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and
protect investors, while maintaining a
fair and orderly market, as the Exchange
believes that previous concerns (arising
in the 1980s) regarding options
expirations potentially contributing to
excess volatility and reversals around
the close have been adequately
diminished. As described in detail
above, the Exchange has observed no
significant adverse market impact or
identified any meaningful regulatory
concerns during the multi-year
operation of the Pilot Products Pilot
Programs as a pilot nor during the 15
years since P.M.-settled index options
(SPX) were reintroduced to the
marketplace.48 Notably, the Exchange
did not identify any significant
economic impact (including on pricing
or volatility or in connection with
reversals) on the related futures, the
underlying indexes, or the underlying
component securities of the underlying
indexes surrounding the close as a
result of the quantity of P.M.-settled
index options that settle at the close or
the amount of expiring open interest in
P.M.-settled index options, nor any
demonstrated capacity for options
hedging activity to impact volatility in
the underlying markets. While the
DERA staff study and corresponding
Exchange study described above
specifically evaluated SPX options,
because XSP options overly the same
index comprised of the same securities
(just one tenth the size) and MRUT is
also a broad-based index, the Exchange
believes it is appropriate to extrapolate
the data to apply the Pilot Products.
This is particularly true given that the
reports submitted by the Exchange
during the pilot period have similarly
demonstrated no significant economic
impact on the respective underlying
indexes or other products.
48 See
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The Exchange also believes the
introduction of P.M.-settled XSP and
MRUT options had no significant
impact on the market quality of
corresponding A.M.-settled options (as
the Exchange does not list those) or
other options (such as A.M.-settled SPX
or RUT options). The Exchange believes
this as a result of its analysis conducted
after the introduction of SPXW options
with Tuesday and Thursday expirations,
which demonstrated no statistically
significant impact on the bid-ask or
effective spreads of SPXW options with
Monday, Wednesday, and Friday
expirations after trading in the SPXW
options with Tuesday and Thursday
expirations began. While SPXW options
are P.M.-settled and SPX options are
A.M.-settled, they are otherwise nearly
identical products. P.M.-settled XSP
options are nearly identical to P.M.settled and A.M.-settled SPX options, as
they are based on an index comprised
of the same securities, just 1⁄10th the
size. Similarly, P.M.-settled MRUT
options are nearly identical to A.M.settled RUT Options, as they are based
on an index comprised of the same
securities, just 1⁄10th the size. Therefore,
the Exchange believes analyzing the
impact of new SPXW options on thenexisting SPXW options permit the
Exchange to extrapolate from this data
that it is unlikely the introduction of
P.M.-settled XSP or MRUT options
significantly impacted the market
quality of A.M.-settled options, such as
A.M.-settled SPX or RUT options,
respectively, when the pilots began.
Additionally, the significant changes
in the closing procedures of the primary
markets in recent decades, including
considerable advances in trading
systems and technology, has
significantly minimized risks of any
potential impact of P.M.-, cash-settled
XSP and MRUT options on the
underlying cash markets. As such, the
Exchange believes that permanent Pilot
Products Pilot Programs do not raise any
unique or prohibitive regulatory
concerns and that such trading has not,
and will not, adversely impact fair and
orderly markets on Expiration Fridays
for the underlying indexes or their
component securities. Further, as the
Exchange has not identified any
significant impact on market quality or
any unique or prohibitive regulatory
concerns as a result of offering the Pilot
Products, the Exchange believes that the
continuation of the Pilot Products Pilot
Programs as pilots, including the
gathering, submission and review of the
pilot reports and data, is no longer
necessary and that making the Pilot
Products Pilot Programs permanent will
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
allow the Exchange to otherwise
allocate time and resources to other
industry initiatives.
ddrumheller on DSK120RN23PROD with NOTICES1
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Cboe Options 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 making
the Pilot Products Pilot Programs
permanent will impose any unnecessary
or inappropriate burden on intramarket
competition because the Pilot Products
options will continue to be available to
all market participants who wish to
participate in the XSP and MRUT
options markets. The Exchange believes
that the growth that the markets for
P.M.-settled products, including the
Pilot Products, have experienced since
their reintroduction through pilot
programs indicates strong, continued
investor interest and demand,
warranting permanent Pilot Products
Pilot Programs. The Exchange believes
that, for the period that P.M.-settled XSP
and MRUT options have been in
operation as pilot programs, they have
provided investors with desirable
products with which to trade and
wishes to permanently offer these
products to investors. Furthermore,
during the pilot period, the Exchange
has not observed any significant adverse
market effects nor identified any
regulatory concerns as a result of the
Pilot Products Pilot Programs, and, as
such, the continuation of the programs
as pilots, including the gathering,
submission and review of the pilot
reports and data, is no longer
necessary—permanent Pilot Products
Pilot Programs will allow the Exchange
to otherwise allocate time and resources
to other industry initiatives.
The Exchange further does not believe
that making the Pilot Products Pilot
Programs permanent will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because it applies to classes of options
listed only for trading on Cboe Options.
The Exchange notes that other
exchanges are free to and do offer
competing products. To the extent that
the permanent offering and continued
trading of P.M.-settled XSP and MRUT
options may make Cboe Options a more
attractive marketplace to market
participants at other exchanges, such
market participants may elect to become
Cboe Options market participants.
VerDate Sep<11>2014
18:44 Apr 27, 2023
Jkt 259001
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2023–019 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2023–019. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–CBOE–2023–019,
and should be submitted on or before
May 19, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.49
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–08985 Filed 4–27–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97367; File No. SR–CBOE–
2023–005]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of
Amendment No. 1 and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, To Make Permanent
the Operation of the Program That
Allows the Exchange to List P.M.Settled Third Friday-of-the-Month S&P
500 Stock Index (‘‘S&P 500’’) Options
(‘‘SPX’’) Series
April 24, 2023.
I. Introduction
On January 6, 2023, Cboe Exchange,
Inc. (‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
make permanent the operation of its
pilot program that permits the Exchange
to list P.M.-settled third Friday-of-themonth SPX options (the ‘‘Program’’).
The proposed rule change was
published for comment in the Federal
49 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\28APN1.SGM
28APN1
]]>Agencies
[Federal Register Volume 88, Number 82 (Friday, April 28, 2023)]
[Notices]
[Pages 26359-26366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08985]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97366; File No. SR-CBOE-2023-019]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Make Permanent the Operation of Its
Program (``Pilot Program'') That Allows the Exchange To List P.M.-
Settled Third Friday-of-the-Month Mini-SPX Index (``XSP'') Options and
Mini-Russell 2000 Index (``MRUT'') Options Series
April 24, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 19, 2023, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to
[[Page 26360]]
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to make permanent the operation of its program (``Pilot Program'') that
allows the Exchange to list P.M.-settled third Friday-of-the-month
Mini-SPX Index (``XSP'') options and Mini-Russell 2000 Index (``MRUT'')
options series. The text of the proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 4.13. Series of Index Options
* * * * *
Interpretations and Policies
.01-.12 No change.
[based on currently effective rule text]
.13 In addition to A.M.-settled S&P 500 Stock Index (``SPX'')
options, Mini-SPX Index (``XSP'') options, and Mini-RUT Index
(``MRUT'') options approved for trading on the Exchange pursuant to
Rule 4.13, the Exchange may also list options on SPX, XSP, and MRUT
whose exercise settlement value is derived from closing prices on the
last trading day prior to expiration (P.M.-settled third Friday-of-the-
month SPX options series). [The Exchange may also list options on the
Mini-SPX Index (``XSP'') and Mini-RUT Index (``MRUT'') whose exercise
settlement value is derived from closing prices on the last trading day
prior to expiration (``P.M.-settled''). P.M.-settled third Friday-of-
the-month SPX options series and P.M.-settled XSP and MRUT options will
be listed for trading for a pilot period ending May 8, 2023.]
[based on rule text if SR-CBOE-2023-005 is approved]
.13 In addition to A.M.-settled S&P 500 Stock Index (``SPX'')
options approved for trading on the Exchange pursuant to Rule 4.13, the
Exchange may also list options on SPX whose exercise settlement value
is derived from closing prices on the last trading day prior to
expiration (P.M.-settled third Friday-of-the-month SPX options series).
.14 In addition to A.M.-settled Mini-SPX Index (``XSP'') options
and Mini-RUT Index (``MRUT'') options approved for trading on the
Exchange pursuant to Rule 4.13, t[T]he Exchange may list XSP and MRUT
options [on the Mini-SPX Index (``XSP'') and Mini-RUT Index (``MRUT'')]
whose exercise settlement value is derived from closing prices on the
last trading day prior to expiration (``P.M.-settled''). [P.M.-settled
XSP and MRUT options will be listed for trading for a pilot period
ending May 8, 2023.]
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make permanent its Pilot Program that
permits the Exchange to list XSP and MRUT options whose exercise
settlement value is derived from closing prices on the last trading day
prior to expiration (``P.M.-settled''). The Securities and Exchange
Commission (the ``Commission'') approved a rule change that established
the Pilot Program to allow the Exchange to list options on the S&P 500
Index (``SPX'') whose exercise settlement value is derived from closing
prices on the last trading day prior to expiration (``SPXPM'') on
February 8, 2013.\3\ On July 31, 2013, the Commission approved a rule
change that amended the Pilot Program to allow the Exchange to list XSP
options whose exercise settlement value is derived from closing prices
on the last trading day prior to expiration (``P.M.-settled XSP'').\4\
On February 5, 2021, the Commission approved a rule change that amended
the Pilot Program to allow the Exchange to list options on the MRUT
options whose exercise settlement value is derived from closing prices
on the last trading day prior to expiration (``P.M.-settled MRUT'') \5\
(together, P.M.-settled XSP and P.M.-settled MRUT to be referred to
herein as the ``Pilot Products'').\6\ The Exchange has extended the
pilot period numerous times, which, pursuant to Rule 4.13.13, is
currently set to expire on the earlier of May 8, 2023 or the date on
which the pilot program is approved on a permanent basis.\7\ The
Exchange hereby requests that the Commission approve the Pilot Program
for the Pilot Products on a permanent basis.\8\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 68888 (February 8,
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (the
``SPXPM Approval Order''). Pursuant to Securities Exchange Act
Release No. 80060 (February 17, 2017), 82 FR 11673 (February 24,
2017) (SR-CBOE-2016-091), the Exchange moved third-Friday P.M.-
settled options into the S&P 500 Index options class, and as a
result, the trading symbol for P.M.-settled S&P 500 Index options
that have standard third Friday-of-the-month expirations changed
from ``SPXPM'' to ``SPXW.'' This change went into effect on May 1,
2017, pursuant to Cboe Options Regulatory Circular RG17-054.
\4\ See Securities Exchange Act Release No. 70087 (July 31,
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055) (the ``P.M.-
settled XSP Approval Order'').
\5\ See Securities Exchange Act Release No. 91067 (February 5,
2021), 86 FR 9108 (SR-2020-CBOE-116) (the ``P.M.-settled MRUT
Approval Order'').
\6\ For more information on the Pilot Products or the Pilot
Program, see the P.M.-settled XSP Approval Order and the P.M.-
settled MRUT Approval Order.
\7\ See Securities Exchange Act Release Nos. 71424 (January 28,
2014), 79 FR 6249 (February 3, 2014) (SR-CBOE-2014-004); 73338
(October 10, 2014), 79 FR 62502 (October 17, 2014) (SR-CBOE-2014-
076); 77573 (April 8, 2016), 81 FR 22148 (April 14, 2016) (SR-CBOE-
2016-036); 80386 (April 6, 2017), 82 FR 17704 (April 12, 2017) (SR-
CBOE-2017-025); 83166 (May 3, 2018), 83 FR 21324 (May 9, 2018) (SR-
CBOE-2018-036); 84535 (November 5, 2018), 83 FR 56129 (November 9,
2018) (SR-CBOE-2018-069); 85688 (April 18, 2019), 84 FR 17214 (April
24, 2019) (SR-CBOE-2019-023); 87464 (November 5, 2019), 84 FR 61099
(November 12, 2019) (SR-CBOE-2019-107); 88674 (April 16, 2020), 85
FR 22479 (April 22, 2020) (SR-CBOE-2020-036); 90263 (October 23,
2020), 85 FR 68611 (October 29, 2020) (SR-CBOE-2020-100); 91698
(April 28, 2021), 86 FR 23761 (May 4, 2021) (SR-CBOE-2021-027);
93455 (October 28, 2021), 86 FR 60660 (November 3, 2021) (SR-CBOE-
2021-062); and 94799 (April 27, 2022), 87 FR 26244 (May 3, 2022)
(SR-CBOE-2022-019).
\8\ The Exchange notes that it also proposes nonsubstantive
changes to the rule text to conform the language to that for SPXPM
(by referencing the corresponding A.M.-settled products). As noted
above, the Exchange submitted a previous rule filing to propose to
make the SPXPM Pilot Program permanent, which is still pending at
the Commission. This rule filing proposes changes to the rule text
that reflect both currently effective rule text and the rule text if
that other rule filing is approved by the Commission.
---------------------------------------------------------------------------
By way of background, when cash-settled \9\ index options were
first
[[Page 26361]]
introduced in the 1980s, settlement was based on the closing value of
the underlying index on the option's expiration date. The Commission
later became concerned about the impact of P.M.-settled, cash-settled
index options on the markets for the underlying stocks at the close on
expiration Fridays. Specifically, certain episodes of price reversals
around the close on quarterly expiration dates attracted the attention
of regulators to the possibility that the simultaneous expiration of
index futures, futures options, and options might be inducing abnormal
volatility in the index value around the close.\10\ Academic research
at the time provided at least some evidence suggesting that futures and
options expirations contributed to excess volatility and reversals
around the close on those days.\11\ In light of the concerns with P.M.-
settlement and to help ameliorate the price effects associated with
expirations of P.M.-settled, cash-settled index products, in 1987, the
Commodity Futures Trading Commission (``CFTC'') approved a rule change
by the Chicago Mercantile Exchange (``CME'') to provide for A.M.
settlement \12\ for index futures, including futures on the S&P
500.\13\ The Commission subsequently approved a rule change by Cboe
Options to list and trade A.M.-settled SPX options.\14\ In 1992, the
Commission approved Cboe Options' proposal to transition all of its
European-style cash-settled options on the S&P 500 Index to A.M.
settlement; \15\ however, in 1993, the Commission approved a rule
allowing Cboe Options to list P.M.-settled options on certain broad-
based indices, including the S&P 500 Index, expiring at the end of each
calendar quarter (``Quarterly Index Expirations'') (since adopted as
permanent).\16\ Starting in 2006, the Commission approved numerous rule
changes, on a pilot basis, permitting Cboe Options to introduce other
index options, including SPX options, with P.M.-settlement. These
include P.M.-settled index options expiring weekly (other than the
third Friday) and at the end of each month (``EOM''),\17\ SPXPM,\18\ as
well as the Pilot Products.\19\
---------------------------------------------------------------------------
\9\ The seller of a ``cash-settled'' index option pays out the
cash value of the applicable index on expiration or exercise. A
``physically settled'' option, like equity and ETF options, involves
the transfer of the underlying asset rather than cash. See
Characteristics and Risks of Standardized Options, available at:
https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document.
\10\ The close of trading on the quarterly expiration Friday
(i.e., the third Friday of March, June, September and December),
when options, index futures, and options on index futures all expire
simultaneously, became known as the ``triple witching hour.''
\11\ See Securities and Exchange Commission, Division of
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM
Cash-Settled Index Option Pilots (February 2, 2021) (``DERA Staff PM
Pilot Memo'') at 5, available at: https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf.
\12\ The exercise settlement value for an A.M.-settled index
option is determined by reference to the reported level of the index
as derived from the opening prices of the component securities on
the business day before expiration.
\13\ See Securities Exchange Act Release No. 24367 (April 17,
1987), 52 FR 13890 (April 27, 1987) (SR-CBOE-87-11) (noting that CME
moved S&P 500 futures contract's settlement value to opening prices
on the delivery date).
\14\ See id.
\15\ See Securities Exchange Act Release No. 30944 (July 21,
1992), 57 FR 33376 (July 28, 1992) (SR-CBOE-92-09). Thereafter, the
Commission approved proposals by the options markets to transfer
most of their cash-settled index products to A.M. settlement.
\16\ See Securities Exchange Act Release No. 31800 (February 1,
1993), 58 FR 7274 (February 5, 1993) (SR-CBOE-92-13); and see Rule
4.13(a)(2)(B); see also Securities Exchange Act Release Nos. 54123
(July 11, 2006), 71 FR 40558 (July 17, 2006) (SR-CBOE-2006-65); and
60164 (June 23, 2009), 74 FR 31333 (June 30, 2009) (SR-CBOE-2009-
029).
\17\ See Securities Exchange Act Release Nos. 62911 (September
14, 2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-2009-075);
76529 (November 30, 2015), 80 FR 75695 (December 3, 2015) (SR-CBOE-
2015-106); 78132 (June 22, 2016), 81 FR 42018 (June 28, 2016) (SR-
CBOE-2016-046); 78531 (August 10, 2016), 81 FR 54643 (August 16,
2016) (SR-CBOE-2016-046); 94682 (April 12, 2022), 87 FR 22993 (April
18, 2022) (SR-CBOE-2022-005); and 95795 (September 15, 2022), 87 FR
57745 (September 21, 2022) (SR-CBOE-2022-039).
\18\ See SPXPM Approval Order.
\19\ See P.M.-settled XSP Approval Order and the P.M.-settled
MRUT Approval Order.
---------------------------------------------------------------------------
As stated above, since their inceptions in 2016 and 2020, the
Exchange has continuously extended the P.M.-settled XSP Pilot Program
and the P.M.-settled MRUT Pilot Program, respectively, and, during the
course of the these Pilot Programs and in support of the extensions of
these Pilot Programs, the Exchange has submitted reports to the
Commission regarding the Pilot Programs that detail the Exchange's
experience with the Pilot Programs, pursuant to the P.M.-settled XSP
Approval Order and the P.M.-settled MRUT Approval Order (together, the
``Pilot Product Approval Orders'').\20\ Specifically, the Exchange has
submitted annual Pilot Programs reports to the Commission that contain
an analysis of volume, open interest, and trading patterns. The
analysis examines trading in the Pilot Products, as well as trading in
the securities that comprise the underlying indexes. Additionally, for
series that exceed certain minimum open interest parameters, the annual
reports provide analysis of index price volatility and share trading
activity. The Exchange has also submitted periodic interim reports that
contain some, but not all, of the information contained in the annual
reports (together with the periodic interim reports, the ``pilot
reports'').\21\
---------------------------------------------------------------------------
\20\ See supra notes 3 and 4.
\21\ In providing the pilot reports to the Commission, the
Exchange previously requested confidential treatment of the pilot
reports under the Freedom of Information Act (``FOIA''). See 5
U.S.C. 552.
---------------------------------------------------------------------------
The pilot reports contained the following volume and open interest
data:
(1) monthly volume aggregated for all trades;
(2) monthly volume aggregated by expiration date;
(3) monthly volume for each individual series;
(4) month-end open interest aggregated for all series;
(5) month-end open interest for all series aggregated by expiration
date; and
(6) month-end open interest for each individual series.
The annual reports also contained the information noted in Items (1)
through (6) above for SPX and Expiration Friday, A.M.-settled RUT index
options traded on Cboe Options, as well as the following analysis of
trading patterns in the Pilot Products options series in the Pilot
Program:
(1) a time series analysis of open interest; and
(2) an analysis of the distribution of trade sizes.
Finally, for series that exceed certain minimum parameters,\22\ the
annual reports contained the following analysis related to index price
changes and underlying share trading volume at the close on Expiration
Fridays:
---------------------------------------------------------------------------
\22\ The Exchange and the Commission determined the minimum open
interest parameters, control sample, time intervals, method for
randomly selecting the component securities, and sample periods.
(1) a comparison of index price changes at the close of trading
on a given Expiration Friday with comparable price changes from a
control sample. The data includes a calculation of percentage price
changes for various time intervals and compare that information to
the respective control sample. Raw percentage price change data as
well as percentage price change data normalized for prevailing
market volatility, as measured by the Cboe Volatility Index (VIX),
is provided; and
(2) a calculation of share volume for a sample set of the
component securities representing an upper limit on share trading
that could be attributable to expiring in-the-money series. The data
includes a comparison of the calculated share volume for securities
in the sample set to the average daily trading volumes of those
securities over a sample period.
Also, during the course of the Pilot Products Pilot Programs, the
Exchange provided the Commission with any additional data or analyses
the
[[Page 26362]]
Commission requested if it deemed such data or analyses necessary to
determine whether the Pilot Programs were consistent with the Exchange
Act. The Exchange has made public on its website all data and analyses
previously submitted to the Commission under the Pilot Programs,\23\
and will continue to make public any data and analyses it submits to
the Commission while the Pilot Products Pilot Programs are still in
effect.
---------------------------------------------------------------------------
\23\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
---------------------------------------------------------------------------
The Exchange has concluded that the Pilot Products Pilot Program
does not negatively impact market quality or raise any unique or
prohibitive regulatory concerns. The Exchange has not identified any
evidence from the pilot data indicating that the trading of P.M.-
settled XSP or MRUT options has any adverse impact on fair and orderly
markets on Expiration Fridays for the Mini-SPX Index, the Mini-RUT
Index or the underlying securities comprising the underlying indexes,
nor have there been any observations of abnormal market movements
attributable to P.M.-settled XSP or MRUT options from any market
participants that have come to the attention of the Exchange.
Based on a study conducted by the Commission's Division of Economic
and Risk Analysis (``DERA'') staff on the pilot data from 2006 through
2018,\24\ and the Exchange's review of the pilot data from 2019 through
2021, the size of the market for P.M.-settled SPX options (including
quarterly, weekly, EOM and third Friday expirations) since 2007 has
grown from a trivial portion of the overall market to a substantial
share (from around 0.1% of open interest in 2007 to 30% in 2021).\25\
Notional value of open interest in P.M.-settled SPX options increased
from approximately a median of $1.5 billion in 2007 to $1.9 trillion in
2021, approximately 1260 times its value in 2007. Notional open
interest in A.M.-settled SPX options was already hovering around a
median of $1.4 trillion in 2007, and it has since increased to
approximately $4.4 trillion in 2021. It is also important to note that
open interest on expiring P.M.-settled SPX options, as compared to
A.M.-settled options, is spread out across a greater number of
expiration dates, which results in a smaller percentage of open
interest expiring on any one date, thus mitigating concerns that SPXPM
option expiration may have a disruptive effect on the market.\26\ Daily
trading volume in P.M.-settled SPX options has increased from a median
of about 700 contracts in 2007 to nearly 1.9 million contracts in
2021,\27\ and now exceeds trading volume in A.M.-settled SPX options.
---------------------------------------------------------------------------
\24\ See DERA Staff PM Pilot Memo, at 13 (``Option settlement
quantity data for A.M.- and P.M.-settled options were obtained from
the Cboe, including the number of contracts that settled in-the-
money for each exchange-traded option series on the S&P 500 index .
. . on expiration days from January 20, 2006 through December 31,
2018. Daily open interest and volume data for [SPX] option series
were also obtained from Cboe, including open interest data from
January 3, 2006 through December 31, 2018 and trading volume data
from January 3, 2006 through December 31, 2018.'')
\25\ The DERA staff study reviewed and provided statistics for
market share, median notional value of open interest and median
volume in 2007 and in 2018. The Exchange provides updated statistics
for market share, median notional value of open interest and median
volume in 2021, replacing the 2018 statistics provided in the
Commission staff study.
\26\ See DERA Staff PM Pilot Memo, at 2.
\27\ The Exchange notes that the DERA staff study used two-sided
volume data for the median volume in 2007 and in 2018; therefore,
the Exchange provides two-sided volume data for the median volume in
2021.
---------------------------------------------------------------------------
Moreover, the DERA staff study of the P.M.-settled SPX options
pilot data (2006 through 2018) did not identify any significant
economic impact on S&P 500 futures,\28\ the S&P 500, or the underlying
component securities of the S&P 500 surrounding the close. For purposes
of the study, volatility was by and large measured by using the
standard deviation \29\ of one-minute returns of S&P 500 futures values
and the index value during regular hours on each day reviewed
(excluding the first and last 15 minutes of trading) and then compared
with the standard deviation of one-minute returns (for S&P 500 futures,
the S&P 500, and the underlying component securities of the S&P 500)
over the last 15 minutes of a trading day.\30\ Using this as a general
measure,\31\ the DERA staff study then reviewed whether, and to what
extent, the settlement quantity of SPXPM options and the levels of open
interest in SPXPM options on expiration days (as compared to non-
expiration days) may be associated with general price volatility and
price reversals for S&P 500 futures, the S&P 500, and the underlying
component securities of the S&P 500 near the close. From its review of
the study, the Exchange agrees that, although volatility before the
market close is generally higher than during the rest of the trading
day, there is no evidence of any significant adverse economic impact to
the futures, index, or underlying index component securities markets as
a result of the quantity of P.M.-settled SPX options that settle at the
close or the amount of expiring open interest in P.M.-settled SPX
options. For example, the largest settlement event that occurred during
the time period of the study (a settlement of $100.4 billion of
notional on December 29, 2017) had an estimated impact on the futures
price of only approximately 0.02% (a predicted impact of $0.54 relative
to a closing futures price of $2,677).
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\28\ Futures on the S&P 500 experience high volume and liquidity
both before and after the close of the underlying market. Therefore,
futures are a useful measure of abnormal volatility surrounding the
close and the open. See DERA Staff PM Pilot Memo, at 14. The
Exchange agrees with this approach.
\29\ Standard deviation applied to a rate of return (in this
case, one-minute) of an instrument can indicate that instrument's
historical volatility. The greater the standard deviation, the
greater the variance between price and the mean, which indicates a
larger price range, i.e., higher volatility.
\30\ For example, if on a particular day the standard deviation
of one-minute returns between 3:45 p.m. ET and 4:00 p.m. ET is 0.004
and the standard deviation of returns from 9:45 a.m. ET to 3:45 p.m.
ET is 0.002, this metric would take on a value of 2 for that day,
indicating that volatility during the last 15 minutes of the trading
day was twice as high as it was during the rest of the trading day.
See DERA Staff PM Pilot Memo, at 15; see also DERA Staff PM Pilot
Memo, at Section V, which discusses in detail the metrics used to
measure, for the purposes of the study, the extent to which the
market may experience abnormal volatility surrounding SPXPM option
settlement.
\31\ See DERA Staff PM Pilot Memo, at Section V, which discusses
in detail the metrics used to measure, for the purposes of the
study, the extent to which the market may experience abnormal
volatility surrounding SPXPM option settlement.
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In particular, the DERA staff study found that an additional P.M.-
settled SPX options settlement quantity equal to $10 billion in
notional value is associated with a marginal impact on futures prices
during the last 15 minutes of the trading day of only about $0.06
(where the hypothetical index level is 2,500), additional expiring open
interest in P.M.-settled SPX options equal to $10 billion in notional
value is associated with a marginal impact on futures prices during the
last 15 minutes of the trading day of only about $0.05 (assumed index
level is 2,500). Also, an additional increase in settlement quantity or
in expiring open interest, each equal to $20 million in notional value,
did not result in any meaningful futures price reversals near the close
(neither was found to cause a price reversal of over one standard
deviation \32\).
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\32\ See supra note 27.
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Likewise, the study identified that an additional total P.M.-
settled SPX options settlement quantity equal to $10 billion in
notional value corresponds to price movement in the S&P 500 of only
about $0.08 (assuming an index level of 2,500) during the last 15
minutes of the trading day, and that additional expiring open interest
equal to $10 billion in notional value corresponds to a price movement
in the S&P 500 of only about
[[Page 26363]]
$0.06 (assuming an index level of 2,500) during the last 15 minutes of
the trading day. The study also identified that it would take an
increase of $34 billion in notional value of total settlement quantity
and of expiring open interest for one additional S&P 500 price reversal
of greater than two standard deviations to occur in the last 15 minutes
before the market close. Also, regarding potential impact to S&P 500
component securities, it would take an increase in total P.M.-settled
SPX options settlement quantity equal to $20 billion to effect a price
movement of only approximately $0.03 for a $200 stock, an increase in
expiring open interest in P.M.-settled SPX options equal to $10 billion
to effect a price movement less than half a standard deviation, and an
increase in total P.M.-settled SPX settlement quantity equal to $7
billion to achieve a price reversal greater two standard deviations.
The study employed the same metrics to determine whether there is
greater price volatility for S&P 500 futures, the S&P 500, and the
component securities of the S&P 500 related to SPXPM option settlements
during an environment of high market volatility (i.e., on days in which
the VIX Index was in the top 10% of closing index values) and did not
identify indicators of any significant economic impact on these markets
near the close as a result of the P.M.-settled SPX options
settlement.\33\ In addition to this, the DERA staff study, applying the
same metrics and analysis as for P.M.-settled SPX options to A.M.-
settled SPX options, did not identify any evidence of a statistically
significant relationship between settlement quantity or expiring open
interest of A.M.-settled options and volatility near the open.
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\33\ The Exchange also notes that the study did not identify any
evidence that less liquid S&P 500 constituent securities experienced
any greater impact from the settlement of P.M.-settled SPX options.
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Upon review of the results of the DERA staff study, the Exchange
agrees that each of the above-described marginal price movements in S&P
500 futures, the S&P 500, and the S&P 500 component securities affected
by increases in P.M.-settled SPX options settlement quantity and
expiring open interest appear to be de minimis pricing changes from
those that occur over regular trading hours (outside of the last 15
minutes of the trading day). Further, the Exchange has not observed any
significant economic impact or other adverse effects on the market from
similar reviews of its pilot reports and data submitted after 2018.\34\
In its review of a sample of the pilot data from 2019 through 2021, the
Exchange similarly measured volatility over the final fifteen minutes
of each trading day by taking the standard deviation of rolling one-
minute returns of the S&P 500 level (excluding the first and last
fifteen minutes of trading) and comparing such with the standard
deviation of one-minute returns \35\ of the S&P 500 level, over the
last 15 minutes of a trading day. The Exchange identified an average
standard deviation ratio of 1.42 for the S&P 500 on non-expiration days
and an average standard deviation ratio of 1.54 for the S&P 500 on
expiration days (a ratio between expiration days and non-expiration
days of 1.09). The Exchange also notes that, using the same
methodology, it observed that, from 2015 through 2019,\36\ the average
standard deviation ratio for the S&P 500 on non-expiration days was
1.11 and the average standard deviation ratio for the S&P 500 on
expiration days was 1.22 (a ratio between expiration days and non-
expiration days of 1.10). While the average standard deviation ratio on
both expiration and non-expiration days was higher in 2019 through 2021
due to overall market volatility, the ratios between the standard
deviation ratios on expiration days and non-expirations days remained
nearly identical between the 2015 through 2019 timeframe and the 2019
through 2021. This shows that, in cases where overall market volatility
may increase, the normalized impact on expiration days to non-
expiration days generally remains consistent.
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\34\ Total SPX open interest volumes were examined for
expiration dates over a roughly two-year period between October 2019
and November 2021.
\35\ Calculated at every tick for the prior minute.
\36\ November 2015 through November 2021.
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In addition to this, the Exchange notes that the S&P 500 is
rebalanced quarterly. The changes resulting from each rebalancing
coincide with the third-Friday of the quarterly rebalancing month
(i.e., March, June, September, October and December) \37\ and generally
drive an increase in trading activity from investors that seek to track
the S&P 500. As such, the Exchange measured volatility on quarterly
rebalancing dates and found that the average standard deviation ratio
was 1.62, which suggests more closing volatility on quarterly rebalance
dates compared to non-quarterly expiration dates (for which the average
standard deviation ratio was 1.22), thus indicating that the impact
rebalancing may have on the S&P 500 is greater than any impact that
P.M.-settled SPX options may have on the S&P 500.
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\37\ See S&P Dow Jones Indices, Equity Indices Policies &
Practices, Methodology (August 2021), at 15, available at https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-equity-indices-policies-practices.pdf.
---------------------------------------------------------------------------
The Exchange additionally focused its study of the post-2018 sample
pilot data on reviewing for potential correlation between excess market
volatility and price reversals and the hedging activity of liquidity
providers. As explained in the DERA staff study, potential impact of
P.M.-settled SPX options on the correlated equity markets is thought to
stem from the hedging activity of liquidity providers in such
options.\38\ To determine any such potential correlation, the Exchange
studied the expected action of liquidity providers that are the primary
source of the hedging on settlement days. These liquidity providers
generally delta-hedge their S&P 500 index exposure via S&P 500 futures
and on settlement day unwind their futures positions that correspond
with the delta of their in-the-money (ITM) expiring P.M.-settled SPX
options. Assuming such behavior, the Exchange estimated the Market-On-
Close (``MOC'') \39\ volume for the shares of the S&P 500 component
securities (i.e., ``MOC share volume'') that could ultimately result
from the unwinding of the liquidity providers' futures positions by
equating the notional value of the futures positions that correspond to
expiring ITM open interest to the number S&P 500 component security
contracts (based on the weight of each S&P 500 component security).
That is, the Exchange calculated (an estimate) of the amount of MOC
volume in the S&P 500 component markets attributable hedging activity
as a result of expiring ITM P.M.-settled SPX options (i.e., ``hedging
MOC''). The Exchange then: (1) compared the hedging MOC share volume to
all MOC share volume on expiration days and non-expiration trading
days; and (2) compared the notional value of the hedging futures
positions (i.e., that correspond to expiring ITM P.M.-settled SPX
options open interest) to the notional value of expiring ITM P.M.-
settled SPX options open interest, the notional value of all expiring
P.M.-settled SPX options open interest and the notional value of all
P.M.-settled SPX options open interest.
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\38\ See DERA Staff PM Pilot Memo, at 10-12.
\39\ MOC orders allow a market participant to trade at the
closing price. Market participants generally utilize MOC orders to
ensure they exit positions at the end of the trading day.
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The Exchange observed that, on average, there were approximately
25% more MOC shares executed on expiration days (332 expiration days)
than non-expiration days (209 non-expiration days). While, at first
glance, the volume of MOC shares executed on
[[Page 26364]]
expiration days seems much greater than the volume executed on non-
expiration days, the Exchange notes that much of this difference is
attributable to just eight expiration days--the quarterly index
rebalancing dates captured within the scope of the post-2018 sample
pilot data. The average MOC share volume on the eight quarterly
rebalancing dates was approximately 4.8 times the average MOC share
volume on the non-quarterly rebalancing expiration dates; again,
indicating that the impact rebalancing may have on the S&P 500 Index is
greater than any impact that P.M.-settled SPX options may have on the
S&P 500 Index. That is, the Exchange observed that the majority of
closing volume on quarterly rebalance dates is driven by rebalancing of
shares in in the S&P 500, and not by P.M.-settled SPX options
expiration-related hedging activity. Notwithstanding the MOC share
volume on quarterly rebalancing dates, the volume of MOC shares
executed on expiration days (324 expiration days) was only
approximately 13% more than that on non-expiration days, substantially
less than the increase in volume over non-expiration days wherein the
eight index rebalancing dates are included in expiration day volume. In
addition to this, the Exchange observed that the hedging MOC share
volume (i.e., the expected MOC share volume resulting from hedging
activity in connection with expiring ITM P.M.-settled SPX options) was,
on average, less than the MOC share volume on non-expiration days, and
was only approximately 20% of the total MOC share volume on expiration
days, indicating that other sources of MOC share volume generally
exceed the volume resulting from hedging activity of expiring ITM P.M.-
settled SPX options and would more likely be a source of any potential
market volatility.
The Exchange also observed that, across all third-Friday
expirations, the notional value of the hedging futures positions was
approximately 25% of the notional value of expiring ITM P.M.-settled
SPX options, approximately 3.8% of the notional value of all expiring
P.M.-settled SPX options, and approximately only 0.5% of the notional
value of all P.M.-settled SPX options. As such, the estimated hedging
activity from liquidity providers on expiration days is a fraction of
the expiring open interest in P.M.-settled SPX options, which, the
Exchange notes, is only 14% of the total open interest in P.M.-settled
SPX options; thus, indicating negligible capacity for hedging activity
to increase volatility in the underlying markets.
While unrelated to the initial concerns of P.M.-settlement as
described above, at the request of the Commission, the Exchange
recently completed an analysis intended to evaluate whether the
introduction of P.M.-settled options impacted the quality of the A.M.-
settled option market. Specifically, the Exchange compared values of
key market quality indicators (specifically, the bid-ask spread \40\
and effective spread \41\) in SPXW options both before and after the
introduction of Tuesday expirations and Thursday expirations for SPXW
options on April 18 and May 11, 2022, respectively.\42\ Options on the
Standard & Poor's Depositary Receipts S&P 500 ETF (``SPY'') were used
as a control group to account for any market factors that might
influence key market quality indicators. The Exchange used data from
January 3, 2022 through March 4, 2022 (the two-month period prior to
the introduction of SPXW options with Tuesday expirations) and data
from May 11, 2022 to July 10, 2022 (the two-month period following the
introduction of SPXW options with Thursday expirations).\43\
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\40\ The Exchange calculated for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations) the daily time-
weighted bid-ask spread on the Exchange during its regular trading
hours session, adjusted for the difference in size between SPXW
options and SPY options (SPXW options are approximately ten times
the value of SPY options).
\41\ The Exchange calculated the volume-weighted average daily
effective spread for simple trades for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations) as twice the amount
of the absolute value of the difference between an order execution
price and the midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size between SPXW
options and SPY options.
\42\ For purposes of comparison, the Exchange paired SPXW
options and SPY options with the same moneyness and same days to
expiration.
\43\ The Exchange observed comparable market volatility levels
during the pre-intervention and post-intervention time ranges.
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Given the time that as passed since the introduction of the Pilot
Products, the Exchange is unable to analyze whether the introduction of
Pilot Products significantly impacted the market quality of A.M.-
settled options. Additionally, the Exchange is unable to analyze
whether the introduction of the Pilot Products significantly impacted
the market quality of A.M.-settled XSP or MRUT options, as applicable
(which the Exchange does not list for trading). However, the Exchange
believes analyzing whether the introduction of new SPXW P.M.-settled
expirations (i.e., SPXW options with Tuesday and Thursday expirations)
impacted the market quality of then-existing SPXW P.M.-settled
expirations (i.e., SPXW options with Monday, Wednesday, and Friday
expirations) provides a reasonable substitute to evaluate whether the
introduction of P.M.-settled index options impacted the market quality
of the underlying cash markets when the pilot began. The full analysis
is included in Exhibit 3 of this rule filing.
As a result of this analysis, the Exchange believes the
introduction of SPX options with Tuesday and Thursday options had no
significant impact on the market quality of SPXW options with Monday,
Wednesday, and Friday expirations. With respect to the majority of
series analyzed, the Exchange observed no statistically significant
difference in the bid-ask spread or the effective spread of the series
in the period prior to introduction of the Tuesday and Thursday
expirations and the period following the introduction of the Tuesday
and Thursday expirations. While statistically insignificant, the
Exchange notes that in many series, particularly as they were closer to
expiration, the Exchange observed that the values of these spreads
decreased during the period following the introduction of the Tuesday
and Thursday expirations.\44\
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\44\ In any series in which the Exchange observed an increase in
the market quality indicators, the Exchange notes any such increase
was also statistically insignificant.
---------------------------------------------------------------------------
To further note, given the significant changes in the closing
procedures of the primary markets in recent decades, including
considerable advances in trading systems and technology, the Exchange
believes that the risks of any potential impact of P.M.-, cash-settled
XSP or MRUT options on the underlying cash markets are also de minimis.
The Exchange proposes to make the Pilot Products Pilot Programs
permanent as P.M.-settled index products have become an integral part
of the Exchange's product offerings, providing investors with greater
trading opportunities and flexibility. As indicated by the significant
growth in the size of the market for P.M.-settled options, such options
have been, and continue to be, well-received and widely used by market
participants. Therefore, the Exchange wishes to be able to continue to
provide investors with the ability to trade the Pilot Products on a
permanent basis.\45\ The Exchange believes that the permanent
continuation of the Pilot Products will serve to maintain the status
quo by continuing to offer products to which
[[Page 26365]]
investors have become accustomed and have incorporated into their
business models and day-to-day trading methodologies for nearly ten
years. As such, the Exchange also believes that ceasing to offer the
Pilot Products options may result in significant market disruption and
investor confusion. The Exchange has not identified any significant
impact on market quality nor any unique or prohibitive regulatory
concerns as a result of the Pilot Products Pilot Programs, and, as
such, the Exchange believes that the continuation of the Pilot Products
Programs as pilots, including the use of time and resources to compile
and analyze quarterly and annual pilot reports and pilot data, is no
longer necessary and that making the Pilot Products Pilot Programs
permanent will allow the Exchange to otherwise allocate time and
resources to other industry initiatives.
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\45\ As noted above, the Exchange does not list A.M.-settled XSP
or MRUT options for trading, just P.M.-settled.
---------------------------------------------------------------------------
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.\46\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \47\ 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.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78f(b).
\47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the making the Pilot
Products Pilot Programs permanent will allow the Exchange to be able to
continue to offer the Pilot Products on a continuous and permanent
basis. These products have been, and continue to be, well-received and
widely used by market participants, providing investors with greater
trading opportunities and flexibility. The Exchange believes that the
permanent continuation of the Pilot Products Pilot Programs will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, protect investors and the
public interest by continuing to offer products to which investors have
become accustomed and have incorporated into their business models and
day-to-day trading strategies for nearly seven (XSP) and three (MRUT)
years. The Exchange believes ceasing to offer the Pilot Products may
result in significant market disruption and investor confusion, as
P.M.-settled index products have become an integral part of the
Exchange's product offerings (the Exchange does not list A.M.-settled
XSP and MRUT options), providing investors with greater trading
opportunities and flexibility.
The Exchange further believes that making the Pilot Products Pilot
Programs permanent will remove impediments to and perfect the mechanism
of a free and open market and a national market system and protect
investors, while maintaining a fair and orderly market, as the Exchange
believes that previous concerns (arising in the 1980s) regarding
options expirations potentially contributing to excess volatility and
reversals around the close have been adequately diminished. As
described in detail above, the Exchange has observed no significant
adverse market impact or identified any meaningful regulatory concerns
during the multi-year operation of the Pilot Products Pilot Programs as
a pilot nor during the 15 years since P.M.-settled index options (SPX)
were reintroduced to the marketplace.\48\ Notably, the Exchange did not
identify any significant economic impact (including on pricing or
volatility or in connection with reversals) on the related futures, the
underlying indexes, or the underlying component securities of the
underlying indexes surrounding the close as a result of the quantity of
P.M.-settled index options that settle at the close or the amount of
expiring open interest in P.M.-settled index options, nor any
demonstrated capacity for options hedging activity to impact volatility
in the underlying markets. While the DERA staff study and corresponding
Exchange study described above specifically evaluated SPX options,
because XSP options overly the same index comprised of the same
securities (just one tenth the size) and MRUT is also a broad-based
index, the Exchange believes it is appropriate to extrapolate the data
to apply the Pilot Products. This is particularly true given that the
reports submitted by the Exchange during the pilot period have
similarly demonstrated no significant economic impact on the respective
underlying indexes or other products.
---------------------------------------------------------------------------
\48\ See supra notes 24-37.
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The Exchange also believes the introduction of P.M.-settled XSP and
MRUT options had no significant impact on the market quality of
corresponding A.M.-settled options (as the Exchange does not list
those) or other options (such as A.M.-settled SPX or RUT options). The
Exchange believes this as a result of its analysis conducted after the
introduction of SPXW options with Tuesday and Thursday expirations,
which demonstrated no statistically significant impact on the bid-ask
or effective spreads of SPXW options with Monday, Wednesday, and Friday
expirations after trading in the SPXW options with Tuesday and Thursday
expirations began. While SPXW options are P.M.-settled and SPX options
are A.M.-settled, they are otherwise nearly identical products. P.M.-
settled XSP options are nearly identical to P.M.-settled and A.M.-
settled SPX options, as they are based on an index comprised of the
same securities, just \1/10\th the size. Similarly, P.M.-settled MRUT
options are nearly identical to A.M.-settled RUT Options, as they are
based on an index comprised of the same securities, just \1/10\th the
size. Therefore, the Exchange believes analyzing the impact of new SPXW
options on then-existing SPXW options permit the Exchange to
extrapolate from this data that it is unlikely the introduction of
P.M.-settled XSP or MRUT options significantly impacted the market
quality of A.M.-settled options, such as A.M.-settled SPX or RUT
options, respectively, when the pilots began.
Additionally, the significant changes in the closing procedures of
the primary markets in recent decades, including considerable advances
in trading systems and technology, has significantly minimized risks of
any potential impact of P.M.-, cash-settled XSP and MRUT options on the
underlying cash markets. As such, the Exchange believes that permanent
Pilot Products Pilot Programs do not raise any unique or prohibitive
regulatory concerns and that such trading has not, and will not,
adversely impact fair and orderly markets on Expiration Fridays for the
underlying indexes or their component securities. Further, as the
Exchange has not identified any significant impact on market quality or
any unique or prohibitive regulatory concerns as a result of offering
the Pilot Products, the Exchange believes that the continuation of the
Pilot Products Pilot Programs as pilots, including the gathering,
submission and review of the pilot reports and data, is no longer
necessary and that making the Pilot Products Pilot Programs permanent
will
[[Page 26366]]
allow the Exchange to otherwise allocate time and resources to other
industry initiatives.
B. Self-Regulatory Organization's Statement on Burden on Competition
Cboe Options 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 making the Pilot Products Pilot Programs permanent will
impose any unnecessary or inappropriate burden on intramarket
competition because the Pilot Products options will continue to be
available to all market participants who wish to participate in the XSP
and MRUT options markets. The Exchange believes that the growth that
the markets for P.M.-settled products, including the Pilot Products,
have experienced since their reintroduction through pilot programs
indicates strong, continued investor interest and demand, warranting
permanent Pilot Products Pilot Programs. The Exchange believes that,
for the period that P.M.-settled XSP and MRUT options have been in
operation as pilot programs, they have provided investors with
desirable products with which to trade and wishes to permanently offer
these products to investors. Furthermore, during the pilot period, the
Exchange has not observed any significant adverse market effects nor
identified any regulatory concerns as a result of the Pilot Products
Pilot Programs, and, as such, the continuation of the programs as
pilots, including the gathering, submission and review of the pilot
reports and data, is no longer necessary--permanent Pilot Products
Pilot Programs will allow the Exchange to otherwise allocate time and
resources to other industry initiatives.
The Exchange further does not believe that making the Pilot
Products Pilot Programs permanent will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because it applies to classes of options listed
only for trading on Cboe Options. The Exchange notes that other
exchanges are free to and do offer competing products. To the extent
that the permanent offering and continued trading of P.M.-settled XSP
and MRUT options may make Cboe Options a more attractive marketplace to
market participants at other exchanges, such market participants may
elect to become Cboe Options market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2023-019 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2023-019. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CBOE-2023-019, and should be submitted
on or before May 19, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08985 Filed 4-27-23; 8:45 am]
BILLING CODE 8011-01-P
