Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Make the Nonstandard Expirations Pilot Program Permanent, 26621-26629 [2023-09079]
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Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Notices
reflect the availability of optional new
equipment for Market Maker use on the
Exchange Trading Floor. Market Makers
already have the option to upgrade their
podium monitors from those provided
by the Exchange to a larger size, and the
proposed change would simply offer
Market Makers an additional upgrade
option that would, like the current
upgrade options, be subject to a onetime surcharge. The Exchange believes
the proposed change would afford
Market Makers greater flexibility with
respect to the configuration of their
podia and could allow them to make
more efficient use of their Trading Floor
space.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 7 of the Act and
subparagraph (f)(2) of Rule 19b–4 8
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 9 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
9 15 U.S.C. 78s(b)(2)(B).
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2023–32 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–NYSEARCA–2023–32. 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–NYSEARCA–2023–32, and
should be submitted on or before May
22, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–09085 Filed 4–28–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97371; File No. SR–CBOE–
2023–020]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Make the
Nonstandard Expirations Pilot
Program Permanent
April 25, 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 11,
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
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
that allows the Exchange to list broadbased index options with nonstandard
expirations (‘‘Nonstandard Expirations
Pilot Program’’). The text of the
proposed rule change is provided
below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
(a)–(d) No change.
(e) Nonstandard Expirations [Pilot]
Program.
(1)–(2) No change.
(3) [Duration of Nonstandard
Expirations Pilot Program. The
Nonstandard Expirations Pilot
Program shall be through May 8,
2023.
(4)] Weekly Expirations and EOM
Trading Hours on the Last Trading
Day. On the last trading day,
Regular Trading Hours for expiring
Weekly Expirations and EOMs are
from 9:30 a.m. and 4:00 p.m.
(f) No change.
7 15
8 17
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CFR 200.30–3(a)(12).
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Rule 4.13. Series of Index Options
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Notices
Interpretations and Policies
.01 The procedures for adding and
deleting strike prices for index options
are provided in Rule 4.5 and
Interpretations and Policies related
thereto, as otherwise generally provided
by Rule 4.13, and include the following:
(a) No change.
(b) Notwithstanding the above
paragraph, the interval between strike
prices may be no less than $0.50 for
options based on one-one hundredth of
the value of the DJIA, including for
series listed under either the Short Term
Options Series Program in Rule
4.13(a)(2)(A) or the Nonstandard
Expirations [Pilot] Program in Rule
4.13(e).
(c)–(h) No change.
(i) Notwithstanding Interpretation and
Policies .01(a), .01(d) and .04 to Rule
4.13, the exercise prices for new and
additional series of Mini-RUT options
shall be listed subject to the following:
(1)–(2) No change.
(3) The lowest strike price interval
that may be listed for standard
Mini-RUT options, including
LEAPS, is $1, and the lowest strike
price interval that may be listed for
series of Mini-RUT listed under the
Nonstandard Expirations [Pilot]
Program in Rule 4.13(e) and for QIX
Mini-RUT options is $0.50.
*
*
*
*
*
.10 Notwithstanding Interpretations
and Policies .01(a), .01(d) and .04 to
Rule 4.13, the exercise prices for new
and additional series of Mini-SPX
options shall be listed subject to the
following:
(a)–(b) No change.
(c) The lowest strike price interval
that may be listed for standard
Mini-SPX options is $1, including
for LEAPS, and the lowest strike
price interval that may be listed for
series of Mini-SPX listed under
either the Short Term Option Series
Program in Rule 4.13(a)(2)(A) or the
Nonstandard Expirations [Pilot]
Program in Rule 4.13(e) is $0.50.
*
*
*
*
*
Rule 5.4. Minimum Increments for Bids
and Offers
(a) Simple Orders for Equity and
Index Options. The minimum
increments for bids and offers on simple
orders for equity and index options are
as follows:
*
*
*
*
*
Class
Increment
*
*
*
*
*
Series of VIX options (if the Exchange does not list VIX on a group basis pursuant to Rule 4.13) and
series of VIX Options not listed under the Nonstandard Expirations [Pilot] Program (if the Exchange
lists VIX on a group basis pursuant to Rule 4.13).
Series of VIX Options listed under the Nonstandard Expirations [Pilot] Program (if the Exchange lists
VIX on a group basis pursuant to Rule 4.13).
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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 Nonstandard Expirations
Pilot Program. Specifically, the
Exchanges proposes to be permitted to
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list P.M.-settled options on broad-based
indexes that expire (1) on any Monday,
Wednesday, or Friday (other than the
third Friday-of-the-month or days that
coincide with an end-of-month (‘‘EOM’’)
expiration) and, with respect to options
on the S&P 500 Index (‘‘SPX options’’)
and the Mini-S&P 500 Index (‘‘XSP
options’’), on any Tuesday or Thursday
(other than days that coincide with an
EOM expiration) (‘‘Weekly
Expirations’’) and (2) on the last day of
the trading month (‘‘EOM
Expirations’’).3 The Securities and
Exchange Commission (the
‘‘Commission’’) approved a rule change
that established a pilot program under
which the Exchange is permitted to list
P.M.-settled options on broad-based
indexes to expire on (a) any Friday of
the month, other than the third Fridayof-the-month, and (b) the last trading
day of the month.4 On January 14, 2016,
the Commission approved a Cboe
Options proposal to expand the pilot
program to allow P.M.-settled options
3 In
addition to proposing to delete the language
in Rule 4.13(e)(3) regarding the expiration date of
the pilot program (and renumbering subparagraph
(4) to be subparagraph (3)), the Exchange proposes
to delete the word ‘‘pilot’’ from the heading of Rule
4.13(e)(3) and make corresponding changes to Rules
4.13, Interpretations and Policies .01(b) and (i)(3),
.10(c), and 5.4(a).
4 See Securities Exchange Act Release 62911
(September 14, 2010), 75 FR 57539 (September 21,
2010) (order approving SR–CBOE–2009–075).
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*
$0.01.
0.05
0.01
Series trading price
*
Lower than $3.00.
$3.00 and higher.
All prices.
on broad-based indexes to expire on any
Wednesday of month, other than those
that coincide with an EOM.5 On August
10, 2016, the Commission approved a
Cboe Options proposal to expand the
pilot program to allow P.M.-settled
options on broad-based indexes to
expire on any Monday of month, other
than those that coincide with an EOM.6
On April 12, 2022, the Commission
approved a Cboe Options proposal to
expand the pilot program to allow P.M.settled SPX options to also expire on
Tuesday or Thursday.7 On September
15, 2022, the Commission approved a
Cboe Options proposal to expand the
pilot program to allow P.M.-settled XSP
options to similarly expire on Tuesday
or Thursday.8 Under the terms of the
Nonstandard Expirations Pilot Program,
Weekly Expirations and EOMs are
permitted on any broad-based index that
is eligible for regular options trading.
Weekly Expirations and EOMs are cashsettled and have European-style
5 See Securities Exchange Act Release 76909
(January 14, 2016), 81 FR 3512 (January 21, 2016)
(order approving SR–CBOE–2015–106).
6 See Securities Exchange Act Release 78531
(August 10, 2016), 81 FR 54643 (August 16, 2016)
(order approving SR–CBOE–2016–046).
7 See Securities Exchange Act Release 94682
(April 12, 2022) (order approving SR–CBOE–2022–
005).
8 See Securities Exchange Act Release 95795
(September 21, 2022) (order approving SR–CBOE–
2022–039).
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Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Notices
exercise. The proposal became effective
on a pilot basis for a period of fourteen
months that commenced on the next full
month after approval was received to
establish the Program 9 and was
subsequently extended.10 Pursuant to
Rule 4.13(e)(3), the Program is
scheduled to expire on May 8, 2023.
The Exchange hereby requests that the
Commission approve the Nonstandard
Expirations Pilot Program on a
permanent basis.
By way of background, when cashsettled 11 index options were first
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
9 See
supra note 4.
Securities Exchange Act Release 65741
(November 14, 2011), 76 FR 72016 (November 21,
2011) (immediately effective rule change extending
the Program through February 14, 2013); see also
Securities Exchange Act Release 68933 (February
14, 2013), 78 FR 12374 (February 22, 2013)
(immediately effective rule change extending the
Program through April 14, 2014); 71836 (April 1,
2014), 79 FR 19139 (April 7, 2014) (immediately
effective rule change extending the Program
through November 3, 2014); 73422 (October 24,
2014), 79 FR 64640 (October 30, 2014) (immediately
effective rule change extending the Program
through May 3, 2016); 76909 (January 14, 2016), 81
FR 3512 (January 21, 2016) (extending the Program
through May 3, 2017); 80387 (April 6, 2017), 82 FR
17706 (April 12, 2017) (extending the Program
through May 3, 2018); 83165 (May 3, 2018), 83 FR
21316 (May 9, 2018) (SR–CBOE–2018–038)
(extending the Program through November 5, 2018);
84534 (November 5, 2019), 83 FR 56119 (November
9, 2018) (SR–CBOE–2018–070) (extending the
Program through May 6, 2019); 85650 (April 15,
2019), 84 FR 16552 (April 19, 2019) (SR–CBOE–
2019–022) (extending the Program through
November 4, 2019); 87462 (November 5, 2019), 84
FR 61108 (November 12, 2019) (SR–CBOE–2019–
104) (extending the Program through May 4, 2020);
88673 (April 16, 2020), 85 FR 22507 (April 22,
2020) (SR–CBOE–2020–035) (extending the
Program through November 2, 2020); 90262
(October 23, 2020) 85 FR 68616 (October 29, 2020)
(SR–CBOE–2020–101); 91697 (April 28, 2021), 86
FR 23775 (May 4, 2021) (SR–CBOE–2021–026)
(extending the Program through November 1, 2021);
93459 (October 28, 2021), 86 FR 60663 (November
3, 2021) (SR–CBOE–2021–063) (extending the
Program through May 2, 2022); and 94800 (April
27, 2022) 87 FR 26248 (May 3, 2022) (SR–CBOE–
2022–021 (extending the Program through
November 7, 2022).
11 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.
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10 See
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futures, futures options, and options
might be inducing abnormal volatility in
the index value around the close.12
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.13 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 14 for index
futures, including futures on the S&P
500.15 The Commission subsequently
approved a rule change by Cboe Options
to list and trade A.M.-settled SPX
options.16 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; 17 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, expiring
at the end of each calendar quarter
(‘‘Quarterly Index Expirations’’) (since
adopted as permanent).18 Starting in
2006, the Commission approved
numerous rule changes, on a pilot basis,
permitting the Cboe Options to
introduce other index options,
12 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.’’
13 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.
14 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.
15 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).
16 See id.
17 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.
18 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).
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26623
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’’),19 SPXPM, as well
as P.M.-settled Mini-SPX Index (‘‘XSP’’)
options and Mini-Russell 2000 Index
(‘‘MRUT’’) options expiring on the third
Friday.20
As stated above, since its inception in
2010, the Exchange has continuously
extended the Nonstandard Expirations
Pilot Program period and, during the
course of the Nonstandard Expirations
Pilot Program and in support of the
extensions of the Nonstandard
Expirations Pilot Program, the Exchange
has submitted reports to the
Commission regarding the Pilot Program
that detail the Exchange’s experience
with the Pilot Program, pursuant to the
Nonstandard Expirations Pilot Program
Approval Order.21 Specifically, the
Exchange has submitted annual Pilot
Program reports to the Commission that
contain an analysis of volume, open
interest, and trading patterns. In
addition, for series that exceed certain
minimum open interest parameters, the
annual report would provide analysis of
index price volatility and, if needed,
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’’).22
The pilot reports contained the
following volume and open interest
data:
(1) monthly volume aggregated for all
Weekly and EOM trades;
(2) volume in Weekly and EOM series
aggregated by expiration date;
(3) month-end open interest aggregated for
all Weekly and EOM series;
(4) month-end open interest for EOM series
aggregated by expiration date and weekending open interest for Weekly series
aggregated by expiration date;
(5) ratio of monthly aggregate volume in
Weekly and EOM series to total monthly
class volume; and
19 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);
and 78531 (August 10, 2016), 81 FR 54643 (August
16, 2016) (SR–CBOE–2016–046).
20 See Securities Exchange Act Release Nos.
70087 (July 31, 2013), 78 FR 47809 (August 6, 2013)
(SR–CBOE–2013–055); and 91067 (February 5,
2021) 86 FR 9108 (February 11, 2021) (SR–CBOE–
2020–116).
21 See supra note 4.
22 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.
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Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Notices
(6) ratio of month-end open interest in
EOM series to total month-end class open
interest and ratio of week-ending open
interest in EOW series to total week-ending
open interest.
The annual reports also contained the
information noted in Items (1) through
(6) above for Expiration Friday, A.M.settled series, if applicable, for the
period covered in the pilot report as
well as for the six-month period prior to
the initiation of the pilot. Upon request
by the Commission, the Exchange
provided data files containing: (1)
Weekly and EOM option volume data
aggregated by series, and (2) Weekly
week-ending open interest for expiring
series and EOM month-end open
interest for expiring series. In the annual
reports, the Exchange also provided a
monthly analysis of Weekly and EOM
trading patterns by undertaking a time
series analysis of open interest in
Weekly and EOM series aggregated by
expiration date compared to open
interest in near-term standard
Expiration Friday A.M.-settled series in
order to determine whether users were
shifting positions from standard series
to Weekly and Monthly series.
Finally, for series that exceed certain
minimum parameters,23 the annual
reports contained the following analysis
related to index price changes and
underlying share trading volume at the
close on Expiration Fridays:
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(1) a comparison of index price changes at
the close of trading on a given expiration date
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 Weekly and EOM expirations. 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
Nonstandard Expirations Pilot Program,
the Exchange provided the Commission
with any additional data or analyses the
Commission requested if it deemed such
data or analyses necessary to determine
whether the Nonstandard Expirations
Pilot Program was consistent with the
23 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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Exchange Act. The Exchange has made
public on its website all data and
analyses previously submitted to the
Commission under the Nonstandard
Expirations Pilot Program,24 and will
continue to make public any data and
analyses it submits to the Commission
while the Nonstandard Expirations Pilot
Program is still in effect.
The Exchange has concluded that the
Nonstandard Expirations 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 Weekly and EOM
options has any adverse impact on fair
and orderly markets on Expiration
Fridays for the underlying indexes or
the underlying securities comprising
those indexes, nor have there been any
observations of abnormal market
movements attributable to Weekly and
EOM 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 2018,25 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).26 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
24 Available at https://www.cboe.com/aboutcboe/
legal-regulatory/national-market-system-plans/pmsettlement-spxpm-data.
25 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.’’)
26 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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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.27 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 2021,28 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,29 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 30 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.31 Using this as a general measure,32
the DERA staff study then reviewed
27 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.
29 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.
30 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.
31 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.
32 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.
28 The
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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 33).
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
$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
33 See
supra note 26.
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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.34 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 2018.35 In its
review of a sample of the pilot data from
2019 through 2021, the Exchange
34 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.
35 Total SPX open interest volumes were
examined for expiration dates over a roughly twoyear period between October 2019 and November
2021.
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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 36 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
2019,37 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 Index 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) 38 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
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
36 Calculated
at every tick for the prior minute.
2015 through November 2021.
38 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.
37 November
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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.39 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’’) 40 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
expiration days seems much greater
than the volume executed on nonexpiration days, the Exchange notes that
much of this difference is attributable to
39 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.
40 MOC
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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 SPXPM Program
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impacted the quality of the SPX option
market. Specifically, the Exchange
compared values of key market quality
indicators (specifically, the bid-ask
spread 41 and effective spread 42) 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.43 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).44
Given the time that as passed since
the introduction of Weekly and EOM
options, the Exchange is unable to
analyze whether the introduction of
Weekly and EOM options significantly
impacted the market quality of
corresponding A.M.-settled options. 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 Weekly and EOM
options impacted the market quality of
any corresponding A.M.-settled options
when the pilot began.45
As a result of this analysis, the
Exchange believes the introduction of
41 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).
42 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.
43 For purposes of comparison, the Exchange
paired SPXW options and SPY options with the
same moneyness and same days to expiration.
44 The Exchange observed comparable market
volatility levels during the pre-intervention and
post-intervention time ranges.
45 The full analysis is included in Exhibit 3 of this
rule filing.
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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.46
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 Weekly and EOM
options on the underlying cash markets
are also de minimis.
The Exchange proposes to make the
Nonstandard Expirations Pilot Program
permanent as P.M.-settled index
products, particularly Weekly and EOM
options, 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
Weekly and EOM options, such options
have been, and continue to be, wellreceived and widely used by market
participants. Therefore, the Exchange
wishes to be able to continue to provide
investors with the ability to trade
Weekly and EOM options on a
permanent basis. The Exchange believes
that the permanent continuation of the
Nonstandard Expirations Pilot Program
will serve to maintain the status quo by
continuing to offer a product to which
investors have become accustomed and
have incorporated into their business
models and day-to-day trading
methodologies for approximately 13
years. As such, the Exchange also
believes that ceasing to offer Weekly
and EOM 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 Nonstandard Expirations
Pilot Program, and, as such, the
Exchange believes that the continuation
of the Nonstandard Expirations Pilot
Program as a pilot, 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
Nonstandard Expirations Pilot Program
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.47 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 48 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 Nonstandard
Expirations Pilot Program permanent
will allow the Exchange to be able to
continue to offer Weekly and EOM
options—a product of which has
become an integral part of the
Exchange’s offerings—on a continuous
and permanent basis. Since their
reintroduction beginning in 2006,49
P.M.-settled options 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 Nonstandard
Expirations Pilot Program 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 a product
to which investors have become
accustomed and have incorporated into
47 15
46 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.
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
49 See supra notes 27–39. As described above, the
Exchange’s conclusion is consistent with the
analysis in the DERA Staff PM Pilot Memo.
48 15
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their business models and day-to-day
trading strategies for approximately 13
years. 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.
Conversely, the Exchange believes
ceasing to offer the Nonstandard
Expirations Pilot Program may result in
significant market disruption and
investor confusion, as P.M.-settled
index products, particularly Weekly and
EOM options, have become an integral
part of the Exchange’s product offerings,
providing investors with greater trading
opportunities and flexibility.
The Exchange further believes that
making the Nonstandard Expirations
Pilot Program 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 approximately 13year operation of the Nonstandard
Expirations Pilot Program as a pilot nor
during the 15 years since P.M.-settled
SPX options were reintroduced to the
marketplace.50 Notably, the Exchange
did not identify any significant
economic impact (including on pricing
or volatility or in connection with
reversals) on related futures, the
underlying indexes, or the underlying
component securities of the underlying
indexes surrounding the close as a
result of the quantity of Weekly and
EOM options that settle at the close or
the amount of expiring open interest in
Weekly and EOM 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 Weekly and EOM options may
only overly broad-based index options,
the Exchange believes it is appropriate
to extrapolate the data to apply to the
Weekly and EOM options (which
include SPX options). This is
particularly true given that the reports
submitted by the Exchange during the
pilot period have similarly
demonstrated no significant economic
50 See
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impact on the respective underlying
indexes or other products.
The Exchange also believes the
introduction of Weekly and EOM
options had no significant impact on the
market quality of corresponding A.M.settled options or other 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. As noted above,
Weekly and EOM options may only
overly broad-based indexes, including
the S&P 500. 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 any other
Weekly or EOM options significantly
impacted the market quality of
corresponding A.M.-settled SPX options
when the pilot 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 Weekly
or EOM options on the underlying cash
markets. As such, the Exchange believes
that a permanent Nonstandard
Expirations Pilot Program does 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 and 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 Weekly
and EOM options, the Exchange
believes that the continuation of the
Nonstandard Expirations 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 Nonstandard
Expirations 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
VerDate Sep<11>2014
17:10 Apr 28, 2023
Jkt 259001
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 Nonstandard Expirations Pilot
Program permanent will impose any
unnecessary or inappropriate burden on
intramarket competition because
Weekly and EOM options will continue
to be available to all market participants
who wish to participate in the Weekly
and EOM options market. The Exchange
believes that the significant and
sustained growth the Weekly and EOM
options market has experienced since
their reintroduction through pilot
programs indicates strong, continued
investor interest and demand,
warranting a permanent Nonstandard
Expirations Pilot Program. The
Exchange believes that, for the period
that Weekly and EOM 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
Weekly and EOM Program, and, as such,
the continuation of the Nonstandard
Expirations Pilot Program as a pilot,
including the gathering, submission and
review of the pilot reports and data, is
no longer necessary—a permanent
Nonstandard Expirations 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 Nonstandard
Expirations 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 Weekly and EOM
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.
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
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–2023–020 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–2023–020. 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
E:\FR\FM\01MYN1.SGM
01MYN1
Federal Register / Vol. 88, No. 83 / Monday, May 1, 2023 / Notices
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–2023–020,
and should be submitted on or before
May 22, 2023.
Other matters relating to examinations
and enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Authority: 5 U.S.C. 552b.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.51
Sherry R. Haywood,
Assistant Secretary.
Dated: April 27, 2023.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023–09266 Filed 4–27–23; 4:15 pm]
BILLING CODE 8011–01–P
[FR Doc. 2023–09079 Filed 4–28–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97372; File No. SR–
NYSEAMER–2023–28]
Sunshine Act Meetings
lotter on DSK11XQN23PROD with NOTICES1
TIME AND DATE:
2 p.m. on Thursday, May
4, 2023.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
The subject matter of the closed
meeting will consist of the following
topics:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
51 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:10 Apr 28, 2023
Jkt 259001
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify the NYSE
American Options Fee Schedule
April 25, 2023.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on April 18,
2023, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify the
NYSE American Options Fee Schedule
(‘‘Fee Schedule’’) regarding routing fees
and Floor Broker rebates and to delete
text relating to discontinued programs.
The Exchange proposes to implement
the fee change effective April 18, 2023.4
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 The Exchange originally filed to amend the Fee
Schedule on March 1, 2023 (SR–NYSEAMER–
2023–18), withdrew such filing and amended the
Fee Schedule on March 15, 2023 (SR–NYSEAMER–
2023–21), withdrew such filing and amended the
Fee Schedule on March 28, 2023 (SR–NYSEAMER–
2023–24), and then withdrew such filing and
amended the Fee Schedule on April 10, 2023 (SR–
2 15
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
26629
The proposed rule change is available
on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to amend
the Fee Schedule to (1) delete text
relating to fees and credits for NYSE
FANG+ Index (‘‘FAANG’’) transactions,
(2) simplify the Routing Surcharge
applied to orders routed to other
markets, (3) eliminate the introductory
pricing currently offered for Market
Maker ATP fees and Premium Product
fees, and (4) add a Floor Broker rebate
program. The Exchange believes that the
proposed changes would promote
clarity and transparency in the Fee
Schedule by eliminating fees and credits
relating to programs that the Exchange
proposes to discontinue and simplifying
the fees charged for routed orders. The
Exchange proposes to implement the
rule change on April 18, 2023.
FAANG Transactions
Footnote 7 to Section I.A. of the Fee
Schedule (Rates for Options
transactions) currently provides for fees
and credits relating to FAANG
transactions. The Fee Schedule provides
for a $0.35 per contract, per side fee for
Non-Customer FAANG transactions,
whether executed manually or
electronically. FAANG transactions (i)
on behalf of Customers or (ii) by NYSE
American Options Market Makers,
Specialists, e-Specialists or DOMMs do
not incur a fee. Marketing Charges are
not applied to FAANG transactions.
Volume in FAANG transactions is
included in the calculations to qualify
NYSEAMER–2023–26), which latter filing the
Exchange withdrew on April 18, 2023.
E:\FR\FM\01MYN1.SGM
01MYN1
]]>Agencies
[Federal Register Volume 88, Number 83 (Monday, May 1, 2023)]
[Notices]
[Pages 26621-26629]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09079]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97371; File No. SR-CBOE-2023-020]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Make the Nonstandard Expirations
Pilot Program Permanent
April 25, 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 11, 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 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 that allows the Exchange
to list broad-based index options with nonstandard expirations
(``Nonstandard Expirations Pilot Program''). 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
(a)-(d) No change.
(e) Nonstandard Expirations [Pilot] Program.
(1)-(2) No change.
(3) [Duration of Nonstandard Expirations Pilot Program. The
Nonstandard Expirations Pilot Program shall be through May 8, 2023.
(4)] Weekly Expirations and EOM Trading Hours on the Last Trading
Day. On the last trading day, Regular Trading Hours for expiring Weekly
Expirations and EOMs are from 9:30 a.m. and 4:00 p.m.
(f) No change.
[[Page 26622]]
Interpretations and Policies
.01 The procedures for adding and deleting strike prices for index
options are provided in Rule 4.5 and Interpretations and Policies
related thereto, as otherwise generally provided by Rule 4.13, and
include the following:
(a) No change.
(b) Notwithstanding the above paragraph, the interval between
strike prices may be no less than $0.50 for options based on one-one
hundredth of the value of the DJIA, including for series listed under
either the Short Term Options Series Program in Rule 4.13(a)(2)(A) or
the Nonstandard Expirations [Pilot] Program in Rule 4.13(e).
(c)-(h) No change.
(i) Notwithstanding Interpretation and Policies .01(a), .01(d) and
.04 to Rule 4.13, the exercise prices for new and additional series of
Mini-RUT options shall be listed subject to the following:
(1)-(2) No change.
(3) The lowest strike price interval that may be listed for
standard Mini-RUT options, including LEAPS, is $1, and the lowest
strike price interval that may be listed for series of Mini-RUT listed
under the Nonstandard Expirations [Pilot] Program in Rule 4.13(e) and
for QIX Mini-RUT options is $0.50.
* * * * *
.10 Notwithstanding Interpretations and Policies .01(a), .01(d) and
.04 to Rule 4.13, the exercise prices for new and additional series of
Mini-SPX options shall be listed subject to the following:
(a)-(b) No change.
(c) The lowest strike price interval that may be listed for
standard Mini-SPX options is $1, including for LEAPS, and the lowest
strike price interval that may be listed for series of Mini-SPX listed
under either the Short Term Option Series Program in Rule 4.13(a)(2)(A)
or the Nonstandard Expirations [Pilot] Program in Rule 4.13(e) is
$0.50.
* * * * *
Rule 5.4. Minimum Increments for Bids and Offers
(a) Simple Orders for Equity and Index Options. The minimum
increments for bids and offers on simple orders for equity and index
options are as follows:
* * * * *
------------------------------------------------------------------------
Class Increment Series trading price
------------------------------------------------------------------------
* * * * * * *
Series of VIX options (if $0.01. Lower than $3.00.
the Exchange does not list 0.05 $3.00 and higher.
VIX on a group basis
pursuant to Rule 4.13) and
series of VIX Options not
listed under the
Nonstandard Expirations
[Pilot] Program (if the
Exchange lists VIX on a
group basis pursuant to
Rule 4.13).
Series of VIX Options listed 0.01 All prices.
under the Nonstandard
Expirations [Pilot] Program
(if the Exchange lists VIX
on a group basis pursuant
to Rule 4.13).
------------------------------------------------------------------------
* * * * *
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 Nonstandard Expirations
Pilot Program. Specifically, the Exchanges proposes to be permitted to
list P.M.-settled options on broad-based indexes that expire (1) on any
Monday, Wednesday, or Friday (other than the third Friday-of-the-month
or days that coincide with an end-of-month (``EOM'') expiration) and,
with respect to options on the S&P 500 Index (``SPX options'') and the
Mini-S&P 500 Index (``XSP options''), on any Tuesday or Thursday (other
than days that coincide with an EOM expiration) (``Weekly
Expirations'') and (2) on the last day of the trading month (``EOM
Expirations'').\3\ The Securities and Exchange Commission (the
``Commission'') approved a rule change that established a pilot program
under which the Exchange is permitted to list P.M.-settled options on
broad-based indexes to expire on (a) any Friday of the month, other
than the third Friday-of-the-month, and (b) the last trading day of the
month.\4\ On January 14, 2016, the Commission approved a Cboe Options
proposal to expand the pilot program to allow P.M.-settled options on
broad-based indexes to expire on any Wednesday of month, other than
those that coincide with an EOM.\5\ On August 10, 2016, the Commission
approved a Cboe Options proposal to expand the pilot program to allow
P.M.-settled options on broad-based indexes to expire on any Monday of
month, other than those that coincide with an EOM.\6\ On April 12,
2022, the Commission approved a Cboe Options proposal to expand the
pilot program to allow P.M.-settled SPX options to also expire on
Tuesday or Thursday.\7\ On September 15, 2022, the Commission approved
a Cboe Options proposal to expand the pilot program to allow P.M.-
settled XSP options to similarly expire on Tuesday or Thursday.\8\
Under the terms of the Nonstandard Expirations Pilot Program, Weekly
Expirations and EOMs are permitted on any broad-based index that is
eligible for regular options trading. Weekly Expirations and EOMs are
cash-settled and have European-style
[[Page 26623]]
exercise. The proposal became effective on a pilot basis for a period
of fourteen months that commenced on the next full month after approval
was received to establish the Program \9\ and was subsequently
extended.\10\ Pursuant to Rule 4.13(e)(3), the Program is scheduled to
expire on May 8, 2023. The Exchange hereby requests that the Commission
approve the Nonstandard Expirations Pilot Program on a permanent basis.
---------------------------------------------------------------------------
\3\ In addition to proposing to delete the language in Rule
4.13(e)(3) regarding the expiration date of the pilot program (and
renumbering subparagraph (4) to be subparagraph (3)), the Exchange
proposes to delete the word ``pilot'' from the heading of Rule
4.13(e)(3) and make corresponding changes to Rules 4.13,
Interpretations and Policies .01(b) and (i)(3), .10(c), and 5.4(a).
\4\ See Securities Exchange Act Release 62911 (September 14,
2010), 75 FR 57539 (September 21, 2010) (order approving SR-CBOE-
2009-075).
\5\ See Securities Exchange Act Release 76909 (January 14,
2016), 81 FR 3512 (January 21, 2016) (order approving SR-CBOE-2015-
106).
\6\ See Securities Exchange Act Release 78531 (August 10, 2016),
81 FR 54643 (August 16, 2016) (order approving SR-CBOE-2016-046).
\7\ See Securities Exchange Act Release 94682 (April 12, 2022)
(order approving SR-CBOE-2022-005).
\8\ See Securities Exchange Act Release 95795 (September 21,
2022) (order approving SR-CBOE-2022-039).
\9\ See supra note 4.
\10\ See Securities Exchange Act Release 65741 (November 14,
2011), 76 FR 72016 (November 21, 2011) (immediately effective rule
change extending the Program through February 14, 2013); see also
Securities Exchange Act Release 68933 (February 14, 2013), 78 FR
12374 (February 22, 2013) (immediately effective rule change
extending the Program through April 14, 2014); 71836 (April 1,
2014), 79 FR 19139 (April 7, 2014) (immediately effective rule
change extending the Program through November 3, 2014); 73422
(October 24, 2014), 79 FR 64640 (October 30, 2014) (immediately
effective rule change extending the Program through May 3, 2016);
76909 (January 14, 2016), 81 FR 3512 (January 21, 2016) (extending
the Program through May 3, 2017); 80387 (April 6, 2017), 82 FR 17706
(April 12, 2017) (extending the Program through May 3, 2018); 83165
(May 3, 2018), 83 FR 21316 (May 9, 2018) (SR-CBOE-2018-038)
(extending the Program through November 5, 2018); 84534 (November 5,
2019), 83 FR 56119 (November 9, 2018) (SR-CBOE-2018-070) (extending
the Program through May 6, 2019); 85650 (April 15, 2019), 84 FR
16552 (April 19, 2019) (SR-CBOE-2019-022) (extending the Program
through November 4, 2019); 87462 (November 5, 2019), 84 FR 61108
(November 12, 2019) (SR-CBOE-2019-104) (extending the Program
through May 4, 2020); 88673 (April 16, 2020), 85 FR 22507 (April 22,
2020) (SR-CBOE-2020-035) (extending the Program through November 2,
2020); 90262 (October 23, 2020) 85 FR 68616 (October 29, 2020) (SR-
CBOE-2020-101); 91697 (April 28, 2021), 86 FR 23775 (May 4, 2021)
(SR-CBOE-2021-026) (extending the Program through November 1, 2021);
93459 (October 28, 2021), 86 FR 60663 (November 3, 2021) (SR-CBOE-
2021-063) (extending the Program through May 2, 2022); and 94800
(April 27, 2022) 87 FR 26248 (May 3, 2022) (SR-CBOE-2022-021
(extending the Program through November 7, 2022).
---------------------------------------------------------------------------
By way of background, when cash-settled \11\ index options were
first 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.\12\ 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.\13\ 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 \14\ for index futures,
including futures on the S&P 500.\15\ The Commission subsequently
approved a rule change by Cboe Options to list and trade A.M.-settled
SPX options.\16\ 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; \17\ 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, expiring
at the end of each calendar quarter (``Quarterly Index Expirations'')
(since adopted as permanent).\18\ Starting in 2006, the Commission
approved numerous rule changes, on a pilot basis, permitting the 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''),\19\ SPXPM, as well as P.M.-settled Mini-SPX Index (``XSP'')
options and Mini-Russell 2000 Index (``MRUT'') options expiring on the
third Friday.\20\
---------------------------------------------------------------------------
\11\ 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.
\12\ 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.''
\13\ 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.
\14\ 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.
\15\ 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).
\16\ See id.
\17\ 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.
\18\ 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).
\19\ 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); and 78531 (August 10, 2016), 81 FR 54643 (August 16,
2016) (SR-CBOE-2016-046).
\20\ See Securities Exchange Act Release Nos. 70087 (July 31,
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055); and 91067
(February 5, 2021) 86 FR 9108 (February 11, 2021) (SR-CBOE-2020-
116).
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As stated above, since its inception in 2010, the Exchange has
continuously extended the Nonstandard Expirations Pilot Program period
and, during the course of the Nonstandard Expirations Pilot Program and
in support of the extensions of the Nonstandard Expirations Pilot
Program, the Exchange has submitted reports to the Commission regarding
the Pilot Program that detail the Exchange's experience with the Pilot
Program, pursuant to the Nonstandard Expirations Pilot Program Approval
Order.\21\ Specifically, the Exchange has submitted annual Pilot
Program reports to the Commission that contain an analysis of volume,
open interest, and trading patterns. In addition, for series that
exceed certain minimum open interest parameters, the annual report
would provide analysis of index price volatility and, if needed, 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'').\22\
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\21\ See supra note 4.
\22\ 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.
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The pilot reports contained the following volume and open interest
data:
(1) monthly volume aggregated for all Weekly and EOM trades;
(2) volume in Weekly and EOM series aggregated by expiration
date;
(3) month-end open interest aggregated for all Weekly and EOM
series;
(4) month-end open interest for EOM series aggregated by
expiration date and week-ending open interest for Weekly series
aggregated by expiration date;
(5) ratio of monthly aggregate volume in Weekly and EOM series
to total monthly class volume; and
[[Page 26624]]
(6) ratio of month-end open interest in EOM series to total
month-end class open interest and ratio of week-ending open interest
in EOW series to total week-ending open interest.
The annual reports also contained the information noted in Items
(1) through (6) above for Expiration Friday, A.M.-settled series, if
applicable, for the period covered in the pilot report as well as for
the six-month period prior to the initiation of the pilot. Upon request
by the Commission, the Exchange provided data files containing: (1)
Weekly and EOM option volume data aggregated by series, and (2) Weekly
week-ending open interest for expiring series and EOM month-end open
interest for expiring series. In the annual reports, the Exchange also
provided a monthly analysis of Weekly and EOM trading patterns by
undertaking a time series analysis of open interest in Weekly and EOM
series aggregated by expiration date compared to open interest in near-
term standard Expiration Friday A.M.-settled series in order to
determine whether users were shifting positions from standard series to
Weekly and Monthly series.
Finally, for series that exceed certain minimum parameters,\23\ the
annual reports contained the following analysis related to index price
changes and underlying share trading volume at the close on Expiration
Fridays:
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\23\ 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 date 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 Weekly and EOM
expirations. 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 Nonstandard Expirations Pilot
Program, the Exchange provided the Commission with any additional data
or analyses the Commission requested if it deemed such data or analyses
necessary to determine whether the Nonstandard Expirations Pilot
Program was consistent with the Exchange Act. The Exchange has made
public on its website all data and analyses previously submitted to the
Commission under the Nonstandard Expirations Pilot Program,\24\ and
will continue to make public any data and analyses it submits to the
Commission while the Nonstandard Expirations Pilot Program is still in
effect.
---------------------------------------------------------------------------
\24\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
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The Exchange has concluded that the Nonstandard Expirations 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 Weekly and
EOM options has any adverse impact on fair and orderly markets on
Expiration Fridays for the underlying indexes or the underlying
securities comprising those indexes, nor have there been any
observations of abnormal market movements attributable to Weekly and
EOM 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,\25\ 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).\26\ 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.\27\ 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,\28\ and now exceeds trading volume in A.M.-
settled SPX options.
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\25\ 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.'')
\26\ 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.
\27\ See DERA Staff PM Pilot Memo, at 2.
\28\ 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.
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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,\29\ 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 \30\ 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.\31\ Using this as a general
measure,\32\ the DERA staff study then reviewed
[[Page 26625]]
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).
---------------------------------------------------------------------------
\29\ 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.
\30\ 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.
\31\ 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.
\32\ 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.
---------------------------------------------------------------------------
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 \33\).
---------------------------------------------------------------------------
\33\ See supra note 26.
---------------------------------------------------------------------------
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 $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.\34\ 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.
---------------------------------------------------------------------------
\34\ 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.
---------------------------------------------------------------------------
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.\35\
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 \36\ 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,\37\ 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.
---------------------------------------------------------------------------
\35\ Total SPX open interest volumes were examined for
expiration dates over a roughly two-year period between October 2019
and November 2021.
\36\ Calculated at every tick for the prior minute.
\37\ November 2015 through November 2021.
---------------------------------------------------------------------------
In addition to this, the Exchange notes that the S&P 500 Index 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) \38\ 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.
---------------------------------------------------------------------------
\38\ 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
[[Page 26626]]
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.\39\ 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'') \40\ 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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\39\ See DERA Staff PM Pilot Memo, at 10-12.
\40\ 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 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 SPXPM
Program impacted the quality of the SPX option market. Specifically,
the Exchange compared values of key market quality indicators
(specifically, the bid-ask spread \41\ and effective spread \42\) 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.\43\ 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).\44\
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\41\ 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).
\42\ 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.
\43\ For purposes of comparison, the Exchange paired SPXW
options and SPY options with the same moneyness and same days to
expiration.
\44\ 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 Weekly and
EOM options, the Exchange is unable to analyze whether the introduction
of Weekly and EOM options significantly impacted the market quality of
corresponding A.M.-settled options. 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 Weekly
and EOM options impacted the market quality of any corresponding A.M.-
settled options when the pilot began.\45\
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\45\ The full analysis is included in Exhibit 3 of this rule
filing.
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As a result of this analysis, the Exchange believes the
introduction of
[[Page 26627]]
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.\46\
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\46\ 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.
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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 Weekly and EOM
options on the underlying cash markets are also de minimis.
The Exchange proposes to make the Nonstandard Expirations Pilot
Program permanent as P.M.-settled index products, particularly Weekly
and EOM options, 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 Weekly and EOM 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 Weekly and EOM options on a
permanent basis. The Exchange believes that the permanent continuation
of the Nonstandard Expirations Pilot Program will serve to maintain the
status quo by continuing to offer a product to which investors have
become accustomed and have incorporated into their business models and
day-to-day trading methodologies for approximately 13 years. As such,
the Exchange also believes that ceasing to offer Weekly and EOM 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
Nonstandard Expirations Pilot Program, and, as such, the Exchange
believes that the continuation of the Nonstandard Expirations Pilot
Program as a pilot, 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 Nonstandard Expirations Pilot
Program 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.\47\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \48\ 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.
---------------------------------------------------------------------------
\47\ 15 U.S.C. 78f(b).
\48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the making the
Nonstandard Expirations Pilot Program permanent will allow the Exchange
to be able to continue to offer Weekly and EOM options--a product of
which has become an integral part of the Exchange's offerings--on a
continuous and permanent basis. Since their reintroduction beginning in
2006,\49\ P.M.-settled options 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 Nonstandard Expirations
Pilot Program 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 a
product to which investors have become accustomed and have incorporated
into their business models and day-to-day trading strategies for
approximately 13 years. 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. Conversely, the Exchange believes ceasing to offer the
Nonstandard Expirations Pilot Program may result in significant market
disruption and investor confusion, as P.M.-settled index products,
particularly Weekly and EOM options, have become an integral part of
the Exchange's product offerings, providing investors with greater
trading opportunities and flexibility.
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\49\ See supra notes 27-39. As described above, the Exchange's
conclusion is consistent with the analysis in the DERA Staff PM
Pilot Memo.
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The Exchange further believes that making the Nonstandard
Expirations Pilot Program 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 approximately 13-year operation of the
Nonstandard Expirations Pilot Program as a pilot nor during the 15
years since P.M.-settled SPX options were reintroduced to the
marketplace.\50\ Notably, the Exchange did not identify any significant
economic impact (including on pricing or volatility or in connection
with reversals) on related futures, the underlying indexes, or the
underlying component securities of the underlying indexes surrounding
the close as a result of the quantity of Weekly and EOM options that
settle at the close or the amount of expiring open interest in Weekly
and EOM 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 Weekly and EOM options may
only overly broad-based index options, the Exchange believes it is
appropriate to extrapolate the data to apply to the Weekly and EOM
options (which include SPX options). This is particularly true given
that the reports submitted by the Exchange during the pilot period have
similarly demonstrated no significant economic
[[Page 26628]]
impact on the respective underlying indexes or other products.
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\50\ See supra notes 26-39.
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The Exchange also believes the introduction of Weekly and EOM
options had no significant impact on the market quality of
corresponding A.M.-settled options or other 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. As
noted above, Weekly and EOM options may only overly broad-based
indexes, including the S&P 500. 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 any other Weekly or EOM options significantly
impacted the market quality of corresponding A.M.-settled SPX options
when the pilot 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 Weekly or EOM
options on the underlying cash markets. As such, the Exchange believes
that a permanent Nonstandard Expirations Pilot Program does 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 and 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 Weekly and EOM options, the Exchange
believes that the continuation of the Nonstandard Expirations 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
Nonstandard Expirations 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 Nonstandard Expirations Pilot Program permanent
will impose any unnecessary or inappropriate burden on intramarket
competition because Weekly and EOM options will continue to be
available to all market participants who wish to participate in the
Weekly and EOM options market. The Exchange believes that the
significant and sustained growth the Weekly and EOM options market has
experienced since their reintroduction through pilot programs indicates
strong, continued investor interest and demand, warranting a permanent
Nonstandard Expirations Pilot Program. The Exchange believes that, for
the period that Weekly and EOM 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 Weekly and EOM Program, and, as
such, the continuation of the Nonstandard Expirations Pilot Program as
a pilot, including the gathering, submission and review of the pilot
reports and data, is no longer necessary--a permanent Nonstandard
Expirations 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 Nonstandard
Expirations 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 Weekly
and EOM 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-2023-020 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-2023-020. 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
[[Page 26629]]
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-2023-020, and should be
submitted on or before May 22, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
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\51\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09079 Filed 4-28-23; 8:45 am]
BILLING CODE 8011-01-P
