Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Operation of Its Flexible Exchange Options (“FLEX Options”) Pilot Program Regarding Permissible Exercise Settlement Values for FLEX Index Options, 68819-68822 [2023-21958]
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
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
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a.m. and 3 p.m. Copies of the filing also
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you should submit only information
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submissions should refer to file number
SR–NYSE–2023–09 and should be
submitted on or before October 25,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–22041 Filed 10–3–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98637; File No. SR–CBOE–
2023–057]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Extend the Operation
of Its Flexible Exchange Options
(‘‘FLEX Options’’) Pilot Program
Regarding Permissible Exercise
Settlement Values for FLEX Index
Options
lotter on DSK11XQN23PROD with NOTICES1
September 28, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
September 28, 2023, Cboe Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘Cboe
Options’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to extend
the operation of its Flexible Exchange
Options (‘‘FLEX Options’’) pilot
program regarding permissible exercise
settlement values for FLEX Index
Options. The text of the proposed rule
change is provided below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
Rule 4.21. Series of FLEX Options
(a) No change.
(b) Terms. When submitting a FLEX Order
for a FLEX Option series to the System, the
submitting FLEX Trader must include one of
each of the following terms in the FLEX
Order (all other terms of a FLEX Option
series are the same as those that apply to
non-FLEX Options), provided that a FLEX
Index Option with an index multiplier of one
may not be the same type (put or call) and
may not have the same exercise style,
expiration date, settlement type, and exercise
price as a non-FLEX Index Option overlying
the same index listed for trading (regardless
of the index multiplier of the non-FLEX
Index Option), which terms constitute the
FLEX Option series:
(1)–(4) No change.
(5) settlement type:
(A) No change.
(B) FLEX Index Options. FLEX Index
Options are settled in U.S. dollars, and may
be:
(i) No change.
(ii) p.m.-settled (with exercise settlement
value determined by reference to the reported
level of the index derived from the reported
closing prices of the component securities),
except for a FLEX Index Option that expires
on any business day that falls on or within
two business days of a third Friday-of-themonth expiration day for a non-FLEX Option
(other than a QIX option) may only be a.m.settled; however, for a pilot period ending
the earlier of [November 6, 2023] May 6, 2024
or the date on which the pilot program is
19 17
1 15
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4 17
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PO 00000
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
Frm 00261
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68819
approved on a permanent basis, a FLEX
Index Option with an expiration date on the
third-Friday of the month may be p.m.settled;
(iii)–(iv) No change.
*
*
*
*
*
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
On January 28, 2010, the Securities
and Exchange Commission (the
‘‘Commission’’) approved a Cboe
Options rule change that, among other
things, established a pilot program
regarding permissible exercise
settlement values for FLEX Index
Options.5 The Exchange has extended
the pilot period numerous times, which
is currently set to expire on the earlier
of November 6, 2023 or the date on
which the pilot program is approved on
a permanent basis.6 The purpose of this
5 Securities Exchange Act Release No. 61439
(January 28, 2010), 75 FR 5831 (February 4, 2010)
(SR–CBOE–2009–087) (‘‘Approval Order’’). The
initial pilot period was set to expire on March 28,
2011, which date was added to the rules in 2010.
See Securities Exchange Act Release No. 61676
(March 9, 2010), 75 FR 13191 (March 18, 2010) (SR–
CBOE–2010–026).
6 See Securities Exchange Act Release Nos. 64110
(March 23, 2011), 76 FR 17463 (March 29, 2011)
(SR–CBOE–2011–024); 66701 (March 30, 2012), 77
FR 20673 (April 5, 2012) (SR–CBOE–2012–027);
68145 (November 2, 2012), 77 FR 67044 (November
8, 2012) (SR–CBOE–2012–102); 70752 (October 24,
2013), 78 FR 65023 (October 30, 2013) (SR–CBOE–
2013–099); 73460 (October 29, 2014), 79 FR 65464
(November 4, 2014) (SR–CBOE–2014–080); 77742
(April 29, 2016), 81 FR 26857 (May 4, 2016) (SR–
CBOE–2016–032); 80443 (April 12, 2017), 82 FR
18331 (April 18, 2017) (SR–CBOE–2017–032);
83175 (May 4, 2018), 83 FR 21808 (May 10, 2018)
Continued
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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices
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rule change filing is to extend the pilot
program through the earlier of May 6,
2024 or the date on which the pilot
program is approved on a permanent
basis.7 This filing simply seeks to
extend the operation of the pilot
program and does not propose any
substantive changes to the pilot
program.
Under Rule 4.21(b), Series of FLEX
Options (regarding terms of a FLEX
Option),8 a FLEX Option may expire on
any business day (specified to day,
month and year) no more than 15 years
from the date on which a FLEX Trader
submits a FLEX Order to the System.9
FLEX Index Options are settled in U.S.
dollars, and may be a.m.-settled (with
exercise settlement value determined by
reference to the reported level of the
index derived from the reported
opening prices of the component
securities) or p.m.-settled (with exercise
settlement value determined by
reference to the reported level of the
index derived from the reported closing
(SR–CBOE–2018–037); 84537 (November 5, 2018),
83 FR 56113 (November 9, 2018) (SR–CBOE–2018–
071); 85707 (April 23, 2019), 84 FR 18100 (April 29,
2019) (SR–CBOE–2019–021); 87515 (November 13,
2020), 84 FR 63945 (November 19, 2019) (SR–
CBOE–2019–108); 88782 (April 30, 2020), 85 FR
27004 (May 6, 2020) (SR–CBOE–2020–039); 90279
(October 28, 2020), 85 FR 69667 (November 3, 2020)
(SR–CBOE–2020–103); 91782 (May 5, 2021), 86 FR
25915 (May 11, 2021) (SR–CBOE–2021–031); 93500
(November 1, 2021), 86 FR 61340 (November 5,
2021) (SR–CBOE–2021–064); 94812 (April 28,
2022), 87 FR 26381 (May 4, 2022) (SR–CBOE–2022–
020); 96239 (November 4, 2022), 87 FR 67985
(November 10, 2022) (SR–CBOE–2022–053) and
97452 (May 8, 2023), 88 FR 30821 (May 12, 2023)
(SR–CBOE–2023–025) (extending the pilot program
through the earlier of November 6, 2023 or the date
on which the pilot program is approved on a
permanent basis). At the same time the permissible
exercise settlement values pilot was established for
FLEX Index Options, the Exchange also established
a pilot program eliminating the minimum value size
requirements for all FLEX Options. See Approval
Order, supra note 1. The pilot program eliminating
the minimum value size requirements was extended
twice pursuant to the same rule filings that
extended the permissible exercise settlement values
(for the same extended periods) and was approved
on a permanent basis in a separate rule change
filing. See id; and Securities Exchange Act Release
No. 67624 (August 8, 2012), 77 FR 48580 (August
14, 2012) (SR–CBOE–2012–040) (Order Granting
Approval of Proposed Rule Change Related to
Permanent Approval of Its Pilot on FLEX Minimum
Value Sizes).
7 The Exchange recently proposed to make the
pilot program permanent. See Securities Exchange
Act Release No. 97368 (April 24, 2023) (SR–CBOE–
2023–018).
8 In 2019, prior Rule 24A.4.01, covering the pilot
program, was relocated to current Rule 4.21(b)(5).
See Securities Exchange Act Release No. 87235
(October 4, 2019), 84 FR 54671 (October 10, 2019)
(SR–CBOE–2019–084).
9 Except an Asian-settled or Cliquet-settled FLEX
Option series, which must have an expiration date
that is a business day but may only expire 350 to
371 days (which is approximately 50 to 53 calendar
weeks) from the date on which a FLEX Trader
submits a FLEX Order to the System.
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prices of the component securities).10
Specifically, a FLEX Index Option that
expires on, or within two business days
of, a third Friday-of-the-month
expiration day for a non-FLEX Option
(other than a QIX option), may only be
a.m. settled.11 However, under the
exercise settlement values pilot, this
restriction on p.m.-settled FLEX Index
Options was eliminated.12 As stated, the
exercise settlement values pilot is
currently set to expire on the earlier of
November 6, 2023 or the date on which
the pilot program is approved on a
permanent basis.
Cboe Options is proposing to extend
the pilot program through the earlier of
November 6, 2023 [sic] or the date on
which the pilot program is approved on
a permanent basis. Cboe Options
believes the pilot program has been
successful and well received by its
Trading Permit Holders and the
investing public for the period that it
has been in operation as a pilot. In
support of the proposed extension of the
pilot program, and as required by the
pilot program’s Approval Order, the
Exchange has submitted to the
Commission pilot program reports
regarding the pilot, which detail the
Exchange’s experience with the
program. Specifically, the Exchange
provided the Commission with annual
reports analyzing volume and open
interest for each broad-based FLEX
Index Options class overlying a third
Friday-of-the-month expiration day,
p.m.-settled FLEX Index Options
series.13 The annual reports also
contained information and analysis of
FLEX Index Options trading patterns.
10 See Rule 4.21(b)(5)(B); see also Securities
Exchange Act Release No. 87235 (October 4, 2019),
84 FR 54671 (October 10, 2019) (SR–CBOE–2019–
084). The rule change removed the provision
regarding the exercise settlement value of FLEX
Index Options on the NYSE Composite Index, as the
Exchange no longer lists options on that index for
trading, and included the provisions regarding how
the exercise settlement value is determined for each
settlement type, as how the exercise settlement
value is determined is dependent on the settlement
type.
11 For example, notwithstanding the pilot, the
exercise settlement value of a FLEX Index Option
that expires on the Tuesday before the third Fridayof-the-month could be a.m. or p.m. settled.
However, the exercise settlement value of a FLEX
Index Option that expires on the Wednesday before
the third Friday-of-the-month could only be a.m.
settled.
12 No change was necessary or requested with
respect to FLEX Equity Options. Regardless of the
expiration date, FLEX Equity Options are settled by
physical delivery of the underlying.
13 The annual reports also contained certain pilot
period and pre-pilot period analyses of volume and
open interest for third Friday-of-the-month
expiration days, a.m.-settled FLEX Index series and
third Friday-of-the-month expiration day Non-FLEX
Index series overlying the same index as a third
Friday-of-the-month expiration day, p.m.-settled
FLEX Index option.
PO 00000
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The Exchange also provided the
Commission, on a periodic basis,
interim reports of volume and open
interest.
The Exchange believes there is
sufficient investor interest and demand
in the pilot program to warrant its
extension. The Exchange believes that,
for the period that the pilot has been in
operation, the program has provided
investors with additional means of
managing their risk exposures and
carrying out their investment objectives.
Furthermore, the Exchange believes that
it has not experienced any adverse
market effects with respect to the pilot
program, including any adverse market
volatility effects that might occur as a
result of large FLEX exercises in FLEX
Option series that expire near NonFLEX expirations and use a p.m.
settlement (as discussed below).
In that regard, based on the
Exchange’s experience in trading FLEX
Options to date and over the pilot
period, Cboe Options continues to
believe that the restrictions on exercise
settlement values are no longer
necessary to insulate Non-FLEX
expirations from the potential adverse
market impacts of FLEX expirations.14
14 In further support, the Exchange also notes that
the p.m. settlements are already permitted for FLEX
Index Options on any other business day except on,
or within two business days of, the third Friday-ofthe-month. The Exchange is not aware of any
market disruptions or problems caused by the use
of these settlement methodologies on these
expiration dates (or on the expiration dates
addressed under the pilot program). The Exchange
is also not aware of any market disruptions or
problems caused by the use of customized options
in the over-the-counter (‘‘OTC’’) markets that expire
on or near the third Friday-of-the-month and are
p.m. settled. In addition, the Exchange believes the
reasons for limiting expirations to a.m. settlement,
which is something the SEC has imposed since the
early 1990s for Non-FLEX Options, revolved around
a concern about expiration pressure on the New
York Stock Exchange (‘‘NYSE’’) at the close that are
no longer relevant in today’s market. Today, the
Exchange believes stock exchanges are able to better
handle volume. There are multiple primary listing
and unlisted trading privilege (‘‘UTP’’) markets, and
trading is dispersed among several exchanges and
alternative trading systems. In addition, the
Exchange believes that surveillance techniques are
much more robust and automated. In the early
1990s, it was also thought by some that opening
procedures allow more time to attract contra-side
interest to reduce imbalances. The Exchange
believes, however, that today, order flow is
predominantly electronic and the ability to smooth
out openings and closes is greatly reduced (e.g.,
market-on-close procedures work just as well as
openings). Also, other markets, such as the
NASDAQ Stock Exchange, do not have the same
type of pre-opening imbalance disseminations as
NYSE, so many stocks are not subject to the same
procedures on the third Friday-of-the-month. In
addition, the Exchange believes that NYSE has
reduced the required time a specialist has to wait
after disseminating a pre-opening indication. So, in
this respect, the Exchange believes there is less time
to react in the opening than in the close. Moreover,
to the extent there may be a risk of adverse market
effects attributable to p.m. settled options that
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To the contrary, Cboe Options believes
that the restriction actually places the
Exchange at a competitive disadvantage
to its OTC counterparts in the market for
customized options, and unnecessarily
limits market participants’ ability to
trade in an exchange environment that
offers the added benefits of
transparency, price discovery, liquidity,
and financial stability.
The Exchange also notes that certain
position limit, aggregation and exercise
limit requirements continue to apply to
FLEX Index Options in accordance with
Rules 8.35, Position Limits for FLEX
Options, 8.42(g) Exercise Limits (in
connection with FLEX Options) and
8.43(j), Reports Related to Position
Limits (in connection with FLEX
Options). Additionally, all FLEX
Options remain subject to the general
position reporting requirements in Rule
8.43(a).15 Moreover, the Exchange and
its Trading Permit Holder organizations
each have the authority, pursuant to
Rule 10.9, Margin Required is Minimum,
to impose additional margin as deemed
advisable. Cboe Options continues to
believe these existing safeguards serve
sufficiently to help monitor open
interest in FLEX Option series and
significantly reduce any risk of adverse
market effects that might occur as a
result of large FLEX exercises in FLEX
Option series that expire near NonFLEX expirations and use a p.m.
settlement.
Cboe Options is also cognizant of the
OTC market, in which similar
restrictions on exercise settlement
values do not apply. Cboe Options
continues to believe that the pilot
program is appropriate and reasonable
and provides market participants with
would otherwise be traded in a non-transparent
fashion in the OTC market, the Exchange continues
to believe that such risk would be lessened by
making these customized options eligible for
trading in an exchange environment because of the
added transparency, price discovery, liquidity, and
financial stability available.
15 Rule 8.43(a) provides that ‘‘[i]n a manner and
form prescribed by the Exchange, each Trading
Permit Holder shall report to the Exchange, the
name, address, and social security or tax
identification number of any customer who, acting
alone, or in concert with others, on the previous
business day maintained aggregate long or short
positions on the same side of the market of 200 or
more contracts of any single class of option
contracts dealt in on the Exchange. The report shall
indicate for each such class of options, the number
of option contracts comprising each such position
and, in the case of short positions, whether covered
or uncovered.’’ For purposes of Rule 8.43, the term
‘‘customer’’ in respect of any Trading Permit Holder
includes ‘‘the Trading Permit Holder, any general
or special partner of the Trading Permit Holder, any
officer or director of the Trading Permit Holder, or
any participant, as such, in any joint, group or
syndicate account with the Trading Permit Holder
or with any partner, officer or director thereof.’’
Rule 8.43(d).
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additional flexibility in determining
whether to execute their customized
options in an exchange environment or
in the OTC market. Cboe Options
continues to believe that market
participants benefit from being able to
trade these customized options in an
exchange environment in several ways,
including, but not limited to, enhanced
efficiency in initiating and closing out
positions, increased market
transparency, and heightened contraparty creditworthiness due to the role of
the Options Clearing Corporation as
issuer and guarantor of FLEX Options.
If, in the future, the Exchange
proposes an additional extension of the
pilot program, or should the Exchange
propose to make the pilot program
permanent, the Exchange will submit,
along with any filing proposing such
amendments to the pilot program, an
annual report (addressing the same
areas referenced above and consistent
with the pilot program’s Approval
Order) to the Commission at least two
months prior to the expiration date of
the program. The Exchange is required
to submit an annual report at least
yearly. Currently, the Exchange
provides annual reports that cover the
period from August 1st to July 31st of
the applicable year. The Exchange will
continue to provide reports covering
this period annually and any additional
report at least two months prior to the
expiration date of the program covering
the full prior year in the case that the
Exchange is requesting permanent
approval of the program.16 The
Exchange will also continue, on a
periodic basis, to submit interim reports
of volume and open interest consistent
with the terms of the exercise settlement
values pilot program as described in the
pilot program’s Approval Order.17
Additionally, the Exchange will provide
the Commission with any additional
data or analyses the Commission
requests because it deems such data or
analyses necessary to determine
whether the pilot program is consistent
with the Exchange Act. The Exchange is
in the process of making public on its
website all data and analyses previously
submitted to the Commission under the
pilot program, and will make public any
data and analyses it submits to the
16 For example, if the Exchange plans on
submitting a proposal in April 2023 requesting
permanent approval of the pilot program expiring
May 8, 2023, the Exchange would have to submit
an annual report no later than March 8, 2023
covering the full prior year.
17 The Exchange is required to submit the interim
reports on a quarterly basis within 15 days of the
end of each calendar quarter that the pilot is in
effect.
PO 00000
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68821
Commission under the pilot program in
the future.18
As noted in the pilot program’s
Approval Order, any positions
established under the pilot program
would not be impacted by the
expiration of the pilot program.19
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.20 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 21 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 22 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposed extension of the pilot
program, which permits an additional
exercise settlement value, would
provide greater opportunities for
investors to manage risk through the use
of FLEX Options. Further, the Exchange
believes that it has not experienced any
adverse effects from the operation of the
pilot program, including any adverse
market volatility effects that might occur
as a result of large FLEX exercises in
FLEX Option series that expire near
Non-FLEX expirations and are p.m.settled. The Exchange also believes that
the extension of the exercise settlement
18 Available at https://www.cboe.com/aboutcboe/
legal-regulatory/national-market-system-plans/pmsettlement-flex-pm-data.
19 For example, a position in a p.m.-settled FLEX
Index Option series that expires on the third Fridayof-the-month in January 2020 could be established
during the exercise settlement values pilot. If the
pilot program were not extended (or made
permanent), then the position could continue to
exist. However, the Exchange notes that any further
trading in the series would be restricted to
transactions where at least one side of the trade is
a closing transaction. See Approval Order at
footnote 3, supra note 1.
20 15 U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
22 Id.
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values pilot does not raise any unique
regulatory concerns. In particular,
although p.m. settlements may raise
questions with the Commission, the
Exchange believes that, based on the
Exchange’s experience in trading FLEX
Options to date and over the pilot
period, market impact and investor
protection concerns will not be raised
by this rule change. The Exchange also
believes that the proposed rule change
would continue to provide Trading
Permit Holders and investors with
additional opportunities to trade
customized options in an exchange
environment (which offers the added
benefits of transparency, price
discovery, liquidity, and financial
stability as compared to the over-thecounter market) and subject to
exchange-based rules, and investors
would benefit as a result.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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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 believes there is sufficient
investor interest and demand in the
pilot program to warrant its extension.
The Exchange believes that, for the
period that the pilot has been in
operation, the program has provided
investors with additional means of
managing their risk exposures and
carrying out their investment objectives.
Furthermore, the Exchange believes that
it has not experienced any adverse
market effects with respect to the pilot
program, including any adverse market
volatility effects that might occur as a
result of large FLEX exercises in FLEX
Option series that expire near Non-Flex
expirations and use a p.m. settlement.
Cboe Options believes that the
restriction actually places the Exchange
at a competitive disadvantage to its OTC
counterparts in the market for
customized options, and unnecessarily
limits market participants’ ability to
trade in an exchange environment that
offers the added benefits of
transparency, price discovery, liquidity,
and financial stability. Therefore, the
Exchange does not believe that the
proposed rule change will impose any
burden on competition.
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.
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20:21 Oct 03, 2023
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 23 and Rule 19b–
4(f)(6) thereunder.24
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2023–057 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–2023–057. 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/
23 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
24 17
PO 00000
Frm 00264
Fmt 4703
Sfmt 4703
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–CBOE–2023–057,
and should be submitted on or before
October 25, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–21958 Filed 10–3–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–98597; File No. SR–
CboeBZX–2023–071]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Suspension of
and Order Instituting Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Amend Its Fee Schedule Relating to
the Options Regulatory Fee
September 28, 2023
I. Introduction
On September 12, 2023, Cboe BZX
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘BZX’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\04OCN1.SGM
04OCN1
]]>Agencies
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68819-68822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21958]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98637; File No. SR-CBOE-2023-057]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend
the Operation of Its Flexible Exchange Options (``FLEX Options'') Pilot
Program Regarding Permissible Exercise Settlement Values for FLEX Index
Options
September 28, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 28, 2023, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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 extend the operation of its Flexible Exchange Options (``FLEX
Options'') pilot program regarding permissible exercise settlement
values for FLEX Index Options. The text of the proposed rule change is
provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 4.21. Series of FLEX Options
(a) No change.
(b) Terms. When submitting a FLEX Order for a FLEX Option series
to the System, the submitting FLEX Trader must include one of each
of the following terms in the FLEX Order (all other terms of a FLEX
Option series are the same as those that apply to non-FLEX Options),
provided that a FLEX Index Option with an index multiplier of one
may not be the same type (put or call) and may not have the same
exercise style, expiration date, settlement type, and exercise price
as a non-FLEX Index Option overlying the same index listed for
trading (regardless of the index multiplier of the non-FLEX Index
Option), which terms constitute the FLEX Option series:
(1)-(4) No change.
(5) settlement type:
(A) No change.
(B) FLEX Index Options. FLEX Index Options are settled in U.S.
dollars, and may be:
(i) No change.
(ii) p.m.-settled (with exercise settlement value determined by
reference to the reported level of the index derived from the
reported closing prices of the component securities), except for a
FLEX Index Option that expires on any business day that falls on or
within two business days of a third Friday-of-the-month expiration
day for a non-FLEX Option (other than a QIX option) may only be
a.m.-settled; however, for a pilot period ending the earlier of
[November 6, 2023] May 6, 2024 or the date on which the pilot
program is approved on a permanent basis, a FLEX Index Option with
an expiration date on the third-Friday of the month may be p.m.-
settled;
(iii)-(iv) No change.
* * * * *
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
On January 28, 2010, the Securities and Exchange Commission (the
``Commission'') approved a Cboe Options rule change that, among other
things, established a pilot program regarding permissible exercise
settlement values for FLEX Index Options.\5\ The Exchange has extended
the pilot period numerous times, which is currently set to expire on
the earlier of November 6, 2023 or the date on which the pilot program
is approved on a permanent basis.\6\ The purpose of this
[[Page 68820]]
rule change filing is to extend the pilot program through the earlier
of May 6, 2024 or the date on which the pilot program is approved on a
permanent basis.\7\ This filing simply seeks to extend the operation of
the pilot program and does not propose any substantive changes to the
pilot program.
---------------------------------------------------------------------------
\5\ Securities Exchange Act Release No. 61439 (January 28,
2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (``Approval
Order''). The initial pilot period was set to expire on March 28,
2011, which date was added to the rules in 2010. See Securities
Exchange Act Release No. 61676 (March 9, 2010), 75 FR 13191 (March
18, 2010) (SR-CBOE-2010-026).
\6\ See Securities Exchange Act Release Nos. 64110 (March 23,
2011), 76 FR 17463 (March 29, 2011) (SR-CBOE-2011-024); 66701 (March
30, 2012), 77 FR 20673 (April 5, 2012) (SR-CBOE-2012-027); 68145
(November 2, 2012), 77 FR 67044 (November 8, 2012) (SR-CBOE-2012-
102); 70752 (October 24, 2013), 78 FR 65023 (October 30, 2013) (SR-
CBOE-2013-099); 73460 (October 29, 2014), 79 FR 65464 (November 4,
2014) (SR-CBOE-2014-080); 77742 (April 29, 2016), 81 FR 26857 (May
4, 2016) (SR-CBOE-2016-032); 80443 (April 12, 2017), 82 FR 18331
(April 18, 2017) (SR-CBOE-2017-032); 83175 (May 4, 2018), 83 FR
21808 (May 10, 2018) (SR-CBOE-2018-037); 84537 (November 5, 2018),
83 FR 56113 (November 9, 2018) (SR-CBOE-2018-071); 85707 (April 23,
2019), 84 FR 18100 (April 29, 2019) (SR-CBOE-2019-021); 87515
(November 13, 2020), 84 FR 63945 (November 19, 2019) (SR-CBOE-2019-
108); 88782 (April 30, 2020), 85 FR 27004 (May 6, 2020) (SR-CBOE-
2020-039); 90279 (October 28, 2020), 85 FR 69667 (November 3, 2020)
(SR-CBOE-2020-103); 91782 (May 5, 2021), 86 FR 25915 (May 11, 2021)
(SR-CBOE-2021-031); 93500 (November 1, 2021), 86 FR 61340 (November
5, 2021) (SR-CBOE-2021-064); 94812 (April 28, 2022), 87 FR 26381
(May 4, 2022) (SR-CBOE-2022-020); 96239 (November 4, 2022), 87 FR
67985 (November 10, 2022) (SR-CBOE-2022-053) and 97452 (May 8,
2023), 88 FR 30821 (May 12, 2023) (SR-CBOE-2023-025) (extending the
pilot program through the earlier of November 6, 2023 or the date on
which the pilot program is approved on a permanent basis). At the
same time the permissible exercise settlement values pilot was
established for FLEX Index Options, the Exchange also established a
pilot program eliminating the minimum value size requirements for
all FLEX Options. See Approval Order, supra note 1. The pilot
program eliminating the minimum value size requirements was extended
twice pursuant to the same rule filings that extended the
permissible exercise settlement values (for the same extended
periods) and was approved on a permanent basis in a separate rule
change filing. See id; and Securities Exchange Act Release No. 67624
(August 8, 2012), 77 FR 48580 (August 14, 2012) (SR-CBOE-2012-040)
(Order Granting Approval of Proposed Rule Change Related to
Permanent Approval of Its Pilot on FLEX Minimum Value Sizes).
\7\ The Exchange recently proposed to make the pilot program
permanent. See Securities Exchange Act Release No. 97368 (April 24,
2023) (SR-CBOE-2023-018).
---------------------------------------------------------------------------
Under Rule 4.21(b), Series of FLEX Options (regarding terms of a
FLEX Option),\8\ a FLEX Option may expire on any business day
(specified to day, month and year) no more than 15 years from the date
on which a FLEX Trader submits a FLEX Order to the System.\9\ FLEX
Index Options are settled in U.S. dollars, and may be a.m.-settled
(with exercise settlement value determined by reference to the reported
level of the index derived from the reported opening prices of the
component securities) or p.m.-settled (with exercise settlement value
determined by reference to the reported level of the index derived from
the reported closing prices of the component securities).\10\
Specifically, a FLEX Index Option that expires on, or within two
business days of, a third Friday-of-the-month expiration day for a non-
FLEX Option (other than a QIX option), may only be a.m. settled.\11\
However, under the exercise settlement values pilot, this restriction
on p.m.-settled FLEX Index Options was eliminated.\12\ As stated, the
exercise settlement values pilot is currently set to expire on the
earlier of November 6, 2023 or the date on which the pilot program is
approved on a permanent basis.
---------------------------------------------------------------------------
\8\ In 2019, prior Rule 24A.4.01, covering the pilot program,
was relocated to current Rule 4.21(b)(5). See Securities Exchange
Act Release No. 87235 (October 4, 2019), 84 FR 54671 (October 10,
2019) (SR-CBOE-2019-084).
\9\ Except an Asian-settled or Cliquet-settled FLEX Option
series, which must have an expiration date that is a business day
but may only expire 350 to 371 days (which is approximately 50 to 53
calendar weeks) from the date on which a FLEX Trader submits a FLEX
Order to the System.
\10\ See Rule 4.21(b)(5)(B); see also Securities Exchange Act
Release No. 87235 (October 4, 2019), 84 FR 54671 (October 10, 2019)
(SR-CBOE-2019-084). The rule change removed the provision regarding
the exercise settlement value of FLEX Index Options on the NYSE
Composite Index, as the Exchange no longer lists options on that
index for trading, and included the provisions regarding how the
exercise settlement value is determined for each settlement type, as
how the exercise settlement value is determined is dependent on the
settlement type.
\11\ For example, notwithstanding the pilot, the exercise
settlement value of a FLEX Index Option that expires on the Tuesday
before the third Friday-of-the-month could be a.m. or p.m. settled.
However, the exercise settlement value of a FLEX Index Option that
expires on the Wednesday before the third Friday-of-the-month could
only be a.m. settled.
\12\ No change was necessary or requested with respect to FLEX
Equity Options. Regardless of the expiration date, FLEX Equity
Options are settled by physical delivery of the underlying.
---------------------------------------------------------------------------
Cboe Options is proposing to extend the pilot program through the
earlier of November 6, 2023 [sic] or the date on which the pilot
program is approved on a permanent basis. Cboe Options believes the
pilot program has been successful and well received by its Trading
Permit Holders and the investing public for the period that it has been
in operation as a pilot. In support of the proposed extension of the
pilot program, and as required by the pilot program's Approval Order,
the Exchange has submitted to the Commission pilot program reports
regarding the pilot, which detail the Exchange's experience with the
program. Specifically, the Exchange provided the Commission with annual
reports analyzing volume and open interest for each broad-based FLEX
Index Options class overlying a third Friday-of-the-month expiration
day, p.m.-settled FLEX Index Options series.\13\ The annual reports
also contained information and analysis of FLEX Index Options trading
patterns. The Exchange also provided the Commission, on a periodic
basis, interim reports of volume and open interest.
---------------------------------------------------------------------------
\13\ The annual reports also contained certain pilot period and
pre-pilot period analyses of volume and open interest for third
Friday-of-the-month expiration days, a.m.-settled FLEX Index series
and third Friday-of-the-month expiration day Non-FLEX Index series
overlying the same index as a third Friday-of-the-month expiration
day, p.m.-settled FLEX Index option.
---------------------------------------------------------------------------
The Exchange believes there is sufficient investor interest and
demand in the pilot program to warrant its extension. The Exchange
believes that, for the period that the pilot has been in operation, the
program has provided investors with additional means of managing their
risk exposures and carrying out their investment objectives.
Furthermore, the Exchange believes that it has not experienced any
adverse market effects with respect to the pilot program, including any
adverse market volatility effects that might occur as a result of large
FLEX exercises in FLEX Option series that expire near Non-FLEX
expirations and use a p.m. settlement (as discussed below).
In that regard, based on the Exchange's experience in trading FLEX
Options to date and over the pilot period, Cboe Options continues to
believe that the restrictions on exercise settlement values are no
longer necessary to insulate Non-FLEX expirations from the potential
adverse market impacts of FLEX expirations.\14\
[[Page 68821]]
To the contrary, Cboe Options believes that the restriction actually
places the Exchange at a competitive disadvantage to its OTC
counterparts in the market for customized options, and unnecessarily
limits market participants' ability to trade in an exchange environment
that offers the added benefits of transparency, price discovery,
liquidity, and financial stability.
---------------------------------------------------------------------------
\14\ In further support, the Exchange also notes that the p.m.
settlements are already permitted for FLEX Index Options on any
other business day except on, or within two business days of, the
third Friday-of-the-month. The Exchange is not aware of any market
disruptions or problems caused by the use of these settlement
methodologies on these expiration dates (or on the expiration dates
addressed under the pilot program). The Exchange is also not aware
of any market disruptions or problems caused by the use of
customized options in the over-the-counter (``OTC'') markets that
expire on or near the third Friday-of-the-month and are p.m.
settled. In addition, the Exchange believes the reasons for limiting
expirations to a.m. settlement, which is something the SEC has
imposed since the early 1990s for Non-FLEX Options, revolved around
a concern about expiration pressure on the New York Stock Exchange
(``NYSE'') at the close that are no longer relevant in today's
market. Today, the Exchange believes stock exchanges are able to
better handle volume. There are multiple primary listing and
unlisted trading privilege (``UTP'') markets, and trading is
dispersed among several exchanges and alternative trading systems.
In addition, the Exchange believes that surveillance techniques are
much more robust and automated. In the early 1990s, it was also
thought by some that opening procedures allow more time to attract
contra-side interest to reduce imbalances. The Exchange believes,
however, that today, order flow is predominantly electronic and the
ability to smooth out openings and closes is greatly reduced (e.g.,
market-on-close procedures work just as well as openings). Also,
other markets, such as the NASDAQ Stock Exchange, do not have the
same type of pre-opening imbalance disseminations as NYSE, so many
stocks are not subject to the same procedures on the third Friday-
of-the-month. In addition, the Exchange believes that NYSE has
reduced the required time a specialist has to wait after
disseminating a pre-opening indication. So, in this respect, the
Exchange believes there is less time to react in the opening than in
the close. Moreover, to the extent there may be a risk of adverse
market effects attributable to p.m. settled options that would
otherwise be traded in a non-transparent fashion in the OTC market,
the Exchange continues to believe that such risk would be lessened
by making these customized options eligible for trading in an
exchange environment because of the added transparency, price
discovery, liquidity, and financial stability available.
---------------------------------------------------------------------------
The Exchange also notes that certain position limit, aggregation
and exercise limit requirements continue to apply to FLEX Index Options
in accordance with Rules 8.35, Position Limits for FLEX Options,
8.42(g) Exercise Limits (in connection with FLEX Options) and 8.43(j),
Reports Related to Position Limits (in connection with FLEX Options).
Additionally, all FLEX Options remain subject to the general position
reporting requirements in Rule 8.43(a).\15\ Moreover, the Exchange and
its Trading Permit Holder organizations each have the authority,
pursuant to Rule 10.9, Margin Required is Minimum, to impose additional
margin as deemed advisable. Cboe Options continues to believe these
existing safeguards serve sufficiently to help monitor open interest in
FLEX Option series and significantly reduce any risk of adverse market
effects that might occur as a result of large FLEX exercises in FLEX
Option series that expire near Non-FLEX expirations and use a p.m.
settlement.
---------------------------------------------------------------------------
\15\ Rule 8.43(a) provides that ``[i]n a manner and form
prescribed by the Exchange, each Trading Permit Holder shall report
to the Exchange, the name, address, and social security or tax
identification number of any customer who, acting alone, or in
concert with others, on the previous business day maintained
aggregate long or short positions on the same side of the market of
200 or more contracts of any single class of option contracts dealt
in on the Exchange. The report shall indicate for each such class of
options, the number of option contracts comprising each such
position and, in the case of short positions, whether covered or
uncovered.'' For purposes of Rule 8.43, the term ``customer'' in
respect of any Trading Permit Holder includes ``the Trading Permit
Holder, any general or special partner of the Trading Permit Holder,
any officer or director of the Trading Permit Holder, or any
participant, as such, in any joint, group or syndicate account with
the Trading Permit Holder or with any partner, officer or director
thereof.'' Rule 8.43(d).
---------------------------------------------------------------------------
Cboe Options is also cognizant of the OTC market, in which similar
restrictions on exercise settlement values do not apply. Cboe Options
continues to believe that the pilot program is appropriate and
reasonable and provides market participants with additional flexibility
in determining whether to execute their customized options in an
exchange environment or in the OTC market. Cboe Options continues to
believe that market participants benefit from being able to trade these
customized options in an exchange environment in several ways,
including, but not limited to, enhanced efficiency in initiating and
closing out positions, increased market transparency, and heightened
contra-party creditworthiness due to the role of the Options Clearing
Corporation as issuer and guarantor of FLEX Options.
If, in the future, the Exchange proposes an additional extension of
the pilot program, or should the Exchange propose to make the pilot
program permanent, the Exchange will submit, along with any filing
proposing such amendments to the pilot program, an annual report
(addressing the same areas referenced above and consistent with the
pilot program's Approval Order) to the Commission at least two months
prior to the expiration date of the program. The Exchange is required
to submit an annual report at least yearly. Currently, the Exchange
provides annual reports that cover the period from August 1st to July
31st of the applicable year. The Exchange will continue to provide
reports covering this period annually and any additional report at
least two months prior to the expiration date of the program covering
the full prior year in the case that the Exchange is requesting
permanent approval of the program.\16\ The Exchange will also continue,
on a periodic basis, to submit interim reports of volume and open
interest consistent with the terms of the exercise settlement values
pilot program as described in the pilot program's Approval Order.\17\
Additionally, the Exchange will provide the Commission with any
additional data or analyses the Commission requests because it deems
such data or analyses necessary to determine whether the pilot program
is consistent with the Exchange Act. The Exchange is in the process of
making public on its website all data and analyses previously submitted
to the Commission under the pilot program, and will make public any
data and analyses it submits to the Commission under the pilot program
in the future.\18\
---------------------------------------------------------------------------
\16\ For example, if the Exchange plans on submitting a proposal
in April 2023 requesting permanent approval of the pilot program
expiring May 8, 2023, the Exchange would have to submit an annual
report no later than March 8, 2023 covering the full prior year.
\17\ The Exchange is required to submit the interim reports on a
quarterly basis within 15 days of the end of each calendar quarter
that the pilot is in effect.
\18\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-flex-pm-data.
---------------------------------------------------------------------------
As noted in the pilot program's Approval Order, any positions
established under the pilot program would not be impacted by the
expiration of the pilot program.\19\
---------------------------------------------------------------------------
\19\ For example, a position in a p.m.-settled FLEX Index Option
series that expires on the third Friday-of-the-month in January 2020
could be established during the exercise settlement values pilot. If
the pilot program were not extended (or made permanent), then the
position could continue to exist. However, the Exchange notes that
any further trading in the series would be restricted to
transactions where at least one side of the trade is a closing
transaction. See Approval Order at footnote 3, supra note 1.
---------------------------------------------------------------------------
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.\20\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \21\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \22\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed extension of
the pilot program, which permits an additional exercise settlement
value, would provide greater opportunities for investors to manage risk
through the use of FLEX Options. Further, the Exchange believes that it
has not experienced any adverse effects from the operation of the pilot
program, including any adverse market volatility effects that might
occur as a result of large FLEX exercises in FLEX Option series that
expire near Non-FLEX expirations and are p.m.-settled. The Exchange
also believes that the extension of the exercise settlement
[[Page 68822]]
values pilot does not raise any unique regulatory concerns. In
particular, although p.m. settlements may raise questions with the
Commission, the Exchange believes that, based on the Exchange's
experience in trading FLEX Options to date and over the pilot period,
market impact and investor protection concerns will not be raised by
this rule change. The Exchange also believes that the proposed rule
change would continue to provide Trading Permit Holders and investors
with additional opportunities to trade customized options in an
exchange environment (which offers the added benefits of transparency,
price discovery, liquidity, and financial stability as compared to the
over-the-counter market) and subject to exchange-based rules, and
investors would benefit as a result.
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 believes there
is sufficient investor interest and demand in the pilot program to
warrant its extension. The Exchange believes that, for the period that
the pilot has been in operation, the program has provided investors
with additional means of managing their risk exposures and carrying out
their investment objectives. Furthermore, the Exchange believes that it
has not experienced any adverse market effects with respect to the
pilot program, including any adverse market volatility effects that
might occur as a result of large FLEX exercises in FLEX Option series
that expire near Non-Flex expirations and use a p.m. settlement. Cboe
Options believes that the restriction actually places the Exchange at a
competitive disadvantage to its OTC counterparts in the market for
customized options, and unnecessarily limits market participants'
ability to trade in an exchange environment that offers the added
benefits of transparency, price discovery, liquidity, and financial
stability. Therefore, the Exchange does not believe that the proposed
rule change will impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2023-057 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-2023-057. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-CBOE-2023-057, and should be submitted
on or before October 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21958 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
