Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Make Permanent Pilot Programs in Connection With the Listing and Trading of P.M.-Settled Series on Certain Broad-Based Index Options, 2688-2695 [2024-00637]
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Federal Register / Vol. 89, No. 10 / Tuesday, January 16, 2024 / Notices
For the Commission, by the Division of
Investment Management, under delegated
authority.
Sherry R. Haywood,
Assistant Secretary.
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.
[FR Doc. 2024–00605 Filed 1–12–24; 8:45 am]
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99299; File No. SR–
CboeBZX–2023–107]
1. Purpose
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To Make
Permanent Pilot Programs in
Connection With the Listing and
Trading of P.M.-Settled Series on
Certain Broad-Based Index Options
January 9, 2024.
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 December
26, 2023, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX’’) 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.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to make
permanent the operation of its programs
that allow the Exchange to list options
on the Mini-SPX Index (‘‘XSP options’’)
with P.M.-settlement and to list broadbased index options with nonstandard
expirations (‘‘Nonstandard Expirations
Pilot Program’’).
The text of the proposed rule change
is available on the Exchange’s website
(https://markets.cboe.com/us/equities/
regulation/rule_filings/bzx/), 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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The Exchange proposes to make
permanent its XSPPM Pilot Program and
its Nonstandard Expirations Pilot
Program. Specifically, the Exchanges
proposes to be permitted to list on a
permanent basis (1) XSP options with
third-Friday-of-the-month expiration
dates whose exercise settlement value is
derived from closing prices on the last
trading day prior to expiration (‘‘P.M.settled’’) (‘‘XSPPM options’’) and (2)
options on broad-based indexes that are
P.M.-settled and expire (a) on any
Monday, Wednesday, or Friday (other
than the third Friday-of-the-month or
days that coincide with an end-ofmonth (‘‘EOM’’) expiration) (‘‘Weekly
Expirations’’) and (b) 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
(1) XSP options with third-Friday-ofthe-month expiration dates that are
P.M.-settled (the ‘‘XSPPM Pilot
Program’’) and (2) options on broadbased indexes with Weekly Expirations
and Monthly Expirations (the
‘‘Nonstandard Expirations Pilot
Program’’ and, with the XSPPM Pilot
Program, the ‘‘Pilot Programs’’).4
XSPPM Options, Weekly Expirations,
and EOMs are cash-settled and have
European-style exercise. The Pilot
Programs became effective on a pilot
basis for a period of twelve months from
the date of the approval of the Pilot
3 In addition to proposing to delete the language
in Rule 29.11(a)(6) and (j)(3) regarding the
expiration date of the Pilot Programs (and
renumbering Rule 29.11(j)(4) to be subparagraph
(3)), the Exchange proposes to delete the word
‘‘pilot’’ from the heading of Rule 29.11(j) and make
a corresponding change to Rules 29.11(c)(5)(C). The
Exchange also proposes a nonsubstantive change to
the introductory paragraph of Rule 29.11(c) to
change an incorrect semicolon to a colon.
4 See Securities Exchange Act Release No. 85181
(February 22, 2019), 84 FR 6842 (February 28, 2019)
(SR–CboeBZX–2018–066) (‘‘Pilot Programs
Approval Order’’). Under the terms of the
Nonstandard Expirations Pilot Program, Weekly
Expirations and EOMs are permitted on any broadbased index that is eligible for regular options
trading.
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Programs 5 and were subsequently
extended.6 Pursuant to Rule 29.11(a)(6)
and (j)(3), the Pilot Programs are
scheduled to expire on May 6, 2024.
The Exchange hereby requests that the
Commission approve the Pilot Programs
on a permanent basis.
By way of background, when cashsettled 7 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
5 See
id.
Securities Exchange Act Release Nos. 88052
(January 27, 2020), 85 FR 5753 (January 31, 2020)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeBZX–2020–004);
88788 (April 30, 2020), 85 FR 27008 (May 6, 2020)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeBZX–2020–038);
90255 (October 22, 2020), 85 FR 68378 (October 28,
2020) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeBZX–2020–076);
91699 (April 28, 2021), 86 FR 23767 (May 4, 2021)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeBZX–2021–031);
93454 (October 28, 2021), 86 FR 60727 (November
3, 2021) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Extend
the Pilot Programs in Connection With the Listing
and Trading of P.M.-Settled Series on Certain
Broad-Based Index Options) (SR–CboeBZX–2021–
072); 94802 (April 27, 2022), 87 FR 26240 (May 3,
2022) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeBZX–2022–029);
96208 (November 2, 2022), 87 FR 67524 (November
8, 2022) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Extend
the Pilot Programs in Connection With the Listing
and Trading of P.M.-Settled Series on Certain
Broad-Based Index Options) (SR–CboeBZX–2022–
052); 97442 (May 5, 2023), 88 FR 30362 (May 11,
2023) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeBZX–2023–034);
and 98635 (September 28, 2023), 88 FR 68715
(October 4, 2023) (SR–CboeBZX–2023–073) (Notice
of Filing and Immediate Effectiveness of a Proposed
Rule Change To Extend the Pilot Programs in
Connection With the Listing and Trading of P.M.Settled Series on Certain Broad-Based Index
Options).
7 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.
6 See
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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.8
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.9 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 10 for index
futures, including futures on the S&P
500.11 The Commission subsequently
approved a rule change by Cboe
Options, Inc. (‘‘Cboe Options’’) to list
and trade A.M.-settled SPX options.12 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;13
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).14 Starting
8 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.’’
9 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.
10 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.
11 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).
12 See id.
13 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.
14 See Securities Exchange Act Release No. 31800
(February 1, 1993), 58 FR 7274 (February 5, 1993)
(SR–CBOE–92–13); see also Securities Exchange
Act Release Nos. 54123 (July 11, 2006), 71 FR 40558
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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 of the month) and
at the end of each month (‘‘EOM’’),15
P.M.-settled options on the S&P 500
Index that expire on the third Friday-ofthe-month (‘‘SPXPM’’),16 as well as
P.M.-settled Mini-SPX Index (‘‘XSP’’)
options and Mini-Russell 2000 Index
(‘‘MRUT’’) options expiring on the third
Friday of the month.17 As noted above,
the Commission approved a rule to
allow the Exchange to list XSPPM
options and broad-based index options
with Weekly and EOM Expirations.18
The Commission recently approved
proposed rule changes to make Cboe
Options’ pilot programs to list P.M.settled index options (including pilot
programs substantively the same as the
Pilot Programs) permanent.19
As stated above, since its inception in
2019, the Exchange has continuously
extended the Pilot Program periods and,
during the course of the Pilot Programs
and in support of the extensions of the
Pilot Programs, the Exchange has
(July 17, 2006) (SR–CBOE–2006–65); and 60164
(June 23, 2009), 74 FR 31333 (June 30, 2009) (SR–
CBOE–2009–029).
15 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).
16 See Securities Exchange Act Release No. 68888
(February 8, 2013), 78 FR 10668 (February 14, 2013)
(SR–CBOE–2012–120). Pursuant to Securities
Exchange Act Release No. 80060 (February 17,
2017), 82 FR 11673 (February 24, 2017) (SR–CBOE–
2016–091), the Exchange moved third-Friday P.M.settled options into the S&P 500 Index options
class, and as a result, the trading symbol for P.M.settled S&P 500 Index options that have standard
third Friday-of-the-month expirations changed from
‘‘SPXPM’’ to ‘‘SPXW.’’ This change went into effect
on May 1, 2017, pursuant to Cboe Options
Regulatory Circular RG17–054.
17 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).
18 See supra note 4.
19 See Securities Exchange Act Release Nos.
98454 (September 20, 2023) (SR–CBOE–2023–005)
(order approving proposed rule change to make
permanent the operation of a program that allows
the Exchange to list p.m.-settled third Friday-of-themonth SPX options series); 98455 (September 20,
2023) (SR–CBOE–2023–019) (order approving
proposed rule change to make permanent the
operation of a program that allows the Exchange to
list p.m.-settled third Friday-of-the-month XSP and
MRUT options series); and 98456 (September 20,
2023) (SR–CBOE–2023–020) (order approving
proposed rule change to make the nonstandard
expirations pilot program permanent).
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submitted reports to the Commission
regarding the Pilot Programs that detail
the Exchange’s experience with the Pilot
Programs, pursuant to the Pilot
Programs Approval Order.20
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’’).21
The pilot reports for the XSPPM Pilot
Program contained the following
volume and open interest data:
(1) monthly volume aggregated for all
trades;
(2) monthly volume aggregated by
expiration date;
(3) monthly volume for each
individual series;
(4) month-end open interest
aggregated for all series;
(5) month-end open interest for all
series aggregated by expiration date; and
(6) month-end open interest for each
individual series.
The pilot reports for the Nonstandard
Expirations Pilot Program 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
(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 for the Pilot
Programs also contained the information
noted in respective Items (1) through (6)
above for Expiration Friday, A.M.settled series, if applicable, for the
20 See
supra note 4.
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.
21 In
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period covered in the pilot report. With
respect to the Nonstandard Expirations
Pilot Program, 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 the
following analyses of trading patterns in
XSPPM options and index options with
Weekly and EOM Expirations:
• with respect to the XSPPM Pilot
Program, a time series analysis of open
interest and an analysis of the
distribution of trade sizes; and
• with respect to the Nonstandard
Expirations Pilot Program, Weekly and
EOM option volume data aggregated by
series, and Weekly open interest for
expiring series and EOM month-end
open interest for expiring series.
Finally, for series that exceed certain
minimum parameters,22 the annual
reports contained the following analysis
related to index price changes and
underlying share trading volume at the
close on Expiration Fridays:
(1) a comparison of index price
changes at the close of trading on a
given Expiration Friday with
comparable price changes from a control
sample. The data includes a calculation
of percentage price changes for various
time intervals and compare that
information to the respective control
sample. Raw percentage price change
data as well as percentage price change
data normalized for prevailing market
volatility, as measured by the Cboe
Volatility Index (VIX), is provided; and
(2) a calculation of share volume for
a sample set of the component securities
representing an upper limit on share
trading that could be attributable to
expiring in-the-money series. The data
includes a comparison of the calculated
share volume for securities in the
sample set to the average daily trading
volumes of those securities over a
sample period.
Also, during the course of the Pilot
Programs, 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
22 The Exchange and the Commission determined
the minimum open interest parameters, control
sample, time intervals, method for randomly
selecting the component securities, and sample
periods.
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Nonstandard Expirations Pilot
Program,23 and will continue to make
public any data and analyses it submits
to the Commission while the Pilot
Programs is still in effect.
The Exchange has concluded that the
Pilot Programs do 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 XSPPM, Weekly
options, 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 XSPPM, 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 2018,24
and the Exchange’s review of the pilot
data from 2019 through 2021, the size of
the market for P.M.-settled SPX options
(including quarterly, weekly, EOM and
third Friday expirations) since 2007 has
grown from a trivial portion of the
overall market to a substantial share
(from around 0.1% of open interest in
2007 to 30% in 2021).25 Notional value
of open interest in P.M.-settled SPX
options increased from approximately a
median of $1.5 billion in 2007 to $1.9
trillion in 2021, approximately 1260
times its value in 2007. Notional open
interest in A.M.-settled SPX options was
already hovering around a median of
$1.4 trillion in 2007, and it has since
increased to approximately $4.4 trillion
in 2021. It is also important to note that
open interest on expiring P.M.-settled
SPX options, as compared to A.M.settled options, is spread out across a
23 Available at https://www.cboe.com/aboutcboe/
legal-regulatory/national-market-system-plans/pmsettlement-spxpm-data.
24 See DERA Staff PM Pilot Memo, at 13 (‘‘Option
settlement quantity data for A.M.- and P.M.-settled
options were obtained from the Cboe, including the
number of contracts that settled in-the-money for
each exchange-traded option series on the S&P 500
index . . . on expiration days from January 20,
2006 through December 31, 2018. Daily open
interest and volume data for [SPX] option series
were also obtained from Cboe, including open
interest data from January 3, 2006 through
December 31, 2018 and trading volume data from
January 3, 2006 through December 31, 2018.’’)
25 The DERA staff study reviewed and provided
statistics for market share, median notional value of
open interest and median volume in 2007 and in
2018. The Exchange provides updated statistics for
market share, median notional value of open
interest and median volume in 2021, replacing the
2018 statistics provided in the Commission staff
study.
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greater number of expiration dates,
which results in a smaller percentage of
open interest expiring on any one date,
thus mitigating concerns that SPXPM
option expiration may have a disruptive
effect on the market.26 Daily trading
volume in P.M.-settled SPX options has
increased from a median of about 700
contracts in 2007 to nearly 1.9 million
contracts in 2021,27 and now exceeds
trading volume in A.M.-settled SPX
options.
Moreover, the DERA staff study of the
P.M.-settled SPX options pilot data
(2006 through 2018) did not identify
any significant economic impact on S&P
500 futures,28 the S&P 500, or the
underlying component securities of the
S&P 500 surrounding the close. For
purposes of the study, volatility was by
and large measured by using the
standard deviation 29 of one-minute
returns of S&P 500 futures values and
the index value during regular hours on
each day reviewed (excluding the first
and last 15 minutes of trading) and then
compared with the standard deviation
of one-minute returns (for S&P 500
futures, the S&P 500, and the underlying
component securities of the S&P 500)
over the last 15 minutes of a trading
day.30 Using this as a general measure,31
the DERA staff study then reviewed
whether, and to what extent, the
settlement quantity of SPXPM options
and the levels of open interest in
SPXPM options on expiration days (as
26 See
DERA Staff PM Pilot Memo, at 2.
Exchange notes that the DERA staff study
used two-sided volume data for the median volume
in 2007 and in 2018; therefore, the Exchange
provides two-sided volume data for the median
volume in 2021.
28 Futures on the S&P 500 experience high
volume and liquidity both before and after the close
of the underlying market. Therefore, futures are a
useful measure of abnormal volatility surrounding
the close and the open. See DERA Staff PM Pilot
Memo, at 14. The Exchange agrees with this
approach.
29 Standard deviation applied to a rate of return
(in this case, one-minute) of an instrument can
indicate that instrument’s historical volatility. The
greater the standard deviation, the greater the
variance between price and the mean, which
indicates a larger price range, i.e., higher volatility.
30 For example, if on a particular day the standard
deviation of one-minute returns between 3:45 p.m.
ET and 4:00 p.m. ET is 0.004 and the standard
deviation of returns from 9:45 a.m. ET to 3:45 p.m.
ET is 0.002, this metric would take on a value of
2 for that day, indicating that volatility during the
last 15 minutes of the trading day was twice as high
as it was during the rest of the trading day. See
DERA Staff PM Pilot Memo, at 15; see also DERA
Staff PM Pilot Memo, at Section V, which discusses
in detail the metrics used to measure, for the
purposes of the study, the extent to which the
market may experience abnormal volatility
surrounding SPXPM option settlement.
31 See DERA Staff PM Pilot Memo, at Section V,
which discusses in detail the metrics used to
measure, for the purposes of the study, the extent
to which the market may experience abnormal
volatility surrounding SPXPM option settlement.
27 The
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compared to non-expiration days) may
be associated with general price
volatility and price reversals for S&P
500 futures, the S&P 500, and the
underlying component securities of the
S&P 500 near the close. From its review
of the study, the Exchange agrees that,
although volatility before the market
close is generally higher than during the
rest of the trading day, there is no
evidence of any significant adverse
economic impact to the futures, index,
or underlying index component
securities markets as a result of the
quantity of P.M.-settled SPX options
that settle at the close or the amount of
expiring open interest in P.M.-settled
SPX options. For example, the largest
settlement event that occurred during
the time period of the study (a
settlement of $100.4 billion of notional
on December 29, 2017) had an estimated
impact on the futures price of only
approximately 0.02% (a predicted
impact of $0.54 relative to a closing
futures price of $2,677).
In particular, the DERA staff study
found that an additional P.M.-settled
SPX options settlement quantity equal
to $10 billion in notional value is
associated with a marginal impact on
futures prices during the last 15 minutes
of the trading day of only about $0.06
(where the hypothetical index level is
2,500), additional expiring open interest
in P.M.-settled SPX options equal to $10
billion in notional value is associated
with a marginal impact on futures prices
during the last 15 minutes of the trading
day of only about $0.05 (assumed index
level is 2,500). Also, an additional
increase in settlement quantity or in
expiring open interest, each equal to $20
million in notional value, did not result
in any meaningful futures price
reversals near the close (neither was
found to cause a price reversal of over
one standard deviation.32)
Likewise, the study identified that an
additional total P.M.-settled SPX
options settlement quantity equal to $10
billion in notional value corresponds to
price movement in the S&P 500 of only
about $0.08 (assuming an index level of
2,500) during the last 15 minutes of the
trading day, and that additional expiring
open interest equal to $10 billion in
notional value corresponds to a price
movement in the S&P 500 of only about
$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
32 See
supra note 29.
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deviations to occur in the last 15
minutes before the market close. Also,
regarding potential impact to S&P 500
component securities, it would take an
increase in total P.M.-settled SPX
options settlement quantity equal to $20
billion to effect a price movement of
only approximately $0.03 for a $200
stock, an increase in expiring open
interest in P.M.-settled SPX options
equal to $10 billion to effect a price
movement less than half a standard
deviation, and an increase in total P.M.settled SPX settlement quantity equal to
$7 billion to achieve a price reversal
greater two standard deviations.
The study employed the same metrics
to determine whether there is greater
price volatility for S&P 500 futures, the
S&P 500, and the component securities
of the S&P 500 related to SPXPM option
settlements during an environment of
high market volatility (i.e., on days in
which the VIX Index was in the top
10% of closing index values) and did
not identify indicators of any significant
economic impact on these markets near
the close as a result of the P.M.-settled
SPX options settlement.33 In addition to
this, the DERA staff study, applying the
same metrics and analysis as for P.M.settled SPX options to A.M.-settled SPX
options, did not identify any evidence
of a statistically significant relationship
between settlement quantity or expiring
open interest of A.M.-settled options
and volatility near the open.
Upon review of the results of the
DERA staff study, the Exchange agrees
that each of the above-described
marginal price movements in S&P 500
futures, the S&P 500, and the S&P 500
component securities affected by
increases in P.M.-settled SPX options
settlement quantity and expiring open
interest appear to be de minimis pricing
changes from those that occur over
regular trading hours (outside of the last
15 minutes of the trading day). Further,
the Exchange has not observed any
significant economic impact or other
adverse effects on the market from
similar reviews of its pilot reports and
data submitted after 2018.34 In its
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
33 The Exchange also notes that the study did not
identify any evidence that less liquid S&P 500
constituent securities experienced any greater
impact from the settlement of P.M.-settled SPX
options.
34 Total SPX open interest volumes were
examined for expiration dates over a roughly twoyear period between October 2019 and November
2021.
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2691
500 level (excluding the first and last
fifteen minutes of trading) and
comparing such with the standard
deviation of one-minute returns 35 of the
S&P 500 level, over the last 15 minutes
of a trading day. The Exchange
identified an average standard deviation
ratio of 1.42 for the S&P 500 on nonexpiration days and an average standard
deviation ratio of 1.54 for the S&P 500
on expiration days (a ratio between
expiration days and non-expiration days
of 1.09). The Exchange also notes that,
using the same methodology, it
observed that, from 2015 through
2019,36 the average standard deviation
ratio for the S&P 500 on non-expiration
days was 1.11 and the average standard
deviation ratio for the S&P 500 on
expiration days was 1.22 (a ratio
between expiration days and nonexpiration days of 1.10). While the
average standard deviation ratio on both
expiration and non-expiration days was
higher in 2019 through 2021 due to
overall market volatility, the ratios
between the standard deviation ratios
on expiration days and non-expirations
days remained nearly identical between
the 2015 through 2019 timeframe and
the 2019 through 2021. This shows that,
in cases where overall market volatility
may increase, the normalized impact on
expiration days to non-expiration days
generally remains consistent.
In addition to this, the Exchange notes
that the S&P 500 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) 37 and generally
drive an increase in trading activity
from investors that seek to track the S&P
500. As such, the Exchange measured
volatility on quarterly rebalancing dates
and found that the average standard
deviation ratio was 1.62, which suggests
more closing volatility on quarterly
rebalance dates compared to nonquarterly expiration dates (for which the
average standard deviation ratio was
1.22), thus indicating that the impact
rebalancing may have on the S&P 500 is
greater than any impact that P.M.-settled
SPX options may have on the S&P 500.
The Exchange additionally focused its
study of the post-2018 sample pilot data
on reviewing for potential correlation
between excess market volatility and
price reversals and the hedging activity
of liquidity providers. As explained in
35 Calculated
at every tick for the prior minute.
2015 through November 2021.
37 See S&P Dow Jones Indices, Equity Indices
Policies & Practices, Methodology (August 2021), at
15, available at https://www.spglobal.com/spdji/en/
documents/methodologies/methodology-sp-equityindices-policies-practices.pdf.
36 November
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the DERA staff study, potential impact
of P.M.-settled SPX options on the
correlated equity markets is thought to
stem from the hedging activity of
liquidity providers in such options.38 To
determine any such potential
correlation, the Exchange studied the
expected action of liquidity providers
that are the primary source of the
hedging on settlement days. These
liquidity providers generally deltahedge their S&P 500 index exposure via
S&P 500 futures and on settlement day
unwind their futures positions that
correspond with the delta of their inthe-money (ITM) expiring P.M.-settled
SPX options. Assuming such behavior,
the Exchange estimated the Market-OnClose (‘‘MOC’’) 39 volume for the shares
of the S&P 500 component securities
(i.e., ‘‘MOC share volume’’) that could
ultimately result from the unwinding of
the liquidity providers’ futures positions
by equating the notional value of the
futures positions that correspond to
expiring ITM open interest to the
number S&P 500 component security
contracts (based on the weight of each
S&P 500 component security). That is,
the Exchange calculated (an estimate) of
the amount of MOC volume in the S&P
500 component markets attributable
hedging activity as a result of expiring
ITM P.M.-settled SPX options (i.e.,
‘‘hedging MOC’’). The Exchange then:
(1) compared the hedging MOC share
volume to all MOC share volume on
expiration days and non-expiration
trading days; and (2) compared the
notional value of the hedging futures
positions (i.e., that correspond to
expiring ITM P.M.-settled SPX options
open interest) to the notional value of
expiring ITM P.M.-settled SPX options
open interest, the notional value of all
expiring P.M.-settled SPX options open
interest and the notional value of all
P.M.-settled SPX options open interest.
The Exchange observed that, on
average, there were approximately 25%
more MOC shares executed on
expiration days (332 expiration days)
than non-expiration days (209 nonexpiration days). While, at first glance,
the volume of MOC shares executed on
expiration days seems much greater
than the volume executed on nonexpiration days, the Exchange notes that
much of this difference is attributable to
just eight expiration days—the quarterly
index rebalancing dates captured within
the scope of the post-2018 sample pilot
data. The average MOC share volume on
38 See
DERA Staff PM Pilot Memo, at 10–12.
orders allow a market participant to trade
at the closing price. Market participants generally
utilize MOC orders to ensure they exit positions at
the end of the trading day.
39 MOC
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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 Pilot Programs
impacted the quality of the A.M.-settled
option market. Specifically, the
Exchange compared values of key
market quality indicators (specifically,
PO 00000
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the bid-ask spread 40 and effective
spread) 41 in SPXW options (which trade
on Cboe Options, an affiliated of the
Exchange, pursuant to a nonstandard
expiration program substantively
similar to the Nonstandard Expiration
Pilot Program) both before and after the
introduction of Tuesday expirations and
Thursday expirations for SPXW options
on April 18 and May 11, 2022,
respectively.42 Options on the Standard
& Poor’s Depositary Receipts S&P 500
ETF (‘‘SPY’’) were used as a control
group to account for any market factors
that might influence key market quality
indicators. The Exchange used data
from January 3, 2022 through March 4,
2022 (the two-month period prior to the
introduction of SPXW options with
Tuesday expirations) and data from May
11, 2022 to July 10, 2022 (the twomonth period following the
introduction of SPXW options with
Thursday expirations).43
Given the time that as passed since
the implementation of the Pilot
Programs, as well as the fact that when
the Exchange began offering XSPPM,
Weekly and EOM options, XSPPM,
Weekly, and EOM options had already
been trading on other exchanges for
nearly a decade, the Exchange is unable
to analyze whether the introduction of
those 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 XSPPM,
Weekly and EOM options impacted the
40 The Exchange calculated for each of SPXW
options (with Monday, Wednesday, and Friday
expirations) and SPY Weekly options (with
Monday, Wednesday, and Friday expirations) the
daily time-weighted bid-ask spread on the Exchange
during its regular trading hours session, adjusted for
the difference in size between SPXW options and
SPY options (SPXW options are approximately ten
times the value of SPY options).
41 The Exchange calculated the volume-weighted
average daily effective spread for simple trades for
each of SPXW options (with Monday, Wednesday,
and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations)
as twice the amount of the absolute value of the
difference between an order execution price and the
midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size
between SPXW options and SPY options.
42 For purposes of comparison, the Exchange
paired SPXW options and SPY options with the
same moneyness and same days to expiration.
43 The Exchange observed comparable market
volatility levels during the pre-intervention and
post-intervention time ranges.
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market quality of any corresponding
A.M.-settled options when the pilot
began.44
As a result of this analysis, the
Exchange believes the introduction of
SPX options with Tuesday and
Thursday options had no significant
impact on the market quality of SPXW
options with Monday, Wednesday, and
Friday expirations. With respect to the
majority of series analyzed, the
Exchange observed no statistically
significant difference in the bid-ask
spread or the effective spread of the
series in the period prior to introduction
of the Tuesday and Thursday
expirations and the period following the
introduction of the Tuesday and
Thursday expirations. While
statistically insignificant, the Exchange
notes that in many series, particularly as
they were closer to expiration, the
Exchange observed that the values of
these spreads decreased during the
period following the introduction of the
Tuesday and Thursday expirations.45
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
Pilot Programs permanent as P.M.settled index products have become a
part of the Exchange’s product offerings,
providing investors with greater trading
opportunities and flexibility. As
indicated by the significant growth in
the size of the market for P.M.-settled
options, such options have been, and
continue to be, well-received and
widely used by market participants.
Therefore, the Exchange wishes to be
able to have the authority to continue to
provide investors with the ability to
trade XSPPM, Weekly, and EOM
options on a permanent basis. The
Exchange believes that the permanent
continuation of the Pilot Programs 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 nearly 14 years (and
for nearly 5 years on the Exchange). As
such, the Exchange also believes that
ceasing to have the authority to offer
XSPPM, Weekly, and EOM options may
44 The full analysis is included in Exhibit 3 of this
rule filing.
45 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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result in market disruption and investor
confusion. The Exchange has not
identified any significant impact on
market quality nor any unique or
prohibitive regulatory concerns as a
result of the Pilot Programs, and, as
such, the Exchange believes that the
continuation of the Pilot Programs as a
pilot, including the use of time and
resources to compile and analyze
interim and annual pilot reports and
pilot data, is no longer necessary and
that making the Pilot Programs
permanent will allow the Exchange to
otherwise allocate time and resources to
other industry initiatives.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.46 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 47 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
In particular, the Exchange believes
that the making the Pilot Programs
permanent will allow the Exchange to
be able to have the authority to continue
to offer XSPPM, Weekly, and EOM
options—products that have become a
part of the Exchange’s offerings—on a
continuous and permanent basis. Since
their reintroduction beginning in
2006,48 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 Pilot Programs will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest by continuing to offer a product
to which investors have become
accustomed and have incorporated into
46 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
48 See supra notes 24–44. As described above, the
Exchange’s conclusion is consistent with the
analysis in the DERA Staff PM Pilot Memo.
47 15
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2693
their business models and day-to-day
trading strategies for nearly 14 years
(including nearly 5 years on the
Exchange). 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
Pilot Programs may result in market
disruption and investor confusion, as
P.M.-settled index products have
become a part of the Exchange’s product
offerings, providing investors with
greater trading opportunities and
flexibility.
The Exchange further believes that
making the Pilot Programs permanent
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system
and protect investors, while maintaining
a fair and orderly market, as the
Exchange believes that previous
concerns (arising in the 1980s) regarding
options expirations potentially
contributing to excess volatility and
reversals around the close have been
adequately diminished. As described in
detail above, the Exchange has observed
no significant adverse market impact or
identified any meaningful regulatory
concerns during the approximately 5year operation of the Pilot Programs as
pilots nor during the nearly years since
P.M.-settled SPX options were
reintroduced to the marketplace.49
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
XSPPM, Weekly, and EOM options that
settle at the close or the amount of
expiring open interest in XSPPM,
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 XSPPM, 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 XSPPM, Weekly, and EOM
options, as SPX options also overlay a
broad-based index. Additionally, with
respect to XSP options, XSP options
overly the same index comprised of the
same securities (just one tenth the size).
This is particularly true given that the
49 See
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reports submitted by the Exchange
during the pilot period have similarly
demonstrated no significant economic
impact on the respective underlying
indexes or other products.
The Exchange also believes the
introduction of XSPPM, Weekly, and
EOM options had no significant impact
on the market quality of corresponding
A.M.-settled options (which the
Exchange does not list) 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,
XSPPM options are nearly identical to
P.M.-settled and A.M.-settled SPX
options, as they are based on an index
comprised of the same securities, just 1/
10th the size. Additionally, Weekly, and
EOM options may only overly broadbased indexes, including the Mini-SPX
Index. 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 XSPPM,
Weekly, or EOM options significantly
impacted the market quality of A.M.settled options when the pilots began.
Additionally, the significant changes
in the closing procedures of the primary
markets in recent decades, including
considerable advances in trading
systems and technology, has
significantly minimized risks of any
potential impact of XSPPM, Weekly, or
EOM options on the underlying cash
markets. As such, the Exchange believes
that permanent Pilot Programs do not
raise any unique or prohibitive
regulatory concerns and that such
trading has not, and will not, adversely
impact fair and orderly markets on
Expiration Fridays for the underlying
indexes 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 XSPPM, Weekly, and
EOM options, the Exchange believes
that the continuation of the Pilot
Programs as pilots, including the
gathering, submission and review of the
pilot reports and data, is no longer
necessary and that making the Pilot
Programs permanent will allow the
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Exchange to otherwise allocate time and
resources to other industry initiatives.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that making
the Pilot Programs permanent will
impose any unnecessary or
inappropriate burden on intramarket
competition because XSPPM, Weekly,
and EOM options will continue to be
available to all market participants who
wish to participate in the markets for
those options. The Exchange believes
that the growth the market of P.M.settled options products, including
XSPPM, Weekly, and EOM options, has
experienced since their reintroduction
through pilot programs indicates strong,
continued investor interest and demand,
warranting a permanent Pilot Program.
The Exchange believes that, for the
period that XSPPM, 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
Pilot Programs, and, as such, the
continuation of the Pilot Programs as
pilots, including the gathering,
submission and review of the pilot
reports and data, is no longer necessary.
Permanent Pilot Programs will allow the
Exchange to otherwise allocate time and
resources to other industry initiatives.
The Exchange further does not believe
that making the Pilot Programs
permanent will impose any burden on
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because other
exchanges are free to and do offer
competing products.50 To the extent that
the permanent offering and continued
trading of XSPPM, Weekly, and EOM
options may make the Exchange a more
attractive marketplace to market
participants at other exchanges, such
market participants may elect to become
Exchange market participants.
50 See, e.g., Cboe Options Rule 4.13(e) and
Interpretation and Policy .13.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2023–107 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–CboeBZX–2023–107. 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
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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
a.m. and 3 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–CboeBZX–2023–107 and should be
submitted on or before February 6, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.51
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–00637 Filed 1–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
January 9, 2024.
ddrumheller on DSK120RN23PROD with NOTICES1
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 December
26, 2023, Cboe EDGX Exchange, Inc.
(‘‘Exchange’’ or ‘‘EDGX’’) 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
The Exchange proposes to make
permanent the operation of its programs
that allow the Exchange to list options
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Sep<11>2014
18:57 Jan 12, 2024
Jkt 262001
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.
1. Purpose
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
of a Proposed Rule Change To Make
Permanent Pilot Programs in
Connection With the Listing and
Trading of P.M.-Settled Series on
Certain Broad-Based Index Options
1 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Release No. 34–99300; File No. SR–
CboeEDGX–2023–083]
51 17
on the Mini-SPX Index (‘‘XSP options’’)
with P.M.-settlement and to list broadbased index options with nonstandard
expirations (‘‘Nonstandard Expirations
Pilot Program’’).
The text of the proposed rule change
is available on the Exchange’s website
(https://markets.cboe.com/us/equities/
regulation/rule_filings/EDGX/), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
The Exchange proposes to make
permanent its XSPPM Pilot Program and
its Nonstandard Expirations Pilot
Program. Specifically, the Exchanges
proposes to be permitted to list on a
permanent basis (1) XSP options with
third-Friday-of-the-month expiration
dates whose exercise settlement value is
derived from closing prices on the last
trading day prior to expiration (‘‘P.M.settled’’) (‘‘XSPPM options’’) and (2)
options on broad-based indexes that are
P.M.-settled and expire (a) on any
Monday, Wednesday, or Friday (other
than the third Friday-of-the-month or
days that coincide with an end-ofmonth (‘‘EOM’’) expiration) (‘‘Weekly
Expirations’’) and (b) 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
(1) XSP options with third-Friday-ofthe-month expiration dates that are
P.M.-settled (the ‘‘XSPPM Pilot
3 In addition to proposing to delete the language
in Rule 29.11(a)(6) and (j)(3) regarding the
expiration date of the Pilot Programs, the Exchange
proposes to delete the word ‘‘pilot’’ from the
heading of Rule 29.11(j) and make a corresponding
change to Rules 29.11(c)(5)(C).
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
2695
Program’’) and (2) options on broadbased indexes with Weekly Expirations
and Monthly Expirations (the
‘‘Nonstandard Expirations Pilot
Program’’ and, with the XSPPM Pilot
Program, the ‘‘Pilot Programs’’).4
XSPPM Options, Weekly Expirations,
and EOMs are cash-settled and have
European-style exercise. The Pilot
Programs became effective on a pilot
basis for a period of twelve months from
the date of the approval of the Pilot
Programs 5 and were subsequently
extended.6 Pursuant to Rule 29.11(a)(6)
and (j)(3), the Pilot Programs are
scheduled to expire on May 6, 2024.
4 See Securities Exchange Act Release No. 85182
(February 22, 2019), 84 FR 6846 (February 28, 2019)
(SR–CboeEDGX–2018–037) (‘‘Pilot Programs
Approval Order’’). Under the terms of the
Nonstandard Expirations Pilot Program, Weekly
Expirations and EOMs are permitted on any broadbased index that is eligible for regular options
trading.
5 See id.
6 See 88054 (January 27, 2020), 85 FR 5761
(January 31, 2020) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Extend
the Pilot Programs in Connection With the Listing
and Trading of P.M.-Settled Series on Certain
Broad-Based Index Options) (SR–CboeEDGX–2020–
002); 88787 (April 30, 2020), 85 FR 26995 (May 6,
2020) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeEDGX–2020–019);
90253 (October 22, 2020) 85 FR 68390 (October 28,
2020) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeEDGX–2020–050);
91700 (April 28, 2021), 86 FR 23770 (May 4, 2021)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeEDGX–2021–022);
93453 (October 28, 2021), 86 FR 60667 (November
3, 2021) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Extend
the Pilot Programs in Connection With the Listing
and Trading of P.M.-Settled Series on Certain
Broad-Based Index Options) (SR–CboeEDGX–2021–
047); 94803 (April 27, 2022), 87 FR 26237 (May 3,
2022) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeEDGX–2022–025);
96209 (November 2, 2022), 87 FR 67520 (November
8, 2022) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change to Extend
the Pilot Programs in Connection with the Listing
and Trading of P.M.-Settled Series on Certain
Broad-Based Index Options) (SR–CboeEDGX–2022–
047); 97443 (May 5, 2023) 88 FR 30356 (May 11,
2023) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options) (SR–CboeEDGX–2023–035);
and 98640 (September 28, 2023), 88 FR 68846
(October 4, 2023) (SR–CboeEDGX–2023–061)
(Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot
Programs in Connection With the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options).
E:\FR\FM\16JAN1.SGM
16JAN1
]]>Agencies
[Federal Register Volume 89, Number 10 (Tuesday, January 16, 2024)]
[Notices]
[Pages 2688-2695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00637]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99299; File No. SR-CboeBZX-2023-107]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Make Permanent Pilot Programs in
Connection With the Listing and Trading of P.M.-Settled Series on
Certain Broad-Based Index Options
January 9, 2024.
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 December 26, 2023, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
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
The Exchange proposes to make permanent the operation of its
programs that allow the Exchange to list options on the Mini-SPX Index
(``XSP options'') with P.M.-settlement and to list broad-based index
options with nonstandard expirations (``Nonstandard Expirations Pilot
Program'').
The text of the proposed rule change is available on the Exchange's
website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 XSPPM Pilot Program and
its Nonstandard Expirations Pilot Program. Specifically, the Exchanges
proposes to be permitted to list on a permanent basis (1) XSP options
with third-Friday-of-the-month expiration dates whose exercise
settlement value is derived from closing prices on the last trading day
prior to expiration (``P.M.-settled'') (``XSPPM options'') and (2)
options on broad-based indexes that are P.M.-settled and expire (a) 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)
(``Weekly Expirations'') and (b) 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 (1) XSP options with
third-Friday-of-the-month expiration dates that are P.M.-settled (the
``XSPPM Pilot Program'') and (2) options on broad-based indexes with
Weekly Expirations and Monthly Expirations (the ``Nonstandard
Expirations Pilot Program'' and, with the XSPPM Pilot Program, the
``Pilot Programs'').\4\ XSPPM Options, Weekly Expirations, and EOMs are
cash-settled and have European-style exercise. The Pilot Programs
became effective on a pilot basis for a period of twelve months from
the date of the approval of the Pilot Programs \5\ and were
subsequently extended.\6\ Pursuant to Rule 29.11(a)(6) and (j)(3), the
Pilot Programs are scheduled to expire on May 6, 2024. The Exchange
hereby requests that the Commission approve the Pilot Programs on a
permanent basis.
---------------------------------------------------------------------------
\3\ In addition to proposing to delete the language in Rule
29.11(a)(6) and (j)(3) regarding the expiration date of the Pilot
Programs (and renumbering Rule 29.11(j)(4) to be subparagraph (3)),
the Exchange proposes to delete the word ``pilot'' from the heading
of Rule 29.11(j) and make a corresponding change to Rules
29.11(c)(5)(C). The Exchange also proposes a nonsubstantive change
to the introductory paragraph of Rule 29.11(c) to change an
incorrect semicolon to a colon.
\4\ See Securities Exchange Act Release No. 85181 (February 22,
2019), 84 FR 6842 (February 28, 2019) (SR-CboeBZX-2018-066) (``Pilot
Programs Approval Order''). 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.
\5\ See id.
\6\ See Securities Exchange Act Release Nos. 88052 (January 27,
2020), 85 FR 5753 (January 31, 2020) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Extend the Pilot Programs
in Connection With the Listing and Trading of P.M.-Settled Series on
Certain Broad-Based Index Options) (SR-CboeBZX-2020-004); 88788
(April 30, 2020), 85 FR 27008 (May 6, 2020) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Extend the
Pilot Programs in Connection With the Listing and Trading of P.M.-
Settled Series on Certain Broad-Based Index Options) (SR-CboeBZX-
2020-038); 90255 (October 22, 2020), 85 FR 68378 (October 28, 2020)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Extend the Pilot Programs in Connection With the Listing
and Trading of P.M.-Settled Series on Certain Broad-Based Index
Options) (SR-CboeBZX-2020-076); 91699 (April 28, 2021), 86 FR 23767
(May 4, 2021) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot Programs in Connection With
the Listing and Trading of P.M.-Settled Series on Certain Broad-
Based Index Options) (SR-CboeBZX-2021-031); 93454 (October 28,
2021), 86 FR 60727 (November 3, 2021) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Extend the
Pilot Programs in Connection With the Listing and Trading of P.M.-
Settled Series on Certain Broad-Based Index Options) (SR-CboeBZX-
2021-072); 94802 (April 27, 2022), 87 FR 26240 (May 3, 2022) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Extend the Pilot Programs in Connection With the Listing and Trading
of P.M.-Settled Series on Certain Broad-Based Index Options) (SR-
CboeBZX-2022-029); 96208 (November 2, 2022), 87 FR 67524 (November
8, 2022) (Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Extend the Pilot Programs in Connection With the
Listing and Trading of P.M.-Settled Series on Certain Broad-Based
Index Options) (SR-CboeBZX-2022-052); 97442 (May 5, 2023), 88 FR
30362 (May 11, 2023) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change To Extend the Pilot Programs in Connection
With the Listing and Trading of P.M.-Settled Series on Certain
Broad-Based Index Options) (SR-CboeBZX-2023-034); and 98635
(September 28, 2023), 88 FR 68715 (October 4, 2023) (SR-CboeBZX-
2023-073) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Pilot Programs in Connection With
the Listing and Trading of P.M.-Settled Series on Certain Broad-
Based Index Options).
---------------------------------------------------------------------------
By way of background, when cash-settled \7\ 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
[[Page 2689]]
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.\8\ 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.\9\ 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 \10\ for index futures, including futures on the S&P
500.\11\ The Commission subsequently approved a rule change by Cboe
Options, Inc. (``Cboe Options'') to list and trade A.M.-settled SPX
options.\12\ 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; \13\ 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).\14\ 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 of the month) and at the end of each month
(``EOM''),\15\ P.M.-settled options on the S&P 500 Index that expire on
the third Friday-of-the-month (``SPXPM''),\16\ as well as P.M.-settled
Mini-SPX Index (``XSP'') options and Mini-Russell 2000 Index (``MRUT'')
options expiring on the third Friday of the month.\17\ As noted above,
the Commission approved a rule to allow the Exchange to list XSPPM
options and broad-based index options with Weekly and EOM
Expirations.\18\ The Commission recently approved proposed rule changes
to make Cboe Options' pilot programs to list P.M.-settled index options
(including pilot programs substantively the same as the Pilot Programs)
permanent.\19\
---------------------------------------------------------------------------
\7\ 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.
\8\ 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.''
\9\ 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.
\10\ 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.
\11\ 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).
\12\ See id.
\13\ 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.
\14\ See Securities Exchange Act Release No. 31800 (February 1,
1993), 58 FR 7274 (February 5, 1993) (SR-CBOE-92-13); 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).
\15\ 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).
\16\ See Securities Exchange Act Release No. 68888 (February 8,
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120). Pursuant
to Securities Exchange Act Release No. 80060 (February 17, 2017), 82
FR 11673 (February 24, 2017) (SR-CBOE-2016-091), the Exchange moved
third-Friday P.M.-settled options into the S&P 500 Index options
class, and as a result, the trading symbol for P.M.-settled S&P 500
Index options that have standard third Friday-of-the-month
expirations changed from ``SPXPM'' to ``SPXW.'' This change went
into effect on May 1, 2017, pursuant to Cboe Options Regulatory
Circular RG17-054.
\17\ 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).
\18\ See supra note 4.
\19\ See Securities Exchange Act Release Nos. 98454 (September
20, 2023) (SR-CBOE-2023-005) (order approving proposed rule change
to make permanent the operation of a program that allows the
Exchange to list p.m.-settled third Friday-of-the-month SPX options
series); 98455 (September 20, 2023) (SR-CBOE-2023-019) (order
approving proposed rule change to make permanent the operation of a
program that allows the Exchange to list p.m.-settled third Friday-
of-the-month XSP and MRUT options series); and 98456 (September 20,
2023) (SR-CBOE-2023-020) (order approving proposed rule change to
make the nonstandard expirations pilot program permanent).
---------------------------------------------------------------------------
As stated above, since its inception in 2019, the Exchange has
continuously extended the Pilot Program periods and, during the course
of the Pilot Programs and in support of the extensions of the Pilot
Programs, the Exchange has submitted reports to the Commission
regarding the Pilot Programs that detail the Exchange's experience with
the Pilot Programs, pursuant to the Pilot Programs Approval Order.\20\
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'').\21\
---------------------------------------------------------------------------
\20\ See supra note 4.
\21\ In providing the pilot reports to the Commission, the
Exchange previously requested confidential treatment of the pilot
reports under the Freedom of Information Act (``FOIA''). See 5
U.S.C. 552.
---------------------------------------------------------------------------
The pilot reports for the XSPPM Pilot Program contained the
following volume and open interest data:
(1) monthly volume aggregated for all trades;
(2) monthly volume aggregated by expiration date;
(3) monthly volume for each individual series;
(4) month-end open interest aggregated for all series;
(5) month-end open interest for all series aggregated by expiration
date; and
(6) month-end open interest for each individual series.
The pilot reports for the Nonstandard Expirations Pilot Program
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
(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 for the Pilot Programs also contained the
information noted in respective Items (1) through (6) above for
Expiration Friday, A.M.-settled series, if applicable, for the
[[Page 2690]]
period covered in the pilot report. With respect to the Nonstandard
Expirations Pilot Program, 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 the following analyses
of trading patterns in XSPPM options and index options with Weekly and
EOM Expirations:
with respect to the XSPPM Pilot Program, a time series
analysis of open interest and an analysis of the distribution of trade
sizes; and
with respect to the Nonstandard Expirations Pilot Program,
Weekly and EOM option volume data aggregated by series, and Weekly open
interest for expiring series and EOM month-end open interest for
expiring series.
Finally, for series that exceed certain minimum parameters,\22\ the
annual reports contained the following analysis related to index price
changes and underlying share trading volume at the close on Expiration
Fridays:
---------------------------------------------------------------------------
\22\ The Exchange and the Commission determined the minimum open
interest parameters, control sample, time intervals, method for
randomly selecting the component securities, and sample periods.
---------------------------------------------------------------------------
(1) a comparison of index price changes at the close of trading on
a given Expiration Friday with comparable price changes from a control
sample. The data includes a calculation of percentage price changes for
various time intervals and compare that information to the respective
control sample. Raw percentage price change data as well as percentage
price change data normalized for prevailing market volatility, as
measured by the Cboe Volatility Index (VIX), is provided; and
(2) a calculation of share volume for a sample set of the component
securities representing an upper limit on share trading that could be
attributable to expiring in-the-money series. The data includes a
comparison of the calculated share volume for securities in the sample
set to the average daily trading volumes of those securities over a
sample period.
Also, during the course of the Pilot Programs, 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,\23\ and will continue
to make public any data and analyses it submits to the Commission while
the Pilot Programs is still in effect.
---------------------------------------------------------------------------
\23\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
---------------------------------------------------------------------------
The Exchange has concluded that the Pilot Programs do 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 XSPPM, Weekly options,
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 XSPPM, 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,\24\ and the Exchange's review of the pilot data from 2019 through
2021, the size of the market for P.M.-settled SPX options (including
quarterly, weekly, EOM and third Friday expirations) since 2007 has
grown from a trivial portion of the overall market to a substantial
share (from around 0.1% of open interest in 2007 to 30% in 2021).\25\
Notional value of open interest in P.M.-settled SPX options increased
from approximately a median of $1.5 billion in 2007 to $1.9 trillion in
2021, approximately 1260 times its value in 2007. Notional open
interest in A.M.-settled SPX options was already hovering around a
median of $1.4 trillion in 2007, and it has since increased to
approximately $4.4 trillion in 2021. It is also important to note that
open interest on expiring P.M.-settled SPX options, as compared to
A.M.-settled options, is spread out across a greater number of
expiration dates, which results in a smaller percentage of open
interest expiring on any one date, thus mitigating concerns that SPXPM
option expiration may have a disruptive effect on the market.\26\ Daily
trading volume in P.M.-settled SPX options has increased from a median
of about 700 contracts in 2007 to nearly 1.9 million contracts in
2021,\27\ and now exceeds trading volume in A.M.-settled SPX options.
---------------------------------------------------------------------------
\24\ See DERA Staff PM Pilot Memo, at 13 (``Option settlement
quantity data for A.M.- and P.M.-settled options were obtained from
the Cboe, including the number of contracts that settled in-the-
money for each exchange-traded option series on the S&P 500 index .
. . on expiration days from January 20, 2006 through December 31,
2018. Daily open interest and volume data for [SPX] option series
were also obtained from Cboe, including open interest data from
January 3, 2006 through December 31, 2018 and trading volume data
from January 3, 2006 through December 31, 2018.'')
\25\ The DERA staff study reviewed and provided statistics for
market share, median notional value of open interest and median
volume in 2007 and in 2018. The Exchange provides updated statistics
for market share, median notional value of open interest and median
volume in 2021, replacing the 2018 statistics provided in the
Commission staff study.
\26\ See DERA Staff PM Pilot Memo, at 2.
\27\ The Exchange notes that the DERA staff study used two-sided
volume data for the median volume in 2007 and in 2018; therefore,
the Exchange provides two-sided volume data for the median volume in
2021.
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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,\28\ the S&P 500, or the underlying
component securities of the S&P 500 surrounding the close. For purposes
of the study, volatility was by and large measured by using the
standard deviation \29\ of one-minute returns of S&P 500 futures values
and the index value during regular hours on each day reviewed
(excluding the first and last 15 minutes of trading) and then compared
with the standard deviation of one-minute returns (for S&P 500 futures,
the S&P 500, and the underlying component securities of the S&P 500)
over the last 15 minutes of a trading day.\30\ Using this as a general
measure,\31\ the DERA staff study then reviewed whether, and to what
extent, the settlement quantity of SPXPM options and the levels of open
interest in SPXPM options on expiration days (as
[[Page 2691]]
compared to non-expiration days) may be associated with general price
volatility and price reversals for S&P 500 futures, the S&P 500, and
the underlying component securities of the S&P 500 near the close. From
its review of the study, the Exchange agrees that, although volatility
before the market close is generally higher than during the rest of the
trading day, there is no evidence of any significant adverse economic
impact to the futures, index, or underlying index component securities
markets as a result of the quantity of P.M.-settled SPX options that
settle at the close or the amount of expiring open interest in P.M.-
settled SPX options. For example, the largest settlement event that
occurred during the time period of the study (a settlement of $100.4
billion of notional on December 29, 2017) had an estimated impact on
the futures price of only approximately 0.02% (a predicted impact of
$0.54 relative to a closing futures price of $2,677).
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\28\ Futures on the S&P 500 experience high volume and liquidity
both before and after the close of the underlying market. Therefore,
futures are a useful measure of abnormal volatility surrounding the
close and the open. See DERA Staff PM Pilot Memo, at 14. The
Exchange agrees with this approach.
\29\ Standard deviation applied to a rate of return (in this
case, one-minute) of an instrument can indicate that instrument's
historical volatility. The greater the standard deviation, the
greater the variance between price and the mean, which indicates a
larger price range, i.e., higher volatility.
\30\ For example, if on a particular day the standard deviation
of one-minute returns between 3:45 p.m. ET and 4:00 p.m. ET is 0.004
and the standard deviation of returns from 9:45 a.m. ET to 3:45 p.m.
ET is 0.002, this metric would take on a value of 2 for that day,
indicating that volatility during the last 15 minutes of the trading
day was twice as high as it was during the rest of the trading day.
See DERA Staff PM Pilot Memo, at 15; see also DERA Staff PM Pilot
Memo, at Section V, which discusses in detail the metrics used to
measure, for the purposes of the study, the extent to which the
market may experience abnormal volatility surrounding SPXPM option
settlement.
\31\ See DERA Staff PM Pilot Memo, at Section V, which discusses
in detail the metrics used to measure, for the purposes of the
study, the extent to which the market may experience abnormal
volatility surrounding SPXPM option settlement.
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In particular, the DERA staff study found that an additional P.M.-
settled SPX options settlement quantity equal to $10 billion in
notional value is associated with a marginal impact on futures prices
during the last 15 minutes of the trading day of only about $0.06
(where the hypothetical index level is 2,500), additional expiring open
interest in P.M.-settled SPX options equal to $10 billion in notional
value is associated with a marginal impact on futures prices during the
last 15 minutes of the trading day of only about $0.05 (assumed index
level is 2,500). Also, an additional increase in settlement quantity or
in expiring open interest, each equal to $20 million in notional value,
did not result in any meaningful futures price reversals near the close
(neither was found to cause a price reversal of over one standard
deviation.\32\)
---------------------------------------------------------------------------
\32\ See supra note 29.
---------------------------------------------------------------------------
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.\33\ In addition to this, the DERA staff study, applying the
same metrics and analysis as for P.M.-settled SPX options to A.M.-
settled SPX options, did not identify any evidence of a statistically
significant relationship between settlement quantity or expiring open
interest of A.M.-settled options and volatility near the open.
---------------------------------------------------------------------------
\33\ The Exchange also notes that the study did not identify any
evidence that less liquid S&P 500 constituent securities experienced
any greater impact from the settlement of P.M.-settled SPX options.
---------------------------------------------------------------------------
Upon review of the results of the DERA staff study, the Exchange
agrees that each of the above-described marginal price movements in S&P
500 futures, the S&P 500, and the S&P 500 component securities affected
by increases in P.M.-settled SPX options settlement quantity and
expiring open interest appear to be de minimis pricing changes from
those that occur over regular trading hours (outside of the last 15
minutes of the trading day). Further, the Exchange has not observed any
significant economic impact or other adverse effects on the market from
similar reviews of its pilot reports and data submitted after 2018.\34\
In its review of a sample of the pilot data from 2019 through 2021, the
Exchange similarly measured volatility over the final fifteen minutes
of each trading day by taking the standard deviation of rolling one-
minute returns of the S&P 500 level (excluding the first and last
fifteen minutes of trading) and comparing such with the standard
deviation of one-minute returns \35\ of the S&P 500 level, over the
last 15 minutes of a trading day. The Exchange identified an average
standard deviation ratio of 1.42 for the S&P 500 on non-expiration days
and an average standard deviation ratio of 1.54 for the S&P 500 on
expiration days (a ratio between expiration days and non-expiration
days of 1.09). The Exchange also notes that, using the same
methodology, it observed that, from 2015 through 2019,\36\ the average
standard deviation ratio for the S&P 500 on non-expiration days was
1.11 and the average standard deviation ratio for the S&P 500 on
expiration days was 1.22 (a ratio between expiration days and non-
expiration days of 1.10). While the average standard deviation ratio on
both expiration and non-expiration days was higher in 2019 through 2021
due to overall market volatility, the ratios between the standard
deviation ratios on expiration days and non-expirations days remained
nearly identical between the 2015 through 2019 timeframe and the 2019
through 2021. This shows that, in cases where overall market volatility
may increase, the normalized impact on expiration days to non-
expiration days generally remains consistent.
---------------------------------------------------------------------------
\34\ Total SPX open interest volumes were examined for
expiration dates over a roughly two-year period between October 2019
and November 2021.
\35\ Calculated at every tick for the prior minute.
\36\ November 2015 through November 2021.
---------------------------------------------------------------------------
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) \37\ and generally
drive an increase in trading activity from investors that seek to track
the S&P 500. As such, the Exchange measured volatility on quarterly
rebalancing dates and found that the average standard deviation ratio
was 1.62, which suggests more closing volatility on quarterly rebalance
dates compared to non-quarterly expiration dates (for which the average
standard deviation ratio was 1.22), thus indicating that the impact
rebalancing may have on the S&P 500 is greater than any impact that
P.M.-settled SPX options may have on the S&P 500.
---------------------------------------------------------------------------
\37\ See S&P Dow Jones Indices, Equity Indices Policies &
Practices, Methodology (August 2021), at 15, available at https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-equity-indices-policies-practices.pdf.
---------------------------------------------------------------------------
The Exchange additionally focused its study of the post-2018 sample
pilot data on reviewing for potential correlation between excess market
volatility and price reversals and the hedging activity of liquidity
providers. As explained in
[[Page 2692]]
the DERA staff study, potential impact of P.M.-settled SPX options on
the correlated equity markets is thought to stem from the hedging
activity of liquidity providers in such options.\38\ To determine any
such potential correlation, the Exchange studied the expected action of
liquidity providers that are the primary source of the hedging on
settlement days. These liquidity providers generally delta-hedge their
S&P 500 index exposure via S&P 500 futures and on settlement day unwind
their futures positions that correspond with the delta of their in-the-
money (ITM) expiring P.M.-settled SPX options. Assuming such behavior,
the Exchange estimated the Market-On-Close (``MOC'') \39\ volume for
the shares of the S&P 500 component securities (i.e., ``MOC share
volume'') that could ultimately result from the unwinding of the
liquidity providers' futures positions by equating the notional value
of the futures positions that correspond to expiring ITM open interest
to the number S&P 500 component security contracts (based on the weight
of each S&P 500 component security). That is, the Exchange calculated
(an estimate) of the amount of MOC volume in the S&P 500 component
markets attributable hedging activity as a result of expiring ITM P.M.-
settled SPX options (i.e., ``hedging MOC''). The Exchange then: (1)
compared the hedging MOC share volume to all MOC share volume on
expiration days and non-expiration trading days; and (2) compared the
notional value of the hedging futures positions (i.e., that correspond
to expiring ITM P.M.-settled SPX options open interest) to the notional
value of expiring ITM P.M.-settled SPX options open interest, the
notional value of all expiring P.M.-settled SPX options open interest
and the notional value of all P.M.-settled SPX options open interest.
---------------------------------------------------------------------------
\38\ See DERA Staff PM Pilot Memo, at 10-12.
\39\ MOC orders allow a market participant to trade at the
closing price. Market participants generally utilize MOC orders to
ensure they exit positions at the end of the trading day.
---------------------------------------------------------------------------
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 Pilot
Programs impacted the quality of the A.M.-settled option market.
Specifically, the Exchange compared values of key market quality
indicators (specifically, the bid-ask spread \40\ and effective spread)
\41\ in SPXW options (which trade on Cboe Options, an affiliated of the
Exchange, pursuant to a nonstandard expiration program substantively
similar to the Nonstandard Expiration Pilot Program) both before and
after the introduction of Tuesday expirations and Thursday expirations
for SPXW options on April 18 and May 11, 2022, respectively.\42\
Options on the Standard & Poor's Depositary Receipts S&P 500 ETF
(``SPY'') were used as a control group to account for any market
factors that might influence key market quality indicators. The
Exchange used data from January 3, 2022 through March 4, 2022 (the two-
month period prior to the introduction of SPXW options with Tuesday
expirations) and data from May 11, 2022 to July 10, 2022 (the two-month
period following the introduction of SPXW options with Thursday
expirations).\43\
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\40\ The Exchange calculated for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations) the daily time-
weighted bid-ask spread on the Exchange during its regular trading
hours session, adjusted for the difference in size between SPXW
options and SPY options (SPXW options are approximately ten times
the value of SPY options).
\41\ The Exchange calculated the volume-weighted average daily
effective spread for simple trades for each of SPXW options (with
Monday, Wednesday, and Friday expirations) and SPY Weekly options
(with Monday, Wednesday, and Friday expirations) as twice the amount
of the absolute value of the difference between an order execution
price and the midpoint of the national best bid and offer at the
time of execution, adjusted for the difference in size between SPXW
options and SPY options.
\42\ For purposes of comparison, the Exchange paired SPXW
options and SPY options with the same moneyness and same days to
expiration.
\43\ The Exchange observed comparable market volatility levels
during the pre-intervention and post-intervention time ranges.
---------------------------------------------------------------------------
Given the time that as passed since the implementation of the Pilot
Programs, as well as the fact that when the Exchange began offering
XSPPM, Weekly and EOM options, XSPPM, Weekly, and EOM options had
already been trading on other exchanges for nearly a decade, the
Exchange is unable to analyze whether the introduction of those 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 XSPPM, Weekly and EOM options impacted the
[[Page 2693]]
market quality of any corresponding A.M.-settled options when the pilot
began.\44\
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\44\ The full analysis is included in Exhibit 3 of this rule
filing.
---------------------------------------------------------------------------
As a result of this analysis, the Exchange believes the
introduction of SPX options with Tuesday and Thursday options had no
significant impact on the market quality of SPXW options with Monday,
Wednesday, and Friday expirations. With respect to the majority of
series analyzed, the Exchange observed no statistically significant
difference in the bid-ask spread or the effective spread of the series
in the period prior to introduction of the Tuesday and Thursday
expirations and the period following the introduction of the Tuesday
and Thursday expirations. While statistically insignificant, the
Exchange notes that in many series, particularly as they were closer to
expiration, the Exchange observed that the values of these spreads
decreased during the period following the introduction of the Tuesday
and Thursday expirations.\45\
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\45\ In any series in which the Exchange observed an increase in
the market quality indicators, the Exchange notes any such increase
was also statistically insignificant.
---------------------------------------------------------------------------
To further note, given the significant changes in the closing
procedures of the primary markets in recent decades, including
considerable advances in trading systems and technology, the Exchange
believes that the risks of any potential impact of Weekly and EOM
options on the underlying cash markets are also de minimis.
The Exchange proposes to make the Pilot Programs permanent as P.M.-
settled index products have become a part of the Exchange's product
offerings, providing investors with greater trading opportunities and
flexibility. As indicated by the significant growth in the size of the
market for P.M.-settled options, such options have been, and continue
to be, well-received and widely used by market participants. Therefore,
the Exchange wishes to be able to have the authority to continue to
provide investors with the ability to trade XSPPM, Weekly, and EOM
options on a permanent basis. The Exchange believes that the permanent
continuation of the Pilot Programs 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 nearly 14 years (and for nearly 5 years
on the Exchange). As such, the Exchange also believes that ceasing to
have the authority to offer XSPPM, Weekly, and EOM options may result
in market disruption and investor confusion. The Exchange has not
identified any significant impact on market quality nor any unique or
prohibitive regulatory concerns as a result of the Pilot Programs, and,
as such, the Exchange believes that the continuation of the Pilot
Programs as a pilot, including the use of time and resources to compile
and analyze interim and annual pilot reports and pilot data, is no
longer necessary and that making the Pilot Programs permanent will
allow the Exchange to otherwise allocate time and resources to other
industry initiatives.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\46\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \47\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78f(b).
\47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the making the Pilot
Programs permanent will allow the Exchange to be able to have the
authority to continue to offer XSPPM, Weekly, and EOM options--products
that have become a part of the Exchange's offerings--on a continuous
and permanent basis. Since their reintroduction beginning in 2006,\48\
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 Pilot Programs will remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest by continuing to offer a product to which investors have
become accustomed and have incorporated into their business models and
day-to-day trading strategies for nearly 14 years (including nearly 5
years on the Exchange). 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
Pilot Programs may result in market disruption and investor confusion,
as P.M.-settled index products have become a part of the Exchange's
product offerings, providing investors with greater trading
opportunities and flexibility.
---------------------------------------------------------------------------
\48\ See supra notes 24-44. As described above, the Exchange's
conclusion is consistent with the analysis in the DERA Staff PM
Pilot Memo.
---------------------------------------------------------------------------
The Exchange further believes that making the Pilot Programs
permanent will remove impediments to and perfect the mechanism of a
free and open market and a national market system and protect
investors, while maintaining a fair and orderly market, as the Exchange
believes that previous concerns (arising in the 1980s) regarding
options expirations potentially contributing to excess volatility and
reversals around the close have been adequately diminished. As
described in detail above, the Exchange has observed no significant
adverse market impact or identified any meaningful regulatory concerns
during the approximately 5-year operation of the Pilot Programs as
pilots nor during the nearly years since P.M.-settled SPX options were
reintroduced to the marketplace.\49\ 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
XSPPM, Weekly, and EOM options that settle at the close or the amount
of expiring open interest in XSPPM, 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 XSPPM, 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 XSPPM, Weekly, and EOM options, as SPX options
also overlay a broad-based index. Additionally, with respect to XSP
options, XSP options overly the same index comprised of the same
securities (just one tenth the size). This is particularly true given
that the
[[Page 2694]]
reports submitted by the Exchange during the pilot period have
similarly demonstrated no significant economic impact on the respective
underlying indexes or other products.
---------------------------------------------------------------------------
\49\ See supra notes 24-44.
---------------------------------------------------------------------------
The Exchange also believes the introduction of XSPPM, Weekly, and
EOM options had no significant impact on the market quality of
corresponding A.M.-settled options (which the Exchange does not list)
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, XSPPM options are
nearly identical to P.M.-settled and A.M.-settled SPX options, as they
are based on an index comprised of the same securities, just 1/10th the
size. Additionally, Weekly, and EOM options may only overly broad-based
indexes, including the Mini-SPX Index. 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 XSPPM, Weekly, or EOM options
significantly impacted the market quality of A.M.-settled options when
the pilots began.
Additionally, the significant changes in the closing procedures of
the primary markets in recent decades, including considerable advances
in trading systems and technology, has significantly minimized risks of
any potential impact of XSPPM, Weekly, or EOM options on the underlying
cash markets. As such, the Exchange believes that permanent Pilot
Programs do not raise any unique or prohibitive regulatory concerns and
that such trading has not, and will not, adversely impact fair and
orderly markets on Expiration Fridays for the underlying indexes 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 XSPPM, Weekly, and EOM
options, the Exchange believes that the continuation of the Pilot
Programs as pilots, including the gathering, submission and review of
the pilot reports and data, is no longer necessary and that making the
Pilot Programs 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
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that making the Pilot Programs permanent will impose any
unnecessary or inappropriate burden on intramarket competition because
XSPPM, Weekly, and EOM options will continue to be available to all
market participants who wish to participate in the markets for those
options. The Exchange believes that the growth the market of P.M.-
settled options products, including XSPPM, Weekly, and EOM options, has
experienced since their reintroduction through pilot programs indicates
strong, continued investor interest and demand, warranting a permanent
Pilot Program. The Exchange believes that, for the period that XSPPM,
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 Pilot Programs, and, as such, the continuation of the
Pilot Programs as pilots, including the gathering, submission and
review of the pilot reports and data, is no longer necessary. Permanent
Pilot Programs will allow the Exchange to otherwise allocate time and
resources to other industry initiatives.
The Exchange further does not believe that making the Pilot
Programs permanent will impose any burden on intermarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act because other exchanges are free to and do offer competing
products.\50\ To the extent that the permanent offering and continued
trading of XSPPM, Weekly, and EOM options may make the Exchange a more
attractive marketplace to market participants at other exchanges, such
market participants may elect to become Exchange market participants.
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\50\ See, e.g., Cboe Options Rule 4.13(e) and Interpretation and
Policy .13.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written 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-CboeBZX-2023-107 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-CboeBZX-2023-107. 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
[[Page 2695]]
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
a.m. and 3 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-CboeBZX-2023-107 and should
be submitted on or before February 6, 2024.
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. 2024-00637 Filed 1-12-24; 8:45 am]
BILLING CODE 8011-01-P
