Self-Regulatory Organizations; CBOE Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To List P.M.-Settled Russell 2000 Index Options With Expirations on the Third Friday-of-the-Month, 80291-80296 [2024-22559]

Download as PDF Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Intermarket Competition Nothing in the proposal burdens inter-market competition (the competition among self-regulatory organizations). As discussed above, Trade Outline is subject to direct competition from other options exchanges that offer substitutes. Any of these exchanges can replicate this proposal in full or in part, and nothing in the proposal would interfere with the ability of any exchange to do so. Intra-Market Competition lotter on DSK11XQN23PROD with NOTICES1 Nothing in the proposal burdens intra-market competition (the competition among consumers of exchange data). Trade Outline is available to any customer under the same fee schedule as any other customer, and any market participant that wishes to purchase these products can do so on a non-discriminatory basis. Offering the 36 months of historical data to Current Distributors, but not former distributors or firms that have never purchased the product, will not burden competition because nonsubscribers are free to purchase a current subscription. Moreover, a firm that is not a Current Distributor may become a Current Distributor and then cancel the product after receiving the historical discount. As such, firms that are not Current Distributors will have an opportunity to pay the same fees for the most recent 36 months of historical data as Current Distributors. Outside of the 36 month period, all firms will have the opportunity to purchase historical data on an ad hoc basis. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. VerDate Sep<11>2014 18:16 Oct 01, 2024 Jkt 262001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.56 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR–BX–2024–036 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–BX–2024–036. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, 56 15 PO 00000 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–BX–2024–036 and should be submitted on or before October 23, 2024 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.57 Vanessa A. Countryman, Secretary. [FR Doc. 2024–22564 Filed 10–1–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101197; File No. SR– CBOE–2024–034] Self-Regulatory Organizations; CBOE Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To List P.M.-Settled Russell 2000 Index Options With Expirations on the Third Friday-of-the-Month September 26, 2024. I. Introduction On August 2, 2024, Cboe Exchange, Inc. (‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list p.m.-settled broad-based Index options with expirations on the third Friday-of-the-month. The proposed rule change was published for comment in the Federal Register on August 14, 2024.3 On September 13, 2024, the Exchange filed Amendment No. 1 to the proposed rule change, described in Item II below, which Item has been prepared by the Exchange.4 57 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 100671 (August 8, 2024), 89 FR 66163. The Commission has not received any comments. 4 The full text of Amendment No. 1 is available on the Commission’s website at: https:// 1 15 U.S.C. 78s(b)(3)(A)(ii). Frm 00100 Fmt 4703 Sfmt 4703 80291 Continued E:\FR\FM\02OCN1.SGM 02OCN1 80292 Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices Amendment No. 1 superseded the original proposed rule change in its entirety. The Commission is publishing this notice and order to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. 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 lotter on DSK11XQN23PROD with NOTICES1 1. Purpose The Exchange proposes to amend its Rules to permit the listing of P.M.settled 5 options on the Russell 2000 Index (‘‘RUT’’) that expire on the standard third Friday-of-the-month (‘‘Expiration Friday’’). Currently, pursuant to Rule 4.13, Interpretations and Policies .13 and .14, the Exchange is permitted to list P.M.-settled options on the S&P 500 Index (‘‘SPX options’’), the Mini-S&P 500 Index (‘‘XSP options’’), and the Mini-Russell 2000 Index (‘‘MRUT options’’) that expire on Expiration Fridays.6 Additionally, pursuant to Rule 4.13(e), the Exchange may list P.M.-settled options on any broad-based index eligible for standard options trading—including RUT—that expire on any Monday, Tuesday, Wednesday, Thursday, or Friday (other than Expiration Friday or days that coincide with an EOM Expiration (as defined below)) (‘‘Weekly Expirations’’) www.sec.gov/comments/sr-cboe-2024-034/ srcboe2024034.htm. 5 An option with P.M.-settlement has its exercise settlement value derived from the closing prices on the expiration date. 6 The proposed rule change deletes Interpretation .14 and moves XSP and MRUT to Interpretation .13 so that all indexes on which the Exchange may list P.M.-settled third-Friday-of-the-month options series are included within the same rule provision. This is a nonsubstantive, administrative change, and the proposed rule change makes no changes to how XSP or MRUT P.M.-settled third-Friday-of-themonth option series trade. VerDate Sep<11>2014 18:16 Oct 01, 2024 Jkt 262001 or that expire on the last trading day of the month (‘‘EOM Expirations’’ and, combined with Weekly Expirations, ‘‘Nonstandard Expirations’’). As a result, currently, the Exchange may list P.Msettled SPX, XSP, and MRUT options with expirations on any day of the week, including all Fridays, while the Exchange may list P.M-settled options on RUT with expirations on any day of the week, including all Fridays except Expiration Fridays. The proposed rule change would permit the Exchange to list RUT P.M.settled options that expire on Expiration Fridays. Specifically, the proposed rule change amends Rule 4.13, Interpretation and Policy .13 to state that in addition to A.M.-settled options on SPX, XSP, and MRUT 7 pursuant to Rule 4.13, the Exchange may also list options on RUT whose exercise settlement value is derived from closing prices on their expiration dates (‘‘P.M.-Settled’’).8 The Exchange notes that permitting RUT options that are P.M.-Settled that expire on Expiration Friday, as proposed, would be in addition to the RUT P.M.settled options with expirations on all Fridays other than Expiration Fridays that the Exchange may already list on those indexes as Weekly Expirations pursuant to Rule 4.13(e)(1). Current Rule 4.13, Interpretations and Policies .13 and .14 together with Rule 4.13(e)(1) permit the Exchange to list P.M-settled SPX, XSP, and MRUT options on all Fridays (including Expiration and nonExpiration Fridays). The proposal merely expands this same ability to RUT options. RUT options that are P.M.-Settled and expire on Expiration Friday are subject to all provisions of Rule 4.13 and treated the same as A.M.-settled RUT options (which expire on Expiration Fridays), except they are P.M.-settled. RUT options that are P.M.-Settled that expire on Expiration Fridays have the same exercise style, same number of permissible expirations, same exercise interval prices and limitations, and same position and exercise limits, and will trade in the same minimum price increment, as A.M.-settled RUT options. 7 The Exchange notes that the index underlying MRUT options is the same as the index underlying RUT options but are just based on a reduced value of that index. 8 The Exchange corrects outdated language in Rule 4.13, Interpretation and Policy .13 by updating the definition of P.M.-settled. The exercise settlement value of a P.M.-settled option is derived from closing prices on the expiration date, rather than the last trading day prior to expiration (which would have been Friday when options settled on Saturdays; however, options now settle on Fridays). This is consistent with the fact that expiring P.M.settled options trade on their expiration dates, as set forth in Rule 5.1(b)(2)(C). PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 The Exchange believes expanding the availability of P.M.-Settled options that expire on Expiration Friday to RUT will expand hedging tools available to market participants while also providing greater trading opportunities, regardless of in which index option market they participate. By expanding the availability of P.M.-Settled options that expire on Expiration Friday, the proposed rule change (together with currently available Weekly Expirations for RUT) will provide market participants with opportunities to purchase RUT options in a manner more aligned with specific timing needs and more effectively tailor their investment and hedging strategies related to the Russell 2000 Index and manage their portfolios. In particular, the proposed rule change will allow market participants to roll their positions in RUT options on more trading days, thus with more precision, spread risk across more trading days and incorporate daily changes in the markets, which may reduce the premium cost of buying protection. The Exchange believes there is sufficient investor interest in and demand for RUT P.M.-Settled options that expire on Expiration Friday to warrant adding these expirations and that RUT P.M.-Settled options that expire on Expiration Friday will provide investors with additional means of managing their risk exposures and carrying out their investment objectives. For example, from January 2 through August 30, 2024, the total trading volume on the Exchange of A.M.-settled RUT options (which expire on Expiration Fridays) was over 7 million contracts, which is comparable to the total trading volume on the Exchange of P.M.-settled RUT options (which expire on any day of the month, including Fridays, other than Expiration Fridays) of just over 10 million contracts. The Exchange believes this demonstrates strong customer demand for both A.M.settled RUT options as well as P.M.settled RUT options (across various expirations). This RUT options volume (A.M.-settled and P.M.-settled combined) over 17 million contracts is also comparable to the total trading volume on the Exchange during that timeframe of XSP options (all of which are P.M.-settled, including on Expiration Fridays) of approximately 23.5 million contracts. Further, RUT options total trading volume on the Exchange during this timeframe was significantly larger than the total trading volume on the Exchange of MRUT options of approximately 139,000 contracts. The Exchange believes the E:\FR\FM\02OCN1.SGM 02OCN1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices comparable volume of RUT options to XSP options and the similar volume between A.M.-settled and P.M.-settled RUT options, as well the significantly larger volume of RUT options compared to MRUT options, for which the Exchange may currently list P.M.-settled series that expire on Expiration Fridays, demonstrates that customers would benefit from the availability of P.M.settled RUT options that expire on Expiration Friday. Overall, the Exchange believes that permitting the trading of P.M.-Settled options that expire on Expiration Fridays in an additional index option will encourage greater trading in this index option. The Exchange believes the proposed rule change will provide opportunities for market participants to benefit from exposure to the market for an additional index option with further P.M.settlement flexibility. The Exchange also proposes to amend Rule 5.1, which governs trading days and hours, in conjunction with the proposed addition of RUT P.M.-settled options that expire on Expiration Friday. Rule 5.1(b)(2)(C) currently provides that on their last trading day, Regular Trading Hours for expiring P.M.-settled SPX, XSP, and MRUT options, as well as Index Options with Nonstandard Expirations, may be effected on the Exchange between 9:30 a.m. and 4:00 p.m. Eastern Time 9 (as opposed to the 9:30 a.m. to 4:15 p.m. Regular Trading Hours for options with those expirations that are non-expiring). The proposed rule change amends Rule 5.1(b)(2)(C) to include RUT P.M.-Settled options. The primary listing markets for the component securities that comprise broad-based indexes close trading in those securities at 4:00 p.m., just as the primary listing markets for the component securities that comprise the SPX, XSP, and MRUT Indexes close trading at 4:00 p.m. (the Exchange notes the components of the RUT Index are identical to the components of MRUT Index). The primary listing exchanges for the component securities disseminate closing prices for the component securities, which are used to calculate the exercise settlement value of broad-based indexes on which the Exchange lists options. The Exchange believes that, under normal trading circumstances, the primary listing markets have sufficient bandwidth to prevent any data queuing that may cause any trades that are executed prior to the closing time from being reported after 4:00 p.m. If trading in expiring RUT P.M.-Settled options that expire on 9 See Rule 1.6, which states that unless otherwise specified, all times in the Rules are Eastern Time. VerDate Sep<11>2014 18:16 Oct 01, 2024 Jkt 262001 Expiration Fridays continued an additional fifteen minutes until 4:15 p.m. on their last trading day, these expiring options would be trading after the settlement index value for those expiring options was calculated.10 Therefore, in order to mitigate potential investor confusion and the potential for increased costs to investors as a result of potential pricing divergence at the end of the trading day, the Exchange believes that it is appropriate to cease trading in the expiring RUT P.M.-Settled options that expire on Expiration Fridays at 4:00 p.m., as it already does for expiring P.M.-settled SPX, XSP, and MRUT options that expire on Expiration Fridays and for expiring broad-based indexes with Nonstandard Expirations (which are p.m.-settled) for the same aforementioned reasons.11 The Exchange does not believe that the proposed rule change will impact volatility on the underlying cash market comprising broad-based indexes at the close on Expiration Fridays, as it already closes trading on the last trading day for expiring P.M.-settled options at 4:00 p.m. (such as P.M.-settled SPX, XSP, and MRUT options that expire on Expiration Fridays and broad-based index options with Nonstandard Expirations), which the Exchange does not believe has had an adverse impact on fair and orderly markets on Expiration Fridays for the underlying 10 Further, the Exchange expects that RUT P.M.Settled options that expire on Expiration Friday (as the Exchange understands is the case for P.M.settled SPX, XSP and MRUT options that expire on Expiration Friday and all broad-based index options with Nonstandard Expirations) will typically be priced in the market based on corresponding futures values. If trading expiring RUT P.M.-Settled options that expire on Expiration Friday continued until 4:15 p.m. on their last trading day, these expiring options could not be priced on corresponding futures values, but rather would have to be priced on the known cash value. At the same time, the prices of non-expiring RUT P.M.Settled options series that expire on Expiration Friday would continue to move and likely be priced in response to changes in corresponding futures prices. As a result, a potential pricing divergence could occur between 4:00 p.m. and 4:15 p.m. on the final trading day in expiring RUT P.M.-Settled options that expire on Expiration Friday (e.g., a switch from pricing off of futures to cash). The Exchange understands that the switch from pricing off of futures to cash can be a difficult and risky crossover for liquidity providers. As a result, if expiring P.M.-Settled contracts closed at 4:15 p.m., Market-Makers may react by widening spreads in order to compensate for the additional risk. 11 See Securities Exchange Act Release Nos. 68888 (February 8, 2013), 78 FR 10668 (February 14, 2013) (SR–CBOE–2012–120) (‘‘SPXPM Pilot Approval Order’’); 70087 (July 31, 2013), 78 FR 47809 (August 6, 2013) (SR–CBOE–2013–055) (‘‘XSPPM Pilot Approval Order’’); and 91067 (February 5, 2021), 86 FR 9108 (February 11, 2021) (SR–CBOE–2020–116) (‘‘MRUTPM Pilot Approval Order’’). PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 80293 stocks comprising the corresponding indexes.12 With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it believes that the Exchange and OPRA have the necessary systems capacity to handle any potential additional traffic associated with trading of RUT P.M.-Settled options that expire on Expiration Fridays. The Exchange does not believe that its Trading Permit Holders (‘‘TPHs’’) will experience any capacity issues as a result of this proposal and represents that it will monitor the trading volume associated with any possible additional options series listed as a result of this proposal and the effect (if any) of these additional series on market fragmentation and on the capacity of the Exchange’s automated systems. In addition to this, the Exchange believes that its existing surveillance and reporting safeguards in place are adequate to deter and detect possible manipulative behavior which might arise from listing and trading RUT P.M.Settled options that expire on Expiration Fridays on all broad-based index options and will support the protection of investors and the public interest. Furthermore, the trading of RUT P.M.-Settled options that expire on Expiration Fridays will be subject to Exchange Rules governing customer accounts, position and exercise limits, margin requirements and trading halt procedures, among other Rules, which are designed to prevent fraudulent and manipulative acts and practices. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.13 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 14 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, 12 See Securities Exchange Act Release Nos. 98454 (September 20, 2023), 88 FR 66103 (September 26, 2023) (SR–CBOE–2023–005) (‘‘SPXPM Permanent Approval Order’’); and 98455 (September 20, 2023), 88 FR 66073 (September 26, 2023) (SR–CBOE–2023–019) (‘‘XSPPM and MRUTPM Permanent Approval Order’’). 13 15 U.S.C. 78f(b). 14 15 U.S.C. 78f(b)(5). E:\FR\FM\02OCN1.SGM 02OCN1 lotter on DSK11XQN23PROD with NOTICES1 80294 Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 15 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposed rule change will remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes that expanding the availability of P.M.Settled options that expire on Expiration Fridays to RUT (in addition to SPX, XSP, and MRUT (which options overly the same index as RUT options but merely with a reduced value) will provide investors with expanded hedging tools and greater trading opportunities and flexibility for an additional index option. As a result, investors will have additional means for an additional index option to manage their risk exposures and carry out their investment objectives. By offering RUT P.M.-Settled options that expire on Expiration Fridays along with Weekly Expirations (including expirations on Fridays other than Expiration Friday), the proposed rule change will allow market participants to purchase options on an additional index option available for trading on the Exchange in a manner more aligned with specific timing needs and more effectively tailor their investment and hedging strategies related to the Russell 2000 Index and manage their portfolios. For example, the proposed rule change will allow market participants to roll their positions in RUT options on more trading days, thus with more precision, spread risk across more trading days and incorporate daily changes in the markets, which may reduce the premium cost of buying protection. The Exchange represents that it believes that it has the necessary systems capacity to support any additional traffic associated with trading of RUT P.M.-Settled that expire on Expiration Fridays and does not believe that its TPHs will experience any capacity issues as a result of this proposal. The Commission previously recognized that listing P.M.-Settled SPX, XSP, and MRUT options that expire on Expiration Fridays was consistent with 15 Id. VerDate Sep<11>2014 18:16 Oct 01, 2024 Jkt 262001 the Act.16 The Exchange notes that MRUT options overlie a reduced-value version of the same index underlying RUT options. The Commission noted that P.M.-Settled options that expire on Expiration Fridays in these index options ‘‘has benefitted investors and other market participants by providing more flexible trading and hedging opportunities while also having no disruptive impact on the market.’’ 17 The proposed rule change is consistent with these findings, as it will benefit investors and other market participants that participate in the market for RUT options that expire on Expiration Fridays do by providing investors with more flexible trading and hedging opportunities in this index option. Additionally, the Exchange does not believe listing of RUT P.M.-Settled options that expire on Expiration Fridays will have any significant economic impact on the underlying component securities surrounding the close as a result of expiring p.m.-settled options or impact market quality, based on the data provided to and reviewed by the Commission (and the Commission’s own conclusions based on that review, as noted above) and due to the significant changes in closing procedures in the decades since index options moved to a.m.-settlement.18 This is particularly true given that RUT options overlie the same index as MRUT options (for which the Exchange may list P.M.-Settled options that expire on Expiration Fridays), but just the fullvalue of that underlying index. In addition, the Exchange believes that the proposal to end trading at 4:00 p.m. on the last trading day for transactions in expiring RUT P.M.Settled options that expire on Expiration Fridays will prevent continued trading on a product after the exercise settlement value has been fixed, thereby mitigating potential investor confusion and the potential for increased costs to investors as a result of potential pricing divergence at the end of the trading day. 16 See SPXPM, XSPPM, and MRUTPM Pilot Approval Orders (the Exchange initially listed P.M.Settled SPX, XSP, and MRUT options that expire on Expiration Fridays pursuant to pilot programs, so the Commission could monitor the impact of P.M. settlement of cash-settled index derivatives on the underlying cash markets (while recognizing that these risks may have been mitigated given enhanced closing procedures in use in the primary equity markets); and SPXPM, XSPPM, and MRUTPM Permanent Approval Orders. 17 See SPXPM Permanent Approval Order at 66106; and XSPPM and MRUTPM Permanent Approval Order at 66076 (citing data the Commission reviewed in connection with the pilot programs). 18 See id. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 Finally, the proposed rule change to correct the definition of P.M.-Settled in Rule 4.13, Interpretation and Policy .13 will benefit investors, as it will mitigate potential confusion of having an outdated definition in the Exchange’s Rules. This proposed rule change will have no impact on trading, as the proposed definition of P.M.-Settled is consistent with how P.M.-Settled options currently settle. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because RUT P.M.-Settled options that expire on Expiration Fridays will be available to all market participants. By permitting RUT P.M.-Settled options that expire on Expiration Fridays, the proposed rule change will provide all investors that participate in the market for RUT options with greater trading and hedging opportunities and flexibility to meet their investment and hedging needs, which are already available for SPX, XSP, and MRUT options. Additionally, RUT P.M.-Settled options that expire on Expiration Fridays will trade in the same manner as RUT A.M-settled options. Further, the proposed 4:00 p.m. closing time on Expiration Fridays will apply equally to all market participants trading in RUT P.M.-Settled options that expire on Expiration Fridays. The Exchange does not believe that the proposal to list RUT P.M.-Settled options that expire on Expiration Fridays will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because these options are proprietary Exchange products. Other exchanges offer P.M.settlement on Expiration Fridays for other broad-based index options.19 Additionally, options on equity options (including options on certain exchangetraded funds (‘‘ETFs’’) that track the Russell 2000 Index) are P.M.-settled, and exchanges offer short-term options programs for certain equity options,20 19 See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12(a)(6) (permitting P.M.-settlement for options on the Nasdaq-100 and Nasdaq-100 Micro Indexes that expire on Expiration Fridays). 20 See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12 (permitting nonstandard expirations, including expirations on Tuesdays and Thursdays, E:\FR\FM\02OCN1.SGM 02OCN1 Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices making options on certain ETFs that track the Russell 2000 Index available with expirations on all Fridays. To the extent that the addition of RUT P.M.Settled options that expire on Expiration Fridays available for trading on the Exchange makes the Exchange a more attractive marketplace to market participants at other exchanges, such market participants are free to elect to become market participants on the Exchange. The Exchange does not believe the proposed rule change to correct the definition of P.M.-Settled in Rule 4.13, Interpretation and Policy .13 will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as it is not a competitive change. This proposed change merely updates an outdated definition in the Exchange’s Rules and will have no impact on trading, as the proposed definition of p.m.-settled is consistent with how P.M.-Settled options currently settle. B. 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. Discussion and Commission Findings lotter on DSK11XQN23PROD with NOTICES1 After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.21 In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with Section 6(b)(5) of the Act,22 which requires, among other things, that the Exchange’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. for Nasdaq-100 index options and Nasdaq 100Micro index options); and Nasdaq ISE, LLC Options 4, Section 5, Supplementary Material .03 (permitting short-term options series with daily expirations for SPY and QQQ options). [update] [sic] 21 In approving this proposed rule change, as modified by Amendment No. 1, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 22 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:16 Oct 01, 2024 Jkt 262001 In support of its proposal, the Exchange states that the Commission approved trading of MRUT options that expire on Expiration Fridays, which options overly the same index as RUT options but with a reduced value.23 In addition, the Commission approved other P.M.-Settled broad-based index options that expire on Expiration Fridays including SPX and XSP.24 The Exchange states that expanding the availability of P.M.-Settled options that expire on Expiration Fridays to RUT will provide investors with expanded hedging tools and greater trading opportunities and flexibility for an additional index option. Further, the Exchange also states there is sufficient investor interest in and demand for RUT P.M.-Settled options that expire on Expiration Friday to warrant adding these expirations.25 In addition, the Exchange further believes that listing P.M.-Settled RUT options that expire on Expiration Friday will not have any significant economic impact on the underlying component securities surrounding the close as a result of expiring P.M.-Settled options or impact market quality.26 The Exchange represents that it has the necessary systems capacity to support any additional traffic associated with trading of RUT P.M.-Settled options that expire on Expiration Fridays and does not believe that its TPHs will experience any capacity issues as a result of this proposal.27 Finally, the Exchange states that it believes that its existing surveillance and reporting safeguards in place are adequate to deter and detect possible manipulative behavior which might arise from listing and trading RUT P.M.-Settled options that expire on Expiration Fridays.28 The Commission has had concerns about the adverse effects and impact of p.m.-settlement upon market volatility and the operation of fair and orderly markets on the underlying cash market at or near the close of trading on 23 See supra Item II.A.1, at note 12 (citing XSPPM and MRUTPM Permanent Approval Order). 24 See id. 25 See supra Item II.A.1. In support of this statement, the Exchange examined trading volumes of a.m.-settled RUT options and P.M.-Settled RUT options as well XSP and MRUT options (all of which are P.M.-Settled). Based on the total trading volumes, the Exchange concludes that there is strong customer demand for both a.m.-settled RUT options and P.M.-Settled RUT options and that trading volume in all RUT options is comparable to that of XSP options and significantly larger than MRUT options. See id. 26 See supra Item II.A.2. at text accompanying note 18. 27 See supra Item II.A.1 and II.A.2. 28 See supra Item II.A.1. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 80295 expiration days.29 However, the Commission recently approved proposals from several exchanges, including the Exchange, to permanently establish programs permitting the listing and trading of certain P.M.-Settled broad-based index options.30 In approving these proposals, the Commission reviewed data provided by the exchanges in their filings, the exchanges’ pilot data and reports, as well as an analysis conducted at the direction of Staff from the Commission’s Division of Economic and Risk Analysis and concluded that analysis of the pilot data did not identify any significant economic impact on the underlying component securities surrounding the close as a result of expiring P.M.-Settled options nor did it indicate a deterioration in market quality for an existing product when a new P.M.Settled expiration was introduced.31 Further, the Commission stated that significant changes in closing procedures in the decades since index options moved to a.m.-settlement may also serve to mitigate the potential impact of P.M.-Settled index options on the underlying cash markets.32 As noted above, the Exchange may currently trade Expiration Friday MRUT options, in addition to P.M.-Settled index options on XSP and SPX that expire on Expiration Fridays.33 The Exchange’s proposal, which would permit P.M.-Settled RUT options to expire on Expiration Fridays, is reasonably designed as a limited expansion of existing P.M.-Settled broad-based index option programs and may provide the investing public and other market participants more flexibility to closely tailor their investment and hedging decisions. The Exchange has represented that it has an 29 See Securities Exchange Act Release No. 65256 (September 2, 2011), 76 FR 55969, at 55972 (September 9, 2011) (SR–C2–2011–008) (Order approving proposed rule change to establish a pilot program to list and trade SPXPM options on the C2 Options Exchange, Incorporated). 30 See e.g., SPXPM Permanent Approval Order; XSPPM and MRUTPM Permanent Approval Order; Securities Exchange Act Release Nos. 98450 (September 20, 2023), 88 FR 66111 (September 26, 2023) (SR–ISE–2023–08) (Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Make Permanent Certain P.M.-Settled Pilots); and 98451 (September 20, 2023), 88 FR 66088 (September 26, 2023) (SR–Phlx– 203–07) (Order approving a nonstandard expirations pilot program and p.m.-settled XND options). See also Securities Exchange Act Release Nos. 98935 (November 14, 2023), 88 FR 80792 (November 20, 2023) (SR–ISE–2023–20) (Order approving the listing and trading of p.m.-settled Nasdasq-100 Index Options with a third Friday-ofthe-month expiration). 31 See e.g., XSPPM and MRUTPM Permanent Approval Order, 88 FR at 66075–66076. 32 See id. 33 See supra note 13. E:\FR\FM\02OCN1.SGM 02OCN1 80296 Federal Register / Vol. 89, No. 191 / Wednesday, October 2, 2024 / Notices adequate surveillance program in place to monitor trading in the P.M.-Settled RUT options that expire on Expiration Fridays and has the necessary systems capacity to support the new options series.34 The Commission expects the Exchange to continue to monitor any potential risks from large P.M.-Settled positions and take appropriate action on a timely basis if warranted. Accordingly, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 35 and the rules and regulations thereunder applicable to a national securities exchange. 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–CBOE–2024–034 and should be submitted on or before October 23, 2024. SECURITIES AND EXCHANGE COMMISSION IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: V. Accelerated Approval of the Proposed Rule Change, as Modified by Amendment No. 1 I. Introduction lotter on DSK11XQN23PROD with NOTICES1 Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– CBOE–2024–034 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CBOE–2024–034. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of notice of the filing of Amendment No. 1 in the Federal Register. In Amendment No. 1, the Exchange narrows the scope of the proposed rule change from all broadbased indexes to the RUT index, provides additional support for the proposed rule change, and does not otherwise alter the substance of the proposed rule change. The changes to the proposal and additional information in Amendment No. 1 do not raise any novel regulatory issues and assist the Commission in evaluating the Exchange’s proposal and in determining that it is consistent with the Act. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,36 to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,37 that the proposed rule change (SR–CBOE–2024– 034), as modified by Amendment No. 1, be and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 Vanessa A. Countryman, Secretary. [FR Doc. 2024–22559 Filed 10–1–24; 8:45 am] BILLING CODE 8011–01–P 36 15 34 See supra note 26 and accompanying text. 35 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:16 Oct 01, 2024 Jkt 262001 U.S.C. 78s(b)(2). U.S.C. 78f(b)(2). 38 17 CFR 200.30–3(a)(12). 37 15 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 [Release No. 34–101194; File No. SR–FICC– 2024–009] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Modify the GSD Rules Relating to the Adoption of a Trade Submission Requirement September 26, 2024. On June 12, 2024, Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–FICC–2024– 009 pursuant to Section 19(b) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 2 thereunder to modify FICC’s Government Securities Division (‘‘GSD’’) Rulebook (‘‘GSD Rules’’) as it relates to the adoption of a requirement for its direct participants to submit for clearance and settlement all eligible secondary market transactions in U.S. Treasury securities to which such direct participant is a counterparty.3 The Proposed Rule Change was published for public comment in the Federal Register on July 1, 2024.4 The Commission has received comments regarding the substance of the changes proposed in the Proposed Rule Change.5 On August 16, 2024, pursuant to Section 19(b)(2) of the Exchange Act,6 the Commission designated a longer period within which to approve, disapprove, or institute proceedings to determine whether to approve or disapprove the Proposed Rule Change.7 The Commission is instituting proceedings, pursuant to Section 19(b)(2)(B) of the Exchange Act,8 to determine whether to approve or disapprove the Proposed Rule Change. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Notice of Filing, infra note 4, at 89 FR 54602. 4 Securities Exchange Act Release No. 100417 (June 25, 2024), 89 FR 54602 (July 1, 2024) (File No. SR–FICC–2024–009) (‘‘Notice of Filing’’). 5 Comments on the Proposed Rule Change are available at https://www.sec.gov/comments/sr-ficc2024-009/srficc2024009.htm. 6 15 U.S.C. 78s(b)(2). 7 Securities Exchange Act Release No. 100693 (Aug. 12, 2024), 89 FR 66746 (Aug. 16, 2024) (File No. SR–FICC–2024–009). 8 15 U.S.C. 78s(b)(2)(B). 2 17 E:\FR\FM\02OCN1.SGM 02OCN1

Agencies

[Federal Register Volume 89, Number 191 (Wednesday, October 2, 2024)]
[Notices]
[Pages 80291-80296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22559]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101197; File No. SR-CBOE-2024-034]


Self-Regulatory Organizations; CBOE Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rules To 
List P.M.-Settled Russell 2000 Index Options With Expirations on the 
Third Friday-of-the-Month

September 26, 2024.

I. Introduction

    On August 2, 2024, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list p.m.-settled broad-based Index options 
with expirations on the third Friday-of-the-month. The proposed rule 
change was published for comment in the Federal Register on August 14, 
2024.\3\ On September 13, 2024, the Exchange filed Amendment No. 1 to 
the proposed rule change, described in Item II below, which Item has 
been prepared by the Exchange.\4\

[[Page 80292]]

Amendment No. 1 superseded the original proposed rule change in its 
entirety.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100671 (August 8, 
2024), 89 FR 66163. The Commission has not received any comments.
    \4\ The full text of Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-cboe-2024-034/srcboe2024034.htm.
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    The Commission is publishing this notice and order to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
from interested persons and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Rules to permit the listing of 
P.M.-settled \5\ options on the Russell 2000 Index (``RUT'') that 
expire on the standard third Friday-of-the-month (``Expiration 
Friday''). Currently, pursuant to Rule 4.13, Interpretations and 
Policies .13 and .14, the Exchange is permitted to list P.M.-settled 
options on the S&P 500 Index (``SPX options''), the Mini-S&P 500 Index 
(``XSP options''), and the Mini-Russell 2000 Index (``MRUT options'') 
that expire on Expiration Fridays.\6\ Additionally, pursuant to Rule 
4.13(e), the Exchange may list P.M.-settled options on any broad-based 
index eligible for standard options trading--including RUT--that expire 
on any Monday, Tuesday, Wednesday, Thursday, or Friday (other than 
Expiration Friday or days that coincide with an EOM Expiration (as 
defined below)) (``Weekly Expirations'') or that expire on the last 
trading day of the month (``EOM Expirations'' and, combined with Weekly 
Expirations, ``Nonstandard Expirations''). As a result, currently, the 
Exchange may list P.M-settled SPX, XSP, and MRUT options with 
expirations on any day of the week, including all Fridays, while the 
Exchange may list P.M-settled options on RUT with expirations on any 
day of the week, including all Fridays except Expiration Fridays.
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    \5\ An option with P.M.-settlement has its exercise settlement 
value derived from the closing prices on the expiration date.
    \6\ The proposed rule change deletes Interpretation .14 and 
moves XSP and MRUT to Interpretation .13 so that all indexes on 
which the Exchange may list P.M.-settled third-Friday-of-the-month 
options series are included within the same rule provision. This is 
a nonsubstantive, administrative change, and the proposed rule 
change makes no changes to how XSP or MRUT P.M.-settled third-
Friday-of-the-month option series trade.
---------------------------------------------------------------------------

    The proposed rule change would permit the Exchange to list RUT 
P.M.-settled options that expire on Expiration Fridays. Specifically, 
the proposed rule change amends Rule 4.13, Interpretation and Policy 
.13 to state that in addition to A.M.-settled options on SPX, XSP, and 
MRUT \7\ pursuant to Rule 4.13, the Exchange may also list options on 
RUT whose exercise settlement value is derived from closing prices on 
their expiration dates (``P.M.-Settled'').\8\ The Exchange notes that 
permitting RUT options that are P.M.-Settled that expire on Expiration 
Friday, as proposed, would be in addition to the RUT P.M.-settled 
options with expirations on all Fridays other than Expiration Fridays 
that the Exchange may already list on those indexes as Weekly 
Expirations pursuant to Rule 4.13(e)(1). Current Rule 4.13, 
Interpretations and Policies .13 and .14 together with Rule 4.13(e)(1) 
permit the Exchange to list P.M-settled SPX, XSP, and MRUT options on 
all Fridays (including Expiration and non-Expiration Fridays). The 
proposal merely expands this same ability to RUT options.
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    \7\ The Exchange notes that the index underlying MRUT options is 
the same as the index underlying RUT options but are just based on a 
reduced value of that index.
    \8\ The Exchange corrects outdated language in Rule 4.13, 
Interpretation and Policy .13 by updating the definition of P.M.-
settled. The exercise settlement value of a P.M.-settled option is 
derived from closing prices on the expiration date, rather than the 
last trading day prior to expiration (which would have been Friday 
when options settled on Saturdays; however, options now settle on 
Fridays). This is consistent with the fact that expiring P.M.-
settled options trade on their expiration dates, as set forth in 
Rule 5.1(b)(2)(C).
---------------------------------------------------------------------------

    RUT options that are P.M.-Settled and expire on Expiration Friday 
are subject to all provisions of Rule 4.13 and treated the same as 
A.M.-settled RUT options (which expire on Expiration Fridays), except 
they are P.M.-settled. RUT options that are P.M.-Settled that expire on 
Expiration Fridays have the same exercise style, same number of 
permissible expirations, same exercise interval prices and limitations, 
and same position and exercise limits, and will trade in the same 
minimum price increment, as A.M.-settled RUT options.
    The Exchange believes expanding the availability of P.M.-Settled 
options that expire on Expiration Friday to RUT will expand hedging 
tools available to market participants while also providing greater 
trading opportunities, regardless of in which index option market they 
participate. By expanding the availability of P.M.-Settled options that 
expire on Expiration Friday, the proposed rule change (together with 
currently available Weekly Expirations for RUT) will provide market 
participants with opportunities to purchase RUT options in a manner 
more aligned with specific timing needs and more effectively tailor 
their investment and hedging strategies related to the Russell 2000 
Index and manage their portfolios. In particular, the proposed rule 
change will allow market participants to roll their positions in RUT 
options on more trading days, thus with more precision, spread risk 
across more trading days and incorporate daily changes in the markets, 
which may reduce the premium cost of buying protection.
    The Exchange believes there is sufficient investor interest in and 
demand for RUT P.M.-Settled options that expire on Expiration Friday to 
warrant adding these expirations and that RUT P.M.-Settled options that 
expire on Expiration Friday will provide investors with additional 
means of managing their risk exposures and carrying out their 
investment objectives. For example, from January 2 through August 30, 
2024, the total trading volume on the Exchange of A.M.-settled RUT 
options (which expire on Expiration Fridays) was over 7 million 
contracts, which is comparable to the total trading volume on the 
Exchange of P.M.-settled RUT options (which expire on any day of the 
month, including Fridays, other than Expiration Fridays) of just over 
10 million contracts. The Exchange believes this demonstrates strong 
customer demand for both A.M.-settled RUT options as well as P.M.-
settled RUT options (across various expirations). This RUT options 
volume (A.M.-settled and P.M.-settled combined) over 17 million 
contracts is also comparable to the total trading volume on the 
Exchange during that timeframe of XSP options (all of which are P.M.-
settled, including on Expiration Fridays) of approximately 23.5 million 
contracts. Further, RUT options total trading volume on the Exchange 
during this timeframe was significantly larger than the total trading 
volume on the Exchange of MRUT options of approximately 139,000 
contracts. The Exchange believes the

[[Page 80293]]

comparable volume of RUT options to XSP options and the similar volume 
between A.M.-settled and P.M.-settled RUT options, as well the 
significantly larger volume of RUT options compared to MRUT options, 
for which the Exchange may currently list P.M.-settled series that 
expire on Expiration Fridays, demonstrates that customers would benefit 
from the availability of P.M.-settled RUT options that expire on 
Expiration Friday. Overall, the Exchange believes that permitting the 
trading of P.M.-Settled options that expire on Expiration Fridays in an 
additional index option will encourage greater trading in this index 
option. The Exchange believes the proposed rule change will provide 
opportunities for market participants to benefit from exposure to the 
market for an additional index option with further P.M.-settlement 
flexibility.
    The Exchange also proposes to amend Rule 5.1, which governs trading 
days and hours, in conjunction with the proposed addition of RUT P.M.-
settled options that expire on Expiration Friday. Rule 5.1(b)(2)(C) 
currently provides that on their last trading day, Regular Trading 
Hours for expiring P.M.-settled SPX, XSP, and MRUT options, as well as 
Index Options with Nonstandard Expirations, may be effected on the 
Exchange between 9:30 a.m. and 4:00 p.m. Eastern Time \9\ (as opposed 
to the 9:30 a.m. to 4:15 p.m. Regular Trading Hours for options with 
those expirations that are non-expiring). The proposed rule change 
amends Rule 5.1(b)(2)(C) to include RUT P.M.-Settled options. The 
primary listing markets for the component securities that comprise 
broad-based indexes close trading in those securities at 4:00 p.m., 
just as the primary listing markets for the component securities that 
comprise the SPX, XSP, and MRUT Indexes close trading at 4:00 p.m. (the 
Exchange notes the components of the RUT Index are identical to the 
components of MRUT Index). The primary listing exchanges for the 
component securities disseminate closing prices for the component 
securities, which are used to calculate the exercise settlement value 
of broad-based indexes on which the Exchange lists options. The 
Exchange believes that, under normal trading circumstances, the primary 
listing markets have sufficient bandwidth to prevent any data queuing 
that may cause any trades that are executed prior to the closing time 
from being reported after 4:00 p.m. If trading in expiring RUT P.M.-
Settled options that expire on Expiration Fridays continued an 
additional fifteen minutes until 4:15 p.m. on their last trading day, 
these expiring options would be trading after the settlement index 
value for those expiring options was calculated.\10\ Therefore, in 
order to mitigate potential investor confusion and the potential for 
increased costs to investors as a result of potential pricing 
divergence at the end of the trading day, the Exchange believes that it 
is appropriate to cease trading in the expiring RUT P.M.-Settled 
options that expire on Expiration Fridays at 4:00 p.m., as it already 
does for expiring P.M.-settled SPX, XSP, and MRUT options that expire 
on Expiration Fridays and for expiring broad-based indexes with 
Nonstandard Expirations (which are p.m.-settled) for the same 
aforementioned reasons.\11\ The Exchange does not believe that the 
proposed rule change will impact volatility on the underlying cash 
market comprising broad-based indexes at the close on Expiration 
Fridays, as it already closes trading on the last trading day for 
expiring P.M.-settled options at 4:00 p.m. (such as P.M.-settled SPX, 
XSP, and MRUT options that expire on Expiration Fridays and broad-based 
index options with Nonstandard Expirations), which the Exchange does 
not believe has had an adverse impact on fair and orderly markets on 
Expiration Fridays for the underlying stocks comprising the 
corresponding indexes.\12\
---------------------------------------------------------------------------

    \9\ See Rule 1.6, which states that unless otherwise specified, 
all times in the Rules are Eastern Time.
    \10\ Further, the Exchange expects that RUT P.M.-Settled options 
that expire on Expiration Friday (as the Exchange understands is the 
case for P.M.-settled SPX, XSP and MRUT options that expire on 
Expiration Friday and all broad-based index options with Nonstandard 
Expirations) will typically be priced in the market based on 
corresponding futures values. If trading expiring RUT P.M.-Settled 
options that expire on Expiration Friday continued until 4:15 p.m. 
on their last trading day, these expiring options could not be 
priced on corresponding futures values, but rather would have to be 
priced on the known cash value. At the same time, the prices of non-
expiring RUT P.M.-Settled options series that expire on Expiration 
Friday would continue to move and likely be priced in response to 
changes in corresponding futures prices. As a result, a potential 
pricing divergence could occur between 4:00 p.m. and 4:15 p.m. on 
the final trading day in expiring RUT P.M.-Settled options that 
expire on Expiration Friday (e.g., a switch from pricing off of 
futures to cash). The Exchange understands that the switch from 
pricing off of futures to cash can be a difficult and risky 
crossover for liquidity providers. As a result, if expiring P.M.-
Settled contracts closed at 4:15 p.m., Market-Makers may react by 
widening spreads in order to compensate for the additional risk.
    \11\ See Securities Exchange Act Release Nos. 68888 (February 8, 
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (``SPXPM 
Pilot Approval Order''); 70087 (July 31, 2013), 78 FR 47809 (August 
6, 2013) (SR-CBOE-2013-055) (``XSPPM Pilot Approval Order''); and 
91067 (February 5, 2021), 86 FR 9108 (February 11, 2021) (SR-CBOE-
2020-116) (``MRUTPM Pilot Approval Order'').
    \12\ See Securities Exchange Act Release Nos. 98454 (September 
20, 2023), 88 FR 66103 (September 26, 2023) (SR-CBOE-2023-005) 
(``SPXPM Permanent Approval Order''); and 98455 (September 20, 
2023), 88 FR 66073 (September 26, 2023) (SR-CBOE-2023-019) (``XSPPM 
and MRUTPM Permanent Approval Order'').
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it believes that 
the Exchange and OPRA have the necessary systems capacity to handle any 
potential additional traffic associated with trading of RUT P.M.-
Settled options that expire on Expiration Fridays. The Exchange does 
not believe that its Trading Permit Holders (``TPHs'') will experience 
any capacity issues as a result of this proposal and represents that it 
will monitor the trading volume associated with any possible additional 
options series listed as a result of this proposal and the effect (if 
any) of these additional series on market fragmentation and on the 
capacity of the Exchange's automated systems.
    In addition to this, the Exchange believes that its existing 
surveillance and reporting safeguards in place are adequate to deter 
and detect possible manipulative behavior which might arise from 
listing and trading RUT P.M.-Settled options that expire on Expiration 
Fridays on all broad-based index options and will support the 
protection of investors and the public interest. Furthermore, the 
trading of RUT P.M.-Settled options that expire on Expiration Fridays 
will be subject to Exchange Rules governing customer accounts, position 
and exercise limits, margin requirements and trading halt procedures, 
among other Rules, which are designed to prevent fraudulent and 
manipulative acts and practices.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ 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,

[[Page 80294]]

and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. Additionally, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \15\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Exchange believes that expanding 
the availability of P.M.-Settled options that expire on Expiration 
Fridays to RUT (in addition to SPX, XSP, and MRUT (which options overly 
the same index as RUT options but merely with a reduced value) will 
provide investors with expanded hedging tools and greater trading 
opportunities and flexibility for an additional index option. As a 
result, investors will have additional means for an additional index 
option to manage their risk exposures and carry out their investment 
objectives. By offering RUT P.M.-Settled options that expire on 
Expiration Fridays along with Weekly Expirations (including expirations 
on Fridays other than Expiration Friday), the proposed rule change will 
allow market participants to purchase options on an additional index 
option available for trading on the Exchange in a manner more aligned 
with specific timing needs and more effectively tailor their investment 
and hedging strategies related to the Russell 2000 Index and manage 
their portfolios. For example, the proposed rule change will allow 
market participants to roll their positions in RUT options on more 
trading days, thus with more precision, spread risk across more trading 
days and incorporate daily changes in the markets, which may reduce the 
premium cost of buying protection. The Exchange represents that it 
believes that it has the necessary systems capacity to support any 
additional traffic associated with trading of RUT P.M.-Settled that 
expire on Expiration Fridays and does not believe that its TPHs will 
experience any capacity issues as a result of this proposal.
    The Commission previously recognized that listing P.M.-Settled SPX, 
XSP, and MRUT options that expire on Expiration Fridays was consistent 
with the Act.\16\ The Exchange notes that MRUT options overlie a 
reduced-value version of the same index underlying RUT options. The 
Commission noted that P.M.-Settled options that expire on Expiration 
Fridays in these index options ``has benefitted investors and other 
market participants by providing more flexible trading and hedging 
opportunities while also having no disruptive impact on the market.'' 
\17\ The proposed rule change is consistent with these findings, as it 
will benefit investors and other market participants that participate 
in the market for RUT options that expire on Expiration Fridays do by 
providing investors with more flexible trading and hedging 
opportunities in this index option. Additionally, the Exchange does not 
believe listing of RUT P.M.-Settled options that expire on Expiration 
Fridays will have any significant economic impact on the underlying 
component securities surrounding the close as a result of expiring 
p.m.-settled options or impact market quality, based on the data 
provided to and reviewed by the Commission (and the Commission's own 
conclusions based on that review, as noted above) and due to the 
significant changes in closing procedures in the decades since index 
options moved to a.m.-settlement.\18\ This is particularly true given 
that RUT options overlie the same index as MRUT options (for which the 
Exchange may list P.M.-Settled options that expire on Expiration 
Fridays), but just the full-value of that underlying index.
---------------------------------------------------------------------------

    \16\ See SPXPM, XSPPM, and MRUTPM Pilot Approval Orders (the 
Exchange initially listed P.M.-Settled SPX, XSP, and MRUT options 
that expire on Expiration Fridays pursuant to pilot programs, so the 
Commission could monitor the impact of P.M. settlement of cash-
settled index derivatives on the underlying cash markets (while 
recognizing that these risks may have been mitigated given enhanced 
closing procedures in use in the primary equity markets); and SPXPM, 
XSPPM, and MRUTPM Permanent Approval Orders.
    \17\ See SPXPM Permanent Approval Order at 66106; and XSPPM and 
MRUTPM Permanent Approval Order at 66076 (citing data the Commission 
reviewed in connection with the pilot programs).
    \18\ See id.
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    In addition, the Exchange believes that the proposal to end trading 
at 4:00 p.m. on the last trading day for transactions in expiring RUT 
P.M.-Settled options that expire on Expiration Fridays will prevent 
continued trading on a product after the exercise settlement value has 
been fixed, thereby mitigating potential investor confusion and the 
potential for increased costs to investors as a result of potential 
pricing divergence at the end of the trading day.
    Finally, the proposed rule change to correct the definition of 
P.M.-Settled in Rule 4.13, Interpretation and Policy .13 will benefit 
investors, as it will mitigate potential confusion of having an 
outdated definition in the Exchange's Rules. This proposed rule change 
will have no impact on trading, as the proposed definition of P.M.-
Settled is consistent with how P.M.-Settled options currently settle.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because RUT P.M.-Settled options 
that expire on Expiration Fridays will be available to all market 
participants. By permitting RUT P.M.-Settled options that expire on 
Expiration Fridays, the proposed rule change will provide all investors 
that participate in the market for RUT options with greater trading and 
hedging opportunities and flexibility to meet their investment and 
hedging needs, which are already available for SPX, XSP, and MRUT 
options. Additionally, RUT P.M.-Settled options that expire on 
Expiration Fridays will trade in the same manner as RUT A.M-settled 
options. Further, the proposed 4:00 p.m. closing time on Expiration 
Fridays will apply equally to all market participants trading in RUT 
P.M.-Settled options that expire on Expiration Fridays.
    The Exchange does not believe that the proposal to list RUT P.M.-
Settled options that expire on Expiration Fridays will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because these options are 
proprietary Exchange products. Other exchanges offer P.M.-settlement on 
Expiration Fridays for other broad-based index options.\19\ 
Additionally, options on equity options (including options on certain 
exchange-traded funds (``ETFs'') that track the Russell 2000 Index) are 
P.M.-settled, and exchanges offer short-term options programs for 
certain equity options,\20\

[[Page 80295]]

making options on certain ETFs that track the Russell 2000 Index 
available with expirations on all Fridays. To the extent that the 
addition of RUT P.M.-Settled options that expire on Expiration Fridays 
available for trading on the Exchange makes the Exchange a more 
attractive marketplace to market participants at other exchanges, such 
market participants are free to elect to become market participants on 
the Exchange.
---------------------------------------------------------------------------

    \19\ See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12(a)(6) 
(permitting P.M.-settlement for options on the Nasdaq-100 and 
Nasdaq-100 Micro Indexes that expire on Expiration Fridays).
    \20\ See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12 
(permitting nonstandard expirations, including expirations on 
Tuesdays and Thursdays, for Nasdaq-100 index options and Nasdaq 100-
Micro index options); and Nasdaq ISE, LLC Options 4, Section 5, 
Supplementary Material .03 (permitting short-term options series 
with daily expirations for SPY and QQQ options). [update] [sic]
---------------------------------------------------------------------------

    The Exchange does not believe the proposed rule change to correct 
the definition of P.M.-Settled in Rule 4.13, Interpretation and Policy 
.13 will impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as it is not a 
competitive change. This proposed change merely updates an outdated 
definition in the Exchange's Rules and will have no impact on trading, 
as the proposed definition of p.m.-settled is consistent with how P.M.-
Settled options currently settle.

B. 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. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\21\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Act,\22\ which requires, among other 
things, that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \21\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In support of its proposal, the Exchange states that the Commission 
approved trading of MRUT options that expire on Expiration Fridays, 
which options overly the same index as RUT options but with a reduced 
value.\23\ In addition, the Commission approved other P.M.-Settled 
broad-based index options that expire on Expiration Fridays including 
SPX and XSP.\24\ The Exchange states that expanding the availability of 
P.M.-Settled options that expire on Expiration Fridays to RUT will 
provide investors with expanded hedging tools and greater trading 
opportunities and flexibility for an additional index option. Further, 
the Exchange also states there is sufficient investor interest in and 
demand for RUT P.M.-Settled options that expire on Expiration Friday to 
warrant adding these expirations.\25\
---------------------------------------------------------------------------

    \23\ See supra Item II.A.1, at note 12 (citing XSPPM and MRUTPM 
Permanent Approval Order).
    \24\ See id.
    \25\ See supra Item II.A.1. In support of this statement, the 
Exchange examined trading volumes of a.m.-settled RUT options and 
P.M.-Settled RUT options as well XSP and MRUT options (all of which 
are P.M.-Settled). Based on the total trading volumes, the Exchange 
concludes that there is strong customer demand for both a.m.-settled 
RUT options and P.M.-Settled RUT options and that trading volume in 
all RUT options is comparable to that of XSP options and 
significantly larger than MRUT options. See id.
---------------------------------------------------------------------------

    In addition, the Exchange further believes that listing P.M.-
Settled RUT options that expire on Expiration Friday will not have any 
significant economic impact on the underlying component securities 
surrounding the close as a result of expiring P.M.-Settled options or 
impact market quality.\26\ The Exchange represents that it has the 
necessary systems capacity to support any additional traffic associated 
with trading of RUT P.M.-Settled options that expire on Expiration 
Fridays and does not believe that its TPHs will experience any capacity 
issues as a result of this proposal.\27\ Finally, the Exchange states 
that it believes that its existing surveillance and reporting 
safeguards in place are adequate to deter and detect possible 
manipulative behavior which might arise from listing and trading RUT 
P.M.-Settled options that expire on Expiration Fridays.\28\
---------------------------------------------------------------------------

    \26\ See supra Item II.A.2. at text accompanying note 18.
    \27\ See supra Item II.A.1 and II.A.2.
    \28\ See supra Item II.A.1.
---------------------------------------------------------------------------

    The Commission has had concerns about the adverse effects and 
impact of p.m.-settlement upon market volatility and the operation of 
fair and orderly markets on the underlying cash market at or near the 
close of trading on expiration days.\29\ However, the Commission 
recently approved proposals from several exchanges, including the 
Exchange, to permanently establish programs permitting the listing and 
trading of certain P.M.-Settled broad-based index options.\30\ In 
approving these proposals, the Commission reviewed data provided by the 
exchanges in their filings, the exchanges' pilot data and reports, as 
well as an analysis conducted at the direction of Staff from the 
Commission's Division of Economic and Risk Analysis and concluded that 
analysis of the pilot data did not identify any significant economic 
impact on the underlying component securities surrounding the close as 
a result of expiring P.M.-Settled options nor did it indicate a 
deterioration in market quality for an existing product when a new 
P.M.-Settled expiration was introduced.\31\ Further, the Commission 
stated that significant changes in closing procedures in the decades 
since index options moved to a.m.-settlement may also serve to mitigate 
the potential impact of P.M.-Settled index options on the underlying 
cash markets.\32\
---------------------------------------------------------------------------

    \29\ See Securities Exchange Act Release No. 65256 (September 2, 
2011), 76 FR 55969, at 55972 (September 9, 2011) (SR-C2-2011-008) 
(Order approving proposed rule change to establish a pilot program 
to list and trade SPXPM options on the C2 Options Exchange, 
Incorporated).
    \30\ See e.g., SPXPM Permanent Approval Order; XSPPM and MRUTPM 
Permanent Approval Order; Securities Exchange Act Release Nos. 98450 
(September 20, 2023), 88 FR 66111 (September 26, 2023) (SR-ISE-2023-
08) (Order Granting Approval of a Proposed Rule Change, as Modified 
by Amendment No. 1, to Make Permanent Certain P.M.-Settled Pilots); 
and 98451 (September 20, 2023), 88 FR 66088 (September 26, 2023) 
(SR-Phlx-203-07) (Order approving a nonstandard expirations pilot 
program and p.m.-settled XND options). See also Securities Exchange 
Act Release Nos. 98935 (November 14, 2023), 88 FR 80792 (November 
20, 2023) (SR-ISE-2023-20) (Order approving the listing and trading 
of p.m.-settled Nasdasq-100 Index Options with a third Friday-of-
the-month expiration).
    \31\ See e.g., XSPPM and MRUTPM Permanent Approval Order, 88 FR 
at 66075-66076.
    \32\ See id.
---------------------------------------------------------------------------

    As noted above, the Exchange may currently trade Expiration Friday 
MRUT options, in addition to P.M.-Settled index options on XSP and SPX 
that expire on Expiration Fridays.\33\ The Exchange's proposal, which 
would permit P.M.-Settled RUT options to expire on Expiration Fridays, 
is reasonably designed as a limited expansion of existing P.M.-Settled 
broad-based index option programs and may provide the investing public 
and other market participants more flexibility to closely tailor their 
investment and hedging decisions. The Exchange has represented that it 
has an

[[Page 80296]]

adequate surveillance program in place to monitor trading in the P.M.-
Settled RUT options that expire on Expiration Fridays and has the 
necessary systems capacity to support the new options series.\34\ The 
Commission expects the Exchange to continue to monitor any potential 
risks from large P.M.-Settled positions and take appropriate action on 
a timely basis if warranted.
---------------------------------------------------------------------------

    \33\ See supra note 13.
    \34\ See supra note 26 and accompanying text.
---------------------------------------------------------------------------

    Accordingly, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \35\ and the rules and 
regulations thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

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

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2024-034 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CBOE-2024-034. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
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-CBOE-2024-034 and should be 
submitted on or before October 23, 2024.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange narrows the 
scope of the proposed rule change from all broad-based indexes to the 
RUT index, provides additional support for the proposed rule change, 
and does not otherwise alter the substance of the proposed rule change. 
The changes to the proposal and additional information in Amendment No. 
1 do not raise any novel regulatory issues and assist the Commission in 
evaluating the Exchange's proposal and in determining that it is 
consistent with the Act. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\36\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-CBOE-2024-034), as modified 
by Amendment No. 1, be and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22559 Filed 10-1-24; 8:45 am]
BILLING CODE 8011-01-P
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