82 FR 11290 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Related to Rule 24.9(e)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 33 (February 21, 2017)

[Federal Register Volume 82, Number 33 (Tuesday, February 21, 2017)]
[Notices]
[Pages 11290-11293]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-03302]



[[Page 11290]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80037; File No. SR-CBOE-2017-014]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Related to 
Rule 24.9(e)

February 14, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 13, 2017, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``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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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange seeks to amend Rule 24.9(e). The text of the proposed 
rule change is provided below (additions are italicized; deletions are 
[bracketed]).
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 24.9. Terms of Index Option Contracts

    (a)-(d) No change.
    (e) Nonstandard Expirations Pilot Program
    (1) Weekly Expirations. The Exchange may open for trading Weekly 
Expirations on any broad-based index eligible for standard options 
trading to expire on any Monday, Wednesday, or Friday (other than the 
third Friday-of-the-month or days that coincide with an EOM 
expiration). Weekly Expirations shall be subject to all provisions of 
this Rule and treated the same as options on the same underlying index 
that expire on the third Friday of the expiration month; provided, 
however, that Weekly Expirations shall be P.M.-settled and new series 
in Weekly Expirations may be added up to and including on the 
expiration date for an expiring Weekly Expiration.
    The maximum number of expirations that may be listed for each 
Weekly Expiration (i.e., a Monday expiration, Wednesday expiration, or 
Friday expiration, as applicable) in a given class is the same as the 
maximum number of expirations permitted in Rule 24.9 (a)(2) for 
standard options on the same broad-based index. [Other than expirations 
that are third Friday-of-the-month or that coincide with an EOM 
expiration,] Weekly Expirations [shall] need not be for consecutive 
Monday, Wednesday, or Friday expirations as applicable; however, the 
expiration date of a non-consecutive expiration may not be beyond what 
would be considered the last expiration date if the maximum number of 
expirations were listed consecutively. Weekly Expirations that are 
first listed in a given class may expire up to four weeks from the 
actual listing date. If the last trading day of a month is a Monday, 
Wednesday, or Friday and the Exchange lists EOMs and Weekly Expirations 
as applicable in a given class, the Exchange will list an EOM instead 
of a Weekly Expiration in the given class. Other expirations in the 
same class are not counted as part of the maximum number of Weekly 
Expirations for a broad-based index class. If the Exchange is not open 
for business on a respective Monday, the normally Monday expiring 
Weekly Expirations will expire on the following business day. If the 
Exchange is not open for business on a respective Wednesday or Friday, 
the normally Wednesday or Friday expiring Weekly Expirations will 
expire on the previous business day.
    (2) End of Month (``EOM'') Expirations. The Exchange may open for 
trading EOMs on any broad-based index eligible for standard options 
trading to expire on last trading day of the month. EOMs shall be 
subject to all provisions of this Rule and treated the same as options 
on the same underlying index that expire on the third Friday of the 
expiration month; provided, however, that EOMs shall be P.M.-settled 
and new series in EOMs may be added up to and including on the 
expiration date for an expiring EOM.
    The maximum number of expirations that may be listed for EOMs in a 
given class is the same as the maximum number of expirations permitted 
in Rule 24.9 (a)(2) for standard options on the same broad-based index. 
EOM expirations [shall] need not be for consecutive end of month 
expirations; however, the expiration date of a non-consecutive 
expiration may not be beyond what would be considered the last 
expiration date if the maximum number of expirations were listed 
consecutively. EOMs that are first listed in a given class may expire 
up to four weeks from the actual listing date. Other expirations in the 
same class are not counted as part of the maximum numbers of EOM 
expirations for a broad-based index class.
    (3) Duration of Nonstandard Expirations Pilot Program. The 
Nonstandard Expirations Pilot Program shall be through May 3, 2017.
    (4) Weekly Expirations and EOM Trading Hours on the Last Trading 
Day. On the last trading day, transactions in expiring Weekly 
Expirations and EOMs may be effected on the Exchange between the hours 
of 8:30 a.m. (Chicago time) and 3:00 p.m. (Chicago time).
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    On September 14, 2010, the Commission approved a CBOE proposal to 
establish a pilot program under which the Exchange is permitted to list 
P.M.-settled options on broad-based indexes to expire on (a) any Friday 
of the month, other than the third Friday-of-the-month (``EOWs''), and 
(b) the last trading day of the month (``EOM'').\3\ On January 14, 
2016, the Commission approved a CBOE proposal to expand the pilot 
program to list P.M.-settled options on broad-based indexes that expire 
on any Wednesday of the month (``WEDs'') and to rename the End of Week/
End of Month Expirations Pilot Program to the Nonstandard Expirations

[[Page 11291]]

Pilot Program.\4\ On August 10, 2016, the Commission approved a CBOE 
proposal to expand the pilot program to list P.M.-settled options on 
broad-based indexes that expire on any Monday of the month 
(``MONs'').\5\
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    \3\ See Securities Exchange Act Release No. 62911 (September 14, 
2010), 75 FR 57539 (September 21, 2010) (order approving SR-CBOE-
2009-075).
    \4\ See Securities Exchange Act Release No. 76909 (January 14, 
2016), 81 FR 3512 (January 21, 2016) (order approving SR-CBOE-2015-
106).
    \5\ See Securities Exchange Act Release No. 78531 (August 10, 
2016), 81 FR 54643 (August 16, 2016) (order approving SR-CBOE-2016-
046).
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    Currently, other than expirations that are third Friday-of-the-
month or that coincide with an EOM expiration, Weekly Expirations 
(i.e., MONs, WEDs, and EOWs) must be for consecutive Monday, Wednesday, 
or Friday expirations as applicable.\6\ Similarly, EOM expirations must 
be for consecutive end of months.\7\ The purpose of this filing is to 
eliminate the consecutive expiration restriction for the listing of 
Weekly Expirations and EOMs.
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    \6\ See Rule 24.9(e)(1).
    \7\ See Rule 24.9(e)(2).
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    The maximum number of expirations that may be listed for each 
Weekly Expiration (i.e., a Monday expiration, Wednesday expiration, or 
Friday expiration, as applicable) and EOM in a given class is the same 
as the maximum number of expirations permitted in Rule 24.9(a)(2) for 
standard options on the same broad-based index.\8\ Thus, for Weekly 
Expirations and EOM expirations in the SPX options class (which trade 
under the symbol SPXW), the MONs, WEDs, EOWs, and EOMs each may have 12 
expirations (i.e. a total of 48 expirations in all four programs).\9\ 
However, the Exchange does not currently exercise its discretion to 
list all 12 expirations in each Weekly Expiration and EOM program--
opting instead to introduce additional expirations as customer demand 
dictates. Typically, the Exchange lists four MONs, six WEDs, and seven 
EOWs in SPXW options.\10\
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    \8\ See Rules 24.9(e)(1) and (2).
    \9\ See Rule 24.9(a)(2) (specifying that the Exchange may list 
up to 12 standard monthly expirations at any one time for any class 
that the Exchange (as the Reporting Authority) uses to calculate a 
volatility index). The Exchange uses the SPX class to calculate a 
volatility index; thus, pursuant to Rules 24.9(e)(1) and (2), the 
MONs, WEDs, EOWs, and EOMs each may have 12 expirations.
    \10\ See CBOE Regulatory Circulars RG16-053 (extending SPXW WEDs 
to four expirations and reducing SPXW EOWs to seven expirations) and 
RG16-157 (expanding SPXW WEDs to six expirations and SPXW MONs to 
four expirations). Although RG16-157 indicates that there are five 
SPXW Monday Expirations, the October 31, 2016 expiration with a 
listing date of May 2, 2016 is technically an EOM expiration listed 
pursuant to the EOM program and should not have been identified as 
being listed pursuant to the Weekly Expirations program. See Rule 
24.9(e)(1) and (2).
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    The Exchange has received repeated customer interest to list Weekly 
Expirations and EOMs that expire in the mid-term (as opposed to long-
term expirations contemplated by Long-Term Index Option Series 
(``LEAPS'') \11\ and short-term expirations that are encompassed by the 
Exchange's current listing schedule to include four MONs, six WEDs, and 
seven EOWs in SPXW) in order to utilize SPXW options to provide a 
financial hedge for impactful economic events, such as domestic and 
international elections. In order to meet customer demand and continue 
to effectively manage the listing process, the Exchange is seeking the 
ability to list Weekly Expirations and EOMs non-consecutively.
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    \11\ See Rule 24.9(e). LEAPS expire from 12 to 180 months from 
the date of issuance.
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    Currently, the Exchange is able to add additional expirations (up 
to 12 expirations as noted above) in one or more of the Weekly 
Expirations; however, customer demand for SPXW listings exceeds the 
Exchange's current listing practices of maintaining four MONs, six 
WEDs, and seven EOWs in SPXW and often beyond 12 expirations. More 
importantly, the customer demand is for expirations near a certain 
future economically impactful event (e.g., a national election)--not 
every expiration between the current date and that particular event. 
Thus, instead of listing all 12 EOWs, for example, to reach a certain 
event, the Exchange believes the marketplace would be better served by 
allowing the Exchange to list EOWs (or the other Weekly Expirations or 
EOMs) non-consecutively because listing expirations non-consecutively 
allows the Exchange to list fewer expirations (particularly those with 
less customer demand), limiting potential burdens on liquidity 
providers to quote in the relevant option classes. Listing expirations 
non-consecutively also allows the Exchange to use its considerable 
experience to list expirations that will offer all market participants 
the ability to use SPXW options, for example, to hedge a future 
economic event. Simply put, as with the expansion of the Pilot to MONs 
and WEDs, non-consecutive expirations will expand hedging tools 
available to market participants and allow market participants to 
tailor their investment or hedging needs more effectively.
    Although this proposal gives the Exchange the ability to list 
expirations non-consecutively, the proposal is narrowly tailored as it 
only applies to the Nonstandard Expirations Pilot Program (i.e., Weekly 
Expirations and EOMs), which may only include broad-based index options 
eligible for standard options trading. In fact, the Exchange currently 
only lists Nonstandard Expirations in three classes: S&P 500 Index 
options under symbol SPXW, CBOE Mini S&P 500 Index options under symbol 
XSP, and Russell 2000 Index options under symbol RUTW. Furthermore, the 
Exchange only lists MONs and WEDs in SPXW; EOWs in SPXW, RUTW, and XSP; 
and EOMs in SPXW and RUTW. Thus, nearly every options class will remain 
unaffected by this proposal. Even within the Nonstandard Expirations 
program, the Exchange believes the vast majority of expirations will 
continue to be listed consecutively because the majority of trading 
interest is in the nearer term weeks. More importantly, however, as an 
expiration that was originally listed non-consecutively gets closer to 
expiration, the particular expiration falls in line with the exchange's 
regular listing schedule. For example, if the Exchange regularly has 
seven EOWs listed consecutively, with each passing week one of the 
listings expires and another expiration is added. In this way, as the 
weeks pass, any expiration that is added non-consecutively (in this 
case the eighth expiration) will eventually become the seventh 
expiration and thus become a consecutive expiration.
    Additionally, the Exchange notes that the proposal will not affect 
the total expirations for MONs, WEDs, EOWs, or EOMs. The maximum number 
of expirations that may be listed for each Weekly Expiration (i.e., a 
Monday expiration, Wednesday expiration, or Friday expiration, as 
applicable) and EOMs in a given class will continue to be the same as 
the maximum number of expirations permitted in Rule 24.9(a)(2) for 
standard options on the same broad-based index.\12\ As previously 
noted, in SPXW, the maximum number of expirations is 12.
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    \12\ See e.g., Rules 24.9(e).
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    The Exchange also notes that the proposal will not affect the 
maximum duration (i.e., the maximum time from listing to expiration) of 
Weekly Expirations or EOMs. For example, under the current rule, if the 
exchange were to list all 12 WEDs in SPXW, the 12th WED expiration 
would expire 11 weeks from the nearest term expiration (assuming, for 
example, there are no EOMs that coincide with the WEDs in SPXW).\13\ To 
further illustrate the

[[Page 11292]]

current rule, assume that on Monday February 6, 2017, the nearest term 
WED expiration in SPXW expires on February 8, 2017. Also assume the 
Exchange lists all 12 WEDs in SPXW. In this example, the 12th 
expiration would expire on April 26, 2017. In order to ensure that this 
proposal does not affect the maximum duration of the expirations, the 
Exchange proposes to specify in Rule 24.9(e)(1) and (2) that the 
expiration date of a non-consecutive expiration may not be beyond what 
would be considered the last expiration date if the maximum number of 
expirations were listed consecutively. Under the proposed rule (as with 
the current rule), the April 26th expiration in the above example is 
the farthest expiration that could be listed. The only difference 
between the current rule and this proposal is that under the current 
rule the exchange would have to list all 12 expirations in order to 
list the April 26th expiration in the above example, and under the 
proposed rule the Exchange would be able to list the April 26th 
expiration without the requirement to, for example, list the April 19th 
expiration.
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    \13\ As stated in Rule 24.9(e)(1) if the last trading day of a 
month is a Monday, Wednesday, or Friday and the Exchange lists EOMs 
and Weekly Expirations as applicable in a given class, the Exchange 
will list an EOM instead of a Weekly Expiration in the given class.
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    The annual Pilot report provided to the Securities and Exchange 
Commission (``Commission'') will include any Weekly Expirations and 
EOMs, regardless of whether the expirations are listed consecutively or 
non-consecutively.
    In sum, the proposal will allow market participants to better plan 
for future economic events; will allow market participants to tailor 
their investment or hedging needs more effectively; will allow the 
Exchange to list expirations in a way that limits potential burdens on 
liquidity providers quoting in the affected classes; does not increase 
the allowable number of total expirations for Nonstandard Expirations; 
and is narrowly tailored to apply only to the Nonstandard Expiration 
Pilot Program (in which only three classes currently participate).
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.\14\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \15\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    In particular, the Exchange believes the Nonstandard Expirations 
Pilot has been successful to date and that allowing non-consecutive 
expirations will simply expand the ability of investors to hedge risks 
against market movements stemming from future economic events, which in 
general, helps to protect investors and the public interest. Similarly, 
the Exchange believes non-consecutive expirations will create greater 
trading and hedging opportunities and flexibility, and provide 
customers with the ability to more closely tailor their investment 
objectives. The Exchange also believe that the proposal will allow the 
Exchange to list expirations in a way that limits potential burdens on 
liquidity providers quoting in the affected classes, which helps remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.

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

    CBOE 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. Specifically, the Exchange does 
not believe the proposal will impose any burden on intramarket 
competition as all market participants will be treated in the same 
manner. Any perceived burden on Market-Makers is unfounded as the 
proposal does not increase the total number of expirations that can be 
listed under the Nonstandard Expirations Pilot Program. In fact, the 
proposal may alleviate potential burdens on Market-Makers quoting in 
the affected classes as listing non-consecutively allows the Exchange 
to avoid listing expirations that are in less demand. Additionally, the 
Exchange does not believe the proposal will impose any burden on 
intermarket competition because the proposed rule change relates solely 
to the listing of series pursuant to a CBOE pilot program, and market 
participants on other exchanges are welcome to become Trading Permit 
Holders and trade at CBOE if they determine that this proposed rule 
change has made CBOE more attractive or favorable. Finally, although 
the majority of the Exchange's broad-based index options are 
exclusively-listed at CBOE, all options exchanges are free to compete 
by listing and trading their own broad-based index options with Weekly 
Expirations and EOM expirations.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2017-014 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-2017-014. This file 
number should be included on the

[[Page 11293]]

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 Web site 
(http://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 Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE., Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-CBOE-2017-014, and should be submitted on or before 
March 14, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03302 Filed 2-17-17; 8:45 am]
 BILLING CODE 8011-01-P