83 FR 21808 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Operation of Its Flexible Exchange Options Pilot Program
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 91 (May 10, 2018)
Federal Register Volume 83, Issue 91 (May 10, 2018)
| Page Range | 21808-21811 | |
| FR Document | 2018-09924 |
[Federal Register Volume 83, Number 91 (Thursday, May 10, 2018)] [Notices] [Pages 21808-21811] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-09924] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83175; File No. SR-CBOE-2018-037] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Operation of Its Flexible Exchange Options Pilot Program May 4, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on May 2, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ``non-controversial'' proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b- 4(f)(6) thereunder.\4\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 15 U.S.C. 78s(b)(3)(A)(iii). \4\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the operation of its Flexible Exchange Options (``FLEX Options'') pilot program regarding permissible exercise settlement values for FLEX Index Options.\5\ --------------------------------------------------------------------------- \5\ FLEX Options provide investors with the ability to customize basic option features including size, expiration date, exercise style, and certain exercise prices. FLEX Options can be FLEX Index Options or FLEX Equity Options. In addition, other products are permitted to be traded pursuant to the FLEX trading procedures. For example, credit options are eligible for trading as FLEX Options pursuant to the FLEX rules in Chapter XXIVA. See Cboe Options Rules 24A.1(e) and (f), 24A.4(b)(1) and (c)(1), and 29.18. The rules governing the trading of FLEX Options on the FLEX Hybrid Trading System platform are contained in Chapter XXIVB. --------------------------------------------------------------------------- (additions are italicized; deletions are [bracketed]) * * * * * Cboe Exchange, Inc. Rules * * * * * Rule 24A.4. Terms of FLEX Options (a)-(c) (No change). . . . Interpretations and Policies: .01 FLEX Index Option PM Settlements Pilot Program: Notwithstanding subparagraph (a)(2)(iv) above, for a pilot period ending the earlier of [May 3] November 5, 2018 or the date on which the pilot program is approved on a permanent basis, a FLEX Index Option that expires on an Expiration Friday may have any exercise settlement value that is permissible pursuant to subparagraph (b)(3) above. .02 (No change). * * * * * The text of the proposed rule change is also available on the Exchange's website (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 Statutory Basis for, the Proposed Rule Change 1. Purpose On January 28, 2010, the Exchange received approval of a rule change that, among other things, established a pilot program regarding permissible exercise settlement values for FLEX Index Options.\6\ The Exchange has extended the pilot period seven times, which is currently set to expire on the earlier of May 3, 2018 or the date on which the pilot program is approved on a permanent basis.\7\ The purpose of this rule change filing is to extend the pilot program through the earlier of November 5, 2018 or the date on which the pilot program is approved on a permanent basis. This filing simply seeks to extend the operation of the pilot program and does not propose any substantive changes to the pilot program. --------------------------------------------------------------------------- \6\ Securities Exchange Act Release No. 61439 (January 28, 2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (``Approval Order''). The initial pilot period was set to expire on March 28, 2011, which date was added to the rules in 2010. See Securities Exchange Act Release No. 61676 (March 9, 2010), 75 FR 13191 (March 18, 2010) (SR-CBOE-2010-026). \7\ See Securities Exchange Act Release Nos. 64110 (March 23, 2011), 76 FR 17463 (March 29, 2011) (SR-CBOE-2011-024) (extending the pilot program through the earlier of March 30, 2012 or the date on which the pilot program is approved on the permanent basis); 66701 (March 30, 2012), 77 FR 20673 (April 5, 2012) (SR-CBOE-2012- 027) (extending the pilot through the earlier of November 2, 2012 or the date on which the pilot program is approved on a permanent basis); 68145 (November 2, 2012), 77 FR 67044 (November 8, 2012) (SR-CBOE-2012-102) (extending the pilot program through the earlier of November 2, 2013 or the date on which the pilot program is approved on a permanent basis); 70752 (October 24, 2013), 78 FR 65023 (October 30, 2013) (SR-CBOE-2013-099) (extending the pilot program through the earlier of November 3, 2014 or the date on which the pilot program is approved on a permanent basis); 73460 (October 29, 2014), 79 FR 65464 (November 4, 2014) (SR-CBOE-2014-080) (extending the pilot program through the earlier of May 3, 2016 or the date on which the pilot program is approved on a permanent basis); 77742 (April 29, 2016), 81 FR 26857 (May 4, 2016) (SR-CBOE- 2016-032) (extending the pilot program through the earlier of May 3, 2017 or the date on which the pilot program is approved on a permanent basis); and 80443 (April 12, 2017), 82 FR 18331 (April 18, 2017) (SR-CBOE-2017-032) (extending the pilot program through the earlier of May 3, 2018 or the date on which the pilot program is approved on a permanent basis). At the same time the permissible exercise settlement values pilot was established for FLEX Index Options, the Exchange also established a pilot program eliminating the minimum value size requirements for all FLEX Options. See Approval Order, supra note 6. The pilot program eliminating the minimum value size requirements was extended twice pursuant to the same rule filings that extended the permissible exercise settlement values (for the same extended periods) and was approved on a permanent basis in a separate rule change filing. See id. and Securities Exchange Act Release No. 67624 (August 8, 2012), 77 FR 48580 (August 14, 2012) (SR-CBOE-2012-040). --------------------------------------------------------------------------- Under Rule 24A.4, Terms of FLEX Options, a FLEX Option may expire on any business day specified as to day, month and year, not to exceed a maximum term of fifteen years. In addition, the exercise settlement value for a FLEX Index Option can be specified as the index value determined by reference to the reported level of the index as derived from the opening or closing prices of the component securities (``a.m. settlement'' or ``p.m. settlement,'' respectively) or as a specified average, provided that the average index value must conform to the averaging parameters established by the Exchange.\8\ However, prior to the [[Page 21809]] initiation of the exercise settlement values pilot, only a.m. settlements were permitted if a FLEX Index Option expired on, or within two business days of, a third Friday-of-the-month expiration (``Expiration Friday'').\9\ --------------------------------------------------------------------------- \8\ See Rule 24A.4(b)(3); see also Securities Exchange Act Release No. 31920 (February 24, 1993), 58 FR 12280 (March 3, 1993) (SR-CBOE-92-017). The Exchange has determined to limit the averaging parameters to three alternatives: the average of the opening and closing index values on the expiration date; the average of intra- day high and low index values on the expiration date; and the average of the opening, closing, and intra-day high and low index values on the expiration date. Any changes to the averaging parameters established by the Exchange would be announced to Trading Permit Holders via circular. \9\ For example, prior to the pilot, the exercise settlement value of a FLEX Index Option that expires on the Tuesday before Expiration Friday could have an a.m., p.m. or specified average settlement. However, the exercise settlement value of a FLEX Index Option that expires on the Wednesday before Expiration Friday could only have an a.m. settlement. --------------------------------------------------------------------------- Under the exercise settlement values pilot, this restriction on p.m. and specified average price settlements in FLEX Index Options was eliminated.\10\ The exercise settlement values pilot is currently set to expire on the earlier of May 3, 2018 or the date on which the pilot program is approved on a permanent basis. --------------------------------------------------------------------------- \10\ No change was necessary or requested with respect to FLEX Equity Options. Regardless of the expiration date, FLEX Equity Options are settled by physical delivery of the underlying. --------------------------------------------------------------------------- Cboe Options is proposing to extend the pilot program through the earlier of November 5, 2018 or the date on which the pilot program is approved on a permanent basis. Cboe Options believes the pilot program has been successful and well received by its Trading Permit Holders and the investing public for the period that it has been in operation as a pilot. In support of the proposed extension of the pilot program, and as required by the pilot program's Approval Order, the Exchange has submitted to the Securities and Exchange Commission (the ``Commission'') pilot program reports regarding the pilot, which detail the Exchange's experience with the program. Specifically, the Exchange provided the Commission with annual reports analyzing volume and open interest for each broad-based FLEX Index Options class overlying an Expiration Friday, p.m.-settled FLEX Index Options series.\11\ The annual reports also contained information and analysis of FLEX Index Options trading patterns. The Exchange also provided the Commission, on a periodic basis, interim reports of volume and open interest. In providing the pilot reports to the Commission, the Exchange has previously requested confidential treatment of the pilot reports under the Freedom of Information Act (``FOIA'').\12\ --------------------------------------------------------------------------- \11\ The annual reports also contained certain pilot period and pre-pilot period analyses of volume and open interest for Expiration Friday, a.m.-settled FLEX Index series and Expiration Friday Non- FLEX Index series overlying the same index as an Expiration Friday, p.m.-settled FLEX Index option. \12\ 5 U.S.C. 552. --------------------------------------------------------------------------- The Exchange believes there is sufficient investor interest and demand in the pilot program to warrant its extension. The Exchange believes that, for the period that the pilot has been in operation, the program has provided investors with additional means of managing their risk exposures and carrying out their investment objectives. Furthermore, the Exchange believes that it has not experienced any adverse market effects with respect to the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-FLEX expirations and use a p.m. settlement (as discussed below). In that regard, based on the Exchange's experience in trading FLEX Options to date and over the pilot period, Cboe Options continues to believe that the restrictions on exercise settlement values are no longer necessary to insulate Non-FLEX expirations from the potential adverse market impacts of FLEX expirations.\13\ To the contrary, Cboe Options believes that the restriction actually places the Exchange at a competitive disadvantage to its OTC counterparts in the market for customized options, and unnecessarily limits market participants' ability to trade in an exchange environment that offers the added benefits of transparency, price discovery, liquidity, and financial stability. --------------------------------------------------------------------------- \13\ In further support, the Exchange also notes that the p.m. and specified average price settlements are already permitted for FLEX Index Options on any other business day except on, or within two business days of, Expiration Friday. The Exchange is not aware of any market disruptions or problems caused by the use of these settlement methodologies on these expiration dates (or on the expiration dates addressed under the pilot program). The Exchange is also not aware of any market disruptions or problems caused by the use of customized options in the over-the-counter (``OTC'') markets that expire on or near Expiration Friday and have a p.m. or specified average exercise settlement value. In addition, the Exchange believes the reasons for limiting expirations to a.m. settlement, which is something the SEC has imposed since the early 1990s for Non-FLEX Options, revolved around a concern about expiration pressure on the New York Stock Exchange (``NYSE'') at the close that are no longer relevant in today's market. Today, the Exchange believes stock exchanges are able to better handle volume. There are multiple primary listing and unlisted trading privilege (``UTP'') markets, and trading is dispersed among several exchanges and alternative trading systems. In addition, the Exchange believes that surveillance techniques are much more robust and automated. In the early 1990s, it was also thought by some that opening procedures allow more time to attract contra-side interest to reduce imbalances. The Exchange believes, however, that today, order flow is predominantly electronic and the ability to smooth out openings and closes is greatly reduced (e.g., market-on-close procedures work just as well as openings). Also, other markets, such as the NASDAQ Stock Exchange, do not have the same type of pre-opening imbalance disseminations as NYSE, so many stocks are not subject to the same procedures on Expiration Friday. In addition, the Exchange believes that NYSE has reduced the required time a specialist has to wait after disseminating a pre-opening indication. So, in this respect, the Exchange believes there is less time to react in the opening than in the close. Moreover, to the extent there may be a risk of adverse market effects attributable to p.m. settled options (or certain average price settled options related to the closing price) that would otherwise be traded in a non-transparent fashion in the OTC market, the Exchange continues to believe that such risk would be lessened by making these customized options eligible for trading in an exchange environment because of the added transparency, price discovery, liquidity, and financial stability available. --------------------------------------------------------------------------- The Exchange also notes that certain position limit, aggregation and exercise limit requirements continue to apply to FLEX Index Options in accordance with Rules 24A.7, Position Limits and Reporting Requirements and 24A.8, Exercise Limits. Additionally, all FLEX Options remain subject to the position reporting requirements in paragraph (a) of Cboe Options Rule 4.13, Reports Related to Position Limits.\14\ Moreover, the Exchange and its Trading Permit Holder organizations each have the authority, pursuant to Cboe Options Rule 12.10, Margin Required is Minimum, to impose additional margin as deemed advisable. Cboe Options continues to believe these existing safeguards serve sufficiently to help monitor open interest in FLEX Option series and significantly reduce any risk of adverse market effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-FLEX expirations and use a p.m. settlement. --------------------------------------------------------------------------- \14\ Cboe Options Rule 4.13(a) provides that ``[i]n a manner and form prescribed by the Exchange, each Trading Permit Holder shall report to the Exchange, the name, address, and social security or tax identification number of any customer who, acting alone, or in concert with others, on the previous business day maintained aggregate long or short positions on the same side of the market of 200 or more contracts of any single class of option contracts dealt in on the Exchange. The report shall indicate for each such class of options, the number of option contracts comprising each such position and, in the case of short positions, whether covered or uncovered.'' For purposes of Rule 4.13, the term ``customer'' in respect of any Trading Permit Holder includes ``the Trading Permit Holder, any general or special partner of the Trading Permit Holder, any officer or director of the Trading Permit Holder, or any participant, as such, in any joint, group or syndicate account with the Trading Permit Holder or with any partner, officer or director thereof.'' Rule 4.13(d). --------------------------------------------------------------------------- Cboe Options is also cognizant of the OTC market, in which similar restrictions on exercise settlement values do not apply. Cboe Options [[Page 21810]] continues to believe that the pilot program is appropriate and reasonable and provides market participants with additional flexibility in determining whether to execute their customized options in an exchange environment or in the OTC market. Cboe Options continues to believe that market participants benefit from being able to trade these customized options in an exchange environment in several ways, including, but not limited to, enhanced efficiency in initiating and closing out positions, increased market transparency, and heightened contra-party creditworthiness due to the role of the Options Clearing Corporation as issuer and guarantor of FLEX Options. If, in the future, the Exchange proposes an additional extension of the pilot program, or should the Exchange propose to make the pilot program permanent, the Exchange will submit, along with any filing proposing such amendments to the pilot program, an annual report (addressing the same areas referenced above and consistent with the pilot program's Approval Order) to the Commission at least two months prior to the expiration date of the program. The Exchange will also continue, on a periodic basis, to submit interim reports of volume and open interest consistent with the terms of the exercise settlement values pilot program as described in the pilot program's Approval Order. Additionally, the Exchange will provide the Commission with any additional data or analyses the Commission requests because it deems such data or analyses necessary to determine whether the pilot program is consistent with the Exchange Act. The Exchange will make public all data and analyses previously submitted to the Commission under the pilot program, as well as any data and analyses it makes to the Commission under the pilot program in the future. As noted in the pilot program's Approval Order, any positions established under the pilot program would not be impacted by the expiration of the pilot program.\15\ --------------------------------------------------------------------------- \15\ For example, a position in a p.m.-settled FLEX Index Option series that expires on Expiration Friday in January 2019 could be established during the exercise settlement values pilot. If the pilot program were not extended (or made permanent), then the position could continue to exist. However, the Exchange notes that any further trading in the series would be restricted to transactions where at least one side of the trade is a closing transaction. See Approval Order at footnotes 9 and 10, supra note 6. --------------------------------------------------------------------------- 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.\16\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \17\ 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) \18\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b). \17\ 15 U.S.C. 78f(b)(5). \18\ Id. --------------------------------------------------------------------------- In particular, the Exchange believes that the proposed extension of the pilot program, which permits additional exercise settlement values, would provide greater opportunities for investors to manage risk through the use of FLEX Options. Further, the Exchange believes that it has not experienced any adverse effects from the operation of the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-FLEX expirations and use a p.m. settlement. The Exchange also believes that the extension of the exercise settlement values pilot does not raise any unique regulatory concerns. In particular, although p.m. settlements may raise questions with the Commission, the Exchange believes that, based on the Exchange's experience in trading FLEX Options to date and over the pilot period, market impact and investor protection concerns will not be raised by this rule change. The Exchange also believes that the proposed rule change would continue to provide Trading Permit Holders and investors with additional opportunities to trade customized options in an exchange environment (which offers the added benefits of transparency, price discovery, liquidity, and financial stability as compared to the over-the-counter market) and subject to exchange-based rules, and investors would benefit as a result. B. Self-Regulatory Organization's Statement on Burden on Competition Cboe Options does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes there is sufficient investor interest and demand in the pilot program to warrant its extension. The Exchange believes that, for the period that the pilot has been in operation, the program has provided investors with additional means of managing their risk exposures and carrying out their investment objectives. Furthermore, the Exchange believes that it has not experienced any adverse market effects with respect to the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-Flex expirations and use a p.m. settlement. Cboe Options believes that the restriction actually places the Exchange at a competitive disadvantage to its OTC counterparts in the market for customized options, and unnecessarily limits market participants' ability to trade in an exchange environment that offers the added benefits of transparency, price discovery, liquidity, and financial stability. Therefore, the Exchange does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\ --------------------------------------------------------------------------- \19\ 15 U.S.C. 78s(b)(3)(A). \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires the Exchange to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- [[Page 21811]] A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange states that such waiver will allow the Exchange to extend the pilot program prior to its expiration on May 3, 2018, and maintain the status quo, thereby reducing market disruption. --------------------------------------------------------------------------- \21\ 17 CFR 240.19b-4(f)(6). \22\ 17 CFR 240.19b-4(f)(6)(iii). --------------------------------------------------------------------------- The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the pilot program to continue uninterrupted, thereby avoiding investor confusion that could result from a temporary interruption in the pilot program. For this reason, the Commission designates the proposed rule change to be operative upon filing.\23\ --------------------------------------------------------------------------- \23\ For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-CBOE-2018-037 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-2018-037. 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 (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 website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2018-037 and should be submitted on or before May 31, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12) and (59). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-09924 Filed 5-9-18; 8:45 am] BILLING CODE 8011-01-P
![21808 Federal Register / Vol. 83, No. 91 / Thursday, May 10, 2018 / Notices
For the Commission, pursuant to delegated Cboe Exchange, Inc. Rules pilot program is approved on a
authority.310 permanent basis.7 The purpose of this
* * * * *
Eduardo A. Aleman, rule change filing is to extend the pilot
Assistant Secretary. Rule 24A.4. Terms of FLEX Options program through the earlier of
[FR Doc. 2018–09933 Filed 5–9–18; 8:45 am] (a)–(c) (No change). November 5, 2018 or the date on which
BILLING CODE 8011–01–P . . . Interpretations and Policies: the pilot program is approved on a
.01 FLEX Index Option PM permanent basis. This filing simply
Settlements Pilot Program: seeks to extend the operation of the
SECURITIES AND EXCHANGE Notwithstanding subparagraph (a)(2)(iv) pilot program and does not propose any
COMMISSION above, for a pilot period ending the substantive changes to the pilot
earlier of [May 3] November 5, 2018 or program.
[Release No. 34–83175; File No. SR–CBOE–
2018–037] the date on which the pilot program is Under Rule 24A.4, Terms of FLEX
approved on a permanent basis, a FLEX Options, a FLEX Option may expire on
Self-Regulatory Organizations; Cboe Index Option that expires on an any business day specified as to day,
Exchange, Inc.; Notice of Filing and Expiration Friday may have any month and year, not to exceed a
Immediate Effectiveness of a Proposed exercise settlement value that is maximum term of fifteen years. In
Rule Change To Extend the Operation permissible pursuant to subparagraph addition, the exercise settlement value
of Its Flexible Exchange Options Pilot (b)(3) above. for a FLEX Index Option can be
Program .02 (No change). specified as the index value determined
by reference to the reported level of the
May 4, 2018. * * * * * index as derived from the opening or
Pursuant to Section 19(b)(1) of the The text of the proposed rule change closing prices of the component
Securities Exchange Act of 1934 is also available on the Exchange’s securities (‘‘a.m. settlement’’ or ‘‘p.m.
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 website (http://www.cboe.com/ settlement,’’ respectively) or as a
notice is hereby given that on May 2, AboutCBOE/CBOELegal specified average, provided that the
2018, Cboe Exchange, Inc. (the RegulatoryHome.aspx), at the average index value must conform to the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed Exchange’s Office of the Secretary, and averaging parameters established by the
with the Securities and Exchange at the Commission’s Public Reference Exchange.8 However, prior to the
Commission (‘‘Commission’’) the Room.
proposed rule change as described in II. Self-Regulatory Organization’s 7 See Securities Exchange Act Release Nos. 64110
Items I and II below, which Items have Statement of the Purpose of, and (March 23, 2011), 76 FR 17463 (March 29, 2011)
been prepared by the Exchange. The (SR–CBOE–2011–024) (extending the pilot program
Statutory Basis for, the Proposed Rule through the earlier of March 30, 2012 or the date
Exchange filed the proposal as a ‘‘non- Change on which the pilot program is approved on the
controversial’’ proposed rule change permanent basis); 66701 (March 30, 2012), 77 FR
pursuant to Section 19(b)(3)(A)(iii) of In its filing with the Commission, the 20673 (April 5, 2012) (SR–CBOE–2012–027)
the Act 3 and Rule 19b–4(f)(6) Exchange included statements (extending the pilot through the earlier of
thereunder.4 The Commission is concerning the purpose of and basis for November 2, 2012 or the date on which the pilot
program is approved on a permanent basis); 68145
publishing this notice to solicit the proposed rule change and discussed (November 2, 2012), 77 FR 67044 (November 8,
comments on the proposed rule change any comments it received on the 2012) (SR–CBOE–2012–102) (extending the pilot
from interested persons. proposed rule change. The text of these program through the earlier of November 2, 2013 or
statements may be examined at the the date on which the pilot program is approved on
I. Self-Regulatory Organization’s places specified in Item IV below. The a permanent basis); 70752 (October 24, 2013), 78 FR
Statement of the Terms of Substance of 65023 (October 30, 2013) (SR–CBOE–2013–099)
Exchange has prepared summaries, set (extending the pilot program through the earlier of
the Proposed Rule Change forth in sections A, B, and C below, of November 3, 2014 or the date on which the pilot
The Exchange proposes to extend the the most significant aspects of such program is approved on a permanent basis); 73460
operation of its Flexible Exchange (October 29, 2014), 79 FR 65464 (November 4, 2014)
statements. (SR–CBOE–2014–080) (extending the pilot program
Options (‘‘FLEX Options’’) pilot through the earlier of May 3, 2016 or the date on
program regarding permissible exercise A. Self-Regulatory Organization’s
which the pilot program is approved on a
settlement values for FLEX Index Statement of the Purpose of, and permanent basis); 77742 (April 29, 2016), 81 FR
Options.5 Statutory Basis for, the Proposed Rule 26857 (May 4, 2016) (SR–CBOE–2016–032)
Change (extending the pilot program through the earlier of
(additions are italicized; deletions are May 3, 2017 or the date on which the pilot program
[bracketed]) 1. Purpose is approved on a permanent basis); and 80443
(April 12, 2017), 82 FR 18331 (April 18, 2017) (SR–
* * * * * On January 28, 2010, the Exchange CBOE–2017–032) (extending the pilot program
received approval of a rule change that, through the earlier of May 3, 2018 or the date on
1 15 among other things, established a pilot which the pilot program is approved on a
U.S.C. 78s(b)(1). permanent basis). At the same time the permissible
2 17CFR 240.19b–4. program regarding permissible exercise exercise settlement values pilot was established for
3 15 U.S.C. 78s(b)(3)(A)(iii). settlement values for FLEX Index FLEX Index Options, the Exchange also established
4 17 CFR 240.19b–4(f)(6). Options.6 The Exchange has extended a pilot program eliminating the minimum value size
5 FLEX Options provide investors with the ability
the pilot period seven times, which is requirements for all FLEX Options. See Approval
to customize basic option features including size, Order, supra note 6. The pilot program eliminating
currently set to expire on the earlier of the minimum value size requirements was extended
expiration date, exercise style, and certain exercise
prices. FLEX Options can be FLEX Index Options May 3, 2018 or the date on which the twice pursuant to the same rule filings that
daltland on DSKBBV9HB2PROD with NOTICES
or FLEX Equity Options. In addition, other products extended the permissible exercise settlement values
are permitted to be traded pursuant to the FLEX 6 Securities Exchange Act Release No. 61439 (for the same extended periods) and was approved
trading procedures. For example, credit options are (January 28, 2010), 75 FR 5831 (February 4, 2010) on a permanent basis in a separate rule change
eligible for trading as FLEX Options pursuant to the (SR–CBOE–2009–087) (‘‘Approval Order’’). The filing. See id. and Securities Exchange Act Release
FLEX rules in Chapter XXIVA. See Cboe Options initial pilot period was set to expire on March 28, No. 67624 (August 8, 2012), 77 FR 48580 (August
Rules 24A.1(e) and (f), 24A.4(b)(1) and (c)(1), and 2011, which date was added to the rules in 2010. 14, 2012) (SR–CBOE–2012–040).
29.18. The rules governing the trading of FLEX See Securities Exchange Act Release No. 61676 8 See Rule 24A.4(b)(3); see also Securities
Options on the FLEX Hybrid Trading System (March 9, 2010), 75 FR 13191 (March 18, 2010) (SR– Exchange Act Release No. 31920 (February 24,
platform are contained in Chapter XXIVB. CBOE–2010–026). 1993), 58 FR 12280 (March 3, 1993) (SR–CBOE–92–
VerDate Sep<11>2014 16:29 May 09, 2018 Jkt 244001 PO 00000 Frm 00047 Fmt 4703 Sfmt 4703 E:\FR\FM\10MYN1.SGM 10MYN1](https://thefederalregister.org/doc/83_FR_21899/page/1.svg)
![Federal Register / Vol. 83, No. 91 / Thursday, May 10, 2018 / Notices 21809
initiation of the exercise settlement interest. In providing the pilot reports to To the contrary, Cboe Options believes
values pilot, only a.m. settlements were the Commission, the Exchange has that the restriction actually places the
permitted if a FLEX Index Option previously requested confidential Exchange at a competitive disadvantage
expired on, or within two business days treatment of the pilot reports under the to its OTC counterparts in the market for
of, a third Friday-of-the-month Freedom of Information Act (‘‘FOIA’’).12 customized options, and unnecessarily
expiration (‘‘Expiration Friday’’).9 The Exchange believes there is limits market participants’ ability to
Under the exercise settlement values sufficient investor interest and demand trade in an exchange environment that
pilot, this restriction on p.m. and in the pilot program to warrant its offers the added benefits of
specified average price settlements in extension. The Exchange believes that, transparency, price discovery, liquidity,
FLEX Index Options was eliminated.10 for the period that the pilot has been in and financial stability.
The exercise settlement values pilot is operation, the program has provided The Exchange also notes that certain
currently set to expire on the earlier of investors with additional means of position limit, aggregation and exercise
May 3, 2018 or the date on which the managing their risk exposures and limit requirements continue to apply to
pilot program is approved on a carrying out their investment objectives. FLEX Index Options in accordance with
permanent basis. Furthermore, the Exchange believes that Rules 24A.7, Position Limits and
Cboe Options is proposing to extend it has not experienced any adverse Reporting Requirements and 24A.8,
the pilot program through the earlier of market effects with respect to the pilot Exercise Limits. Additionally, all FLEX
November 5, 2018 or the date on which program, including any adverse market Options remain subject to the position
the pilot program is approved on a volatility effects that might occur as a reporting requirements in paragraph (a)
permanent basis. Cboe Options believes result of large FLEX exercises in FLEX of Cboe Options Rule 4.13, Reports
the pilot program has been successful Option series that expire near Non- Related to Position Limits.14 Moreover,
and well received by its Trading Permit FLEX expirations and use a p.m. the Exchange and its Trading Permit
Holders and the investing public for the settlement (as discussed below). Holder organizations each have the
period that it has been in operation as In that regard, based on the authority, pursuant to Cboe Options
a pilot. In support of the proposed Exchange’s experience in trading FLEX Rule 12.10, Margin Required is
extension of the pilot program, and as Options to date and over the pilot Minimum, to impose additional margin
required by the pilot program’s period, Cboe Options continues to as deemed advisable. Cboe Options
Approval Order, the Exchange has believe that the restrictions on exercise continues to believe these existing
submitted to the Securities and settlement values are no longer safeguards serve sufficiently to help
Exchange Commission (the necessary to insulate Non-FLEX monitor open interest in FLEX Option
‘‘Commission’’) pilot program reports expirations from the potential adverse series and significantly reduce any risk
regarding the pilot, which detail the market impacts of FLEX expirations.13 of adverse market effects that might
Exchange’s experience with the occur as a result of large FLEX exercises
program. Specifically, the Exchange 12 5 U.S.C. 552. in FLEX Option series that expire near
provided the Commission with annual 13 In further support, the Exchange also notes that Non-FLEX expirations and use a p.m.
reports analyzing volume and open the p.m. and specified average price settlements are
settlement.
interest for each broad-based FLEX already permitted for FLEX Index Options on any
other business day except on, or within two Cboe Options is also cognizant of the
Index Options class overlying an business days of, Expiration Friday. The Exchange OTC market, in which similar
Expiration Friday, p.m.-settled FLEX is not aware of any market disruptions or problems restrictions on exercise settlement
Index Options series.11 The annual caused by the use of these settlement methodologies
values do not apply. Cboe Options
reports also contained information and on these expiration dates (or on the expiration dates
addressed under the pilot program). The Exchange
analysis of FLEX Index Options trading is also not aware of any market disruptions or respect, the Exchange believes there is less time to
patterns. The Exchange also provided problems caused by the use of customized options react in the opening than in the close. Moreover, to
the Commission, on a periodic basis, in the over-the-counter (‘‘OTC’’) markets that expire the extent there may be a risk of adverse market
interim reports of volume and open on or near Expiration Friday and have a p.m. or effects attributable to p.m. settled options (or
specified average exercise settlement value. In certain average price settled options related to the
addition, the Exchange believes the reasons for closing price) that would otherwise be traded in a
017). The Exchange has determined to limit the limiting expirations to a.m. settlement, which is non-transparent fashion in the OTC market, the
averaging parameters to three alternatives: the something the SEC has imposed since the early Exchange continues to believe that such risk would
average of the opening and closing index values on 1990s for Non-FLEX Options, revolved around a be lessened by making these customized options
the expiration date; the average of intra-day high concern about expiration pressure on the New York eligible for trading in an exchange environment
and low index values on the expiration date; and Stock Exchange (‘‘NYSE’’) at the close that are no because of the added transparency, price discovery,
the average of the opening, closing, and intra-day longer relevant in today’s market. Today, the liquidity, and financial stability available.
high and low index values on the expiration date. Exchange believes stock exchanges are able to better 14 Cboe Options Rule 4.13(a) provides that ‘‘[i]n
Any changes to the averaging parameters handle volume. There are multiple primary listing a manner and form prescribed by the Exchange,
established by the Exchange would be announced and unlisted trading privilege (‘‘UTP’’) markets, and each Trading Permit Holder shall report to the
to Trading Permit Holders via circular. trading is dispersed among several exchanges and Exchange, the name, address, and social security or
9 For example, prior to the pilot, the exercise
alternative trading systems. In addition, the tax identification number of any customer who,
settlement value of a FLEX Index Option that Exchange believes that surveillance techniques are acting alone, or in concert with others, on the
expires on the Tuesday before Expiration Friday much more robust and automated. In the early previous business day maintained aggregate long or
could have an a.m., p.m. or specified average 1990s, it was also thought by some that opening short positions on the same side of the market of
settlement. However, the exercise settlement value procedures allow more time to attract contra-side 200 or more contracts of any single class of option
of a FLEX Index Option that expires on the interest to reduce imbalances. The Exchange contracts dealt in on the Exchange. The report shall
Wednesday before Expiration Friday could only believes, however, that today, order flow is indicate for each such class of options, the number
have an a.m. settlement. predominantly electronic and the ability to smooth of option contracts comprising each such position
10 No change was necessary or requested with
out openings and closes is greatly reduced (e.g., and, in the case of short positions, whether covered
daltland on DSKBBV9HB2PROD with NOTICES
respect to FLEX Equity Options. Regardless of the market-on-close procedures work just as well as or uncovered.’’ For purposes of Rule 4.13, the term
expiration date, FLEX Equity Options are settled by openings). Also, other markets, such as the ‘‘customer’’ in respect of any Trading Permit Holder
physical delivery of the underlying. NASDAQ Stock Exchange, do not have the same includes ‘‘the Trading Permit Holder, any general
11 The annual reports also contained certain pilot type of pre-opening imbalance disseminations as or special partner of the Trading Permit Holder, any
period and pre-pilot period analyses of volume and NYSE, so many stocks are not subject to the same officer or director of the Trading Permit Holder, or
open interest for Expiration Friday, a.m.-settled procedures on Expiration Friday. In addition, the any participant, as such, in any joint, group or
FLEX Index series and Expiration Friday Non-FLEX Exchange believes that NYSE has reduced the syndicate account with the Trading Permit Holder
Index series overlying the same index as an required time a specialist has to wait after or with any partner, officer or director thereof.’’
Expiration Friday, p.m.-settled FLEX Index option. disseminating a pre-opening indication. So, in this Rule 4.13(d).
VerDate Sep<11>2014 16:29 May 09, 2018 Jkt 244001 PO 00000 Frm 00048 Fmt 4703 Sfmt 4703 E:\FR\FM\10MYN1.SGM 10MYN1](https://thefederalregister.org/doc/83_FR_21899/page/2.svg)
![Federal Register / Vol. 83, No. 91 / Thursday, May 10, 2018 / Notices 21811
A proposed rule change filed under • Send an email to rule-comments@ ACTION: Notice of rescission of Social
Rule 19b–4(f)(6) 21 normally does not sec.gov. Please include File Number SR– Security Rulings.
become operative for 30 days after the CBOE–2018–037 on the subject line.
date of filing. However, pursuant to SUMMARY: In accordance with 20 CFR
Paper Comments 402.35(b)(1), the Acting Commissioner
Rule 19b–4(f)(6)(iii),22 the Commission
may designate a shorter time if such • Send paper comments in triplicate of Social Security gives notice of the
action is consistent with the protection to Secretary, Securities and Exchange rescission of Social Security Rulings
of investors and the public interest. The Commission, 100 F Street NE, (SSR): SSR 67–28; SSR 68–13; SSR 68–
Exchange has asked the Commission to Washington, DC 20549–1090. 36; SSR 68–37; SSR 68–52; SSR 68–78;
waive the 30-day operative delay so that All submissions should refer to File SSR 70–23c; SSR 72–27; and SSR 74–
the proposal may become operative Number SR–CBOE–2018–037. This file 27c.
immediately upon filing. The Exchange number should be included on the DATES: The rescission is effective May
states that such waiver will allow the subject line if email is used. To help the 10, 2018.
Exchange to extend the pilot program Commission process and review your FOR FURTHER INFORMATION CONTACT:
prior to its expiration on May 3, 2018, comments more efficiently, please use Linda Appler, Social Security
and maintain the status quo, thereby only one method. The Commission will Administration, (410) 966–6760 or
reducing market disruption. post all comments on the Commission’s Regulations@ssa.gov. For information
The Commission believes that internet website (http://www.sec.gov/ on eligibility or filing for benefits, call
waiving the 30-day operative delay is rules/sro.shtml). Copies of the our national toll-free number, 1–800–
consistent with the protection of submission, all subsequent 772–1213 or TTY 1–800–325–0778, or
investors and the public interest, as it amendments, all written statements visit our internet site, Social Security
will allow the pilot program to continue with respect to the proposed rule Online, at http://www.socialsecurity.
uninterrupted, thereby avoiding change that are filed with the gov.
investor confusion that could result Commission, and all written
communications relating to the SUPPLEMENTARY INFORMATION: Although
from a temporary interruption in the 5 U.S.C. 552(a)(1) and (a)(2) do not
pilot program. For this reason, the proposed rule change between the
Commission and any person, other than require us to publish this notice, we are
Commission designates the proposed doing so in accordance with 20 CFR
rule change to be operative upon those that may be withheld from the
public in accordance with the 402.35(b)(1).
filing.23 Through SSRs, we make available to
provisions of 5 U.S.C. 552, will be
At any time within 60 days of the available for website viewing and the public precedential decisions
filing of the proposed rule change, the printing in the Commission’s Public relating to the Federal old-age,
Commission summarily may Reference Room, 100 F Street NE, survivors, disability, supplemental
temporarily suspend such rule change if Washington, DC 20549, on official security income, and special veterans
it appears to the Commission that such business days between the hours of benefits programs. We may base SSRs
action is necessary or appropriate in the 10:00 a.m. and 3:00 p.m. Copies of the on determinations or decisions made at
public interest, for the protection of filing also will be available for all levels of administrative adjudication,
investors, or otherwise in furtherance of inspection and copying at the principal Federal court decisions, Commissioner’s
the purposes of the Act. If the office of the Exchange. All comments decisions, opinions of the Office of the
Commission takes such action, the received will be posted without change. General Counsel, or other
Commission shall institute proceedings Persons submitting comments are interpretations of the law and
to determine whether the proposed rule cautioned that we do not redact or edit regulations.
should be approved or disapproved. We are rescinding the following SSRs:
personal identifying information from
• SSR 67–28: Section 228(c)(1) and
IV. Solicitation of Comments comment submissions. You should
(h)(2).—Special Age 72 Payments For
submit only information that you wish
Interested persons are invited to Uninsured Individuals—Reduction
to make available publicly. All
submit written data, views and Because Of Eligibility For Governmental
submissions should refer to File
arguments concerning the foregoing, Pension;
Number SR–CBOE–2018–037 and • SSR 68–13: Sections 228(c)(1) and
including whether the proposed rule should be submitted on or before May
change is consistent with the Act. 228(h)(2).—Special Age 72 Payments—
31, 2018. Governmental Pension System—
Comments may be submitted by any of For the Commission, by the Division of
the following methods: Teachers’ Retirement Fund;
Trading and Markets, pursuant to delegated • SSR 68–36: Section 228(c) and
Electronic Comments authority.24 228(h)(2).—Special Age 72 Payment—
Eduardo A. Aleman, Reduction Because Of Eligibility For
• Use the Commission’s internet Assistant Secretary. Veterans’ Administration Pension;
comment form (http://www.sec.gov/ [FR Doc. 2018–09924 Filed 5–9–18; 8:45 am] • SSR 68–37: Section 228(c) and
rules/sro.shtml); or BILLING CODE 8011–01–P (h).—Special Age 72 Payment—
Eligibility For Teacher’s Annuity
and text of the proposed rule change, at least five Purchased From Personal Funds Not
business days prior to the date of filing of the
proposed rule change, or such shorter time as SOCIAL SECURITY ADMINISTRATION Cause For Offset;
designated by the Commission. The Exchange has • SSR 68–52: Sections 228(c)(1),
daltland on DSKBBV9HB2PROD with NOTICES
satisfied this requirement.
[Docket No. SSA–2017–0034] 228(h)(2) and (3).—Special Age 72
21 17 CFR 240.19b–4(f)(6).
Payments For Uninsured Individual—
22 17 CFR 240.19b–4(f)(6)(iii). Rescission of Social Security Rulings
Reduction Due To Commutation Of
23 For purposes only of waiving the operative Related to Special Payments at Age 72
Periodic Pension;
delay for this proposal, the Commission has
considered the proposed rule’s impact on AGENCY: Social Security Administration. • SSR 68–78: Sections 228(c)(1) and
efficiency, competition, and capital formation. See (h)(2).—Special Age 72 Payments For
15 U.S.C. 78c(f). 24 17 CFR 200.30–3(a)(12) and (59). Uninsured Individuals—Reduction
VerDate Sep<11>2014 16:29 May 09, 2018 Jkt 244001 PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 E:\FR\FM\10MYN1.SGM 10MYN1](https://thefederalregister.org/doc/83_FR_21899/page/4.svg)
Document Created: 2018-11-02 09:47:20
Document Modified: 2018-11-02 09:47:20
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 21808 |
2025 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR