83 FR 42330 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Permit the Listing and Trading of Options That Overlie the Mini-SPX Index, the Russell 2000 Index, and the Dow Jones Industrial Average
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 162 (August 21, 2018)
Federal Register Volume 83, Issue 162 (August 21, 2018)
| Page Range | 42330-42340 | |
| FR Document | 2018-17957 |
[Federal Register Volume 83, Number 162 (Tuesday, August 21, 2018)] [Notices] [Pages 42330-42340] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-17957] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83852; File No. SR-CboeBZX-2018-058] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Permit the Listing and Trading of Options That Overlie the Mini-SPX Index, the Russell 2000 Index, and the Dow Jones Industrial Average August 15, 2018. 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 August 2, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- [[Page 42331]] I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to permit the listing and trading of options that overlie the Mini-SPX Index (``XSP options''), the Russell 2000 Index (``RUT options''), and the Dow Jones Industrial Average (``DJX options''). The text of the proposed rule change is available at the Exchange's website at www.markets.cboe.com, at the principal office of the Exchange, 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 parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The proposed rule change amends the Exchange's index rules to permit the listing and trading of XSP options, RUT options, and DJX options. XSP options are options on the Mini SPX Index, the current value of which is 1/10th the value of the Standard & Poor's 500 ``Stock Index reported by the reporting authority.\3\ RUT options are options on the Russell 2000 Index. DJX options are options based on 1/100th of the value of the Dow Jones Industrial Average. The index underlying each of XSP, RUT, and DJX options satisfies the criteria of a broad- based index for the initial listing of options on that index, as set forth in Rule 29.3(b): --------------------------------------------------------------------------- \3\ See proposed Rule 29.11, Interpretation and Policy .01. --------------------------------------------------------------------------- (1) The index is broad-based index, as defined in Rule 29.2(j) (an index designed to be representative of a stock market as a whole or of a range of companies in unrelated industries); (2) the options are designated as A.M.-settled; (3) the index is capitalization-weighted, modified capitalization- weighted, price-weighted or equal dollar-weighted; (4) the index consists of 50 or more component securities; (5) component securities that account for at least 95% of the weight of the index have a market capitalization of at least $75 million, except that component securities that account for at least 65% of the weight of the index have a market capitalization of at least $100 million; (6) component securities that account for at least 80% of the weight of the index satisfy the requirements of Rule 19.3 applicable to individual underlying securities; (7) each component security that accounts for at least 1% of the weight of the index has an average daily trading volume of at least 90,000 shares during the last six-month period; (8) no single component security accounts for more than 10% of the weight of the index, and the five highest-weighted component securities in the index do not, in the aggregate, account for more than 33% of the weight of the index; (9) each component security must be an ``NMS stock'' as defined in Rule 600 of Regulation NMS under the Securities Exchange Act of 1934 (the ``Exchange Act''); (10) non-U.S. component securities (stocks or ADRs) that are not subject to comprehensive surveillance agreements do not, in the aggregate, represent more than 20% of the weight of the index; (11) the current underlying index value is widely disseminated at least once every 15 seconds by OPRA, CTA/CQ, NIDS, or one or more major market data vendors during the time the index options are traded on the Exchange; (12) the Exchange reasonably believes it has adequate system capacity to support the trading of options on the index, based on a calculation of the Exchange's current ISCA allocation and the number of new messages per second expected to be generated by options on such index; (13) an equal dollar-weighted index is rebalanced at least once every calendar quarter; (14) if an index is maintained by a broker-dealer, the index is calculated by a third party who is not a broker-dealer, and the broker- dealer has erected an information barrier around its personnel who have access to information concerning changes in, and adjustments to, the index; and (15) the Exchange has written surveillance procedures in place with respect to surveillance of trading of options on the index. XSP, RUT, and DJX options will be subject to the maintenance listing standards set forth in Rule 29.3(c): (1) The conditions stated in (1) through (3) and (9) through (15) above must continue to be satisfied, provided that the requirements in (5) through (8) must be satisfied only as of the first day of January and July in each year; and (2) the total number of component securities in the index may not increase or decrease by more than 10% from the number of component securities in the index at the time of its initial listing.\4\ --------------------------------------------------------------------------- \4\ In the event XSP, RUT, or DJX options fails to satisfy the maintenance listing standards set forth herein, the Exchange will not open for trading any additional series of options of that class unless the continued listing of that class of index options has been approved by the Securities and Exchange Commission (the ``Commission'') under Section 19(b)(2) of the Exchange Act. --------------------------------------------------------------------------- Reporting Authority S&P Dow Jones Indices is the reporting authority for the Mini-SPX Index and the Dow Jones Industrial Average, and Frank Russell Company is the reporting authority for the Russell 2000 Index. The proposed rule change adds these indexes and reporting authorities to Rule 29.2, Interpretation and Policy .01. The proposed rule change also lists the reporting authorities in Rule 29.13(b), which is the disclaimer for reporting authorities. Rule 29.13(b) would apply to these reporting authorities even if not specifically listed; however, the proposed rule change adds the names of the reporting authority to the rule for transparency and clarification. Minimum Increments Rule 29.11(a) states bids and offers are expressed in terms of dollars and cents per unit of the index. The minimum increment applicable to index options is set forth in Rule 21.5. The proposed rule change adds Interpretation and Policy .02 to Rule 21.5, which states for so long as SPDR options (SPY) and Diamonds options (DIA) participate in the Penny Pilot Program pursuant to Interpretation and Policy .01, the minimum increments for XSP options and DJX options, respectively, will be the same as SPY and DIA, respectively for all option series (including long-term option series). Such minimum increment would be $0.01 for all SPY series, regardless of price, and $0.01 for DJX series trading at less than $3.00 and $0.05 for DJX series trading at $3.00 or higher, respectively, as set forth in Rule 21.5(a). SPY options are options on the SPDR S&P 500 exchange-traded fund (ETF), which is an ETF that tracks the performance of 1/10th the value of the S&P 500 Index. DIA options are options on the SPDR Dow Jones Industrial [[Page 42332]] Average ETF, which is an ETF that tracks the performance of the Dow Jones Industrial Average. SPY and DIA options currently participate in the Penny Pilot Program. XSP options are also based on the S&P 500 Index, and DJX options are also based on the Dow Jones Industrial Average, as discussed above. The Exchange believes it is important that these products have the same minimum increments for consistency and competitive reasons. The proposed rule change is also the same as another options exchange.\5\ --------------------------------------------------------------------------- \5\ See Cboe Options Rule 6.42, Interpretation and Policy .03. --------------------------------------------------------------------------- The minimum increment for RUT will be as set forth in current Rule 21.5: Five cents if the series is trading below $3.00, and ten cents if the series is trading at or above $3.00. Settlement and Exercise Style RUT, XSP, and DJX options will be A.M., cash-settled contracts with European-style exercise. A.M.-settlement is consistent with the generic listing criteria for broad-based indexes,\6\ and thus it is common for index options to be A.M.-settled. The Exchange proposes to amend Rule 29.11(a)(5)(B) to add XSP, RUT, and DJX options to the list of other A.M.-settled options. The Exchange proposes to amend Rule 29.11(a)(4) to add XSP, RUT, and DJX options to the list of other European-style index options. --------------------------------------------------------------------------- \6\ See Rule 29.3(b). --------------------------------------------------------------------------- Long-Term Index Options Rule 29.11(b)(1) currently states the Exchange may list long-term index options series that expire from 12 to 60 months from the date of issuance. The proposed rule change permits listing of long-term index options series that expire from 12 to 180 months from the date of issuance. The Exchange understands that market participants may enter into over-the-counter (``OTC'') positions with longer-dated expirations than currently available on the Exchange. The proposed rule change will permit the Exchange to list long-term index options contracts with longer-dated expirations. The Exchange believes expanding the eligible term for long-term index options contracts to 180 months is important and necessary to the Exchange's efforts to offer products in an exchange-traded environment that compete with OTC products. The Exchange believes long-term index options contracts provide market participants and investors with a competitive comparable alternative to the OTC market in long-term index options, which can take on contract characteristics similar to long-term index options contracts but are not subject to the same maximum term restriction. By expanding the eligible term for long-term index options contracts, market participants will now have greater flexibility in determining whether to execute their long-term index options in an exchange environment or in the OTC market. The Exchange believes market participants can benefit from being able to trade these long-term index options in an exchange environment in several ways, including, but not limited to the following: (1) Enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of long-term index options contracts. The Exchange has confirmed with the OCC that OCC can configure its systems to support long-term equity options contracts that have a maximum term of 180 months (15 years). The proposed rule change is also consistent with the rules of other options exchanges.\7\ Pursuant to the proposed rule change, the Exchange may list XSP, RUT, and DJX options with expirations from 12 to 180 months from the date of issuance.\8\ --------------------------------------------------------------------------- \7\ See, e.g., Cboe Options Rule 24.9(b)(1). \8\ See id. --------------------------------------------------------------------------- Rule 29.11(b)(2) provides that reduced-value long-term option series may be approved for trading on specified indices.\9\ A reduced- value long-term option series is an option series overlying an index that trades in units based upon a percentage of the value of the underlying index (such as 10%). As set forth in current Rule 29.11(b)(2)(B), reduced-value long-term options series may expire at six-month intervals. The proposed rule change adds RUT to the list of indices on which the Exchange may list reduced-value long-term option series. Reduced-value long-term RUT series will be subject to the same trading rules as long-term RUT series, except the minimum strike price interval will be $2.50 for all premiums, as discussed below.\10\ For reduced-value long-term RUT series, the underlying value will be computed at 10% of the value of the Russell 2000. --------------------------------------------------------------------------- \9\ See proposed Rule 29.11(b)(2)(A). \10\ See proposed Rule 29.11(c)(1). --------------------------------------------------------------------------- Rule 29.11(b)(1)(A) also states strike price intervals, bid/ask differential, and continuity rules do not apply to long-term index options series until the time to expiration is less than twelve months. Rule 29.11(c) describes the strike price intervals applicable to long- term index options. Additionally, Rule 22.6(d) describes continuous quoting requirements for Market Makers.\11\ The Exchange has no rules imposing bid/ask differential requirements. The Exchange views these other Rules regarding strike price interval and quote continuity requirements as superseding the language proposed to be deleted. Additionally, stating bid/ask different rules do not apply to long-term index option contracts is unnecessary, as no such rules are included in the Exchange's Rules. The Exchange believes deletion of the language Rule 29.11(b)(1)(A) will provide additional clarity and eliminate any confusion on the applicability of the strike price interval and quote continuity requirements that may otherwise result by including duplicative rules on these topics. --------------------------------------------------------------------------- \11\ This rule excludes series with time to expiration of nine months or more from Market Makers' quoting obligations. --------------------------------------------------------------------------- Strike Intervals RUT Options The proposed rule change amends Rule 29.11(c)(1) to provide that the interval between strike prices will be no less than $2.50 for RUT options (if the strike price is less than $200) and reduced-value long- term option series. This is the same strike interval that applies to RUT options and reduced-value long-term option series pursuant to rules of other options exchanges.\12\ --------------------------------------------------------------------------- \12\ See, e.g., Cboe Options Rule 24.9, Interpretation and Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a). --------------------------------------------------------------------------- XSP Options Additionally, the proposed rule change adds Rule 29.11(c)(5), which provides that the strike prices for new and additional series of XSP options are subject to the following: (1) If the current value of the Mini-SPX Index is less than or equal to 20, the Exchange will not list XSP option series with a strike price of more than 100% above or below the current value of the Mini- SPX Index; (2) if the current value of the Mini-SPX Index is greater than 20, the Exchange will not list XSP option series with a strike price of more than 50% above or below the current value of the Mini-SPX Index; and (3) the lowest strike price interval that may be listed for standard XSP option series is $1, including the long-term option series, and the lowest strike price interval that may be listed for XSP option series under the Short Term Option Series Program in paragraph (h) of Rule 29.11. The proposed strike prices for XSP options will permit strike prices closely [[Page 42333]] aligned with SPX options.\13\ Additionally, the proposed strike price range limitations for XSP options are closely aligned with the strike price range limitations for equity and exchange-traded fund (``ETF'') options.\14\ The proposed strike prices and limitations for XSP options are the same as those on another options exchange.\15\ XSP options allow smaller-scale investors to gain broad exposure to the SPX options market and hedge S&P 500 Index cash positions.\16\ As a result, XSP options provide retail investors with the benefit of trading the broad market in a manageably sized contract. --------------------------------------------------------------------------- \13\ See Cboe Options Rule 24.9, Interpretation and Policy .01(a). \14\ See Rule 19.6, Interpretations and Policies .02(b), .04(c) [sic], and .05(c). \15\ See Cboe Options Rule 24.9, Interpretation and Policy .11. \16\ See Securities Exchange Act Release No. 32893 (September 14, 1993), 58 FR 49070 (September 21, 1993) (SR-CBOE-93-12) (order approving listing of XSP options). --------------------------------------------------------------------------- Current Rule 29.11(c)(1) provides that strike prices are permitted only in intervals of at least $5. SPX options may be listed in intervals of at least $5.\17\ If the S&P 500 Index value was 2700, then the Mini-S&P 500 value would be 270. SPX options would be permitted to be listed with strikes of 2710, 2720, and 2730. Corresponding XSP options strikes would be 271, 272, and 273; however, under the current rule, the Exchange could only list strikes of 270 and 275 for XSP options. The proposed $1 strike interval for XSP options will permit the listing of series with strikes that correspond to SPX option strikes. --------------------------------------------------------------------------- \17\ See Cboe Options Rule 24.9, Interpretation and Policy .01(a). --------------------------------------------------------------------------- Additionally, current Rule 29.11(c)(3) requires the exercise price of each series of index options to be reasonably related to the current index value of the underlying index to which the series relates at or about the time the series of options is first opened for trading on the Exchange. Pursuant to Rule 29.11(c)(4), the term ``reasonably related to the current index value of the underlying index'' means the exercise price must be within 30% of the current index value. The Exchange may also open for trading additional series of index options that are more than 30% away from the current index value, provided that demonstrated customer interest exists for the series. The Options Listing Procedures Plan sets forth exercise price range limitations for equity and ETF options (which are the same as those being proposed for XSP options). Those limitations differ from the limitations set forth in the current Rule. For example, if the underlying price of an equity or ETF option is $200, the Exchange would be permitted to list strikes ranging from $100 through $300 (50% above and below the current value). However, if the value of the Mini-SPX Index was $200, the Exchange would only be permitted to list strikes ranging from $140 to $260. To put XSP options on equal standing with equity and ETF options with respect to exercise price range limitations, the Exchange proposes to impose exercise price range limitations on XSP options that are equal to those applicable to equity and ETF exercise price range limitations.\18\ --------------------------------------------------------------------------- \18\ See proposed Rule 29.11(c)(5). --------------------------------------------------------------------------- The Exchange believes these permitted strike prices will permit the Exchange to list XSP options with strikes that more closely reflect the current values of the S&P 500 Index, as they provide more flexibility and allow the Exchange to better respond to customer demand for XSP option strike prices that relate to current S&P 500 Index values. In addition, the Exchange believes that because the number of strikes that may be listed would be contained by the percentages above and below the current XSP Index value, there is no need to restrict the use of $1 strike price intervals based on the amount of the strike price. The Exchange recognizes the proposed approach does not achieve full harmonization between strikes in XSP options and SPX options. For example, if there is a 2715 strike in SPX options, the Exchange is not seeking the ability to list a 271.5 strike in XSP options. The Exchange believes being able to list the 271 and 272 strikes in XSP options would provide the marketplace with a sufficient number of strike prices over a range of XSP values.\19\ The Exchange believes this proposed rule change would allow retail investors to better use XSP options to gain exposure to the SPX options market and hedge S&P 500 cash positions in the event that the S&P 500 Index value continues to increase. --------------------------------------------------------------------------- \19\ Nothing in this rule filing precludes the Exchange from submitting a future rule filing requesting even finer strike price increments for XSP options. --------------------------------------------------------------------------- The S&P 500 Index is widely used to gauge large cap U.S. equities, and as a result, investors often use S&P 500 Index-related products to diversify their portfolios and benefit from market trends. Full-size SPX options offer these benefits to investors, but may be expensive given its large notional value. Those options are primarily used by institutional market participants. By contrast, XSP options offer individual investors a lower cost options to obtain the potential benefits of options on the S&P 500 Index. DJX Options Proposed Rule 29.11(c)(6) provides the interval between strike prices may be no less than $0.50 for options based on 1/100th of the value of the Dow Jones Industrial Average, including for series listed under the Short Term Options Program.\20\ As noted above, current Rule 29.11(c)(1) provides that strike prices are permitted only in intervals of at least $5. As noted above, DJX options are based on 1/100th the value of the Dow Jones Industrial Average. For example, if the value of the Dow Jones Industrial Average was 25100, series of an option based on the full value of that average could be listed with strike prices of 25105, 25110, and 25115. One-one hundredth of the value of the Dow Jones Industrial Average would be 251.05, 251.10, and 251.15, but the Exchange would only be able to list series with strike prices of $250 and $255. Pursuant to the proposed rule change, the Exchange could list series with strike prices of 251.50, 252, 252.50, and 253. The Exchange recognizes the proposed approach does not achieve full harmonization between strikes in DJX options and the full value of the Dow Jones Industrial Average. However, the Exchange believes being able to list the DJX options at strike intervals of $0.50 would provide the marketplace with a sufficient number of strike prices over a range of DJX values.\21\ The Exchange believes this proposed rule change would allow retail investors to better use DJX options to gain exposure to the market and hedge Dow Jones Industrial Average cash positions in the event that the value continues to increase. The proposed strike price interval for DJX options is the same as those on another options exchange.\22\ --------------------------------------------------------------------------- \20\ See Rule 29.11, Interpretation and Policy .05 [sic] for a description of the Short Term Options Program. \21\ Nothing in this rule filing precludes the Exchange from submitting a future rule filing requesting even finer strike price increments for DJX options. \22\ See Cboe Options Rule 24.9, Interpretation and Policy .01(b). --------------------------------------------------------------------------- Opening Process The proposed rule change adds paragraph (c) to Rule 21.7 to describe the opening process for index options. Current Rule 21.7(b) states the System will open index options for trading at 9:30 a.m. Eastern time. Pursuant to the current opening process, following 9:30 a.m., the System will determine a price at which a particular series will be opened (the ``Opening Price'') within 30 [[Page 42334]] seconds of that time. Where there are no contracts in a particular series that would execute at any price, the System will open such options for trading without determining an Opening Price. The Opening Price of a series must be a Valid Price, as determined by current subparagraph (a)(2), and will be:The midpoint of the NBBO (the ``NBBO Midpoint''); Where there is no NBBO Midpoint at a Valid Price, the last regular way print disseminated pursuant to the OPRA Plan after 9:30 a.m. Eastern Time (the ``Print''); Where there is both no NBBO Midpoint and no Print at a Valid Price, the last regular way transaction from the previous trading day as disseminated pursuant to the OPRA Plan (the ``Previous Close''); or Where there is no NBBO Midpoint, no Print, and no Previous Close at a Valid Price, the Order Entry Period may be extended by 30 seconds or less or the series may be opened for trading at the discretion of the Exchange. A NBBO Midpoint, a Print, and a Previous Close will be at a Valid Price: Where there is no NBB and no NBO; Where there is either a NBB and no NBO or a NBO and no NBB and the price is equal to or greater than the NBB or equal to or less than the NBO; or Where there is both a NBB and NBO, the price is equal to or within the NBBO, and the price is less than a specified minimum amount away from the NBB or NBO for the series. Under this Opening Process, if a series has not opened yet on another exchange on a trading (and thus there is no NBBO and no Last Print), if there is a Previous Close Price, it will be a valid price and will be the Opening Price. Additionally, if there are no crossed contracts in a series, the series opens immediately following the time period referenced above. The Exchange proposes to modify this process with respect to index options. Pursuant to the proposed rule change, for index options, the System will determine the Opening Price within 30 seconds of an away options exchange(s) disseminating a quote in a series. Following an away options exchange's dissemination of a quote in a series, if there are no contracts in a series that would execute at any price, the System opens the series for trading without determining an Opening Price. The Opening Price, if valid, of a series will be the NBBO Midpoint. Pursuant to proposed subparagraph (c)(2), for index options, the NBBO Midpoint is a valid price if it is less than a specified minimum amount away from the NBB or NBO for the series.\23\ If the NBBO Midpoint is not valid, the Exchange in its discretion may extend the order entry period by up to 30 seconds or open the series for trading. In other words, the proposed rule change provides that an index option series will not open (with or without a trade) until after the series is open on another exchange. To the extent the Exchange receives a quote from another Exchange within the time period referenced above, and there are contracts that may trade, the Opening Process will essentially be the same, and a series will open with the NBBO Midpoint as an Opening Price (if valid). Additionally, the Exchange will continue to have the ability to use a contingent opening to open a series for trading if there is no valid Opening Price. The proposed rule change delays opening of a series on the Exchange in an index option series if there are no crossed contracts, and eliminates the possibility to open using the Last Print or Previous Close (as those will generally not be necessary if the Exchange waits for another exchange to open). --------------------------------------------------------------------------- \23\ There are currently three criteria for an opening price to be valid. See current Rule 21.7(a)(2) (proposed Rule 21.7(b)(2)). Since the proposed rule change provides that an index option series will only open once it receives an NBBO from another exchange, in which case there will always be an NBB and NBO and thus an NBBO midpoint, the only criteria for an opening price to be valid that would apply to index options is the criteria regarding how far away the NBBO midpoint is from the NBB or NBO. --------------------------------------------------------------------------- Currently, RUT options trade on Cboe Options and C2 Exchange, Inc. (``C2''), and XSP options trade on Cboe Options, which are affiliated exchanges of the Exchange. Under current Rule 21.7, if a RUT series was open on Cboe Options, and if there are crossed orders on the Exchange, the RUT series on the Exchange would open with an Opening Price equal to the NBBO Midpoint (if valid). If a RUT series was not yet open on another Exchange after 9:30 a.m. (eastern), and there was a Previous Close for the series, the series would open on the Exchange with the Previous Close as the Opening Price. If there are no crossing orders on the Exchange, a RUT series would open without an opening price, possibly before the RUT series was open on Cboe Options. RUT options on Cboe Options generally open within 30 seconds after 9:30 a.m., and thus the Exchange expects RUT options to open for trading within 30 seconds (as set forth in the rule) at an Opening Price equal to the NBBO Midpoint if there are orders that can be crossed. However, it will be possible for a RUT series to open prior to the opening of that series on Cboe Options. This is significant because, on certain dates, Cboe Options uses prices of RUT options trading on Cboe Options to determine settlement values for volatility index derivatives.\24\ While trading in these options on volatility index derivative settlement days also generally opens within a few seconds after 9:30 a.m., there have been times when series being used to determine the settlement value took longer to open. Under the proposed rule, series on the Exchange would open without an Opening Price (if there are no crossed orders) or with an Opening Price equal to the Previous Close (if there are crossed orders) prior to the settlement value determination being completed on Cboe Options. If this were to occur, trading on the Exchange may then be occurring at very different prices than what is ultimately the opening trade price on Cboe Options. Trading on another Exchange while Cboe Options is not yet open may impact the volatility settlement value determination and disrupt trading of volatility index derivatives. The proposed rule change eliminates the possibility of RUT options on the Exchange automatically opening for trading prior to those options being open on Cboe Options and thus interfering with the calculation of volatility index derivative settlement values. --------------------------------------------------------------------------- \24\ See Cboe Options Rule 6.2, Interpretation and Policy .01. --------------------------------------------------------------------------- The proposed rule change is the same as the opening process for index options on C2.\25\ Additionally, the opening process on Nasdaq BX, LLC (``BX'') is similar to the proposed rule change. Pursuant to BX Chapter VI, Section 8(b), if there is a possible trade on BX, a series will open with a valid width NBBO.\26\ This is similar to the proposed rule change, in that a valid NBBO Midpoint must be present for an index option series to open with a trade (which on the Exchange would only occur if another exchange was open for trading, because on the Exchange, the NBBO that is used to determine the Opening Price is based on disseminated quotes of other exchanges and does not include orders and quotes on the Exchange prior to the opening of trading \27\). Additionally, if no trade is possible on BX, then BX will depend on one of the following to open: (1) A valid [[Page 42335]] width NBBO, (2) a certain number of other options exchanges (as determined by BX) having disseminated a firm quote on OPRA, or (3) a certain period of time (as determined by the Exchange) has elapsed. As proposed, if no trade is possible, the Exchange will open an index option series after another exchange as disseminated a quote, which is consistent with number (2) above (for example, under BX's rule, it could determine to open if one other options exchange was open). While the proposed rule change does not explicitly provide for additional alternatives in the event no trade is possible, pursuant to Rule 21.7(f), the Exchange may adjust the timing of the Opening Process in a class if it believes it is necessary in the interests of a fair and orderly market.\28\ Therefore, like BX, the Exchange could open a series after a certain amount of time has passed if the series does not open on another exchange. --------------------------------------------------------------------------- \25\ See C2 Rule 6.11(a)(2)(B). \26\ On BX, a valid width NBBO means a combination of all away market quotes and any combination of BX Options-registered Market- Maker orders and quotes received over a BX-provided system component through which Market-Makers communicate their quotes within a specified bid/ask differential established by BX. See BX Chapter VI, Section 8(a)(6). \27\ See Rule 16.1(a)(29) (definition of NBBO). \28\ Number (1) above would not apply because, as noted above, the NBBO on the Exchange prior to the opening of trading does not include orders and quotes on the Exchange. --------------------------------------------------------------------------- Once the System determines an opening price for an index option, it will open a series with an opening trade in the same manner as it does for equity options. The proposed rule change moves the description of this process from current Rule 21.7(a)(3) to proposed Rule 21.7(d). The proposed rule change also adds to proposed paragraph (d) that the System cancels any OPG (also called at the open orders) (or unexecuted portions) that do not execute during the opening process. This is consistent with the behavior of orders with the OPG time-in-force instruction.\29\ Additionally, the proposed rule change moves the description of a contingent open, which will also apply to index and equity options, from current Rule 21.7(a)(4) to proposed Rule 21.7(e).\30\ The proposed rule change makes other nonsubstantive changes (e.g. adding headings and updating paragraph lettering and numbering). Additionally, the proposed rule change clarifies in Rule 21.7(a) that re-opening after regulatory halts applies only to equity options, as regulatory halts only occur in equity options. --------------------------------------------------------------------------- \29\ See Rule 21.1(f)(6). \30\ The proposed rule change makes nonsubstantive changes to this provision, including to make the rule plain English and eliminate passive voice. --------------------------------------------------------------------------- Trading Halts Current Rule 29.10(b) describes when the Exchange may halt trading in an index option. It permits the Exchange to halt trading in an index option when, in its \31\ judgment, such action is appropriate in the interests of a fair and orderly market and to protect investors. The Exchange may consider the following factors, among others: --------------------------------------------------------------------------- \31\ The proposed rule change modifies the rule to say ``its'' (as the sentence refers to the Exchange) rather than ``his or her.'' --------------------------------------------------------------------------- Whether all trading has been halted or suspended in the market that is the primary market for a plurality of the underlying stocks; Whether the current calculation of the index derived from the current market prices of the stocks is not available; The extent to which the opening has been completed or other factors regarding the status of the opening; and Other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present, including, but not limited to, the activation of price limits on futures exchanges. The proposed rule change amends the first factor to state the Exchange may consider the extent to which trading is not occurring in the stocks or options underlying the index. This provides the Exchange with additional flexibility to consider trading on all markets on which the underlying components trade when determining whether to halt trading in an index option. The Exchange believes flexibility is appropriate when determining whether to halt trading in an index option so it can make such a determination based on then-current circumstances to determine what will contribute to a fair and orderly market. For example, less than a ``plurality'' of underlying components may trade on one market, but if trading on that market is halted, the Exchange may determine halting trading in the index option is in the interests of a fair and orderly market because of the specific components that are not trading. This proposed change is consistent with the rules of another options exchange.\32\ --------------------------------------------------------------------------- \32\ See, e.g., Cboe Options Rule 24.7(a). --------------------------------------------------------------------------- Rule 29.10 also states trading on the Exchange will be halted or suspended whenever trading in underlying securities whose weighted value represents more than 20%, in the case of a broad-based index, and 10% for all other indices, of the index value is halted or suspended. The proposed rule change deletes this provision. The first factor, as amended by this proposed rule change, permits the Exchange to determine to halt trading in an index option in this specific circumstance. This provision provides the Exchange with no flexibility to determine what is in the interests of a fair and orderly market. The rules of other exchanges do not have this provision.\33\ --------------------------------------------------------------------------- \33\ See, e.g., Cboe Options Rule 24.7(a); Phlx Rule 1047A(c). --------------------------------------------------------------------------- Expirations Listed on Other Exchanges Proposed Rule 29.11(j) permits the Exchange to list additional expiration months on option classes opened for trading on the Exchange if such expiration months are opened for trading on at least one other registered national securities exchange. As noted above, Rule 29.11(a)(3) permits the Exchange to list up to six expiration months at any one time for an index option class. Other options exchange have rules that permit them to list additional expiration months if they are opened for trading on at least one other options exchange.\34\ This proposed rule change will allow the Exchange to compete with other exchanges by matching the expiration months that other exchanges list. --------------------------------------------------------------------------- \34\ See, e.g., Cboe Options Rule 24.9, Interpretation and Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material .04. --------------------------------------------------------------------------- The Exchange notes that the proposed rule change affords additional flexibility in that it will permit the exchange to list those additional expiration months that have an actual demand from market participants thereby potentially reducing the proliferation of classes and series. The Exchange believes the proposed rule change is proper, and indeed necessary, in light of the need to have rules that permit the listing of identical expiration months across exchanges for products that multiply-listed and fungible with one another. The Exchange believes that the proposed rule change should encourage competition and be beneficial to traders and market participants by providing them with a means to trade on the Exchange securities that are listed and traded on other exchanges. Obvious Error The proposed rule change adds to Rule 20.6(g) and (h) language to clarify that, for purposes of determining whether a trade resulted from an erroneous print or quote in the underlying, the underlying may include index values (as well as Fund Shares and HOLDRs, which may also underlie options trading on the Exchange pursuant to Rule 19.3(g) and (i), [[Page 42336]] respectively).\35\ This is consistent with the rules of another options exchange.\36\ --------------------------------------------------------------------------- \35\ While adding language in this rule provision regarding Fund Shares and HOLDRs is unrelated to the purpose of this filing, which is to permit the listing and trading of certain index options on the Exchange, the Exchange believes it is appropriate to include this language in the proposed rule text to ensure continued harmonization of obvious error rules across all exchanges. \36\ See, e.g., Cboe Options Rule 6.25(g) and (h). --------------------------------------------------------------------------- Restrictions on Contracts The proposed rule change adds Rule 29.15, which states contracts provided for in Chapter 29 of the Rules will not be subject to the restriction in Rule 18.12(b). Rule 18.12(b) states whenever the issue of a security underlying a call option traded on the Exchange is engaged or proposes to engage in a public underwritten distribution (``public distribution'') of such underlying security or securities exchangeable for or convertible into such underlying security, the underwriters may request that the exchange impose restrictions upon all opening writing transactions in such options at a discount where the resulting short position will be uncovered. The rule includes additional conditions that are necessary to impose these restrictions. Rule 18.12(b) applies to equity options, and to restrictions the issuer of the security underlying the equity option may request. As there is no issuer of an ``index,'' and thus there is no possibility of a public distribution of an index, the Rule does not apply to index options. Rule 29.15 merely states this explicitly in the Rules. This will also ensure it is clear in the Rules that an issuer of a security that is a component of an index may not request restrictions on the index options, as the Exchange does not believe it would be appropriate for an issuer of a single underlying component to have the ability to restrict trading in the index option. The proposed rule change is consistent with the rules of at least one other options exchange.\37\ --------------------------------------------------------------------------- \37\ See Cboe Options Rule 24.10. --------------------------------------------------------------------------- Capacity and Surveillance The Exchange represents it has an adequate surveillance program in place for index options. The Exchange is a member of the Intermarket Surveillance Group (``ISG''), which is comprised of an international group of exchanges, market centers, and market regulators. The purpose of ISG is to provide a framework for the sharing of information and the coordination of regulatory efforts among exchanges trading securities and related products to address potential intermarket manipulations and trading abuses. ISG plays a crucial role in information sharing among markets that trade securities, options on securities, security futures products, and futures and options on broad-based security indexes. A list of identifying current ISG members is available at https://www.isgportal.org/isgPortal/public/members.htm. The Exchange has analyzed its capacity and represents that it believes the Exchange and OPRA have the necessary systems capacity to handle the additional traffic associated with the listing of XSP, RUT, and DJX options up to the proposed number of possible expirations and strike prices. The Exchange believes any additional traffic that would be generated from the introduction of XSP, RUT, and DJX options will be manageable. The Exchange believes its Members will not have a capacity issue as a result of this proposed rule change. The Exchange also represents that it does not believe this expansion will cause fragmentation of liquidity. The Exchange will monitor the trading volume associated with the additional options series listed as a result of this proposed rule change and the effect (if any) of these additional series on market fragmentation and on the capacity of the Exchange's automated systems. Position Limits and Margin XSP, RUT, and DJX options will be subject to the margin requirements set forth in Chapter 28 and the position limits set forth in Rule 29.5. Chapter 28 imposes the margin requirements of either Cboe Options or the New York Stock Exchange on Exchange Options Members. Similarly, Rule 29.5 imposes position (and exercise) limits for broad- based index options of Cboe Options on Exchange Options Members. XSP, RUT, and DJX options are currently listed and traded on Cboe Options,\38\ and thus the same margin requirements and position and exercise limits that apply to these products as traded on Cboe Options will apply to these products when listed and traded on the Exchange. --------------------------------------------------------------------------- \38\ Similarly, pursuant to Cboe Options Chapter 12, Cboe Options Trading Permit Holders may request to have New York Stock Exchange margin requirements apply to their trading. --------------------------------------------------------------------------- The Exchange Rules and Cboe Options rules regarding position and exercise limits and margin requirements are substantially the same as each other, as the Exchange rules currently refer to the corresponding Cboe Options rules. Therefore, Options Members must comply with these Cboe Options rules pursuant to the Exchange Rules. Pursuant to the proposed rule change, the Exchange will be trading index options also authorized for trading on Cboe Options, so the position and exercise limits and margin requirements currently applicable to these index options that trade on Cboe Options will apply to these index options that may be listed for trading on the Exchange. The proposed rule regarding the listing and trading of XSP, RUT, and DJX are substantially the same as Cboe Options rules regarding the listing and trading of XSP, RUT, and DJX, which rules were previously approved by the Commission and thus they are consistent with the Act. Additionally, the rules regarding position and exercise limits and margin requirements that will apply to XSP, RUT, and DJX options listed for trading on the Exchange were previously approved by the Commission, and thus they are consistent with the Act. The proposed rule change will also result in similar regulatory treatment for similar option products. 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.\39\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \40\ 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) \41\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \39\ 15 U.S.C. 78f(b). \40\ 15 U.S.C. 78f(b)(5). \41\ Id. --------------------------------------------------------------------------- The index underlying each of XSP, RUT, and DJX options satisfies the initial listing criteria of a broad-based index in the Exchange's Rules. The proposed rule change adds these indexes to the table regarding reporting authorities for indexes, to the list of European- style exercise index options, [[Page 42337]] and to the list of A.M.-settled index options. These changes are consistent with the Exchange's existing Rules.\42\ --------------------------------------------------------------------------- \42\ See also Cboe Options Rules 24.1, Interpretation and Policy .01 and 24.9(a)(3) and (4). --------------------------------------------------------------------------- The proposed rule change related to the minimum increment for XSP and DJX options will permit consistency between pricing of SPY options and XSP options, which are both based, in some manner, on the value of the S&P 500 Index, and between DIA options and DJX options, which are both based, in some manner, on the value of the Dow Jones Industrial Average. As a result, the Exchange believes it is important that these products have the same minimum increments for competitive reasons. The proposed rule change is also the same as another options exchange.\43\ --------------------------------------------------------------------------- \43\ See Cboe Options Rule 6.42, Interpretation and Policy .03. --------------------------------------------------------------------------- The proposed rule change to permit listing of long-term index options contracts with terms up to 180 months is designed to promote just and equitable principles of trade in that the availability of long-term index options contracts with longer dated expirations will give market participants an alternative to trading similar products in the OTC market. By trading a product in an exchange-traded environment (that is currently being used in the OTC market), the Exchange will be able to compete more effectively with the OTC market. The Exchange believes the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that it will hopefully lead to the migration of options currently trading in the OTC market to trading to the Exchange. Also, any migration to the Exchange from the OTC market will result in increased market transparency. Additionally, the Exchange believes the proposed rule change is designed to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest in that it should create greater trading and hedging opportunities and flexibility. The proposed rule change should also result in enhanced efficiency in initiating and closing out positions and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of long-term index option series. Further, the proposed rule change will result in increased competition by permitting the Exchange to offer products that are currently used in the OTC market and on other exchanges. Additionally, the proposed rule change is consistent with the series listing rules of other exchanges.\44\ --------------------------------------------------------------------------- \44\ See, e.g., Cboe Options Rule 24.9(b)(1). --------------------------------------------------------------------------- The proposed rule change to eliminate the rule provision regarding the applicability of strike price intervals, bid/ask differentials and quote continuity requirements to long-term index option contracts will protect investors by eliminating potential confusion that may result from inclusion of duplicative rules. As discussed above, other rules address requirements related to strike price intervals and quote continuity requirements and supersede the language regarding these topics, and the Exchange has no rules imposing bid/ask differential requirements (and thus no such requirements apply to long-term equity option contracts), thus rendering this language unnecessary. The Exchange will continue to impose these requirements in the manner it does today, consistent with the provisions in other existing rules, and thus this proposed rule change has no impact on how the Exchange imposes these requirements. The rules of other options exchanges do not include this provision.\45\ --------------------------------------------------------------------------- \45\ See, e.g., Cboe Options Rule 24.9. --------------------------------------------------------------------------- The proposed minimum strike interval for RUT options (if the strike price is less than $200) and reduced-value long-term option series is the same as that on another options exchanges.\46\ --------------------------------------------------------------------------- \46\ See, e.g., Cboe Options Rule 24.9, Interpretation and Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a). --------------------------------------------------------------------------- With respect to the proposed strike prices for XSP options, the proposed rule change would more closely align XSP option strike prices with those of SPX option strike prices, and would more closely align strike price range limitations on XSP options with those of equity and ETF options. This would provide more flexibility and allow the Exchange to better respond to customer demand for XSP option strike prices that relate to current S&P 500 Index values. The Exchange believes this proposed rule change would allow retail investors to better use XSP options to gain exposure to the SPX options market and hedge S&P 500 cash positions in the event that the S&P 500 Index value continues to increase. The Exchange does not believe the proposed rule change will create additional capacity issues. In addition, the Exchange believes that because the number of strikes that may be listed would be contained by the percentages above and below the current XSP Index value, the number of XSP strikes that may be listed will not be unbounded. The proposed XSP strike prices and restrictions are the same as those on another options exchange.\47\ --------------------------------------------------------------------------- \47\ See Cboe Options Rule 24.9, Interpretation and Policy .11. --------------------------------------------------------------------------- With respect to the proposed strike prices for DJX options, the proposed rule change would more closely align DJX option strike prices with 1/100th the value of the Dow Jones Industrial Average. This would provide more flexibility and allow the Exchange to better respond to customer demand for DJX option strike prices that relate to current Dow Jones Industrial Average values. The Exchange believes this proposed rule change would allow retail investors to better use DJX options to gain exposure to the market and hedge Dow Jones Industrial Average cash positions in the event that the Dow Jones Industrial Average value continues to increase. The Exchange does not believe the proposed rule change will create additional capacity issues. The proposed DJX strike prices are the same as those on another options exchange.\48\ --------------------------------------------------------------------------- \48\ See Cboe Options Rule 24.9, Interpretation and Policy .01(b). --------------------------------------------------------------------------- The proposed rule change that permits the Exchange to list additional expiration months if they are listed on another options exchange will permit the Exchange to accommodate requests made by its Trading Permit Holders and other market participants to list the additional expiration months and thus encourage competition without harming investors or the public interest. The proposed rule change with respect to the opening process for index options eliminates the possibility of RUT options on the Exchange automatically opening for trading prior to those options being open on Cboe Options and thus interfering with the calculation of volatility index derivative settlement values, which promotes just and equitable principles of trade and perfects the mechanism of a free and open market and national market system. As discussed above, under certain circumstances, the proposed rule change is expected to have a de minimis impact on the opening of index option series on the Exchange because, to the extent the Exchange receives a quote from another Exchange within the time period following 9:30 a.m., and there are contracts that may trade, the Opening Process will essentially be the same, and a series will open with the NBBO Midpoint as an Opening Price (if valid). Additionally, the Exchange will continue to have the ability to use a contingent opening to open a series for [[Page 42338]] trading if there is no valid Opening Price. Therefore, if an index option series is not yet open on another exchange, the Exchange will still have the ability to open the series for trading. As discussed above, the proposed rule change is the same as the opening process for index options on C2,\49\ and similar to the opening process of another options exchange, which also provides that opening for trading may be dependent on whether another options exchange is open.\50\ --------------------------------------------------------------------------- \49\ See C2 Rule 6.11(a)(2)(B). \50\ See BX Rule [sic] Section 8(b). --------------------------------------------------------------------------- The proposed rule change to permit the Exchange to list additional expiration months on option classes opened for trading on the Exchange if such expiration months are opened for trading on at least one other registered national securities exchange is the same as rules of other options exchanges.\51\ The proposed rule change will remove impediments to and perfect the mechanism of a free and open market and a national market system by allowing the Exchange to match the expiration months that other exchanges list. This will promote competition among exchanges, which benefits investors. --------------------------------------------------------------------------- \51\ See, e.g., Cboe Options Rule 24.9, Interpretation and Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material .04. --------------------------------------------------------------------------- The proposed rule change regarding when the Exchange may halt trading in index options promotes just and equitable principles of trade and protects the public interest by providing the Exchange with additional flexibility when determine whether to halt trading in an index option, so it can make such a determination based on then-current circumstances to determine what it will contribute to a fair and orderly market. The proposed change is consistent with the rules of another options exchange.\52\ --------------------------------------------------------------------------- \52\ See, e.g., Cboe Options Rule 24.7(a); see also Phlx Rule 1047A(c). --------------------------------------------------------------------------- The proposed rule change to clarify that, for purposes of determining whether a trade resulted from an erroneous print or quote in the underlying, the underlying may include index values (as well as Fund Shares and HOLDRs, which may also underlie options trading on the Exchange pursuant to Rule 19.3(g) and (i), respectively) further harmonizes the Exchange's rule related to the adjustment and nullification of erroneous options transactions with those of other options exchanges. The proposed rule change is based on the rules of another options exchange.\53\ --------------------------------------------------------------------------- \53\ Cboe Options Rule 6.25(g) and (h). --------------------------------------------------------------------------- Proposed Rule 29.15 is merely stating explicitly in the Rules that Rule 18.12(b) does not apply to index options, which is consistent with the current rule. The proposed rule change is based on the rules of another options exchange.\54\ --------------------------------------------------------------------------- \54\ Cboe Options Rule 24.10. --------------------------------------------------------------------------- The Exchange Rules and Cboe Options rules regarding position and exercise limits and margin requirements are substantially the same as each other, as the Exchange rules currently refer to the corresponding Cboe Options rules. Therefore, Options Members must comply with these Cboe Options rules pursuant to the Exchange Rules. Pursuant to the proposed rule change the Exchange will be trading index options also authorized for trading on Cboe Options, the Cboe Options position and exercise limits and margin requirements applicable to these index options will apply to these index options that may be listed for trading on the Exchange. Additionally, the previously approved Cboe Options rules regarding listing of XSP, RUT, and DJX index options on the Exchange pursuant to this proposed rule change are subject to these also previously approved Cboe Options rules regarding position and exercise limits and margin requirements, and thus they are consistent with the Act. The proposed rule change will also result in similar regulatory treatment for similar option products. The Exchange represents it has an adequate surveillance program in place for index options. The Exchange is a member of the Intermarket Surveillance Group (``ISG''), which is comprised of an international group of exchanges, market centers, and market regulators. The purpose of ISG is to provide a framework for the sharing of information and the coordination of regulatory efforts among exchanges trading securities and related products to address potential intermarket manipulations and trading abuses. ISG plays a crucial role in information sharing among markets that trade securities, options on securities, security futures products, and futures and options on broad-based security indexes. A list of identifying current ISG members is available at https://www.isgportal.org/isgPortal/public/members.htm. The Exchange has analyzed its capacity and represents that it believes the Exchange and OPRA have the necessary systems capacity to handle the additional traffic associated with the listing of XSP, RUT, and DJX options up to the proposed number of possible expirations and strike prices. The Exchange believes any additional traffic that would be generated from the introduction of XSP, RUT, and DJX options will be manageable. The Exchange believes its Members will not have a capacity issue as a result of this proposed rule change. The Exchange also represents that it does not believe this expansion will cause fragmentation of liquidity. The Exchange will monitor the trading volume associated with the additional options series listed as a result of this proposed rule change and the effect (if any) of these additional series on market fragmentation and on the capacity of the Exchange's automated systems. 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 index underlying each of XSP, RUT, and DJX options satisfies the initial listing criteria of a broad-based index in the Exchange's Rules. The proposed rule change adds these indexes to the table regarding reporting authorities for indexes, to the list of European- style exercise index options, and to the list of A.M.-settled index options. These changes are consistent with the Exchange's existing Rules,\55\ as well as Cboe Options' rules.\56\ --------------------------------------------------------------------------- \55\ See Rules 29.2, Interpretation and Policy .01 and 29.11(a)(4) and (5). \56\ See Cboe Options Rules 24.1, Interpretation and Policy .01 and 24.9(a)(3) and (4). --------------------------------------------------------------------------- The proposed rule change related to the minimum increment for XSP and DJX options will permit consistency between pricing of SPY options and XSP options, which are both based, in some manner, on the value of the S&P 500 Index, and between pricing of DIA options and DJX options, which are both based, in some manner, on the value of the Dow Jones Industrial Average. As a result, the Exchange believes it is important that these products have the same minimum increments for competitive reasons. The proposed rule change is also the same as another options exchange.\57\ --------------------------------------------------------------------------- \57\ See Cboe Options Rule 6.42, Interpretation and Policy .03. --------------------------------------------------------------------------- The proposed rule change to permit listing of long-term index options contracts with terms up to 180 months will give market participants an alternative to trading similar products in the OTC market. By trading a product in an exchange-traded environment (that is currently being used in the OTC market), the Exchange will be able to compete more effectively with the OTC market. Additionally, the Exchange believes that the proposed rule change [[Page 42339]] will create greater trading and hedging opportunities and flexibility. The proposed rule change should also result in enhanced efficiency in initiating and closing out positions and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of long-term index options contracts. Further, the proposal will result in increased competition by permitting the Exchange to offer products that are currently used in the OTC market. Additionally, the proposed rule change is consistent with the series listing rules of other exchanges.\58\ --------------------------------------------------------------------------- \58\ See Cboe Options Rule 24.9(b)(1). --------------------------------------------------------------------------- The proposed rule change to eliminate the rule provision regarding the applicability of strike price intervals, bid/ask differentials and quote continuity requirements to long-term index option contracts will have no impact on Members, as this merely eliminates potential confusion that may result from inclusion of duplicative rules that have been superseded by other rules. The Exchange will continue to impose these requirements in the manner it does today, consistent with the provisions in other existing rules, and thus this proposed rule change has no impact on how the Exchange imposes these requirements. The rules of other options exchanges do not include this provision.\59\ --------------------------------------------------------------------------- \59\ See Cboe Options Rule 24.9. --------------------------------------------------------------------------- The proposed minimum strike interval for RUT options (if the strike price is less than $200) and reduced-value long-term option series is the same as that on another options exchanges.\60\ --------------------------------------------------------------------------- \60\ See, e.g., Cboe Options Rule 24.9, Interpretation and Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a). --------------------------------------------------------------------------- The proposed strike prices for XSP options will be available to all market participants that choose to trade XSP options on the Exchange. Additionally, the proposed XSP strike prices and restrictions are the same as those on another options exchange.\61\ The proposed strike prices for DJX options will be available to all market participants that choose to trade DJX options on the Exchange. Additionally, the proposed DJX strike prices and restrictions are the same as those on another options exchange.\62\ --------------------------------------------------------------------------- \61\ See Cboe Options Rule 24.9, Interpretation and Policy .11. \62\ See Cboe Options Rule 24.9, Interpretation and Policy .01(b). --------------------------------------------------------------------------- With respect to the proposed rule change related to the opening process, the amended opening process will apply in the same manner to all market participants that participate in the Exchange's Opening Process for index options. The Exchange believes it is appropriate to limit the proposed change to index options, because some, such as RUT, are used to determine the settlement value for volatility index derivatives. A similar process does not occur for equity options, and thus, the risk of opening trading in an equity option interfering with a settlement process on another exchange is not present. As discussed above, the proposed rule change is the same as the opening process for index options on C2,\63\ and similar to the opening process of another options exchange, which also provides that opening for trading may be dependent on whether another options exchange is open.\64\ --------------------------------------------------------------------------- \63\ See C2 Rule 6.11(a)(2)(B). \64\ See BX Rule [sic] Section 8(b). --------------------------------------------------------------------------- The proposed rule change regarding when the Exchange may halt trading in index options will apply to all market participants in the same manner to the extent the Exchange halts trading pursuant to the proposed rule. The rule provides the Exchange with additional flexibility when determine whether to halt trading in an index option, so it can make such a determination based on then-current circumstances to determine what it will contribute to a fair and orderly market. The proposed change is consistent with the rules of another options exchange.\65\ --------------------------------------------------------------------------- \65\ See, e.g., Cboe Options Rule 24.7(a); see also Phlx Rule 1047A(c). --------------------------------------------------------------------------- The proposed rule change to permit the Exchange to list additional expiration months on option classes opened for trading on the Exchange if such expiration months are opened for trading on at least one other registered national securities exchange is the same as rules of other options exchanges.\66\ This proposed rule change will allow the Exchange to compete with other exchanges by matching the expiration months that other exchanges list. --------------------------------------------------------------------------- \66\ See, e.g., Cboe Options Rule 24.9, Interpretation and Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material .04. --------------------------------------------------------------------------- The proposed rule change to clarify that, for purposes of determining whether a trade resulted from an erroneous print or quote in the underlying, the underlying may include index values (as well as Fund Shares and HOLDRs, which may also underlie options trading on the Exchange pursuant to Rule 19.3(g) and (i), respectively) further harmonizes the Exchange's rule related to the adjustment and nullification of erroneous options transactions with those of other options exchanges. The proposed rule change is based on the rules of another options exchange.\67\ --------------------------------------------------------------------------- \67\ Cboe Options Rule 6.25(g) and (h). --------------------------------------------------------------------------- Proposed Rule 29.15 is merely stating explicitly in the Rules that Rule 18.12(b) does not apply to index options, which is consistent with the current rule. The proposed rule change is based on the rules of another options exchange.\68\ --------------------------------------------------------------------------- \68\ Cboe Options Rule 24.10. --------------------------------------------------------------------------- The Exchange Rules and Cboe Options rules regarding position and exercise limits and margin requirements are substantially the same as each other, as the Exchange rules currently refer to the corresponding Cboe Options rules. Therefore, Options Members must comply with these Cboe Options rules pursuant to the Exchange Rules. Pursuant to the proposed rule change, the Exchange will be trading index options also authorized for trading on Cboe Options, so the position and exercise limits and margin requirements currently applicable to these index options that trade on Cboe Options will apply to these index options that may be listed for trading on the Exchange. The proposed rule regarding the listing and trading of XSP, RUT, and DJX are substantially the same as Cboe Options rules regarding the listing and trading of XSP, RUT, and DJX, which rules were previously approved by the Commission and thus they are consistent with the Act. Additionally, the rules regarding position and exercise limits and margin requirements that will apply to XSP, RUT, and DJX options listed for trading on the Exchange were previously approved by the Commission, and thus they are consistent with the Act. The proposed rule change will also result in similar regulatory treatment for similar option products. The Exchange believes that the proposed rule change will relieve any burden on, or otherwise promote, competition, as the rules are substantially the same as those of other options exchanges, as noted above. 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 (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, [[Page 42340]] 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-CboeBZX-2018-058 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-CboeBZX-2018-058. 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-CboeBZX-2018-058, and should be submitted on or before September 11, 2018. --------------------------------------------------------------------------- \69\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\69\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-17957 Filed 8-20-18; 8:45 am] BILLING CODE 8011-01-P
![42330 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
to amend its own routing fees so that it changes reflect this competitive Commission and any person, other than
can recoup costs associated with routing environment. those that may be withheld from the
orders to such away markets. The public in accordance with the
C. Self-Regulatory Organization’s
Exchange believes that the proposed provisions of 5 U.S.C. 552, will be
Statement on Comments on the
fees for orders routed to IEX are available for website viewing and
Proposed Rule Change Received From
reasonable and equitable because they printing in the Commission’s Public
reflect the costs associated with Members, Participants, or Others
Reference Room, 100 F Street NE,
executing orders on IEX and additional No written comments were either Washington, DC 20549, on official
operational expenses incurred by the solicited or received. business days between the hours of
Exchange. The Exchange is proposing to 10:00 a.m. and 3:00 p.m. Copies of this
III. Date of Effectiveness of the
increase its routing fees due to an filing will also be available for
Proposed Rule Change and Timing for
announced change in IEX’s fee schedule inspection and copying at the principal
Commission Action
that would result in a significant
The foregoing rule change has become office of the Exchange. All comments
increase in the transaction fees being
effective pursuant to Section 19(b)(3)(A) received will be posted without change.
charged by IEX to some orders,
including orders routed by the of the Act16 and paragraph (f) of Rule Persons submitting comments are
Exchange.15 The Exchange believes that 19b–4 thereunder.17 At any time within cautioned that we do not redact or edit
it is reasonable and equitable to pass 60 days of the filing of the proposed rule personal identifying information from
these increased costs to Members that change, the Commission summarily may comment submissions. You should
use the Exchange to route orders to that temporarily suspend such rule change if submit only information that you wish
market. Members that do not wish to it appears to the Commission that such to make available publicly. All
pay the proposed fee can send their action is necessary or appropriate in the submissions should refer to File
routable orders directly to IEX instead of public interest, for the protection of Number SR–CboeEDGA–2018–014 and
using routing functionality provided by investors, or otherwise in furtherance of should be submitted on or before
the Exchange. The Exchange also the purposes of the Act. September 11, 2018.
believes that this change is equitable For the Commission, by the Division of
IV. Solicitation of Comments
and not unfairly discriminatory because Trading and Markets, pursuant to delegated
the proposed fees would apply equally Interested persons are invited to authority.18
to all Members that use the Exchange to submit written data, views, and
Eduardo A. Aleman,
route orders to IEX using the DIRC arguments concerning the foregoing,
routing strategy. Routing through the including whether the proposed rule Assistant Secretary.
Exchange is voluntary, and the change is consistent with the Act. [FR Doc. 2018–17960 Filed 8–20–18; 8:45 am]
Exchange operates in a competitive Comments may be submitted by any of BILLING CODE 8011–01–P
environment where market participants the following methods:
can readily direct order flow to
Electronic Comments
competing venues or providers of SECURITIES AND EXCHANGE
routing services if they deem fee levels • Use the Commission’s internet COMMISSION
to be excessive. comment form (http://www.sec.gov/
rules/sro.shtml); or [Release No. 34–83852; File No. SR–
B. Self-Regulatory Organization’s • Send an email to rule-comments@
Statement on Burden on Competition CboeBZX–2018–058]
sec.gov. Please include File Number SR–
The Exchange does not believe that CboeEDGA–2018–014 on the subject Self-Regulatory Organizations; Cboe
the proposed rule change will result in line. BZX Exchange, Inc.; Notice of Filing of
any burden on competition that is not a Proposed Rule Change To Permit the
necessary or appropriate in furtherance Paper Comments
Listing and Trading of Options That
of the purposes of the Act, as amended. • Send paper comments in triplicate
Overlie the Mini-SPX Index, the Russell
The proposed changes to the non- to Secretary, Securities and Exchange
2000 Index, and the Dow Jones
displayed remove fees are designed to Commission, 100 F Street NE,
Industrial Average
incentivize displayed liquidity, which Washington, DC 20549–1090.
the Exchange believes will benefit all All submissions should refer to File August 15, 2018.
market participants by encouraging a Number SR–CboeEDGA–2018–014. This
transparent and competitive market. file number should be included on the Pursuant to Section 19(b)(1) of the
Furthermore, the proposed change to subject line if email is used. To help the Securities Exchange Act of 1934 (the
the IEX routing fee is meant to recoup Commission process and review your ‘‘Act’’),1 and Rule 19b–4 thereunder,2
costs associated with executing orders comments more efficiently, please use notice is hereby given that on August 2,
on that market, and is therefore not only one method. The Commission will 2018, Cboe BZX Exchange, Inc. (the
designed to have any significant impact post all comments on the Commission’s ‘‘Exchange’’ or ‘‘BZX’’) filed with the
on competition. The Exchange operates internet website (http://www.sec.gov/ Securities and Exchange Commission
in a highly competitive market in which rules/sro.shtml). Copies of the (‘‘Commission’’) the proposed rule
market participants can readily direct submission, all subsequent change as described in Items I, II and III
their order flow to competing venues. In amendments, all written statements below, which Items have been prepared
sradovich on DSK3GMQ082PROD with NOTICES
such an environment, the Exchange with respect to the proposed rule by the Exchange. The Commission is
must continually review, and consider change that are filed with the publishing this notice to solicit
adjusting, its fees and rebates to remain Commission, and all written comments on the proposed rule change
competitive with other exchanges. For communications relating to the from interested persons.
the reasons described above, the proposed rule change between the
Exchange believes that the proposed fee 18 17 CFR 200.30–3(a)(12).
16 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1).
15 See SR–IEX–2018–16 (pending publication). 17 17 CFR 240.19b–4(f). 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42333
aligned with SPX options.13 Exchange would be permitted to list the potential benefits of options on the
Additionally, the proposed strike price strikes ranging from $100 through $300 S&P 500 Index.
range limitations for XSP options are (50% above and below the current
DJX Options
closely aligned with the strike price value). However, if the value of the
range limitations for equity and Mini-SPX Index was $200, the Exchange Proposed Rule 29.11(c)(6) provides
exchange-traded fund (‘‘ETF’’) would only be permitted to list strikes the interval between strike prices may
options.14 The proposed strike prices ranging from $140 to $260. To put XSP be no less than $0.50 for options based
and limitations for XSP options are the options on equal standing with equity on 1/100th of the value of the Dow Jones
same as those on another options and ETF options with respect to Industrial Average, including for series
exchange.15 XSP options allow smaller- exercise price range limitations, the listed under the Short Term Options
scale investors to gain broad exposure to Exchange proposes to impose exercise Program.20 As noted above, current Rule
the SPX options market and hedge S&P price range limitations on XSP options 29.11(c)(1) provides that strike prices
500 Index cash positions.16 As a result, that are equal to those applicable to are permitted only in intervals of at least
XSP options provide retail investors equity and ETF exercise price range $5. As noted above, DJX options are
with the benefit of trading the broad limitations.18 based on 1/100th the value of the Dow
market in a manageably sized contract. Jones Industrial Average. For example,
The Exchange believes these
Current Rule 29.11(c)(1) provides that if the value of the Dow Jones Industrial
permitted strike prices will permit the
strike prices are permitted only in Average was 25100, series of an option
Exchange to list XSP options with
intervals of at least $5. SPX options may based on the full value of that average
strikes that more closely reflect the
be listed in intervals of at least $5.17 If could be listed with strike prices of
current values of the S&P 500 Index, as
the S&P 500 Index value was 2700, then 25105, 25110, and 25115. One-one
they provide more flexibility and allow
the Mini-S&P 500 value would be 270. hundredth of the value of the Dow Jones
SPX options would be permitted to be the Exchange to better respond to
Industrial Average would be 251.05,
listed with strikes of 2710, 2720, and customer demand for XSP option strike
251.10, and 251.15, but the Exchange
2730. Corresponding XSP options prices that relate to current S&P 500
would only be able to list series with
strikes would be 271, 272, and 273; Index values. In addition, the Exchange
strike prices of $250 and $255. Pursuant
however, under the current rule, the believes that because the number of
to the proposed rule change, the
Exchange could only list strikes of 270 strikes that may be listed would be
Exchange could list series with strike
and 275 for XSP options. The proposed contained by the percentages above and
prices of 251.50, 252, 252.50, and 253.
$1 strike interval for XSP options will below the current XSP Index value,
The Exchange recognizes the proposed
permit the listing of series with strikes there is no need to restrict the use of $1
approach does not achieve full
that correspond to SPX option strikes. strike price intervals based on the
harmonization between strikes in DJX
Additionally, current Rule 29.11(c)(3) amount of the strike price.
options and the full value of the Dow
requires the exercise price of each series The Exchange recognizes the Jones Industrial Average. However, the
of index options to be reasonably related proposed approach does not achieve full Exchange believes being able to list the
to the current index value of the harmonization between strikes in XSP DJX options at strike intervals of $0.50
underlying index to which the series options and SPX options. For example, would provide the marketplace with a
relates at or about the time the series of if there is a 2715 strike in SPX options, sufficient number of strike prices over a
options is first opened for trading on the the Exchange is not seeking the ability range of DJX values.21 The Exchange
Exchange. Pursuant to Rule 29.11(c)(4), to list a 271.5 strike in XSP options. The believes this proposed rule change
the term ‘‘reasonably related to the Exchange believes being able to list the would allow retail investors to better
current index value of the underlying 271 and 272 strikes in XSP options use DJX options to gain exposure to the
index’’ means the exercise price must be would provide the marketplace with a market and hedge Dow Jones Industrial
within 30% of the current index value. sufficient number of strike prices over a Average cash positions in the event that
The Exchange may also open for trading range of XSP values.19 The Exchange the value continues to increase. The
additional series of index options that believes this proposed rule change proposed strike price interval for DJX
are more than 30% away from the would allow retail investors to better options is the same as those on another
current index value, provided that use XSP options to gain exposure to the options exchange.22
demonstrated customer interest exists SPX options market and hedge S&P 500
for the series. The Options Listing cash positions in the event that the S&P Opening Process
Procedures Plan sets forth exercise price 500 Index value continues to increase. The proposed rule change adds
range limitations for equity and ETF The S&P 500 Index is widely used to paragraph (c) to Rule 21.7 to describe
options (which are the same as those the opening process for index options.
gauge large cap U.S. equities, and as a
being proposed for XSP options). Those Current Rule 21.7(b) states the System
result, investors often use S&P 500
limitations differ from the limitations will open index options for trading at
Index-related products to diversify their
set forth in the current Rule. For 9:30 a.m. Eastern time. Pursuant to the
portfolios and benefit from market
example, if the underlying price of an current opening process, following 9:30
trends. Full-size SPX options offer these
equity or ETF option is $200, the a.m., the System will determine a price
benefits to investors, but may be
13 See Cboe Options Rule 24.9, Interpretation and
expensive given its large notional value. at which a particular series will be
Policy .01(a). Those options are primarily used by opened (the ‘‘Opening Price’’) within 30
14 See Rule 19.6, Interpretations and Policies institutional market participants. By
sradovich on DSK3GMQ082PROD with NOTICES
20 See Rule 29.11, Interpretation and Policy .05
.02(b), .04(c) [sic], and .05(c). contrast, XSP options offer individual
15 See Cboe Options Rule 24.9, Interpretation and [sic] for a description of the Short Term Options
investors a lower cost options to obtain Program.
Policy .11.
16 See Securities Exchange Act Release No. 32893 21 Nothing in this rule filing precludes the
18 Seeproposed Rule 29.11(c)(5). Exchange from submitting a future rule filing
(September 14, 1993), 58 FR 49070 (September 21,
1993) (SR–CBOE–93–12) (order approving listing of 19 Nothing in this rule filing precludes the requesting even finer strike price increments for
XSP options). Exchange from submitting a future rule filing DJX options.
17 See Cboe Options Rule 24.9, Interpretation and requesting even finer strike price increments for 22 See Cboe Options Rule 24.9, Interpretation and
Policy .01(a). XSP options. Policy .01(b).
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![42338 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
trading if there is no valid Opening does not apply to index options, which introduction of XSP, RUT, and DJX
Price. Therefore, if an index option is consistent with the current rule. The options will be manageable. The
series is not yet open on another proposed rule change is based on the Exchange believes its Members will not
exchange, the Exchange will still have rules of another options exchange.54 have a capacity issue as a result of this
the ability to open the series for trading. The Exchange Rules and Cboe proposed rule change. The Exchange
As discussed above, the proposed rule Options rules regarding position and also represents that it does not believe
change is the same as the opening exercise limits and margin requirements this expansion will cause fragmentation
process for index options on C2,49 and are substantially the same as each other, of liquidity. The Exchange will monitor
similar to the opening process of as the Exchange rules currently refer to the trading volume associated with the
another options exchange, which also the corresponding Cboe Options rules. additional options series listed as a
provides that opening for trading may Therefore, Options Members must result of this proposed rule change and
be dependent on whether another comply with these Cboe Options rules the effect (if any) of these additional
options exchange is open.50 pursuant to the Exchange Rules. series on market fragmentation and on
The proposed rule change to permit Pursuant to the proposed rule change the capacity of the Exchange’s
the Exchange to list additional the Exchange will be trading index automated systems.
expiration months on option classes options also authorized for trading on
opened for trading on the Exchange if Cboe Options, the Cboe Options B. Self-Regulatory Organization’s
such expiration months are opened for position and exercise limits and margin Statement on Burden on Competition
trading on at least one other registered requirements applicable to these index The Exchange does not believe that
national securities exchange is the same options will apply to these index the proposed rule change will impose
as rules of other options exchanges.51 options that may be listed for trading on any burden on competition that is not
The proposed rule change will remove the Exchange. Additionally, the necessary or appropriate in furtherance
impediments to and perfect the previously approved Cboe Options rules of the purposes of the Act.
mechanism of a free and open market regarding listing of XSP, RUT, and DJX The index underlying each of XSP,
and a national market system by index options on the Exchange pursuant RUT, and DJX options satisfies the
allowing the Exchange to match the to this proposed rule change are subject initial listing criteria of a broad-based
expiration months that other exchanges to these also previously approved Cboe index in the Exchange’s Rules. The
list. This will promote competition Options rules regarding position and proposed rule change adds these
among exchanges, which benefits exercise limits and margin indexes to the table regarding reporting
investors. requirements, and thus they are authorities for indexes, to the list of
The proposed rule change regarding consistent with the Act. The proposed European-style exercise index options,
when the Exchange may halt trading in rule change will also result in similar and to the list of A.M.-settled index
index options promotes just and regulatory treatment for similar option options. These changes are consistent
equitable principles of trade and products. with the Exchange’s existing Rules,55 as
protects the public interest by providing The Exchange represents it has an well as Cboe Options’ rules.56
the Exchange with additional flexibility adequate surveillance program in place The proposed rule change related to
when determine whether to halt trading for index options. The Exchange is a the minimum increment for XSP and
in an index option, so it can make such member of the Intermarket Surveillance DJX options will permit consistency
a determination based on then-current Group (‘‘ISG’’), which is comprised of between pricing of SPY options and
circumstances to determine what it will an international group of exchanges, XSP options, which are both based, in
contribute to a fair and orderly market. market centers, and market regulators. some manner, on the value of the S&P
The proposed change is consistent with The purpose of ISG is to provide a 500 Index, and between pricing of DIA
the rules of another options exchange.52 framework for the sharing of options and DJX options, which are both
The proposed rule change to clarify information and the coordination of based, in some manner, on the value of
that, for purposes of determining regulatory efforts among exchanges the Dow Jones Industrial Average. As a
whether a trade resulted from an trading securities and related products result, the Exchange believes it is
erroneous print or quote in the to address potential intermarket important that these products have the
underlying, the underlying may include manipulations and trading abuses. ISG same minimum increments for
index values (as well as Fund Shares plays a crucial role in information competitive reasons. The proposed rule
and HOLDRs, which may also underlie sharing among markets that trade change is also the same as another
options trading on the Exchange securities, options on securities, options exchange.57
pursuant to Rule 19.3(g) and (i), security futures products, and futures The proposed rule change to permit
respectively) further harmonizes the and options on broad-based security listing of long-term index options
Exchange’s rule related to the indexes. A list of identifying current ISG contracts with terms up to 180 months
adjustment and nullification of members is available at https:// will give market participants an
erroneous options transactions with www.isgportal.org/isgPortal/public/ alternative to trading similar products in
those of other options exchanges. The members.htm. the OTC market. By trading a product in
proposed rule change is based on the The Exchange has analyzed its an exchange-traded environment (that is
rules of another options exchange.53 capacity and represents that it believes currently being used in the OTC
Proposed Rule 29.15 is merely stating the Exchange and OPRA have the market), the Exchange will be able to
explicitly in the Rules that Rule 18.12(b) necessary systems capacity to handle compete more effectively with the OTC
market. Additionally, the Exchange
sradovich on DSK3GMQ082PROD with NOTICES
the additional traffic associated with the
49 See C2 Rule 6.11(a)(2)(B). listing of XSP, RUT, and DJX options up believes that the proposed rule change
50 See BX Rule [sic] Section 8(b). to the proposed number of possible
51 See, e.g., Cboe Options Rule 24.9, 55 See Rules 29.2, Interpretation and Policy .01
expirations and strike prices. The
Interpretation and Policy .13; and NASDAQ ISE, and 29.11(a)(4) and (5).
LLC Rule 2009, Supplementary Material .04. Exchange believes any additional traffic 56 See Cboe Options Rules 24.1, Interpretation
52 See, e.g., Cboe Options Rule 24.7(a); see also that would be generated from the and Policy .01 and 24.9(a)(3) and (4).
Phlx Rule 1047A(c). 57 See Cboe Options Rule 6.42, Interpretation and
53 Cboe Options Rule 6.25(g) and (h). 54 Cboe Options Rule 24.10. Policy .03.
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![Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42339
will create greater trading and hedging options. The Exchange believes it is Proposed Rule 29.15 is merely stating
opportunities and flexibility. The appropriate to limit the proposed explicitly in the Rules that Rule 18.12(b)
proposed rule change should also result change to index options, because some, does not apply to index options, which
in enhanced efficiency in initiating and such as RUT, are used to determine the is consistent with the current rule. The
closing out positions and heightened settlement value for volatility index proposed rule change is based on the
contra-party creditworthiness due to the derivatives. A similar process does not rules of another options exchange.68
role of OCC as issuer and guarantor of occur for equity options, and thus, the The Exchange Rules and Cboe
long-term index options contracts. risk of opening trading in an equity Options rules regarding position and
Further, the proposal will result in option interfering with a settlement exercise limits and margin requirements
increased competition by permitting the process on another exchange is not are substantially the same as each other,
Exchange to offer products that are present. As discussed above, the as the Exchange rules currently refer to
currently used in the OTC market. proposed rule change is the same as the the corresponding Cboe Options rules.
Additionally, the proposed rule change opening process for index options on Therefore, Options Members must
is consistent with the series listing rules C2,63 and similar to the opening process comply with these Cboe Options rules
of other exchanges.58 of another options exchange, which also pursuant to the Exchange Rules.
The proposed rule change to provides that opening for trading may Pursuant to the proposed rule change,
eliminate the rule provision regarding be dependent on whether another the Exchange will be trading index
the applicability of strike price options exchange is open.64 options also authorized for trading on
intervals, bid/ask differentials and quote The proposed rule change regarding Cboe Options, so the position and
continuity requirements to long-term when the Exchange may halt trading in exercise limits and margin requirements
index option contracts will have no index options will apply to all market currently applicable to these index
impact on Members, as this merely participants in the same manner to the options that trade on Cboe Options will
eliminates potential confusion that may extent the Exchange halts trading apply to these index options that may be
result from inclusion of duplicative pursuant to the proposed rule. The rule listed for trading on the Exchange. The
rules that have been superseded by provides the Exchange with additional proposed rule regarding the listing and
other rules. The Exchange will continue flexibility when determine whether to trading of XSP, RUT, and DJX are
to impose these requirements in the halt trading in an index option, so it can substantially the same as Cboe Options
manner it does today, consistent with make such a determination based on rules regarding the listing and trading of
the provisions in other existing rules, then-current circumstances to determine XSP, RUT, and DJX, which rules were
and thus this proposed rule change has what it will contribute to a fair and previously approved by the Commission
no impact on how the Exchange orderly market. The proposed change is and thus they are consistent with the
imposes these requirements. The rules consistent with the rules of another Act. Additionally, the rules regarding
of other options exchanges do not options exchange.65 position and exercise limits and margin
include this provision.59 The proposed rule change to permit requirements that will apply to XSP,
The proposed minimum strike the Exchange to list additional RUT, and DJX options listed for trading
interval for RUT options (if the strike expiration months on option classes on the Exchange were previously
price is less than $200) and reduced- opened for trading on the Exchange if approved by the Commission, and thus
value long-term option series is the such expiration months are opened for they are consistent with the Act. The
same as that on another options trading on at least one other registered proposed rule change will also result in
exchanges.60 national securities exchange is the same similar regulatory treatment for similar
The proposed strike prices for XSP as rules of other options exchanges.66 option products.
options will be available to all market This proposed rule change will allow The Exchange believes that the
participants that choose to trade XSP the Exchange to compete with other proposed rule change will relieve any
options on the Exchange. Additionally, exchanges by matching the expiration burden on, or otherwise promote,
the proposed XSP strike prices and months that other exchanges list. competition, as the rules are
restrictions are the same as those on The proposed rule change to clarify substantially the same as those of other
another options exchange.61 The that, for purposes of determining options exchanges, as noted above.
proposed strike prices for DJX options whether a trade resulted from an
will be available to all market erroneous print or quote in the C. Self-Regulatory Organization’s
participants that choose to trade DJX underlying, the underlying may include Statement on Comments on the
options on the Exchange. Additionally, index values (as well as Fund Shares Proposed Rule Change Received From
the proposed DJX strike prices and and HOLDRs, which may also underlie Members, Participants, or Others
restrictions are the same as those on options trading on the Exchange The Exchange neither solicited nor
another options exchange.62 pursuant to Rule 19.3(g) and (i), received comments on the proposed
With respect to the proposed rule respectively) further harmonizes the rule change.
change related to the opening process, Exchange’s rule related to the
adjustment and nullification of III. Date of Effectiveness of the
the amended opening process will apply
erroneous options transactions with Proposed Rule Change and Timing for
in the same manner to all market
those of other options exchanges. The Commission Action
participants that participate in the
Exchange’s Opening Process for index proposed rule change is based on the Within 45 days of the date of
rules of another options exchange.67 publication of this notice in the Federal
sradovich on DSK3GMQ082PROD with NOTICES
58 See Cboe Options Rule 24.9(b)(1). Register or within such longer period (i)
59 See Cboe Options Rule 24.9. 63 See C2 Rule 6.11(a)(2)(B). as the Commission may designate up to
64 See BX Rule [sic] Section 8(b).
60 See, e.g., Cboe Options Rule 24.9,
90 days of such date if it finds such
Interpretation and Policy .01(a); and Nasdaq PHLX 65 See, e.g., Cboe Options Rule 24.7(a); see also
longer period to be appropriate and
LLC (‘‘Phlx’’) Rule 1101A(a). Phlx Rule 1047A(c).
61 See Cboe Options Rule 24.9, Interpretation and 66 See, e.g., Cboe Options Rule 24.9,
publishes its reasons for so finding or
Policy .11. Interpretation and Policy .13; and NASDAQ ISE, (ii) as to which the Exchange consents,
62 See Cboe Options Rule 24.9, Interpretation and LLC Rule 2009, Supplementary Material .04.
Policy .01(b). 67 Cboe Options Rule 6.25(g) and (h). 68 Cboe Options Rule 24.10.
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![42340 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
the Commission will: (a) By order should be submitted on or before petition for review of the Approval
approve or disapprove such proposed September 11, 2018. Order. Pursuant to Commission Rule of
rule change, or (b) institute proceedings For the Commission, by the Division of Practice 431(e), the Approval Order was
to determine whether the proposed rule Trading and Markets, pursuant to delegated stayed by the filing with the
change should be disapproved. authority.69 Commission of a notice of intention to
Eduardo A. Aleman, petition for review.8 Pursuant to Rule
IV. Solicitation of Comments
Assistant Secretary. 431 of the Rules of Practice,9 the
Interested persons are invited to [FR Doc. 2018–17957 Filed 8–20–18; 8:45 am]
petition for review of the Approval
submit written data, views, and Order is granted. Further, the
BILLING CODE 8011–01–P
arguments concerning the foregoing, Commission hereby establishes that any
including whether the proposed rule party to the action or other person may
change is consistent with the Act. SECURITIES AND EXCHANGE file a written statement in support of or
Comments may be submitted by any of COMMISSION in opposition to the Approval Order on
the following methods: or before September 5.
[Securities Exchange Act of 1934; Release For the reasons stated above, it is
Electronic Comments No. 34–83856/August 15, 2018] hereby:
• Use the Commission’s internet Order Granting Petition for Review and Ordered that Asensio’s petition for
comment form (http://www.sec.gov/ Scheduling Filing of Statements review of the Division’s action to
rules/sro.shtml); or approve the proposed rule change by
• Send an email to rule-comments@ In the Matter of Financial Industry delegated authority be Granted; and
Regulatory Authority, Inc. It is further Ordered that any party or
sec.gov. Please include File Number SR– For an Order Granting the Approval of
CboeBZX–2018–058 on the subject line. other person may file a statement in
Proposed Rule Change to Adopt FINRA support of or in opposition to the action
Paper Comments Rule 1113 (Restriction Pertaining to New
Member Applications) and to Amend the
made pursuant to delegated authority on
• Send paper comments in triplicate FINRA Rule 9520 Series (Eligibility or before September 5.
to Secretary, Securities and Exchange Proceedings) (File No. SR–FINRA–2010– It is further Ordered that the Approval
Commission, 100 F Street NE, 056) Order shall remain stayed pending
Washington, DC 20549–1090. This matter comes before the further order by the Commission.
Securities and Exchange Commission By the Commission.
All submissions should refer to File
Number SR–CboeBZX–2018–058. This (‘‘Commission’’) on petition to review Eduardo A. Aleman,
file number should be included on the the approval, pursuant to delegated Assistant Secretary.
subject line if email is used. To help the authority, of the Financial Industry [FR Doc. 2018–17958 Filed 8–20–18; 8:45 am]
Commission process and review your Regulatory Authority, Inc. (‘‘FINRA’’) BILLING CODE 8011–01–P
comments more efficiently, please use proposed rule change to adopt FINRA
only one method. The Commission will Rule 1113 (Restriction Pertaining to
post all comments on the Commission’s New Member Applications) and to SECURITIES AND EXCHANGE
internet website (http://www.sec.gov/ amend the FINRA Rule 9520 Series COMMISSION
rules/sro.shtml). Copies of the (Eligibility Proceedings).
submission, all subsequent On November 15, 2010, the [Release No. 34–83850; File No. SR–FICC–
amendments, all written statements Commission issued a notice of filing of 2018–008]
with respect to the proposed rule the proposed rule change filed with the
change that are filed with the Commission pursuant to Section Self-Regulatory Organizations; Fixed
Commission, and all written 19(b)(1) of the Securities Exchange Act Income Clearing Corporation; Notice of
communications relating to the of 1934 (‘‘Exchange Act’’) 1 and Rule Filing of Proposed Rule Change To
proposed rule change between the 19b–4 2 thereunder.3 The proposed rule Apply Government Securities Division
Commission and any person, other than change was published for comment in Corporation Default Rule to Sponsored
those that may be withheld from the the Federal Register on November 22, Members and Make Other Changes
public in accordance with the 2010.4 On February 18, 2011, after
consideration of the record for the August 15, 2018.
provisions of 5 U.S.C. 552, will be Pursuant to Section 19(b)(1) of the
available for website viewing and proposed rule change, the Division of
Trading and Markets (‘‘Division’’), Securities Exchange Act of 1934
printing in the Commission’s Public (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Reference Room, 100 F Street NE, pursuant to delegated authority,5
approved the proposed rule change notice is hereby given that on August 6,
Washington, DC 20549, on official 2018, Fixed Income Clearing
business days between the hours of (‘‘Approval Order’’).6
On March 4, 2011, pursuant to Corporation (‘‘FICC’’) filed with the
10:00 a.m. and 3:00 p.m. Copies of the Securities and Exchange Commission
filing also will be available for Commission Rule of Practice 430,7
Manuel P. Asensio (‘‘Asensio’’) filed a (‘‘Commission’’) the proposed rule
inspection and copying at the principal change as described in Items I, II and III
office of the Exchange. All comments 69 17 below, which Items have been prepared
CFR 200.30–3(a)(12).
received will be posted without change. 1 15 U.S.C. 78s(b)(1). by the clearing agency. The Commission
Persons submitting comments are
sradovich on DSK3GMQ082PROD with NOTICES
2 17 CFR 240.19b–4.
is publishing this notice to solicit
cautioned that we do not redact or edit 3 See Exchange Act Release No. 63316 (Nov. 15,
comments on the proposed rule change
personal identifying information from 2010), 75 FR 71166 (Nov. 22, 2010) (File No. SR–
from interested persons.
comment submissions. You should FINRA–2010–056).
4 See Id.
submit only information that you wish 8 17
5 17 CFR 200.30 3(a)(12). CFR 201.431(e).
to make available publicly. All 6 See Exchange Act Release No. 63933 (Feb. 18, 9 17 CFR 201.431.
submissions should refer to File 2011), 76 FR 10629 (Feb. 25, 2011). 1 15 U.S.C. 78s(b)(1).
Number SR–CboeBZX–2018–058, and 7 17 CFR 201.430. 2 17 CFR 240.19b–4.
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Document Created: 2018-08-21 00:07:17
Document Modified: 2018-08-21 00:07:17
| 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 42330 |
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