83 FR 42344 - Self-Regulatory Organizations; Cboe EDGX 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 | 42344-42354 | |
| FR Document | 2018-17959 |
[Federal Register Volume 83, Number 162 (Tuesday, August 21, 2018)] [Notices] [Pages 42344-42354] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-17959] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83853; File No. SR-CboeEDGX-2018-035] Self-Regulatory Organizations; Cboe EDGX 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 10, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange 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; [[Page 42345]] (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 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 [[Page 42346]] 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 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 [[Page 42347]] 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 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 [[Page 42348]] 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 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. --------------------------------------------------------------------------- [[Page 42349]] 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), 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 [[Page 42350]] 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, 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 [[Page 42351]] 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 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) [[Page 42352]] 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 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 [[Page 42353]] 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, 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-CboeEDGX-2018-035 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-CboeEDGX-2018-035. 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-CboeEDGX-2018-035, and [[Page 42354]] should be submitted on or before September 11, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\69\ --------------------------------------------------------------------------- \69\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-17959 Filed 8-20-18; 8:45 am] BILLING CODE 8011-01-P
![42344 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
proposed rule changes would not have amendments, all written statements The Commission is publishing this
any impact on competition. with respect to the proposed rule notice to solicit comments on the
change that are filed with the proposed rule change from interested
(C) Clearing Agency’s Statement on
Commission, and all written persons.
Comments on the Proposed Rule
communications relating to the
Change Received From Members, I. Self-Regulatory Organization’s
proposed rule change between the
Participants, or Others Statement of the Terms of Substance of
Commission and any person, other than
FICC reviewed the proposed rule the Proposed Rule Change
those that may be withheld from the
change with its Sponsoring Members in public in accordance with the The Exchange filed a proposal to
order to benefit from their expertise on provisions of 5 U.S.C. 552, will be permit the listing and trading of options
the Sponsored Members. Written available for website viewing and that overlie the Mini-SPX Index (‘‘XSP
comments relating to this proposed rule printing in the Commission’s Public options’’), the Russell 2000 Index (‘‘RUT
change have not been received from the Reference Room, 100 F Street NE, options’’), and the Dow Jones Industrial
Sponsoring Members or any other Washington, DC 20549 on official Average (‘‘DJX options’’).
person. FICC will notify the business days between the hours of The text of the proposed rule change
Commission of any written comments 10:00 a.m. and 3:00 p.m. Copies of the is available at the Exchange’s website at
received by FICC. filing also will be available for www.markets.cboe.com, at the principal
inspection and copying at the principal office of the Exchange, and at the
III. Date of Effectiveness of the Commission’s Public Reference Room.
office of FICC and on DTCC’s website
Proposed Rule Change, and Timing for
(http://dtcc.com/legal/sec-rule- II. Self-Regulatory Organization’s
Commission Action
filings.aspx). All comments received Statement of the Purpose of, and
Within 45 days of the date of will be posted without change. Persons Statutory Basis for, the Proposed Rule
publication of this notice in the Federal submitting comments are cautioned that Change
Register or within such longer period we do not redact or edit personal
up to 90 days (i) as the Commission may identifying information from comment In its filing with the Commission, the
designate if it finds such longer period submissions. You should submit only Exchange included statements
to be appropriate and publishes its information that you wish to make concerning the purpose of and basis for
reasons for so finding or (ii) as to which available publicly. All submissions the proposed rule change and discussed
the self- regulatory organization should refer to File Number SR–FICC– any comments it received on the
consents, the Commission will: 2018–008 and should be submitted on proposed rule change. The text of these
(A) By order approve or disapprove or before September 11, 2018. statements may be examined at the
such proposed rule change, or places specified in Item IV below. The
For the Commission, by the Division of Exchange has prepared summaries, set
(B) Institute proceedings to determine Trading and Markets, pursuant to delegated
whether the proposed rule change authority.28
forth in Sections A, B, and C below, of
should be disapproved. the most significant parts of such
Eduardo A. Aleman,
statements.
IV. Solicitation of Comments Assistant Secretary.
[FR Doc. 2018–17956 Filed 8–20–18; 8:45 am] A. Self-Regulatory Organization’s
Interested persons are invited to Statement of the Purpose of, and the
BILLING CODE 8011–01–P
submit written data, views and Statutory Basis for, the Proposed Rule
arguments concerning the foregoing, Change
including whether the proposed rule
SECURITIES AND EXCHANGE 1. Purpose
change is consistent with the Act.
COMMISSION
Comments may be submitted by any of The proposed rule change amends the
the following methods: [Release No. 34–83853; File No. SR– Exchange’s index rules to permit the
CboeEDGX–2018–035]
Electronic Comments listing and trading of XSP options, RUT
Self-Regulatory Organizations; Cboe options, and DJX options. XSP options
• Use the Commission’s internet are options on the Mini SPX Index, the
comment form (http://www.sec.gov/ EDGX Exchange, Inc.; Notice of Filing
of a Proposed Rule Change To Permit current value of which is 1/10th the
rules/sro.shtml); or value of the Standard & Poor’s 500 Stock
• Send an email to rule-comments@ the Listing and Trading of Options
Index reported by the reporting
sec.gov. Please include File Number SR– That Overlie the Mini-SPX Index, the
Russell 2000 Index, and the Dow Jones authority.3 RUT options are options on
FICC–2018–008 on the subject line. the Russell 2000 Index. DJX options are
Industrial Average
Paper Comments options based on 1/100th of the value of
August 15, 2018. the Dow Jones Industrial Average. The
• Send paper comments in triplicate
Pursuant to Section 19(b)(1) of the index underlying each of XSP, RUT, and
to Secretary, Securities and Exchange
Securities Exchange Act of 1934 (the DJX options satisfies the criteria of a
Commission, 100 F Street NE,
‘‘Act’’),1 and Rule 19b–4 thereunder,2 broad-based index for the initial listing
Washington, DC 20549. notice is hereby given that on August of options on that index, as set forth in
All submissions should refer to File 10, 2018, Cboe EDGX Exchange, Inc. Rule 29.3(b):
Number SR–FICC–2018–008. This file (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with (1) The index is broad-based index, as
number should be included on the the Securities and Exchange defined in Rule 29.2(j) (an index
subject line if email is used. To help the
sradovich on DSK3GMQ082PROD with NOTICES
Commission (‘‘Commission’’) the designed to be representative of a stock
Commission process and review your proposed rule change as described in market as a whole or of a range of
comments more efficiently, please use Items I, II and III below, which Items companies in unrelated industries);
only one method. The Commission will have been prepared by the Exchange. (2) The options are designated as
post all comments on the Commission’s A.M.-settled;
internet website (http://www.sec.gov/ 28 17 CFR 200.30–3(a)(12).
rules/sro.shtml). Copies of the 1 15 U.S.C. 78s(b)(1). 3 See proposed Rule 29.11, Interpretation and
submission, all subsequent 2 17 CFR 240.19b–4. Policy .01.
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![42346 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
participants and investors with a to expiration is less than twelve months. option series under the Short Term
competitive comparable alternative to Rule 29.11(c) describes the strike price Option Series Program in paragraph (h)
the OTC market in long-term index intervals applicable to long-term index of Rule 29.11.
options, which can take on contract options. Additionally, Rule 22.6(d) The proposed strike prices for XSP
characteristics similar to long-term describes continuous quoting options will permit strike prices closely
index options contracts but are not requirements for Market Makers.11 The aligned with SPX options.13
subject to the same maximum term Exchange has no rules imposing bid/ask Additionally, the proposed strike price
restriction. By expanding the eligible differential requirements. The Exchange range limitations for XSP options are
term for long-term index options views these other Rules regarding strike closely aligned with the strike price
contracts, market participants will now price interval and quote continuity range limitations for equity and
have greater flexibility in determining requirements as superseding the exchange-traded fund (‘‘ETF’’)
whether to execute their long-term language proposed to be deleted. options.14 The proposed strike prices
index options in an exchange Additionally, stating bid/ask different and limitations for XSP options are the
environment or in the OTC market. The rules do not apply to long-term index same as those on another options
Exchange believes market participants option contracts is unnecessary, as no exchange.15 XSP options allow smaller-
can benefit from being able to trade such rules are included in the scale investors to gain broad exposure to
these long-term index options in an Exchange’s Rules. The Exchange the SPX options market and hedge S&P
exchange environment in several ways, believes deletion of the language Rule 500 Index cash positions.16 As a result,
including, but not limited to the 29.11(b)(1)(A) will provide additional XSP options provide retail investors
following: (1) Enhanced efficiency in clarity and eliminate any confusion on with the benefit of trading the broad
initiating and closing out positions; (2) the applicability of the strike price market in a manageably sized contract.
increased market transparency; and (3) interval and quote continuity Current Rule 29.11(c)(1) provides that
heightened contra-party requirements that may otherwise result strike prices are permitted only in
creditworthiness due to the role of OCC by including duplicative rules on these intervals of at least $5. SPX options may
as issuer and guarantor of long-term topics. be listed in intervals of at least $5.17 If
index options contracts. the S&P 500 Index value was 2700, then
The Exchange has confirmed with the Strike Intervals the Mini-S&P 500 value would be 270.
OCC that OCC can configure its systems RUT Options SPX options would be permitted to be
to support long-term equity options listed with strikes of 2710, 2720, and
contracts that have a maximum term of The proposed rule change amends 2730. Corresponding XSP options
180 months (15 years). The proposed Rule 29.11(c)(1) to provide that the strikes would be 271, 272, and 273;
rule change is also consistent with the interval between strike prices will be no however, under the current rule, the
rules of other options exchanges.7 less than $2.50 for RUT options (if the Exchange could only list strikes of 270
Pursuant to the proposed rule change, strike price is less than $200) and and 275 for XSP options. The proposed
the Exchange may list XSP, RUT, and reduced-value long-term option series. $1 strike interval for XSP options will
DJX options with expirations from 12 to This is the same strike interval that permit the listing of series with strikes
180 months from the date of issuance.8 applies to RUT options and reduced- that correspond to SPX option strikes.
Rule 29.11(b)(2) provides that value long-term option series pursuant Additionally, current Rule 29.11(c)(3)
reduced-value long-term option series to rules of other options exchanges.12 requires the exercise price of each series
may be approved for trading on XSP Options of index options to be reasonably related
specified indices.9 A reduced-value to the current index value of the
long-term option series is an option Additionally, the proposed rule underlying index to which the series
series overlying an index that trades in change adds Rule 29.11(c)(5), which relates at or about the time the series of
units based upon a percentage of the provides that the strike prices for new options is first opened for trading on the
value of the underlying index (such as and additional series of XSP options are Exchange. Pursuant to Rule 29.11(c)(4),
10%). As set forth in current Rule subject to the following: the term ‘‘reasonably related to the
29.11(b)(2)(B), reduced-value long-term (1) If the current value of the Mini- current index value of the underlying
options series may expire at six-month SPX Index is less than or equal to 20, index’’ means the exercise price must be
intervals. The proposed rule change the Exchange will not list XSP option within 30% of the current index value.
adds RUT to the list of indices on which series with a strike price of more than The Exchange may also open for trading
the Exchange may list reduced-value 100% above or below the current value additional series of index options that
long-term option series. Reduced-value of the Mini-SPX Index; are more than 30% away from the
long-term RUT series will be subject to (2) if the current value of the Mini- current index value, provided that
the same trading rules as long-term RUT SPX Index is greater than 20, the demonstrated customer interest exists
series, except the minimum strike price Exchange will not list XSP option series for the series. The Options Listing
interval will be $2.50 for all premiums, with a strike price of more than 50% Procedures Plan sets forth exercise price
as discussed below.10 For reduced-value above or below the current value of the range limitations for equity and ETF
long-term RUT series, the underlying Mini-SPX Index; and options (which are the same as those
value will be computed at 10% of the (3) the lowest strike price interval that
value of the Russell 2000. may be listed for standard XSP option 13 See Cboe Options Rule 24.9, Interpretation and
series is $1, including the long-term Policy .01(a).
Rule 29.11(b)(1)(A) also states strike 14 See Rule 19.6, Interpretations and Policies
option series, and the lowest strike price
sradovich on DSK3GMQ082PROD with NOTICES
price intervals, bid/ask differential, and .02(b), .04(c) [sic], and .05(c).
continuity rules do not apply to long- interval that may be listed for XSP 15 See Cboe Options Rule 24.9, Interpretation and
term index options series until the time Policy .11.
11 This rule excludes series with time to 16 See Securities Exchange Act Release No. 32893
expiration of nine months or more from Market (September 14, 1993), 58 FR 49070 (September 21,
7 See, e.g., Cboe Options Rule 24.9(b)(1). Makers’ quoting obligations. 1993) (SR–CBOE–93–12) (order approving listing of
8 See id. 12 See, e.g., Cboe Options Rule 24.9, XSP options).
9 See proposed Rule 29.11(b)(2)(A).
Interpretation and Policy .01(a); and Nasdaq PHLX 17 See Cboe Options Rule 24.9, Interpretation and
10 See proposed Rule 29.11(c)(1). LLC (‘‘Phlx’’) Rule 1101A(a). Policy .01(a).
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![Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42347
being proposed for XSP options). Those Those options are primarily used by current opening process, following 9:30
limitations differ from the limitations institutional market participants. By a.m., the System will determine a price
set forth in the current Rule. For contrast, XSP options offer individual at which a particular series will be
example, if the underlying price of an investors a lower cost options to obtain opened (the ‘‘Opening Price’’) within 30
equity or ETF option is $200, the the potential benefits of options on the seconds of that time. Where there are no
Exchange would be permitted to list S&P 500 Index. contracts in a particular series that
strikes ranging from $100 through $300 would execute at any price, the System
DJX Options
(50% above and below the current will open such options for trading
value). However, if the value of the Proposed Rule 29.11(c)(6) provides without determining an Opening Price.
Mini-SPX Index was $200, the Exchange the interval between strike prices may The Opening Price of a series must be
would only be permitted to list strikes be no less than $0.50 for options based a Valid Price, as determined by current
ranging from $140 to $260. To put XSP on 1/100th of the value of the Dow Jones subparagraph (a)(2), and will be:
options on equal standing with equity Industrial Average, including for series • The midpoint of the NBBO (the
and ETF options with respect to listed under the Short Term Options ‘‘NBBO Midpoint’’);
exercise price range limitations, the Program.20 As noted above, current Rule • Where there is no NBBO Midpoint
Exchange proposes to impose exercise 29.11(c)(1) provides that strike prices at a Valid Price, the last regular way
price range limitations on XSP options are permitted only in intervals of at least print disseminated pursuant to the
that are equal to those applicable to $5. As noted above, DJX options are OPRA Plan after 9:30 a.m. Eastern Time
equity and ETF exercise price range based on 1/100th the value of the Dow (the ‘‘Print’’);
limitations.18 Jones Industrial Average. For example, • Where there is both no NBBO
The Exchange believes these if the value of the Dow Jones Industrial Midpoint and no Print at a Valid Price,
permitted strike prices will permit the Average was 25100, series of an option the last regular way transaction from the
Exchange to list XSP options with based on the full value of that average previous trading day as disseminated
strikes that more closely reflect the could be listed with strike prices of pursuant to the OPRA Plan (the
current values of the S&P 500 Index, as 25105, 25110, and 25115. One-one ‘‘Previous Close’’); or
they provide more flexibility and allow hundredth of the value of the Dow Jones • Where there is no NBBO Midpoint,
the Exchange to better respond to Industrial Average would be 251.05, no Print, and no Previous Close at a
customer demand for XSP option strike 251.10, and 251.15, but the Exchange Valid Price, the Order Entry Period may
prices that relate to current S&P 500 would only be able to list series with be extended by 30 seconds or less or the
Index values. In addition, the Exchange strike prices of $250 and $255. Pursuant series may be opened for trading at the
believes that because the number of to the proposed rule change, the discretion of the Exchange.
strikes that may be listed would be Exchange could list series with strike A NBBO Midpoint, a Print, and a
contained by the percentages above and prices of 251.50, 252, 252.50, and 253. Previous Close will be at a Valid Price:
The Exchange recognizes the proposed • Where there is no NBB and no
below the current XSP Index value,
approach does not achieve full NBO;
there is no need to restrict the use of $1 • Where there is either a NBB and no
strike price intervals based on the harmonization between strikes in DJX
options and the full value of the Dow NBO or a NBO and no NBB and the
amount of the strike price. price is equal to or greater than the NBB
The Exchange recognizes the Jones Industrial Average. However, the
Exchange believes being able to list the or equal to or less than the NBO; or
proposed approach does not achieve full • Where there is both a NBB and
harmonization between strikes in XSP DJX options at strike intervals of $0.50
NBO, the price is equal to or within the
options and SPX options. For example, would provide the marketplace with a
NBBO, and the price is less than a
if there is a 2715 strike in SPX options, sufficient number of strike prices over a
specified minimum amount away from
the Exchange is not seeking the ability range of DJX values.21 The Exchange
the NBB or NBO for the series.
to list a 271.5 strike in XSP options. The believes this proposed rule change
Under this Opening Process, if a
Exchange believes being able to list the would allow retail investors to better
series has not opened yet on another
271 and 272 strikes in XSP options use DJX options to gain exposure to the
exchange on a trading (and thus there is
would provide the marketplace with a market and hedge Dow Jones Industrial
no NBBO and no Last Print), if there is
sufficient number of strike prices over a Average cash positions in the event that
a Previous Close Price, it will be a valid
range of XSP values.19 The Exchange the value continues to increase. The
price and will be the Opening Price.
believes this proposed rule change proposed strike price interval for DJX
Additionally, if there are no crossed
would allow retail investors to better options is the same as those on another
contracts in a series, the series opens
use XSP options to gain exposure to the options exchange.22
immediately following the time period
SPX options market and hedge S&P 500 Opening Process referenced above.
cash positions in the event that the S&P The Exchange proposes to modify this
500 Index value continues to increase. The proposed rule change adds
process with respect to index options.
The S&P 500 Index is widely used to paragraph (c) to Rule 21.7 to describe
Pursuant to the proposed rule change,
gauge large cap U.S. equities, and as a the opening process for index options.
for index options, the System will
result, investors often use S&P 500 Current Rule 21.7(b) states the System
determine the Opening Price within 30
Index-related products to diversify their will open index options for trading at
seconds of an away options exchange(s)
portfolios and benefit from market 9:30 a.m. Eastern time. Pursuant to the
disseminating a quote in a series.
trends. Full-size SPX options offer these Following an away options exchange’s
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20 See Rule 29.11, Interpretation and Policy .05
benefits to investors, but may be [sic] for a description of the Short Term Options dissemination of a quote in a series, if
expensive given its large notional value. Program. there are no contracts in a series that
21 Nothing in this rule filing precludes the
would execute at any price, the System
18 Seeproposed Rule 29.11(c)(5). Exchange from submitting a future rule filing opens the series for trading without
19 Nothing in this rule filing precludes the requesting even finer strike price increments for
Exchange from submitting a future rule filing DJX options. determining an Opening Price. The
requesting even finer strike price increments for 22 See Cboe Options Rule 24.9, Interpretation and Opening Price, if valid, of a series will
XSP options. Policy .01(b). be the NBBO Midpoint. Pursuant to
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![Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42351
the series listing rules of other will not be unbounded. The proposed trading if there is no valid Opening
exchanges.44 XSP strike prices and restrictions are the Price. Therefore, if an index option
The proposed rule change to same as those on another options series is not yet open on another
eliminate the rule provision regarding exchange.47 exchange, the Exchange will still have
the applicability of strike price With respect to the proposed strike the ability to open the series for trading.
intervals, bid/ask differentials and quote prices for DJX options, the proposed As discussed above, the proposed rule
continuity requirements to long-term rule change would more closely align change is the same as the opening
index option contracts will protect DJX option strike prices with 1/100th process for index options on C2,49 and
investors by eliminating potential the value of the Dow Jones Industrial similar to the opening process of
confusion that may result from Average. This would provide more another options exchange, which also
inclusion of duplicative rules. As flexibility and allow the Exchange to provides that opening for trading may
discussed above, other rules address better respond to customer demand for be dependent on whether another
requirements related to strike price DJX option strike prices that relate to options exchange is open.50
intervals and quote continuity current Dow Jones Industrial Average The proposed rule change to permit
requirements and supersede the values. The Exchange believes this the Exchange to list additional
language regarding these topics, and the proposed rule change would allow retail expiration months on option classes
Exchange has no rules imposing bid/ask investors to better use DJX options to opened for trading on the Exchange if
differential requirements (and thus no gain exposure to the market and hedge such expiration months are opened for
such requirements apply to long-term Dow Jones Industrial Average cash trading on at least one other registered
equity option contracts), thus rendering positions in the event that the Dow national securities exchange is the same
this language unnecessary. The Jones Industrial Average value as rules of other options exchanges.51
Exchange will continue to impose these continues to increase. The Exchange The proposed rule change will remove
requirements in the manner it does does not believe the proposed rule impediments to and perfect the
today, consistent with the provisions in change will create additional capacity mechanism of a free and open market
other existing rules, and thus this issues. The proposed DJX strike prices and a national market system by
proposed rule change has no impact on are the same as those on another options allowing the Exchange to match the
how the Exchange imposes these exchange.48 expiration months that other exchanges
requirements. The rules of other options The proposed rule change that list. This will promote competition
exchanges do not include this permits the Exchange to list additional among exchanges, which benefits
provision.45 expiration months if they are listed on investors.
The proposed minimum strike another options exchange will permit The proposed rule change regarding
interval for RUT options (if the strike the Exchange to accommodate requests when the Exchange may halt trading in
price is less than $200) and reduced- made by its Trading Permit Holders and index options promotes just and
value long-term option series is the other market participants to list the equitable principles of trade and
same as that on another options additional expiration months and thus protects the public interest by providing
exchanges.46 encourage competition without harming the Exchange with additional flexibility
With respect to the proposed strike investors or the public interest. when determine whether to halt trading
prices for XSP options, the proposed The proposed rule change with in an index option, so it can make such
rule change would more closely align respect to the opening process for index a determination based on then-current
XSP option strike prices with those of options eliminates the possibility of circumstances to determine what it will
SPX option strike prices, and would RUT options on the Exchange contribute to a fair and orderly market.
more closely align strike price range automatically opening for trading prior The proposed change is consistent with
limitations on XSP options with those of to those options being open on Cboe the rules of another options exchange.52
Options and thus interfering with the The proposed rule change to clarify
equity and ETF options. This would
calculation of volatility index derivative that, for purposes of determining
provide more flexibility and allow the
settlement values, which promotes just whether a trade resulted from an
Exchange to better respond to customer
and equitable principles of trade and erroneous print or quote in the
demand for XSP option strike prices
perfects the mechanism of a free and underlying, the underlying may include
that relate to current S&P 500 Index
open market and national market index values (as well as Fund Shares
values. The Exchange believes this
system. As discussed above, under and HOLDRs, which may also underlie
proposed rule change would allow retail
certain circumstances, the proposed rule options trading on the Exchange
investors to better use XSP options to
change is expected to have a de minimis pursuant to Rule 19.3(g) and (i),
gain exposure to the SPX options market
impact on the opening of index option respectively) further harmonizes the
and hedge S&P 500 cash positions in the
series on the Exchange because, to the Exchange’s rule related to the
event that the S&P 500 Index value
extent the Exchange receives a quote adjustment and nullification of
continues to increase. The Exchange
from another Exchange within the time erroneous options transactions with
does not believe the proposed rule
period following 9:30 a.m., and there are those of other options exchanges. The
change will create additional capacity
contracts that may trade, the Opening proposed rule change is based on the
issues. In addition, the Exchange
Process will essentially be the same, and rules of another options exchange.53
believes that because the number of Proposed Rule 29.15 is merely stating
strikes that may be listed would be a series will open with the NBBO
explicitly in the Rules that Rule 18.12(b)
contained by the percentages above and Midpoint as an Opening Price (if valid).
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below the current XSP Index value, the Additionally, the Exchange will 49 See C2 Rule 6.11(a)(2)(B).
number of XSP strikes that may be listed continue to have the ability to use a 50 See BX Rule [sic] Section 8(b).
contingent opening to open a series for 51 See, e.g., Cboe Options Rule 24.9,
44 See, e.g., Cboe Options Rule 24.9(b)(1). Interpretation and Policy .13; and NASDAQ ISE,
45 See, e.g., Cboe Options Rule 24.9. 47 See Cboe Options Rule 24.9, Interpretation and LLC Rule 2009, Supplementary Material .04.
46 See, e.g., Cboe Options Rule 24.9, Policy .11. 52 See, e.g., Cboe Options Rule 24.7(a); see also
Interpretation and Policy .01(a); and Nasdaq PHLX 48 See Cboe Options Rule 24.9, Interpretation and Phlx Rule 1047A(c).
LLC (‘‘Phlx’’) Rule 1101A(a). Policy .01(b). 53 Cboe Options Rule 6.25(g) and (h).
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![Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42353
options. The Exchange believes it is Proposed Rule 29.15 is merely stating the Commission will: (a) By order
appropriate to limit the proposed explicitly in the Rules that Rule 18.12(b) approve or disapprove such proposed
change to index options, because some, does not apply to index options, which rule change, or (b) institute proceedings
such as RUT, are used to determine the is consistent with the current rule. The to determine whether the proposed rule
settlement value for volatility index proposed rule change is based on the change should be disapproved.
derivatives. A similar process does not rules of another options exchange.68
occur for equity options, and thus, the The Exchange Rules and Cboe IV. Solicitation of Comments
risk of opening trading in an equity Options rules regarding position and Interested persons are invited to
option interfering with a settlement exercise limits and margin requirements submit written data, views, and
process on another exchange is not are substantially the same as each other, arguments concerning the foregoing,
present. As discussed above, the as the Exchange rules currently refer to including whether the proposed rule
proposed rule change is the same as the the corresponding Cboe Options rules. change is consistent with the Act.
opening process for index options on Therefore, Options Members must Comments may be submitted by any of
C2,63 and similar to the opening process comply with these Cboe Options rules the following methods:
of another options exchange, which also pursuant to the Exchange Rules.
provides that opening for trading may Pursuant to the proposed rule change, Electronic Comments
be dependent on whether another the Exchange will be trading index • Use the Commission’s internet
options exchange is open.64 options also authorized for trading on comment form (http://www.sec.gov/
The proposed rule change regarding Cboe Options, so the position and rules/sro.shtml); or
when the Exchange may halt trading in exercise limits and margin requirements • Send an email to rule-comments@
index options will apply to all market currently applicable to these index sec.gov. Please include File Number SR–
participants in the same manner to the options that trade on Cboe Options will CboeEDGX–2018–035 on the subject
extent the Exchange halts trading apply to these index options that may be line.
pursuant to the proposed rule. The rule listed for trading on the Exchange. The
provides the Exchange with additional proposed rule regarding the listing and Paper Comments
flexibility when determine whether to trading of XSP, RUT, and DJX are • Send paper comments in triplicate
halt trading in an index option, so it can substantially the same as Cboe Options to Secretary, Securities and Exchange
make such a determination based on rules regarding the listing and trading of Commission, 100 F Street NE,
then-current circumstances to determine XSP, RUT, and DJX, which rules were Washington, DC 20549–1090.
what it will contribute to a fair and previously approved by the Commission
orderly market. The proposed change is All submissions should refer to File
and thus they are consistent with the
consistent with the rules of another Number SR-CboeEDGX–2018–035. This
Act. Additionally, the rules regarding
options exchange.65 file number should be included on the
position and exercise limits and margin
The proposed rule change to permit subject line if email is used. To help the
requirements that will apply to XSP,
the Exchange to list additional Commission process and review your
RUT, and DJX options listed for trading
expiration months on option classes comments more efficiently, please use
on the Exchange were previously
opened for trading on the Exchange if only one method. The Commission will
approved by the Commission, and thus
such expiration months are opened for post all comments on the Commission’s
they are consistent with the Act. The
trading on at least one other registered internet website (http://www.sec.gov/
proposed rule change will also result in
national securities exchange is the same rules/sro.shtml). Copies of the
similar regulatory treatment for similar
as rules of other options exchanges.66 submission, all subsequent
option products.
This proposed rule change will allow amendments, all written statements
The Exchange believes that the
the Exchange to compete with other with respect to the proposed rule
proposed rule change will relieve any
exchanges by matching the expiration change that are filed with the
burden on, or otherwise promote,
months that other exchanges list. Commission, and all written
competition, as the rules are
The proposed rule change to clarify communications relating to the
substantially the same as those of other
that, for purposes of determining proposed rule change between the
options exchanges, as noted above.
whether a trade resulted from an Commission and any person, other than
erroneous print or quote in the C. Self-Regulatory Organization’s those that may be withheld from the
underlying, the underlying may include Statement on Comments on the public in accordance with the
index values (as well as Fund Shares Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be
and HOLDRs, which may also underlie Members, Participants, or Others available for website viewing and
options trading on the Exchange The Exchange neither solicited nor printing in the Commission’s Public
pursuant to Rule 19.3(g) and (i), received comments on the proposed Reference Room, 100 F Street NE,
respectively) further harmonizes the rule change. Washington, DC 20549, on official
Exchange’s rule related to the business days between the hours of
adjustment and nullification of III. Date of Effectiveness of the 10:00 a.m. and 3:00 p.m. Copies of the
erroneous options transactions with Proposed Rule Change and Timing for filing also will be available for
those of other options exchanges. The Commission Action inspection and copying at the principal
proposed rule change is based on the Within 45 days of the date of office of the Exchange. All comments
rules of another options exchange.67 publication of this notice in the Federal received will be posted without change.
Persons submitting comments are
sradovich on DSK3GMQ082PROD with NOTICES
Register or within such longer period (i)
63 See C2 Rule 6.11(a)(2)(B). as the Commission may designate up to cautioned that we do not redact or edit
64 See BX Rule [sic] Section 8(b). 90 days of such date if it finds such personal identifying information from
65 See, e.g., Cboe Options Rule 24.7(a); see also
longer period to be appropriate and comment submissions. You should
Phlx Rule 1047A(c).
66 See, e.g., Cboe Options Rule 24.9,
publishes its reasons for so finding or submit only information that you wish
Interpretation and Policy .13; and NASDAQ ISE, (ii) as to which the Exchange consents, to make available publicly. All
LLC Rule 2009, Supplementary Material .04. submissions should refer to File
67 Cboe Options Rule 6.25(g) and (h). 68 Cboe Options Rule 24.10. Number SR–CboeEDGX–2018–035, and
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![42354 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices
should be submitted on or before Informational presentation of interest to requirements of Section 5221 of the
September 11, 2018. the upper Susquehanna River region; (2) Fixing America’s Surface Transportation
For the Commission, by the Division of release of proposed rulemaking and (FAST) Act. The FAST Act also requires
Trading and Markets, pursuant to delegated policies for public comment; (3) that the Agency develop a corrective
authority.69 revisions to financial instruments and action plan to address any identified
Eduardo A. Aleman, policies; (4) ratification/approval of deficiencies and submit it to Congress
Assistant Secretary. contracts/grants; (5) a report on and the U.S. Department of
delegated settlements; (6) a proposed Transportation’s (DOT) Office of
[FR Doc. 2018–17959 Filed 8–20–18; 8:45 am]
consumptive use mitigation project Inspector General (OIG); this was
BILLING CODE 8011–01–P
located in Conoy Township, Lancaster completed on June 25, 2018. The
County, PA; (7) Regulatory Program purpose of this notice is to announce a
projects; and (8) Lycoming County public meeting to discuss NAS
DEPARTMENT OF STATE Water and Sewer Authority request for recommendations 2, 3 and 4 and to
[Delegation of Authority No. 448] a waiver of 18 CFR 806.31(b). solicit input to be considered by the
Regulatory Program projects and the Agency.
Delegation of Authority To Concur consumptive use mitigation project DATES: The public meeting will take
With Department of Defense listed for Commission action are those place on Wednesday, August 29, 2018,
Humanitarian and Civic Assistance that were the subject of a public hearing from 9:00 a.m. to 12:00 p.m., Eastern
Activities conducted by the Commission on Time. A copy of the agenda for the
August 2, 2018, and identified in the meeting will be available in advance of
Correction notice for such hearing, which was the meeting at https://
In notice document 2018–16782, published in 83 FR 31439, July 5, 2018. www.fmcsa.dot.gov/fastact/csa. If all
appearing on page 38450, in the issue of The public is invited to attend the interested participants have had an
Monday, August 6, 2018, make the Commission’s business meeting. opportunity to comment, the meeting
following correction: Comments on the Regulatory Program may conclude early.
On page 38450, in the second column, projects and the consumptive use Public Comments: Comments must be
in the first paragraph, on the fourth line, mitigation project were subject to a received by October 22, 2018.
the text-entry for the ‘‘State Department deadline of August 13, 2018. Written ADDRESSES: The meeting will be held at
Basic Authorities Act’’ is corrected to comments pertaining to other items on the FMCSA National Training Center,
read ‘‘State Department Basic the agenda at the business meeting may 1310 N Courthouse Road, Suite 600,
Authorities Act (22 U.S.C. 2651a) and be mailed to the Susquehanna River Arlington, VA 22201–2508. Those
10 U.S.C. 401’’. Basin Commission, 4423 North Front interested in attending this public
[FR Doc. C1–2018–16782 Filed 8–20–18; 8:45 am] Street, Harrisburg, Pennsylvania 17110– meeting must register at: https://
BILLING CODE 1301–00–D
1788, or submitted electronically www.fmcsa.dot.gov/fastact/csa.
through www.srbc.net/about/meetings- Participants have the option of
events/business-meeting.html. Such registering to attend in person, or via
comments are due to the Commission webinar.
SUSQUEHANNA RIVER BASIN on or before August 31, 2018. Comments
COMMISSION FOR FURTHER INFORMATION CONTACT: For
will not be accepted at the business
information about the public meeting or
Commission Meeting; Correction meeting noticed herein.
for information on facilities or services
Authority: Public Law 91–575, 84 Stat. for individuals with disabilities or to
AGENCY: Susquehanna River Basin 1509 et seq., 18 CFR parts 806, 807, and 808. request special assistance at the
Commission.
Dated: August 16, 2018. meeting, contact Ms. Barbara Baker,
ACTION: Notice; correction. Compliance Division, at (202) 366–3397
Stephanie L. Richardson,
SUMMARY: The Susquehanna River Basin Secretary to the Commission. or by email at Barbara.Baker@dot.gov,
Commission published a document in [FR Doc. 2018–18007 Filed 8–20–18; 8:45 am] by August 27, 2018.
If you have questions regarding
the Federal Register of August 8, 2018, BILLING CODE 7040–01–P
viewing or submitting material to the
concerning its regular business meeting
docket, contact Docket Services,
on September 7, 2018, in Binghamton,
telephone (202) 366–9826.
New York. The document was missing DEPARTMENT OF TRANSPORTATION
an agenda item. SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT: Federal Motor Carrier Safety Background
Gwyn Rowland, Manager, Governmental Administration
Section 5221 of the FAST Act, titled
& Public Affairs, 717–238–0423, ext. [Docket No. FMCSA–2017–0226] ‘‘Correlation Study,’’ required FMCSA
1316. to commission the National Research
Fixing America’s Surface Council of the National Academies to
Correction Transportation Act Correlation Study conduct a study of FMCSA’s
In the Federal Register of August 8, Compliance, Safety, Accountability
2018, in FR Doc. 83–153, on page 39148, AGENCY: Federal Motor Carrier Safety
Administration (FMCSA), DOT. (CSA) program and Safety Measurement
in the third column, correct the System (SMS). SMS is FMCSA’s
sradovich on DSK3GMQ082PROD with NOTICES
SUPPLEMENTARY INFORMATION caption to ACTION: Notice; request for comments.
algorithm for identifying patterns of
read: SUMMARY: On June 27, 2017, the non-compliance and prioritizing motor
SUPPLEMENTARY INFORMATION: The National Academy of Sciences (NAS) carriers for interventions. FMCSA is
business meeting will include actions or published its report titled, ‘‘Improving prohibited from publishing SMS
presentations on the following items: (1) Motor Carrier Safety Measurement.’’ percentiles and alerts on the SMS
This report was commissioned by website for motor carriers transporting
69 17 CFR 200.30–3(a)(12). FMCSA consistent with the property until the NAS Correlation
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Document Created: 2018-08-21 00:07:33
Document Modified: 2018-08-21 00:07:33
| 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 42344 |
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