83 FR 62913 - Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 19.8, Long-Term Options Contracts

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 234 (December 6, 2018)

Page Range		62913-62915
FR Document		2018-26516
Federal Register, Volume 83 Issue 234 (Thursday, December 6, 2018)
[Federal Register Volume 83, Number 234 (Thursday, December 6, 2018)]
[Notices]
[Pages 62913-62915]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26516]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84699; File No. SR-CboeEDGX-2018-056]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Rule 19.8, Long-Term Options Contracts

November 30, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 23, 2018, Cboe EDGX Exchange, Inc. (``Exchange'' or ``EDGX 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
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

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX Options'') 
proposes to amend Rule 19.8, Long-Term Options Contracts. The text of 
the proposed rule change is provided below.
    (additions are italicized; deletions are [bracketed])
* * * * *
    Rules of Cboe EDGX Exchange, Inc.
* * * * *
    Rule 19.8. Long-Term Options Contracts
    [(a)] Notwithstanding conflicting language in Rule 19.6 (Series of 
Options Contracts Open for Trading), the Exchange may list long-term 
options contracts that expire from twelve (12) to thirty-nine (39) 
months from the time they are listed. There may be up to ten (10) 
additional expiration months for options on SPY and up to six (6) 
additional expiration months for all other option classes. Strike price 
interval, bid/ask differential and continuity rules shall not apply to 
such options series until the time to expiration is less than nine (9) 
months.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 19.8, Long-Term Option 
Contracts, to permit the listing and trading of up to ten (10) long-
term expiration months for long-term options on the SPDR[supreg] S&P 
500[supreg] exchange-traded fund (``SPY'') in response to customer 
demand.\3\ Rule 19.8 currently provides that the Exchange may list 
long-term option contracts that expire from twelve (12) to thirty-nine 
(39) months from the time they are listed (``long-term expiration 
months''). There may be up to six (6) long-term expiration months per 
option class.\4\ The proposal will add liquidity to the SPY options 
market by allowing market participants to hedge risks relating to SPY 
positions over a longer period with a known and limited cost.
---------------------------------------------------------------------------

    \3\ The proposed rule change also deletes the paragraph letter 
(a) in Rule 19.8, as there is only one paragraph in the Rule, making 
a paragraph letter unnecessary. In contrast to Rule 19.8, Rule 
29.11(b)(1)(A) (which applies to index options) permits the Exchange 
to list long-term index options series based on either the full or 
reduced value of the underlying index, adding up to ten (10) 
expiration months. The Exchange seeks to list ten (10) long-term 
expiration months on SPY, just as it now may list ten (10) 
expiration months on long-term index option series, in order to 
provide investors with a wider choice of investments.
    \4\ Pursuant to rule 19.8, strike price interval, bid/ask 
differential, and continuity rules do not apply to such options 
series until the time to expiration is less than nine (9) months.
---------------------------------------------------------------------------

    The SPY options market today is characterized by its tremendous 
daily and annual liquidity. As a consequence, the Exchange believes 
that the listing of additional SPY long-term expiration months would be 
well received by investors. This proposal to expand the number of 
permitted SPY long-term expiration months would not apply to long-term 
expiration months on any other class of options.\5\
---------------------------------------------------------------------------

    \5\ Historically, SPY is the largest and most actively traded 
ETF in the United States as measured by its assets under management 
and the value of shares traded.
---------------------------------------------------------------------------

    The Exchange proposes to implement the proposed rule change on the 
date of this rule filing.

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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section

[[Page 62914]]

6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
---------------------------------------------------------------------------

    In particular, the proposed rule change offers market participants 
additional long-term expiration months on SPY options for their 
investment and risk management purposes. The proposal is intended 
simply to provide additional trading opportunities which have been 
requested by customers, thereby facilitating transactions in options 
and contributing to the protection of investors and the maintenance of 
fair and orderly markets. The proposed rule change responds to the 
continuing needs of market participants, particularly portfolio 
managers and other institutional customers, by providing protection 
from long-term market moves and by offering an alternative to hedging 
portfolios with future positions or off-exchange customized derivative 
instruments.
    Rule 19.8 has permitted up to six (6) long-term expiration months 
in option classes since the launch of EDGX Options in 2015. Other 
exchanges, such as Nasdaq PHLX LLC (``Phlx''), have permitted up to six 
``LEAPS'' since 1991, when it increased the number of permissible 
expiration months from four to six. As noted by Phlx (in its recent 
proposal to permit up to ten LEAPS expiration months for options on 
SPY), when the Securities and Exchange Commission (the ``Commission'') 
approved the increase to six expiration months, the Commission stated 
that it did not believe that increasing the number of expiration months 
to six would cause, by itself, a proliferation of expiration months. 
The Commission also required that Phlx monitor the volume of additional 
options series listed as a result of the rule change, and the effect on 
Phlx's system capacity and quotation dissemination displays.\9\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 84449 (October 18, 
2018), 83 FR 53699 (October 24, 2018)(SR-Phlx-2018-64); see also 
Securities Exchange Act Release No. 29103 (April 18, 1991), 56 FR 
19132 (April 25, 1991) (approving SR-Phlx-91-18).
---------------------------------------------------------------------------

    The Exchange believes that the addition today of four (4) 
additional long-term expiration months on SPY options likewise does not 
represent a proliferation of expiration months, but is instead a very 
modest expansion of long-term options in response to stated customer 
demand. Significantly, the proposal would feature new long-term 
expiration months in only a single class of options that are very 
liquid and heavily traded, as discussed above. Additionally, the 
Exchange notes by way of precedent, that ten (10) expiration months are 
already permitted for long-term index options series. Further, the 
Exchange has the necessary systems capacity to support the new SPY 
long-term expiration months.

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 proposal merely provides 
investors additional investment and risk management opportunities by 
providing flexibility to the Exchange to list additional long-term 
options expiration series, expanding the number of SPY long-term 
expiration months offered on the Exchange from six (6) long-term 
expiration months to ten (10) long-term expiration months. Other 
options exchanges currently permit the listing of ten (10) long-term 
expiration months for SPY.\10\
---------------------------------------------------------------------------

    \10\ See, e.g., Phlx Rule 1012(a)(i)(D); Miami International 
Securities Exchange, LLC (``MIAX'') Rule 406(a); and NYSE Arca, Inc. 
(``Arca'') Rule 6.4-O(d)(i).
---------------------------------------------------------------------------

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Commission has waived this requirement in this case.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative upon filing. The Exchange's proposal would conform 
the Exchange's rules relating to the permitted number of long term 
expiration months for long-term options on SPY to those of other 
exchanges.\15\ Accordingly, the Commission believes that the proposal 
raises no new or novel regulatory issues, and waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. The Commission therefore waives the 30-day operative 
delay and designates the proposal operative upon filing.\16\
---------------------------------------------------------------------------

    \13\ Id.
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See supra note 10.
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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:

[[Page 62915]]

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-2018-056 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-2018-056. 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-2018-056, and should be 
submitted on or before December 27, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26516 Filed 12-4-18; 8:45 am]
 BILLING CODE 8011-01-P
62914 Federal Register / Vol. 83, No. 234 / Thursday, December 6, 2018 / Notices

6(b)(5) 7 requirements that the rules of the effect on Phlx’s system capacity and which it was filed, or such shorter time
an exchange be designed to prevent quotation dissemination displays.9 as the Commission may designate, it has
fraudulent and manipulative acts and The Exchange believes that the become effective pursuant to Section
practices, to promote just and equitable addition today of four (4) additional 19(b)(3)(A) of the Act 11 and Rule 19b–
principles of trade, to foster cooperation long-term expiration months on SPY 4(f)(6) thereunder.12
and coordination with persons engaged options likewise does not represent a
proliferation of expiration months, but A proposed rule change filed under
in regulating, clearing, settling, Rule 19b–4(f)(6) 13 normally does not
processing information with respect to, is instead a very modest expansion of
long-term options in response to stated become operative prior to 30 days after
and facilitating transactions in the date of the filing. However, pursuant
securities, to remove impediments to customer demand. Significantly, the
proposal would feature new long-term to Rule 19b–4(f)(6)(iii),14 the
and perfect the mechanism of a free and Commission may designate a shorter
expiration months in only a single class
open market and a national market time if such action is consistent with the
of options that are very liquid and
system, and, in general, to protect heavily traded, as discussed above. protection of investors and the public
investors and the public interest. Additionally, the Exchange notes by interest. The Exchange has asked the
Additionally, the Exchange believes the way of precedent, that ten (10) Commission to waive the 30-day
proposed rule change is consistent with expiration months are already permitted operative delay so that the proposal may
the Section 6(b)(5) 8 requirement that for long-term index options series. become operative upon filing. The
the rules of an exchange not be designed Further, the Exchange has the necessary Exchange’s proposal would conform the
to permit unfair discrimination between systems capacity to support the new Exchange’s rules relating to the
customers, issuers, brokers, or dealers. SPY long-term expiration months. permitted number of long term
In particular, the proposed rule B. Self-Regulatory Organization’s expiration months for long-term options
change offers market participants Statement on Burden on Competition on SPY to those of other exchanges.15
additional long-term expiration months Accordingly, the Commission believes
The Exchange does not believe that
on SPY options for their investment and that the proposal raises no new or novel
the proposed rule change will impose
risk management purposes. The regulatory issues, and waiver of the 30-
any burden on competition that is not
proposal is intended simply to provide day operative delay is consistent with
necessary or appropriate in furtherance
additional trading opportunities which of the purposes of the Act. The proposal the protection of investors and the
have been requested by customers, merely provides investors additional public interest. The Commission
thereby facilitating transactions in investment and risk management therefore waives the 30-day operative
options and contributing to the opportunities by providing flexibility to delay and designates the proposal
protection of investors and the the Exchange to list additional long- operative upon filing.16
maintenance of fair and orderly markets. term options expiration series,
The proposed rule change responds to At any time within 60 days of the
expanding the number of SPY long-term filing of the proposed rule change, the
the continuing needs of market expiration months offered on the
participants, particularly portfolio Commission summarily may
Exchange from six (6) long-term
managers and other institutional temporarily suspend such rule change if
expiration months to ten (10) long-term
customers, by providing protection from expiration months. Other options it appears to the Commission that such
long-term market moves and by offering exchanges currently permit the listing of action is necessary or appropriate in the
an alternative to hedging portfolios with ten (10) long-term expiration months for public interest, for the protection of
future positions or off-exchange SPY.10 investors, or otherwise in furtherance of
customized derivative instruments. the purposes of the Act.
C. Self-Regulatory Organization’s
Rule 19.8 has permitted up to six (6) Statement on Comments on the IV. Solicitation of Comments
long-term expiration months in option Proposed Rule Change Received From
classes since the launch of EDGX Members, Participants, or Others Interested persons are invited to
Options in 2015. Other exchanges, such submit written data, views, and
The Exchange neither solicited nor arguments concerning the foregoing,
as Nasdaq PHLX LLC (‘‘Phlx’’), have received comments on the proposed
permitted up to six ‘‘LEAPS’’ since including whether the proposed rule
rule change. change is consistent with the Act.
1991, when it increased the number of
permissible expiration months from four III. Date of Effectiveness of the Comments may be submitted by any of
to six. As noted by Phlx (in its recent Proposed Rule Change and Timing for the following methods:
proposal to permit up to ten LEAPS Commission Action
expiration months for options on SPY), Because the foregoing proposed rule 11 15 U.S.C. 78s(b)(3)(A).
when the Securities and Exchange change does not: (i) Significantly affect 12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
the protection of investors or the public 4(f)(6)(iii) requires a self-regulatory organization to
Commission (the ‘‘Commission’’) give the Commission written notice of its intent to
approved the increase to six expiration interest; (ii) impose any significant file the proposed rule change, along with a brief
months, the Commission stated that it burden on competition; and (iii) become description and text of the proposed rule change,
did not believe that increasing the operative for 30 days from the date on at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
number of expiration months to six as designated by the Commission. The Commission
9 See Securities Exchange Act Release No. 84449
would cause, by itself, a proliferation of
khammond on DSK30JT082PROD with NOTICES

has waived this requirement in this case.
(October 18, 2018), 83 FR 53699 (October 24,
expiration months. The Commission 2018)(SR–Phlx–2018–64); see also Securities
13 Id.

also required that Phlx monitor the Exchange Act Release No. 29103 (April 18, 1991), 14 17 CFR 240.19b–4(f)(6)(iii).

volume of additional options series 56 FR 19132 (April 25, 1991) (approving SR–Phlx– 15 See supra note 10.

listed as a result of the rule change, and 91–18). 16 For purposes only of waiving the 30-day
10 See, e.g., Phlx Rule 1012(a)(i)(D); Miami operative delay, the Commission has also
International Securities Exchange, LLC (‘‘MIAX’’) considered the proposed rule’s impact on
7 15 U.S.C. 78f(b)(5). Rule 406(a); and NYSE Arca, Inc. (‘‘Arca’’) Rule efficiency, competition, and capital formation. See
8 Id. 6.4–O(d)(i). 15 U.S.C. 78c(f).

VerDate Sep<11>2014 20:35 Dec 04, 2018 Jkt 247001 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 E:\FR\FM\06DEN1.SGM 06DEN1
Document Created: 2018-12-05 02:36:24
Document Modified: 2018-12-05 02:36:24
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 62913