83 FR 62930 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.8, Long-Term Equity Options Series (LEAPS)

SECURITIES AND EXCHANGE COMMISSION

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

[Federal Register Volume 83, Number 234 (Thursday, December 6, 2018)]
[Notices]
[Pages 62930-62932]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-26515]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84698; File No. SR-CBOE-2018-073]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 5.8, Long-Term Equity Options Series (LEAPS)

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 Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.8, Long-Term Equity Options Series (LEAPS). The text of 
the proposed rule change is provided below.
    (additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.8. Long-Term Equity Option Series (LEAPS)
    (a) Notwithstanding conflicting language in Exchange Rule 5.5, the 
Exchange may list long-term equity option series (LEAPS) that expire 
from 12 to 180 months from the time they are listed. There may be up to 
ten additional expiration months for

[[Page 62931]]

options on SPY and up to six additional expiration months for all other 
option classes.
* * * * *
    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 5.8, Long-Term Equity Option 
Series (LEAPS), to permit the listing and trading of up to ten 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 5.8 currently provides that the Exchange may list long-
term option contracts that expire from 12 to 180 months from the time 
they are listed (LEAPS). There may be up to six long-term expiration 
months per option class. 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.
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    \3\ In contrast to Rule 5.8, Rule 24.9(b)(1)(B) (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.
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    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.\4\
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    \4\ 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.
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    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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ 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) \7\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Id.
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    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 5.8 has permitted up to six (6) long-term expiration months in 
option classes since 1991, when it increased the number of permissible 
expiration months from four to six.\8\ Other exchanges, such as Nasdaq 
PHLX LLC (``Phlx''), have similarly permitted up to six ``LEAPS'' since 
1991.\9\ 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 the Exchange 
monitor the volume of additional options series listed as a result of 
the rule change, and the effect on the Exchange's system capacity and 
quotation dissemination displays.\10\
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    \8\ See Securities Exchange Act Release No. 28890 (February 15, 
1991), 56 FR 7439 (February 22, 1991) (approving SR-CBOE-90-32).
    \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).
    \10\ See Securities Exchange Act Release No. 28890 (February 15, 
1991), 56 FR 7439 (February 22, 1991) (approving SR-CBOE-90-32).
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    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

[[Page 62932]]

ten (10) long-term expiration months for SPY.\11\
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    \11\ 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).
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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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ 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.\16\ 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.\17\
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    \14\ Id.
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ See supra note 11.
    \17\ 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).
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    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:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2018-073 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2018-073. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2018-073, and should be submitted 
on or before December 27, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26515 Filed 12-4-18; 8:45 am]
 BILLING CODE 8011-01-P