[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Notices]
[Pages 85759-85765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28681]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90748; File No. SR-CBOE-2020-118]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To List 
and Trade Options That Overlie the Mini-Russell 2000 Index

December 21, 2020.
    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 December 16, 2020, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 list and trade options that overlie the Mini-Russell 2000 Index 
(``Mini-RUT'' or ``MRUT''). The text of the proposed rule change is 
provided in Exhibit 5.
    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

[[Page 85760]]

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 purpose of this proposed rule change is to amend certain rules 
in connection with the Exchange's plans to list and trade MRUT 
options.\5\ MRUT options are options on the Mini-RUT Index, the value 
of which is 1/10th the value of the Russell 2000 (``RUT'') Index. The 
Russell 2000 Index measures the performance of small-cap segment of the 
U.S. equity universe. It is a subset of the Russell 3000 Index and 
includes approximately 2,000 U.S.-based securities based on a 
combination of their market cap and current index membership. The 
Russell 2000 Index is constructed to provide a comprehensive and 
unbiased small-cap barometer and is completely reconstituted annually 
to ensure larger stocks do not distort the performance and 
characteristics of the true small-cap opportunity set. The Russell 2000 
Index is a commonly used benchmark for mutual funds that identify 
themselves as ``small-cap,'' and much like the S&P 500 Index (``SPX''), 
is used to benchmark large capitalization stocks. The Exchange 
understands that investors often use Russell 2000 Index-related 
products to diversify their portfolios and benefit from market trends. 
RUT options currently offer these benefits to investors but may be 
expensive given their larger notional value and are therefore primarily 
used by institutional market participants. By contrast, Mini-RUT 
options are a reduced-value options (1/10th) compared to RUT options 
that will offer individual investors lower cost options to obtain the 
potential benefits of options on the Russell 2000 Index. The Exchange 
believes that investors will benefit from the availability of Mini-RUT 
option contracts by making options overlying the higher-valued RUT 
Index more readily available as an investing tool and at more 
affordable prices for the average retail investor. The Exchange notes 
that it has previously listed and traded options on the Mini-RUT Index, 
which were delisted in 2010.\6\
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    \5\ The Exchange intends to file a Form 19b-4(e) with the 
Commission for Mini-Russell 2000 Index options pursuant to Rule 19b-
4(e) of the Act.
    \6\ The Exchange notes that when it previously listed and traded 
reduced-value options on the RUT Index (at 1/10th and 1/5th the 
value), such options were multiply listed and available for trading 
on other options exchange. The Exchange now plans list and trade 
options on the Mini-RUT Index as a proprietary product.
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Initial and Maintenance Listing Criteria
    The Mini-RUT Index contains the same stocks with the same 
weightings as the RUT Index and will be calculated in the same manner 
as the RUT Index, with the exception of being 1/10th the value of the 
RUT Index. The RUT Index is a broad-based index currently authorized to 
list and trade on the Exchange, therefore the Mini-RUT Index also meets 
the definition of a broad-based index as set forth in Rule 4.11 (i.e., 
an index designed to be representative of a stock market as a whole or 
of a range of companies in unrelated industries). The index reporting 
authority, Frank Russell Co., for the Mini-RUT Index is the same as for 
the RUT Index.\7\ Additionally, the Mini-RUT Index (like the RUT Index) 
satisfies the initial listing criteria of a broad-based index, as set 
forth in Rule 4.10(f): \8\
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    \7\ The proposed rule change adds the reporting authority for 
the Mini-RUT Index to Rule 4.12(c).
    \8\ The Exchange also notes that it may authorize for trading 
FLEX Options on Mini-RUT if it may authorize for trading a non-FLEX 
Options on Mini-RUT pursuant to Rule 4.10. See Rule 4.20.

    (1) The index is broad-based, as defined in Rule 4.11;
    (2) options will be A.M.-settled;
    (3) the index is capitalization-weighted, modified 
capitalization-weighted, price-weighted, or equal dollar-weighted; 
\9\
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    \9\ The Mini-RUT Index is capitalization-weighted.
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    (4) the index consists of 50 or more component securities;
    (5) each component security that accounts for at least 95% of 
the weight of the index has a market capitalization of at least $75 
million, except that for each component security that accounts for 
at least 65% of the weight of the index has 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 4.3 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 is an NMS stock;
    (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; \10\
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    \10\ The Mini-RUT Index is comprised of only U.S. component 
securities.
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    (11) the current index value is widely disseminated at least 
once every 15 seconds by the Options Price Reporting Authority, CTA/
CQ, NIDS or one or more major market data vendors during the time 
options on the index 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 Independent System Capacity 
Advisor 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 informational barrier around its 
personnel who have access to information concerning changes in, and 
adjustments to, the index; \11\
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    \11\ The index reporting authority, Frank Russell Co., is not a 
broker-dealer.
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    (15) The Exchange has written surveillance procedures in place 
with respect to surveillance of trading of options on the index.

    Options on the Mini-RUT Index will also be subject to the 
maintenance listing standards set forth in Rule 4.10(g):
    (1) The conditions stated in (1), (2), (3), (9), (10), (11), (12), 
(13), (14), and (15) above must continue to be satisfied and the 
conditions stated in (5), (6), (7), (8) above must be satisfied only as 
of the first day of January and July in each year;
    (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.\12\
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    \12\ As is the case with other index options authorized for 
listing and trading on Cboe Options, in the event the Mini-RUT Index 
fails to satisfy the maintenance listing standards, the Exchange 
will not open for trading any additional series of options of that 
class unless such failure is determined by the Exchange not to be 
significant and the Commission concurs in that determination, or 
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 Securities and 
Exchange Act (the ``Act'').
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Expiration Months, Settlement, and Exercise Style
    Consistent with existing rules for certain index options, including 
RUT options, the Exchange will allow up to six standard monthly 
expirations for MRUT options \13\ as well as LEAPS.\14\ The Exchange 
may list MRUT options as A.M.-, cash-settled contracts with European-
style exercise.\15\ A.M.-settlement is consistent with the generic

[[Page 85761]]

listing criteria for broad-based indexes.\16\ The Exchange proposes to 
amend Rule 4.13(a)(4) to add Mini-RUT Index options to the list of 
other permissible A.M.-settled options, including RUT options. Also, 
European-style exercise is consistent with many index options, as set 
forth in Rule 4.13(a)(3). Standard third-Friday-of-the-month 
(``Expiration Friday'') RUT and MRUT options, as proposed, are 
typically A.M.-settled with European-style exercise. The Exchange 
proposes to amend Rule 4.13(a)(3) to add Mini-RUT Index options to the 
list of other European-style index options, including RUT options. As 
discussed above, the Mini-RUT Index consists of all components that are 
included in the RUT Index but is 1/10th the value of the RUT Index. 
Because of the relation between the Mini-RUT Index and the RUT Index, 
both of which market participants may use as a hedging vehicle to meet 
their investment needs in connection with RUT Index-related products 
and cash positions, the Exchange believes it is appropriate to permit 
the same number of monthly expirations for MRUT options as RUT options 
and to list MRUT options with the same standard settlement and exercise 
style as RUT options.
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    \13\ See Rule 4.13(a).
    \14\ Pursuant to Rule 4.13(b), index LEAPS may expire 12-180 
months from the date of issuance.
    \15\ See Rule 4.13(a)(3).
    \16\ See Rule 4.10(f)(2).
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Quarterly and Nonstandard Expirations
    In addition to this, pursuant to Rule 4.13(c), the Exchange may 
open for trading Quarterly Index Expirations (``QIXs'') on certain 
indexes, including the RUT Index. QIXs are index option contracts that 
expire on the last business day of a calendar quarter. The Exchange 
proposes to amend Rule 4.13(c) to include QIXs on the Mini-RUT Index. 
The Exchange notes that there may be there may be up to eight near-term 
QIXs open for trading in a class and that QIXs are P.M.-settled. Also, 
the Exchange's Nonstandard Expirations Pilot Program currently allows 
it to list Weekly Expirations and End of Month (``EOM'') Expirations on 
any broad-based index.\17\ Weekly and EOM options are P.M., cash-
settled and have European-style exercise. The Exchange intends to list 
MRUT options pursuant to the Nonstandard Expirations Pilot Program and 
notes that it currently lists RUT options with Nonstandard Expirations 
pursuant to the program. As stated above, due to the relation between 
the Mini-RUT Index and the RUT Index, the Exchange believes it is 
appropriate to list MRUT options with the same available expirations as 
RUT options. Further, the Exchange notes that Rule 5.1(b)(2)(C), which 
governs trading days and hours, currently provides that on their last 
trading day, Regular Trading Hours for index options with Nonstandard 
Expirations and QIXs, may be effected on the Exchange between 9:30 a.m. 
and 4:00 p.m. Eastern Time \18\ (as opposed to the 9:30 a.m. to 4:15 
p.m. Regular Trading Hours for options with those expirations that are 
non-expiring). Therefore, expiring MRUT options with Nonstandard 
Expirations and QIXs will also be opened for trading from 9:30 a.m. to 
4:00 p.m. on their last trading day pursuant to Rule 5.1(b)(2)(C).
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    \17\ See Rule 4.13(e). The Exchange notes that it will provide 
the Commission with the annual report analyzing volume and open 
interest of MRUT Weekly and EOM options, as well as information and 
analysis of Weekly and EOM trading patterns, and index price 
volatility and share trading activity for series that exceed minimum 
parameters, pursuant to the Nonstandard Expirations Pilot approval 
order. See Securities Exchange Act Release 62911 (September 14, 
2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-2009-075).
    \18\ See Rule 1.6, which states that unless otherwise specified, 
all times in the Rules are Eastern Time.
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Minimum Increments
    The Exchange also proposes to amend Rule 5.4 in connection with 
minimum increments for bids and offers for MRUT options. Currently, the 
minimum increments for bids and offers for options on the iShares 
Russell 2000 ETF (``IWM''), which is an exchange-traded fund (``ETF'') 
that tracks the performance of the RUT Index, is $0.01 regardless of 
whether option series is quoted above, at, or below $3. Because both 
Mini-RUT options and IWM options prices are based, overall, on 1/10th 
the value of the RUT Index, the Exchange believes that it is important 
that these products have the same minimum increments to promote 
consistency and competition. As such, the Exchange proposes that for so 
long as IWM options participate in the Penny Interval Program the 
minimum increment for MRUT options will be $0.01 at all prices. The 
Exchange notes that this is consistent with the minimum increment for 
Mini-XSP, which is likewise $0.01 so long as options on the SPDR S&P 
500 ETF (``SPY''), an ETF that tracks the SPX Index, participate in the 
Penny Interval Program, as both Mini-XSP and SPY options are by and 
large based on 1/10th the value of the SPX Index.\19\
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    \19\ See Securities Exchange Act Release No. 70087 (July 31, 
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055).
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Exercise Prices
    The Exchange also proposes to adopt rules regarding permissible 
exercise prices for Mini-RUT options. Specifically, the proposed rule 
change amends Interpretation and Policy .01(i) \20\ to Rule 4.13 
provide that, notwithstanding Interpretation and Policies .01(a),\21\ 
.01(d) \22\ and .04 \23\ to Rule 4.13, the exercise prices for new and 
additional series of Mini-RUT options shall be listed subject to the 
following:
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    \20\ The Exchange notes that, currently, Interpretation and 
Policy .01(i) and Interpretation and Policy .01(a) houses the 
exercise price provisions applicable to Mini-RUT options that were 
in place when the Exchange prior listed and traded options on the 
Mini-RUT Index, which were multiply listed at the time, and thus 
based on the strike price interval rules of other options exchanges. 
See Securities Exchange Act Release No. 60977 (November 10, 2009), 
74 FR 59592 (November 18, 2009) (SR-CBOE-2009-086). The Exchange 
proposes to remove these former strike interval price provisions and 
implement strike price interval provisions that are consistent with 
those that govern Mini-XSP options, a proprietary mini-index option 
like Mini-RUT options today.
    \21\ Interpretation and Policy .01(a) to Rule 4.13 provides that 
the interval between strike prices will be no less than $5.00; 
provided, the interval between strike prices will be no less than 
$2.50 for certain classes of index options.
    \22\ Interpretation and Policy .01(d) to Rule 4.13 provides that 
when new series of index options with a new expiration date are 
opened for trading, or when additional series of index options in an 
existing expiration date are opened for trading as the current value 
of the underlying index to which such series relate moves 
substantially from the exercise prices of series already opened, the 
exercise prices of such new or additional series shall be reasonably 
related to the current value of the underlying index at the time 
such series are first opened for trading.
    \23\ Interpretation and Policy .04 to Rule 4.13 provides that 
the Exchange may open for trading additional series of the same 
class of index options as the current index value of the underlying 
index moves substantially from the exercise price of those index 
options that already have been opened for trading on the Exchange. 
The exercise price of each series of index options opened for 
trading on the Exchange shall be reasonably related to the current 
index value of the underlying index to which such series relates at 
or about the time such series of options is first opened for trading 
on the Exchange. The term ``reasonably related to the current index 
value of the underlying index'' means that the exercise price is 
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 such series, as expressed by 
institutional, corporate, or individual customers or their brokers.
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    (1) If the current value \24\ of the Mini-RUT is less than or equal 
to 20, the Exchange shall not list series with an exercise price of 
more than 100% above or below the current value of the Mini-RUT;
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    \24\ The proposed rule change makes this value explicit by 
updating Interpretation and Policy .06 to Rule 4.13 to provide that 
the current index value current index value of reduced-value options 
on the S&P 500 Stock Index (``Mini-SPX options'') and reduced-value 
options on the Russell 2000 Index (``Mini-RUT options'') shall be 
one-tenth (1/10th) the value of the applicable underlying index 
reported by the Reporting Authority.
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    (2) if the current value of the Mini-RUT is greater than 20, the 
Exchange shall not list series with an exercise

[[Page 85762]]

price of more than 50% above or below the current value of the Mini-
RUT; and
    (3) the lowest strike price interval that may be listed for 
standard Mini-RUT options, including LEAPS, is $1, and the lowest 
strike price interval that may be listed for series of Mini-RUT listed 
under the Nonstandard Expirations Pilot Program in Rule 4.13(e) and for 
QIX Mini-RUT options is $0.50.
    Pursuant to current Interpretation and Policy .01(a) to Rule 4.13, 
index options have strike price intervals of $5 or greater. This 
includes strike price intervals for options on the RUT Index.\25\ The 
Exchange believes that MRUT options, which have 1/10th the value of the 
RUT options, should therefore be permitted smaller strike price 
intervals than RUT options. As stated, MRUT options will allow smaller-
scale investors to gain broad exposure to the RUT options market and 
hedge RUT Index-related positions with a manageably sized contract and 
the proposed finer strike prices for MRUT options will permit strike 
prices accordingly aligned with RUT options. For example, if the RUT 
Index value was 2700, then the Mini-RUT Index value would be 270. RUT 
options would be permitted to be listed with strikes of 2710, 2720, and 
2730. Corresponding standard and QIX MRUT options strikes, as proposed, 
would be 271, 272, and 273; as opposed to strikes of only 270 and 275, 
as permitted under the current Rule. The proposed $1 strike interval 
for standard options will permit the listing of series with strikes 
that correspond to RUT option strikes. The Exchange, however, 
recognizes the proposed $1 strike approach for MRUT options alone does 
not achieve full harmonization between strikes in MRUT options and RUT 
options. For example, if there was a 2715 strike in RUT options, the $1 
strike interval would not permit the Exchange to list a corresponding 
271.5 strike in MRUT options. Therefore, the Exchange also proposes 
$0.50 strike price intervals for MRUT options with Nonstandard 
Expirations and for QIX MRUT options. The Exchange believes that 
smaller strike intervals for MRUT options with Nonstandard and QIX 
expirations (all of which are ``nonstandard'' expirations with P.M.-
settlement, and, at times, have expirations that coincide) \26\ will 
provide market participants with more efficient hedging and trading 
opportunities. The proposed $0.05 strike setting regime would permit 
strikes on a more refined scale that, at times, will more closely 
reflect values in the underlying RUT Index and allow market 
participants to roll open positions from a lower strike to a higher 
strike in conjunction with the price movement of the underlying.
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    \25\ Unless the strike price is $200 or less, then the intervals 
may be no less than $2.50. See Interpretation and Policy .01(a) to 
Rule 4.13.
    \26\ For example, every third EOM expiration corresponds to a 
quarterly expiration.
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    The Exchange notes that the proposed strike interval prices for 
MRUT options are substantively the same as those for options on the 
Mini-SPX Index (which are 1/10th the value of SPX options).\27\ The 
Exchange believes these permissible strike prices will permit the 
Exchange to list MRUT options with strikes that closely reflect the 
current values of the RUT Index, as they provide more flexibility and 
will allow the Exchange to better respond to customer demand for MRUT 
option strike prices that relate to current RUT Index values. In 
addition, the Exchange believes that because the number of strikes that 
may be listed will be contained by the percentages above and below the 
current Mini-RUT Index value (as further discussed below) there is no 
need to restrict the use of $1 or $0.50 strike price intervals based on 
the amount of the strike price. Rather, the Exchange may determine to 
list strikes in $1 or $0.50 intervals, as applicable, or higher based 
on the level of the Mini-RUT Index, customer demand and the need to 
list scaled strikes in reduced-value MRUT options that correspond to 
strikes in full-value RUT options. The Exchange believes the proposed 
strike price intervals for MRUT options will allow retail investors to 
better use MRUT options to gain exposure to the RUT options market, 
hedge their positions in RUT Index-related instruments and cash 
positions in the RUT Index, and tailor their investment strategies with 
the same precision as market participants in RUT options.
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    \27\ See Interpretation and Policy .10 to Rule 4.13; and see 
Securities Exchange Act Release Nos. 72482 (June 26, 2014), 79 FR 
37825 (July 2, 2014) (SR-CBOE-2014-051) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Relating to Strike 
Settings for Mini-S&P 500 Index Options); and 72991 (September 4, 
2014), 79 FR 53794 (September 10, 2014) (SR-CBOE-2014-069) (Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to XSP and DJX Strike Price Listings). The Exchange notes 
that it does not propose to add MRUT options to the Short Term 
Options Series Program, and therefore, does not include strike 
interval prices for these options in the proposed rule as it does 
for XSP options.
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    Additionally, the proposed strike price range limitations for MRUT 
options are closely aligned with the strike price range limitations for 
equity and ETF options pursuant to the Rule 4.7(b) and the Options 
Listing Procedure Plan (``OLPP'').\28\ The OLPP and Rule 4.7(b) set 
forth exercise price range limitations for equity and ETF options which 
differ from the general exercise price range limitations for index 
options set forth in Interpretations and Policies .01(d) and .04 to 
Rule 4.13. The Exchange also notes that the exercise price range 
limitations currently in place for Mini-SPX options differ from the 
limitations in Interpretations and Policies .01(d) and .04 to Rule 4.13 
and, instead, are consistent with the OLPP limitations.\29\ 
Interpretation and Policy .01(d) 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 time the 
series is first opened for trading on the Exchange. ``Reasonably 
related to the current index value of the underlying index'' means the 
exercise price must be within 30% of the current index value.\30\ 
Pursuant to Interpretation and Policy .04 to Rule 4.13, 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. Therefore, if the 
value of the Mini-RUT Index is $200, under the current Rules providing 
general exercise price range limitations for index options, the 
Exchange may only list strikes ranging from $140 to $260 (i.e., 30% 
above and below the current value). Pursuant to the OLPP and Rule 
4.7(b) strike price limitations for equity and ETF options, however, if 
the underlying price of an equity or ETF option is $200, the Exchange 
is permitted to list strikes ranging from $100 through $300 (i.e., 50% 
above and below the current value). Therefore, by applying the OLPP 
limitations, as proposed, if the value of the Mini-RUT Index is $200, 
the Exchange will be able to list strikes ranging 50% above and below 
the current value of the index. The Exchange believes the proposed 
exercise price limitations for MRUT options will put such options on 
equal standing with equity and ETF options, as well as Mini-SPX 
options, in connection with exercise price limitations and, as a 
result, will allow the Exchange to list strikes that more closely 
reflect the current values in the RUT Index and to better respond to 
customer demand for MRUT options strike prices that better relate to 
current RUT Index values.
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    \28\ See Rule 4.7(b)
    \29\ See supra note 27.
    \30\ See supra note 23.
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    Finally, the Exchange notes that the proposed rule change removes 
current Interpretation and Policy .01(i)(1) through (4) to Rule 4.13, 
as well as the

[[Page 85763]]

references to reduced-value Russell 2000 Index options in 
Interpretation and Policy .01(a) to Rule 4.13, which contain the strike 
price provisions and delisting policy applicable to the multiply listed 
Mini-RUT options that were previously listed on the Exchange.\31\ The 
Exchange notes that other exchanges that also listed Mini-RUT options 
at that time adopted substantially the same strike price rules and 
delisting policies for Mini-RUT options as provided in current 
Interpretation and Policy .01(i)(1) through (4).\32\ For the reasons 
described above, the Exchange wishes to adopt strike price intervals 
and limitations that are consistent with those for Mini-SPX options, 
which is a proprietary product traded exclusively on the Exchange, as 
will be the case for the MRUT options that the Exchange now proposes to 
list and trade.\33\ The Exchange notes that its general delisting 
policies provided in Rule 4.5 will apply to MRUT options in the same 
manner that they currently apply to other index options, including 
Mini-XSP, pursuant Interpretation and Policy .01 to Rule 4.13.\34\
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    \31\ These were delisted in 2010.
    \32\ See e.g., Securities and Exchange Act Release Nos. 60977 
(November 10, 2009), 74 FR 59592 (November 18, 2009) (SR-CBOE-2009-
086); and 60637 (September 9, 2009), 74 FR 47634 (September 16, 
2009) (SR-Phlx-2009-77).
    \33\ See supra note 6.
    \34\ The Exchange notes that the proposed rule change corrects 
the reference to Rule 4.5 in Interpretation and Policy .01 to Rule 
4.13, which was a carry-over error as a result of the migration of 
the Exchange's Rulebook in 2019. See Securities and Exchange Act 
Release No. 87337 (October 17, 2020), 84 FR 56879 (October 23, 2019) 
(SR-CBOE-2019-092).
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Position and Exercise Limits
    Rule 8.31 governs position limits for broad-based index options, 
and currently provides that there shall be no position limits for 
broad-based index option contracts (including reduced-value option 
contracts) on, among other broad-based index option contracts, the RUT 
Index. Rule 8.42 governs exercise limits and Rule 8.42(b) specifically 
provides that there shall be no exercise limits for broad-based index 
options (including reduced-value option contracts) on, among other 
broad-based index option contracts, the RUT Index. Therefore, there 
will be no position or exercise limits for Mini-RUT option contracts 
upon their listing and trading as they are reduced-value option 
contracts on the RUT Index. The Exchange notes that the Commission has 
previously approved the Exchange Rules codifying that there are no 
position or exercise limits on reduced-value option contracts, the 
filing of which specifically included reduced-value option contracts on 
the RUT Index.\35\
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    \35\ See Securities Exchange Release No. 56350 (September 4, 
2007), 72 FR 51878 (September 11, 2007) (SR-CBOE-2007-79) (Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
No. 1 Thereto To Eliminate Position and Exercise Limits for Options 
on the Russell 2000 Index, and To Specify That Certain Reduced-Value 
Options on Broad-Based Security Indexes Have No Position and 
Exercise Limits).
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Appointment Weights
    The Exchange proposes to add options on the Mini-RUT Index as a 
Tier AA class with a Market-Maker appointment weight of .001.\36\ This 
is the same appointment weight as a majority of the other Tier AA 
options classes. The Exchange determines appointment weights of Tier AA 
classes based on several factors, including, but not limited to, 
competitive forces and trading volume. The Exchange believes the 
proposed initial appointment weight of .001 for Mini-RUT Index options 
will foster competition by incentivizing Market-Makers to obtain an 
appointment in these newly listed options, which may increase liquidity 
in the new class. The Exchange notes that it recently listed options on 
the S&P 500 ESG Index, to which it also assigned an appointment weight 
of .001 for the same reasons--to incentivize Market-Makers to obtain 
appointments and provide increased liquidity in a newly listed 
class.\37\
---------------------------------------------------------------------------

    \36\ See Rule 5.50(g). RUT Index options and IWM options are 
also in Tier AA. While the appointment weights of Tier AA classes 
are not subject to quarterly rebalancing under Rule 5.50(g)(1), the 
Exchange regularly reviews the appointment weights of Tier AA 
classes to ensure that they continue to be appropriate. The Exchange 
determines appointment weights of Tier AA classes based on several 
factors, including, but not limited to, competitive forces and 
trading volume.
    \37\ See Securities Exchange Act Release No. 89749 (September 2, 
2020), 85 FR 55723 (September 9, 2020) (SR-CBOE-2020-080) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To List 
and Trade Options That Overlie the S&P 500 ESG Index).
---------------------------------------------------------------------------

Capacity
    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 new series 
that may result from the introduction of the Mini-RUT Index options up 
to the proposed number of possible expirations. Because the proposal is 
limited to one class, the Exchange believes any additional traffic that 
may be generated from the introduction of Mini-RUT Index options will 
be manageable.
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.\38\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \39\ 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) \40\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b).
    \39\ 15 U.S.C. 78f(b)(5).
    \40\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on the Mini-RUT Index will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest, 
because the Exchange believes that the proposed rule change will 
further the Exchange's goal of introducing innovative products to the 
marketplace. The Exchange particularly believes that the proposed rule 
change will benefit investors, as the Exchange believes there is unmet 
market demand for exchange-listed security options that track the RUT 
Index. ETFs based on the RUT Index (e.g., IWM and Vanguard Russell 2000 
ETF (``VTWO'')) and E-mini RUT Index futures products are listed and 
traded on other exchanges. The Exchange believes that Mini-RUT Index 
options are designed to provide additional, relatively low-cost 
opportunities for investors, particularly retail investors, to hedge or 
speculate on the market risk and meet their investment needs associated 
with the RUT Index and RUT Index-linked products by listing an option 
on 1/10th the value of this index. More specifically, the lower cost of 
MRUT options is designed to allow investors to hedge their portfolios 
with a smaller

[[Page 85764]]

outlay of capital and may facilitate overall investor participation in 
the market for RUT options, which should, in turn, help to maintain the 
depth and liquidity of the market for RUT options, to the benefit of 
investors.
    The Exchange believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with current Rules, 
previously filed with the Commission. Particularly, the Mini-RUT Index 
options satisfy the initial listing standards for broad-based indexes 
in the Exchange's current Rules, which the Commission previously 
approved as consistent with Act.\41\ The proposed rule change to add 
the Mini-RUT Index to the table regarding reporting authorities for 
indexes, to the list of European-style exercise index options, to the 
list of A.M.-settled index options and to the list of index options 
with QIXs, to add MRUT options to the Nonstandard Expiration Pilot 
Program,\42\ to permit the standard number of expirations for MRUT 
options, and to allow for no position or exercise limits to apply to 
MRUT option contracts (as previously approved by the Commission 
specifically for reduced-value option contract on the RUT Index),\43\ 
is consistent with existing Rules governing broad-based index options 
currently authorized and listed for trading on the Exchange. The 
Exchange notes that with respect to these changes, RUT options 
currently have the same reporting authority, number of permissible 
expirations, standard (A.M.) settlement and exercise style, may open 
QIXs for trading, are part of the Nonstandard Expiration Pilot Program, 
and are not subject to position or exercise limits.\44\ The Exchange 
has observed no trading or capacity issues in RUT trading given the 
number and type of permissible expirations, standard settlement, 
European-style exercise and application of no position and exercise 
limits. Because the same components comprise the RUT Index and the 
Mini-RUT Index, market participants may use either as a hedging vehicle 
to meet their investment needs in connection with RUT Index-related 
products and cash positions, and, therefore, the Exchange believes it 
is appropriate to provide generally consistent features between the 
full- and reduced-value options on the RUT Index.
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release No. 34-53266 (February 
9, 2006), 71 FR 8321 (February 16, 2006) (SR-CBOE-2005-59) (Order 
Approving Generic Listing Standards for Options on Broad-based 
Indexes).
    \42\ See supra note 17.
    \43\ See supra note 35.
    \44\ See Rules 4.12(c), 4.13(a)(2) through (4), 4.13(c), Rule 
8.31, and Rule 8.42(b).
---------------------------------------------------------------------------

    The Exchange believes that adopting a minimum increment of $0.01 
for MRUT options, aligned with the minimum increment for IWM options 
(which is also 1/10th the value of the RUT Index), will remove 
impediments to and perfect the mechanism of a free and open market and 
national market system by promoting competition and providing 
consistency for market participants that participate in products that 
track the price of the RUT Index. The Exchange believes that aligning 
the minimum increments for MRUT options with those for IWM options will 
allow market participants to quote in smaller minimum increments of 
$0.01, which may provide the opportunity for reduced spreads, thereby 
lowering costs to investors.\45\ This proposed rule change is also 
consistent with the minimum increments for Mini-XSP, which are $0.01 
and likewise aligned with options on the ETF (SPY) that tracks the same 
underlying index (SPX) and is similarly 1/10th the value of the SPX 
Index.\46\
---------------------------------------------------------------------------

    \45\ See supra note 19.
    \46\ See id.
---------------------------------------------------------------------------

    With respect to the proposed permissible exercise prices for MRUT 
options, the proposed rule change is designed to closely align MRUT 
option strike prices with those of RUT option strike prices. The 
proposed exercise price regime will provide the Exchange with the 
flexibility to respond to customer demand for MRUT option strike prices 
that relate to current RUT Index values and closely reflect values in 
the underlying RUT Index, which will allow investors to roll open 
positions from a lower strike to a higher strike in conjunction with 
the price movement of the underlying. The Exchange believes that the 
proposed strike prices will afford investors important hedging and 
trading opportunities by allowing investors (particularly, retail 
investors) to fine-tune their use of MRUT options to gain exposure to 
the RUT options market, hedge RUT-Index-related positions, and manage 
their portfolios. The proposed rule change will add consistency to the 
RUT Index options markets and will help ensure that investors in MRUT 
options are not at a disadvantage with respect to larger institutional 
investors in RUT options. The Exchange believes that because the number 
of strikes that may be listed will be contained by the percentages 
above and below the current Mini-RUT Index value, the number of MRUT 
strikes that may be listed will not be unbounded. The proposed MRUT 
strike prices and limitations are substantively identical to the strike 
prices and limitations for XSP options, a similar reduced-value 
contract on a broad-based index. The Exchange believes that the 
proposed strike price regime for MRUT options, like the current regime 
for XSP options, will benefit investors by giving them increased 
flexibility and the ability to more closely tailor their investment and 
hedging decisions to their needs.\47\ Additionally, the Exchange 
believes that it is appropriate to delete the strike price and 
delisting provisions that were applicable to multiply listed Mini-RUT 
options, previously listed on multiple exchanges, including the 
Exchange, and, instead, adopt strike price intervals that are 
consistent with those for Mini-SPX options, which are listed 
exclusively on the Exchange, as will also be the case for MRUT options. 
The Exchange notes that its general delisting policies provided in Rule 
4.5 will apply to MRUT options in the same manner that they currently 
apply to other index options, including Mini-XSP.
---------------------------------------------------------------------------

    \47\ See supra note 27.
---------------------------------------------------------------------------

    The Exchange also believes the proposed initial low appointment 
weight for Mini-RUT Index options promotes competition and efficiency 
by incentivizing more Market-Makers to obtain an appointment in the 
newly listed class. The Exchange believes this may result in liquidity 
and competitive pricing in this class, which ultimately benefits 
investors. The Exchange does not believe that the proposed rule change 
is unfairly discriminatory, as the appointment weight will apply to all 
Market-Makers in this class. Additionally, the proposed appointment 
weight is the same as the appointment weight for a majority of other 
Tier AA options classes, as well as a recently listed index option 
class to likewise promote Market-Maker appointment, liquidity and 
competitive pricing in that class.\48\
---------------------------------------------------------------------------

    \48\ See Rule 5.50(g); and see supra note 37.
---------------------------------------------------------------------------

    Finally, the Exchange represents that it has the necessary systems 
capacity to support the new option series given these proposed 
specifications. The Exchange believes that its existing surveillance 
and reporting safeguards are designed to deter and detect possible 
manipulative behavior which might arise from listing and trading Mini-
RUT options. The Exchange further notes that current Exchange Rules 
that apply to the trading of other index options traded on the 
Exchange, such as RUT options, will also apply to the trading of Mini-
RUT options, such as, for example, Exchange

[[Page 85765]]

Rules governing customer accounts, margin requirements and trading halt 
procedures.

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 Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as options on the Mini-RUT Index 
satisfy initial listing standards set forth in the Rules, and MRUT 
options will be equally available to all market participants who wish 
to trade such options. The proposed number and type of expirations 
(i.e., standard, Nonstandard, and QIXs), settlement (standard A.M.), 
exercise style, application of no position and exercise limits, minimum 
increments, and strike price intervals and limitations will apply in 
the same manner to all options traded on the Mini-RUT Index. In 
addition to this, the Exchange notes that the proposed initial low 
Market-Maker appointment cost for Mini-RUT Index options will apply 
equally to all Market-Makers with an appointment in MRUT options and 
will promote competition by incentivizing more Market-Makers to obtain 
an appointment in the newly listed class, resulting in liquidity and 
competitive pricing within the class.
    The Exchange does not believe that the proposal to list and trade 
options on the Mini-RUT Index, and the proposed rules governing the 
trading of MRUT options on the Exchange, will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because options on the RUT 
Index, including reduced-value options as proposed, are proprietary 
Exchange products. To the extent that the advent of MRUT options 
trading on the Exchange may make the Exchange a more attractive 
marketplace to market participants at other exchanges, such market 
participants are free to elect to become market participants on the 
Exchange. As noted above, other option products related to the RUT 
Index, such as ETFs based on the RUT Index (e.g., IWM and VTWO) and E-
mini RUT Index futures products, are listed for trading on other 
exchanges.
    The Exchange believes that the proposal to list and trade MRUT 
options and the proposed rules that will govern the trading of MRUT 
options on the Exchange will promote competition by providing investors 
with a relatively low-cost means to hedge their portfolios with a 
smaller outlay of capital and may facilitate overall participation in 
the market for RUT options, which may help to maintain the depth and 
liquidity of the market for RUT options, to the benefit of all 
investors.

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:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \49\ and 
Rule 19b-4(f)(6) \50\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(3)(A).
    \50\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9defe8f1f8b0fef2f0f0f8f3e9eeddeef8feb3faf2eb"><span class="__cf_email__" data-cfemail="dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9">[email protected]</span></a>. Please include 
File Number SR-CBOE-2020-118 on the subject line.

Paper Comments

    <bullet> 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-2020-118. 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-2020-118 and should be submitted on 
or before January 19, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28681 Filed 12-28-20; 8:45 am]
BILLING CODE 8011-01-P


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