2006 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Exchange intends to file a Form 19b–4(e) 

with the Commission for any index option it lists 

for trading with an index multiplier of one pursuant 

to Rule 19b–4(e) of the Act. As further discussed 

below, the proposed rule change would also permit 

the Exchange to list flexible index options (‘‘FLEX 

Index Options’’) with an index multiplier of one 

(‘‘FLEX Micro Options’’). Unless the context 

otherwise requires, the term ‘‘micro-options’’ as 

used in this rule filing includes FLEX Micro 

Options. 

4The Exchange intends to file a Form 19b–4(e) 

with the Commission for any index option it lists 

for trading with an index multiplier of one pursuant 

to Rule 19b–4(e) of the Act. As further discussed 

below, the proposed rule change would also permit 

the Exchange to list flexible index options (‘‘FLEX 

Index Options’’) with an index multiplier of one 

(‘‘FLEX Micro Options’’). Unless the context 

otherwise requires, the term ‘‘micro-options’’ as 

used in this rule filing includes FLEX Micro 

Options. 

Counsel, Railroad Retirement Board, 

844 North Rush Street, Chicago, IL 

60611–1275, (312) 751–4945, TTD (312) 

751–4701. 

SUPPLEMENTARY INFORMATION: Section 

701 of the Bipartisan Budget Act of 

2015, Public Law 114–74 (Nov. 2, 2015), 

entitled the Federal Civil Penalties 

Inflation Adjustment Act Improvements 

Act of 2015 (the 2015 Act), amended the 

Federal Civil Penalties Inflation 

Adjustment Act of 1990 (28 U.S.C. 2461 

note) (Inflation Adjustment Act) to 

require agencies to publish regulations 

adjusting the amount of civil monetary 

penalties provided by law within the 

jurisdiction of the agency not later than 

January 15th of every year. 

For the 2021 annual adjustment for 

inflation of the maximum civil penalty 

under the Program Fraud Civil 

Remedies Act of 1986, the Board applies 

the formula provided by the 2015 Act 

and the Board’s regulations at Title 20, 

Code of Federal Regulations, Part 356. 

In accordance with the 2015 Act, the 

amount of the adjustment is based on 

the percent increase between the 

Consumer Price Index (CPI–U) for the 

month of October preceding the date of 

the adjustment and the CPI–U for the 

October one year prior to the October 

immediately preceding the date of the 

adjustment. If there is no increase, there 

is no adjustment of civil penalties. The 

percent increase between the CPI–U for 

October 2020 and October 2019, as 

provided by Office of Management and 

Budget Memorandum M–21–10 

(December 23, 2020) is 1.01182 percent. 

Therefore, the new maximum penalty 

under the Program Fraud Civil 

Remedies Act is $11,803 (the 2020 

maximum penalty of $11,665 multiplied 

by 1.01182, rounded to the nearest 

dollar). The new minimum penalty 

under the False Claims Act is $11,803 

(the 2020 minimum penalty of $11,665 

multiplied by 1.01182, rounded to the 

nearest dollar), and the new maximum 

penalty is $23,607 (the 2020 maximum 

penalty of $23,331 multiplied by 

1.01182, rounded to the nearest dollar). 

The adjustments in penalties will be 

effective January 11, 2021. 

Dated: January 6, 2021. 

By Authority of the Board. 

Stephanie Hillyard, 

Secretary to the Board. 

[FR Doc. 2021–00230 Filed 1–8–21; 8:45 am] 

BILLING CODE P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90853; File No. SR–CBOE– 

2020–117] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

Certain Rules To Accommodate the 

Listing and Trading of Index Options 

With an Index Multiplier of One 

January 5, 2021. 

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 

23, 2020, Cboe Exchange, Inc. 

(‘‘Exchange’’ or ‘‘Cboe Options’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The purpose of this proposed rule 

change is to amend certain rules to 

accommodate the listing and trading of 

index options with an index multiplier 

of one (‘‘micro-options’’).3

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://www.cboe.com/ 

AboutCBOE/CBOELegalRegulatory

Home.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 purpose of this proposed rule 

change is to amend certain rules to 

accommodate the listing and trading of 

index options with an index multiplier 

of one (‘‘micro-options’’).4 The 

Exchange may list options on indexes 

that satisfy the initial and maintenance 

criteria in Rule 4.10, and currently lists 

options on 19 indexes. The following 

table lists the current indexes on which 

the Exchange currently lists options, as 

well as the current value of the index as 

of the close of trading on November 25, 

2020, which indexes satisfy the initial 

and maintenance criteria for broadbased, narrow-based indexes, or the 

specific indexes in Rule 4.10: 

Index 

(option symbol) Current value 

S&P 500 Index (SPX) .......................................................................................................................................................................... 3629.65 

Mini-S&P 500 Index (XSP) .................................................................................................................................................................. 362.97 

Russell 2000 Index (RUT) ................................................................................................................................................................... 1845.02 

Cboe Volatility Index (VIX) .................................................................................................................................................................. 21.25 

Dow Jones Industrial Average (DJX) .................................................................................................................................................. 5 29872.47 

S&P 100 Index (OEX and XEO) ......................................................................................................................................................... 1662.28 

S&P 500 ESG Index (SPESG) ............................................................................................................................................................ 309.24 

S&P Materials Select Sector Index (SIXB) ......................................................................................................................................... 754.63 


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Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Notices 2007 

6Rule 4.11 defines the term ‘‘index multiplier’’ as 

the amount specified in the contract by which the 

current index value is to be multiplied to arrive at 

the value required to be delivered to the holder of 

a call or by the holder of a put upon valid exercise 

of the contract. The Exchange included the 

proposed index multiplier in rule filings for certain 

products. 

7Option specifications are available on the 

Exchange’s public website, available at cboe.com/ 

tradable_products/. Currently, the Exchange has 

designated an index multiplier of 100 for indexes 

it currently lists for trading. 

8See OCC Bylaws Article I, Section 1, U(5). 

9The ODD is available at https://

www.theocc.com/about/publications/characterrisks.jsp. The ODD states that the exercise price of 

a stock option is multiplied by the number of shares 

underlying the option to determine the aggregate 

exercise price and aggregate premium of that 

option. See ODD at 18. Similarly, the ODD states 

that the total exercise price for an index option is 

the exercise price multiplied by the multiplier, and 

the aggregate premium is the premium multiplied 

by the multiplier. See ODD at 8, 9, and 125. 

10See ODD at 8, 9, and 125. 

Index 

(option symbol) Current value 

S&P Industrials Select Sector Index (SIXI) ......................................................................................................................................... 894.23 

S&P Financial Select Sector Index (SIXM) ......................................................................................................................................... 350.98 

S&P Real Estate Select Sector Index (SIXRE) ................................................................................................................................... 178.53 

S&P Utilities Select Sector Index (SIXU) ............................................................................................................................................ 649.19 

S&P Health Care Select Sector Index (SIXV) ..................................................................................................................................... 1,093.10 

MSCI EAFE Index (MXEA) .................................................................................................................................................................. 2,065.60 

MSCI Emerging Markets Index (MXEF) .............................................................................................................................................. 1,218.29 

Russell 1000 Growth Index (RLG) ...................................................................................................................................................... 2,300.88 

Russell 1000 Value Index (RLV) ......................................................................................................................................................... 1,315.93 

Russell 1000 Index (RUI) .................................................................................................................................................................... 2,040.23 

FTSE 100 Mini-Index (UKXM) ............................................................................................................................................................. 637.97 

5Options are based on 1⁄100th of the index value. 

Pursuant to the definition of index 

multiplier 6 in Rule 4.11, the Exchange 

may determine the index multiplier of 

an option, which it generally does in the 

specifications for an index option.7

Similarly, Article I, Section 1, I(3) of the 

Options Clearing Corporation (‘‘OCC’’) 

By-Laws defines ‘‘index multiplier’’ as 

the dollar amount (as specified by the 

Exchange on which such contract is 

traded) by which the current index 

value is to be multiplied to obtain the 

aggregate current index value. Unlike 

the definition of a unit of trading for 

stock options in the OCC By-Laws, 

which states the unit of trading in is 

designated by OCC but is 100 shares if 

not otherwise specified, the definition 

of index multiplier includes no such 

default.8 Therefore, the Exchange 

believes the current index multiplier 

definition in the OCC By-Laws (which 

would have previously been filed with 

the Commission) permits any index 

multiplier specified by the listing 

Exchange given the lack of a default 

index multiplier for index options (and 

the inclusion of a default unit of trading 

for equity options). This is consistent 

with the lack of default number in 

Exchange’s definition of index 

multiplier and the ability for the 

Exchange to specify the index 

multiplier, as noted above. However, 

certain other Rules reflect an index 

multiplier of 100, and the proposed rule 

change updates those Rules to reflect 

the potential for an index multiplier of 

one. 

Additionally, the Exchange believes 

micro-options are covered by the 

disclosures in the Options Disclosure 

Document (‘‘ODD’’). The ODD reflects 

the possibility of differing values of 

index multipliers when describing 

features of index options.9 Specifically, 

the ODD states the total exercise price 

for an index option is the exercise price 

multiplied by the multiplier, and the 

aggregate premium is the premium 

multiplied by the multiplier.10 As a 

result, the risk disclosures regarding 

index options in the ODD currently 

cover any risks associated with option 

index options with multipliers of one 

(and other amounts). 

The Exchange believes micro-options 

will expand investors’ choices and 

flexibility by listing and trading option 

contracts on index options, which 

provide investors with the ability to 

gain exposure to the market or specific 

industries, with a notional value of 

1⁄100th of the value of current index 

options. The Exchange believes lowervalued micro-options may appeal to 

retail investors who currently may not 

participate in the trading of index 

options, because index options are 

generally higher-priced securities due to 

the high levels of the indexes. The 

Exchange believes that investors, most 

notably the average retail investor, will 

benefit from micro-options, which will 

make options overlying indexes more 

readily available as investing and 

hedging tools at more affordable and 

realistic prices, which would ultimately 

reduce investment risk. For example, 

with SPX at a value of 3629.65 on 

November 25, 2020, the notional value 

of an SPX option with an index 

multiplier of 100 was $362,965. On that 

date, the Dec 4 SPX 3630 call was 

traded at $32.05, making the cost of that 

option $3,205 given the index multiplier 

of 100. Proportionately equivalent SPX 

micro-options would have provided 

investors with the ability to trade at the 

much lower price of $32.05 per contract. 

Additionally, the Exchange believes 

the additional granularity provided by 

micro-options with respect to the prices 

at which investors may execute and 

exercise index options on the Exchange 

will appeal to all investors by providing 

them with an additional exchangetraded tool to manage the positions and 

associated risk in their portfolios more 

precisely based on notional value, 

which currently may equal a fraction of 

a standard contract. For example, 

suppose an investor holds a security 

portfolio of $10,000,000 and desires to 

hedge its portfolio with SPX options. In 

order to hedge the entire portfolio with 

SPX options, the investor would need to 

trade 27.55 contracts ($10,000,000/ 

$362,965). The nearest whole number of 

contracts would be 28 contracts, which 

would have a total notional value of 

$10,163,020. As a result, the investor 

could only hedge within $163,020 of its 

portfolio value with SPX options with 

an index multiplier of 100. However, 

with SPX micro-options, the investor 

would need to trade 2,755.09 contracts 

($10,000,000/$3629.65) or equivalently, 

27 SPX and 55.09 SPX micro-options. 

The nearest whole number of contracts 

would be 2,755 SPX micro-options or 27 

SPX and 55 SPX micro-options, which 

would have a total notional value of 

$9,999,686.75. This will allow the 

investor to hedge within $315 of its 

portfolio value. Therefore, the proposed 

rule change would permit this investor 

to hedge its portfolio more effectively 

with far greater precision. 

The Exchange notes investors may 

currently execute and exercise options 

with this smaller contract multiplier in 

the unregulated over-the-counter 


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2008 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Notices 

11The proposed rule change defines ‘‘microoptions’’ in Rule 4.11 as an index option with an 

index multiplier of one. The proposed rule change 

adds that references to ‘‘index option’’ in the Rules 

include ‘‘micro-option’’ unless the context 

otherwise requires. 

12For example, a standard index option for index 

ABC with an index multiplier of 100 may have 

symbol ABC, while a micro-option for index ABC 

with a multiplier of one may have symbol ABC9. 

13The Exchange notes that SR–CBOE–2020–034 

is currently pending with the Securities and 

Exchange Commission (the ‘‘Commission’’) and 

proposes nearly identical changes to FLEX (except 

that rule filing applies to full-value indexes only). 

To the extent the Commission approves that filing 

prior to this filing, the Exchange will amend this 

filing to incorporate the approved changes. If the 

Commission approves this filing prior to that filing, 

the Exchange would withdraw SR–CBOE–2020– 

034. 

14For example, the Exchange may list for trading 

on five securities mini-options, which are options 

with a unit of trading of ten shares, which is ten 

times lower than the standard-sized option of 100 

shares. See Rule 4.5, Interpretation and Policy .18. 

While a mini-option has the same underlying as a 

standard-sized option, they are separate products. 

See Securities Exchange Act Release No. 68656 

(January 15, 2013), 78 FR 4526 (January 22, 2013) 

(SR–CBOE–2013–001). As proposed, the Exchange 

may list for trading micro-options and standard 

options on the same indexes, which will be separate 

products (and thus separate classes). 

15 In other words, SPX micro-options would be a 

different class than standard SPX options, just as 

SPX options are a different class than XSP options. 

16Current Rule 4.20 provides that the Exchange 

may authorize for trading a FLEX Option class on 

any equity security or index if it may authorize for 

trading a non-FLEX Option class on that equity 

security or index pursuant to Rules 4.3 and 4.10, 

respectively, even if the Exchange does not list that 

non-FLEX Option class for trading. Therefore, if the 

proposed rule change to adopt micro-options is 

approved, the Exchange may authorize FLEX Micro 

Options on an index to be listed for trading even 

if the Exchange is not listing a micro-option on that 

same index. 

17Proposed Rule 4.20(b) also clarifies that 

references to ‘‘FLEX Index Option’’ in the Rules 

include ‘‘FLEX Micro Option’’ unless the context 

otherwise requires. 

18For example, a FLEX ABC Index Option with 

a multiplier of 100 may have symbol 4ABC (the ‘‘4’’ 

is the designation generally used for FLEX Options 

to distinguish from the non-FLEX Option with the 

same underlying), while a FLEX ABC Micro Option 

may have symbol 4ABC9. 

19See OCC By-Laws Article I, Section I(U)(5), 

which defines ‘‘unit of trading’’ in respect of any 

series of options as the number of units of the 

underlying interest designated by OCC as the 

minimum number to be the subject of a single 

option contract in such series, and stating that in 

the absence of any such designation for a series of 

options in which the underlying security is a 

common stock, the unit of trading is 100 shares. 

20See Rule 4.5, Interpretation and Policy .18(a). 

(‘‘OTC’’) options market. The Exchange 

understands that investors may prefer to 

trade such options in a listed 

environment to receive the benefits of 

trading listing options, including (1) 

enhanced efficiency in initiating and 

closing out position; (2) increased 

market transparency; and (3) heightened 

contra-party creditworthiness due to the 

role of OCC as issuer and guarantor of 

all listed options. The Exchange 

believes the proposed rule change may 

shift liquidity from the OTC market onto 

the Exchange, which the Exchange 

believes would increase market 

transparency as well as enhance the 

process of price discovery conducted on 

the Exchange through increased order 

flow. 

Micro-Options 

Currently, the Exchange has 

designated an index multiplier of 100 

for all index options it lists for trading. 

The proposed rule change amends 

various rules regarding index options to 

permit the Exchange to designate an 

index multiplier of one for indexes on 

which it may list options. Micro-options 

will trade in the same manner as index 

options.11 The table below demonstrates 

the differences between a micro-option 

and a standard index option on the SPX 

Index: 

Term 

Standard 

(index 

multiplier 

of 100) 

Micro (index 

multiplier of 1) 

Strike Price .............................................................................................................................................................. 3630 3630 

Bid or offer ............................................................................................................................................................... 32.05 32.05 

Total Value of Deliverable ....................................................................................................................................... $363,000 $3,630 

Total Value of Contract ............................................................................................................................................ $3,205 $32.05 

To the extent the Exchange lists a 

micro-option on an index on which it 

also lists a standard index option, it will 

be listed with a different trading symbol 

than the standard index option with the 

same underlying index to reduce any 

potential confusion.12 The Exchange 

believes that the clarity of this approach 

is appropriate and transparent. The 

Exchange recognizes the need to 

differentiate micro-option contracts 

from standard option contracts and 

believes the proposed rule change will 

provide the necessary differentiation. 

FLEX Micro Options 13

Currently, Rule 4.21(b)(1) states the 

index multiplier for FLEX Index 

Options is 100 (which as noted above is 

currently the index multiplier 

designated by the Exchange for all nonFLEX Index Options). The proposed 

rule change deletes the parenthetical 

with that provision from current Rule 

4.21(b)(1), and instead proposes to 

describe the index multiplier for FLEX 

Index Options in proposed Rule 4.20(b). 

Options with the same underlying but 

different units of trading or index 

multipliers, as applicable, are different 

classes.14 An index multiplier applies to 

all series in the class.15 The Exchange, 

therefore, believes including the 

provision regarding the index multiplier 

of FLEX Index Options in Rule 4.20, 

which describes which classes the 

Exchange may authorize for trading, is 

more appropriate.16

The provision in proposed Rule 

4.20(b) that states the index multiplier 

for FLEX Index Options may be 100 

merely restates the provision in the 

parenthetical from current Rule 

4.21(b)(1) in a more appropriate part of 

the Rules, and thus is a nonsubstantive 

change. Proposed Rule 4.20(b) also 

provides that the index multiplier for 

FLEX Index options may also be one (a 

‘‘FLEX Micro Option’’) (in addition to 

the current index multiplier of 100).17

Like non-FLEX Options (as discussed 

above), 100 contracts for a FLEX Micro 

Option are economically equivalent to 

one contract for a FLEX Index Option 

with a multiplier of 100. FLEX Micro 

Options will be listed with different 

trading symbols than FLEX Index 

Options with a multiplier of 100 with 

the same underlying to reduce any 

potential confusion.18

Additionally, proposed Rule 4.20(a) 

states that the unit of trading for FLEX 

Equity Options is the same as the unit 

of trading for non-FLEX Equity Options 

overlying the same equity security. The 

unit of trading for equity options (both 

FLEX and non-FLEX) that may be listed 

on the Exchange is 100,19 except for 

mini-options, which have a unit of 

trading of 10.20 This is not a substantive 

change, but rather is merely a 

clarification in the Rules regarding the 

current unit of trading for FLEX Equity 

Options. Therefore, the proposed rule 

change has no impact on which FLEX 


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21See Rule 4.21(b)(1); and OCC Bylaws Article I, 

Section 1, U(5). 

22A ‘‘FLEX Trader’’ is a Trading Permit Holder 

the Exchange has approved to trade FLEX Options 

on the Exchange. 

23These terms include, in addition to the 

underlying equity security or index, the type of 

options (put or call), exercise style, expiration date, 

settlement type, and exercise price. See Rule 

4.21(b). A ‘‘FLEX Order’’ is an order submitted in 

FLEX Options. The submission of a FLEX Order 

makes the FLEX Option series in that order eligible 

for trading. See Rule 5.72(b). 

24As discussed below, these are the terms 

designated by the Commission as those that 

constitute standardized options, and therefore, the 

Exchange believes the proposed rule change is 

consistent with Section 9(b) of the Act. See 

Securities Exchange Act Release No. 31910 

(February 23, 1993), 58 FR 12056 (March 2, 1993) 

(‘‘1993 FLEX Approval Order’’). 25See Rule 4.21(a)(1). 

26Pursuant to Rule 5.1(b)(3)(A) and (c)(1), FLEX 

Micro Options may trade at the same time as index 

options with the same underlying index. 

27Certain indexes close trading at 4:00 p.m. 

Eastern time. See Rule 5.1. 

28See Rule 4.13. In accordance with Rule 4.21(b), 

FLEX Traders may designate the exercise style, 

expiration date, and settlement type of FLEX Micro 

Options. 

29See Rule 4.13(a)(2). 

30See Rule 4.13(b). Index LEAPS may expire 12 

to 180 months from the date of issuance. 

31See Rule 4.13(a). 

32See Rule 4.13(e). 

33See Rule 4.10(b) (narrow-based initial listing 

criteria), (f) (broad-based initial listing criteria), (h) 

(EAFE, EM, FTSE Emerging, and FTSE Developed), 

and (j) (FTSE 100); see also Rule 4.13(a)(3). 

Equity Options may be traded on the 

Exchange. The ‘‘unit of trading’’ in 

respect of any series of options means 

the number of units (i.e., shares in the 

case of equity options) of the underlying 

interest subject to a single option 

contract in the series.21

When submitting a FLEX Order, the 

submitting FLEX Trader 22 must include 

all required terms of a FLEX Option 

series.23 Pursuant to current Rule 

4.21(b)(1), the submitting FLEX Trader 

must include the underlying equity 

security or index (i.e., the FLEX Option 

class) on the FLEX Order. The proposed 

rule change amends Rule 4.21(b)(1) to 

state that if a FLEX Trader specifies an 

index on a FLEX Order, the FLEX 

Trader must also include whether the 

index option has an index multiplier of 

100 or 1 when identifying the class of 

FLEX Order. The Exchange is specifying 

it may list FLEX Index Option classes 

with an index multiplier of either one 

or 100. Therefore, each FLEX Index 

Option series in a FLEX Micro Option 

class will include the same flexible 

terms as any other FLEX Option series, 

including strike price, settlement, 

expiration date, and exercise style as 

required by Rule 4.21(b).24

FLEX Micro Options will be traded in 

the same manner as all other FLEX 

Options pursuant to Chapter 5, Section 

F of the Rules. Like micro-options, as 

demonstrated above, there are two 

important distinctions between FLEX 

Index Options with a multiplier of 100 

and FLEX Micro Options due to the 

difference in multipliers. The proposed 

rule change amends certain Rules 

describing the exercise prices and bids 

and offers of FLEX Options to reflect 

these distinctions, in a similar manner 

as it proposes to do for non-FLEX 

Options (as further described below). 

The Rules permit trading in a put or 

call FLEX Option series only if it does 

not have the same exercise style, same 

expiration date, and same exercise price 

as a non-FLEX Option series on the 

same underlying security or index that 

is already available for trading.25 In 

other words, a FLEX Option series may 

not have identical terms as a non-FLEX 

Option series listed for trading. Rule 1.1 

defines the term ‘‘series’’ as all option 

contracts of the same class that are the 

same type of option and have the same 

exercise price and expiration date. 

Therefore, a FLEX Option series in one 

class may have the same exercise style, 

same expiration date, settlement, and 

same exercise price as a non-FLEX 

Option series in a different class, even 

if they are on the same underlying 

security or index. For example, 

pursuant to the Exchange’s Rules, a 

FLEX Option overlying Apple stock that 

is a mini-option (i.e. a multiplier of 10) 

may be listed with the same exercise 

style, expiration date, settlement, and 

same exercise price as a non-FLEX 

Option overlying Apple stock that is not 

a mini-option (i.e. a multiplier of 100). 

The Exchange may also list a FLEX XSP 

Option with the same exercise style, 

expiration date, settlement, and same 

exercise price as a non-FLEX SPX 

Option. As these series are in different 

classes, they are permissible under Rule 

4.21(a)(1). Similarly, pursuant to the 

proposed rule change, an SPX FLEX 

Micro Option may have the same 

exercise style, expiration date, 

settlement, and same exercise price as a 

standard SPX option with an index 

multiplier of 100 (which is non-FLEX), 

as they would be in different classes. 

Pursuant to Rule 4.22(a), a FLEX 

Option position becomes fungible with 

a non-FLEX option that becomes listed 

with identical terms. As discussed 

above, options with different multipliers 

are different classes, and an option 

series in one class cannot be fungible 

with an option series in another classes, 

even if they are economically 

equivalent. Fungibility is only possible 

for series with identical terms. This is 

similar to how a FLEX XSP Index 

Option series is not fungible with an 

economically equivalent non-FLEX SPX 

Option series. Therefore, a FLEX Micro 

Option would become fungible with a 

non-FLEX micro-option with the same 

terms pursuant to Rule 4.22(a), but 

would not be fungible with a non-FLEX 

option overlying the same index with a 

multiplier of 100 with the same 

expiration date, settlement, and exercise 

price. 

Trading Hours 

Micro-options will be available for 

trading during the same hours as 

standard index options pursuant to Rule 

5.1(b)(2).26 Therefore, Regular Trading 

Hours for micro-options will generally 

be 9:30 a.m. to 4:15 p.m. Eastern time.27

To the extent an index option is 

authorized for trading during Global 

Trading Hours, the Exchange may also 

list micro-options during that trading 

session as well, the hours for which 

trading session are 3:00 a.m. to 9:15 a.m. 

Eastern time. 

Expiration, Settlement, and Exercise 

Style 

The Exchange may list a micro-option 

on an index with the same expirations, 

settlements, and exercise styles as the 

standard index option overlying the 

same index.28 Consistent with existing 

rules for index options, the Exchange 

will generally allow up to six standard 

monthly expirations for micro-options 29

as well as up to 10 expiration months 

for LEAPS.30 For certain specified index 

options (including EAFE, EM, UKXM, 

the S&P Select Sector Indexes, and 

SPESG options) and any class that the 

Exchange (as the Reporting Authority) 

uses to calculate a volatility index 

(currently, only SPX options are used by 

the Exchange to calculate a volatility 

index), the Exchange may list up to 12 

standard monthly expirations for microoptions on those indexes, up to six 

weekly expirations and up to 12 

standard (monthly) expirations in VIX 

micro-options.31 The Exchange may also 

list up to the same maximum number of 

expirations permitted in Rule 4.13(a)(2) 

for micro-options on broad-based index 

options with nonstandard expirations in 

accordance with the Nonstandard 

Expirations Pilot Program (as further 

discussed below).32 Micro-options on 

broad-based and narrow-based indexes 

will be cash-settled contracts with 

European-style exercise in accordance 

with the listing criteria for those 

options.33 Micro-options, like standard 

index options, with third-Friday 

expiration will also be A.M.-settled or 

P.M.-settled, as applicable, in 


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34See id. 

35See Rule 4.13(c). 

36See Rule 4.13(e). 

37See id. 

38Pursuant to Rule 4.13, Interpretation and Policy 

.01, the interval between strike prices of standard 

index options is generally $5.00 except for lowerpriced strikes, for which the smallest interval is 

$2.50, subject to certain exceptions (including 

reduced-value index options, which may have 

strike intervals of no less than $0.50 or $1). 

39This is consistent with lower permissible strike 

intervals for certain reduced-value index options, 

which have the same practical effect as index 

options with a smaller multiplier. See id. 

40This corresponds to the calculation of exercise 

prices for other types of options with a reduced 

multiplier. For example, Rule 4.5, Interpretation 

and Policy .18(b) provides that strike prices for 

mini-options (which have multipliers of 10 rather 

than 100, as set forth in Rule 4.5, Interpretation and 

Policy .18(a)) are set at the same level as for 

standard options. For example, a call series strike 

price to deliver 10 shares of stock at $125 per share 

has a total deliverable value of $1,250 (10 × 125) 

if the strike is 125, while a call series strike price 

to deliver 100 shares of stock at $125 per share has 

a total deliverable value of $12,500 (100 × 125). 

accordance with the applicable listing 

criteria.34

As it does for certain standard index 

options, the Exchange may list microoptions over the same indexes with 

P.M.-settlement in certain instances (in 

addition to A.M.-settlement in 

accordance with the generic listing 

terms). Specifically, pursuant to Rule 

4.13(c), the Exchange may open for 

trading Quarterly Index Expirations 

(‘‘QIXs’’) on certain specified index 

options. QIXs are index option contracts 

that expire on the last business day of 

a calendar quarter, and the Exchange 

may list up to eight near-term quarterly 

expirations for trading.35 Currently, the 

index multiplier for QIXs may be 100 or 

500. The proposed rule change amends 

Rule 4.13(c) to permit the index 

multiplier to also be one to 

accommodate the listing of QIX microoptions on the specified indexes. 

In addition, the Exchange’s 

Nonstandard Expirations Pilot Program 

currently allows it to list Weekly and 

End of Month (‘‘EOM’’) Expirations on 

any broad-based index.36 Weekly and 

EOM options are P.M.-settled and may 

expire on any Monday, Wednesday, or 

Friday (other than the third Friday of 

the month or days that coincide with an 

EOM expiration) or on the last trading 

day of the month. Like standard index 

options with Weekly and EOM 

Expirations, micro-options on broadbased indexes with Weekly and EOM 

Expirations will be P.M.-settled and 

otherwise treated the same as options on 

the same underlying index that expire 

on the third Friday of the month. The 

maximum number of expirations that 

may be listed for each of Weeklys and 

EOMs in a micro-option is the same as 

the maximum number of expirations 

permitted in Rule 4.13(a)(2) (as 

described above) for micro-options on 

the same broad-based index.37 The 

Exchange may currently list Weekly and 

EOM Expirations on broad-based 

indexes as a pilot, which pilot period 

currently expires on May 3, 2021. The 

Exchange currently submits regular 

reports and data to the Commission 

regarding the Nonstandard Expirations 

Pilot Program. To the extent the 

Exchange lists any micro-options with 

Weekly or EOM Expirations pursuant to 

this pilot program, the Exchange will 

include the same information with 

respect to micro-options that it does for 

standard options in the reports it 

submits to the Commission in 

accordance with the pilot program. 

Similarly, the Exchange also currently 

has in place a pilot program under Rule 

4.13, Interpretation and Policy .13 that 

allows the Exchange to list options on 

specified indexes that expire on the 

third Friday of the month that are P.M.- 

settled. The Exchange, therefore, may 

list micro-options on those same 

indexes pursuant to this pilot program, 

which pilot period currently expires on 

May 3, 2021 as well. As it will for the 

Nonstandard Expirations Pilot Program, 

to the extent the Exchange lists microoptions on the specified indexes 

pursuant to this P.M.-settlement pilot 

program, the Exchange will include the 

same information with respect to microoptions that it does for standard options 

in the reports it submits to the 

Commission in accordance with the 

pilot program. 

Each micro-option will be on an index 

that already satisfies initial and 

maintenance listing criteria in Rule 

4.10, and thus the underlying index of 

each micro-option consists of the same 

components as the underlying index of 

each standard index option. A microoption will merely have 1⁄100th the value 

of a standard option overlying the same 

index. Because micro-options and 

standard index options may overlie the 

same indexes, market participants may 

use micro-options as a hedging vehicle 

to meet their investment needs in 

connection with index-related products 

and cash positions in a similar manner 

as they do with standard index options, 

but as a more manageably sized 

contract. The smaller-sized contract will 

also provide market participants with 

more precision to hedge their portfolios. 

Additionally, the smaller size makes a 

micro-option a lower cost option than a 

standard index option, making it a more 

affordable and lower risk investment 

choice for investors, particularly retail 

investors. Therefore, the Exchange 

believes it is appropriate to be able to 

list the same expirations and 

settlements for micro-options as it may 

for standard index options. 

Exercise Prices 

The Exchange proposes to adopt Rule 

4.13, Interpretation and Policy .01(l) to 

provide that, notwithstanding any other 

provision regarding strike price 

intervals in Rule 4.13, Interpretation 

and Policy .01, the interval between 

strike prices of series of micro-options 

will be $0.50 or greater. Because of the 

smaller contract size of micro-options, 

the Exchange believes it is appropriate 

to be able to list micro-options with 

smaller strike price intervals than 

standard index options.38 The Exchange 

believes finer strike intervals will more 

closely align micro-options with their 

purpose of being a lower-cost 

investment tool to investors.39 The 

Exchange believes that smaller strike 

intervals for micro-options will provide 

market participants with more efficient 

hedging and trading opportunities. The 

proposed $0.50 strike setting regime 

would permit strikes on a more refined 

scale, which the Exchange believes will 

allow investors, particularly retail 

investors, to more affordably and 

efficiently gain exposure to equity 

markets, hedge their positions in 

instrument and cash positions in their 

portfolios, and more precisely tailor 

their investment strategies. 

As demonstrated above, there are two 

important distinctions between microoptions and standard options due to the 

difference in multipliers, one of which 

is how the total deliverable value is 

calculated (the other is the meaning of 

bids and offers, as further discussed 

below). Proposed Rule 4.13, 

Interpretation and Policy .01(l) 

describes the difference between the 

meaning of the exercise price of microoption and a standard index option. 

Specifically, the proposed rule change 

states that strike prices for microoptions are set at the same level as 

index options with an index multiplier 

of 100. For example, a micro-option call 

series with a strike price of 3250 has a 

total deliverable value of $3,250 (3250 × 

$1), while a standard option call series 

with a strike price of 3250 has a total 

deliverable value of $325,000 (3250 × 

$100).40

The proposed rule change amends 

Rule 4.21(b)(6) to describe the difference 

between the meaning of the exercise 

price of a FLEX Index Option with a 

multiplier of 100 and a FLEX Micro 

Option. Specifically, the proposed rule 


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41See Rule 5.4(a). This corresponds to the 

provision regarding the minimum increment for 

mini-options. 

42Rule 5.3(a) states that except as otherwise 

provided in Rule 5.3, must be expressed in terms 

of dollar and decimals per unit of the underlying 

security or index. The Exchange believes that the 

proposed rule change is consistent with this 

provision, as a bid of 7 will represent a bid of 7 

for an option contract having an index multiplier 

(i.e., unit of trading) of one. However, the Exchange 

proposes to add a specific provision regarding the 

meaning of bids and offers for micro-options to 

provide complete clarity in the Rules, and to 

maintain consistency in the Rules, which currently 

contain a separate provision for mini-options, 

which as discussed above, have a reduced 

multiplier compared to standard options as microoptions do. 

43An offer of ‘‘0.50’’ represents an offer of $50 for 

a standard index option with an index multiplier 

of 100. 

44The proposed rule change reorganizes the 

language in this provision to make clear that the 

phrase ‘‘if the exercise price for the FLEX Option 

series is a percentage of the closing value of the 

underlying equity security or index on the trade 

date’’ applies to the entire clause (B) of 5.4(e)(3). 

45See current Rule 4.21(b)(1). 

change states that the exercise price for 

a FLEX Micro Option series is set at the 

same level as the exercise price for a 

FLEX Index Option series in a class 

with a multiplier of 100. The proposed 

rule change also adds the following 

examples to Rule 4.21(b)(6) regarding 

how the deliverable for a FLEX Micro 

Option will be calculated (as well as for 

a FLEX Index Option with a multiplier 

of 100 and a FLEX Equity Option, for 

additional clarity and transparency): If 

the exercise price of a FLEX Option 

series is a fixed price of 50, it will 

deliver: (A) 100 shares of the underlying 

security at $50 (with a total deliverable 

of $5,000) if a FLEX Equity Option; (B) 

cash equal to 100 (i.e. the index 

multiplier) times 50 (with a total 

deliverable value of $5,000) if a FLEX 

Index Option with a multiplier of 100; 

and (C) cash equal to one (i.e. the index 

multiplier) times 50 (with a total 

deliverable value of $50) if a FLEX 

Micro Option. If the exercise price of a 

FLEX Option series is 50% of the 

closing value of the underlying security 

or index, as applicable, on the trade 

date, it will deliver: (A) 100 shares of 

the underlying security at a price equal 

to 50% of the closing value of the 

underlying security on the trade date 

(with a total deliverable of 100 times 

that percentage amount) if a FLEX 

Equity Option; (B) cash equal to 100 (i.e. 

the index multiplier) times a value 

equal to 50% of the closing value of the 

underlying index on the trade date (with 

a total deliverable of 100 times that 

percentage amount) if a FLEX Index 

Option with a multiplier of 100; and (C) 

cash equal to one (i.e. the index 

multiplier) times a value equal to 50% 

of the closing value of the underlying 

index on the trade date (with a total 

deliverable of one times that percentage 

amount) if a FLEX Micro Option. The 

descriptions of exercise prices for FLEX 

Equity Options and FLEX Index Options 

with a multiplier of 100 are true today, 

and merely add for purposes of clarity 

examples to the rule regarding the 

exercise price of a FLEX Equity Option 

or a FLEX Index Option with a 

multiplier of 100, the deliverables for 

which are equal to the exercise price 

times the 100 contract multiplier to 

determine the deliverable dollar value. 

Because a FLEX Micro Option has a 

multiplier of 1⁄100 of the multiplier of a 

FLEX Index Option with a multiplier of 

100, the value of the deliverable of a 

FLEX Micro Option as a result is 1⁄100

of the value of the deliverable of a FLEX 

Index Option with a deliverable of 100. 

Minimum Increments 

The Exchange proposes to amend 

Rule 5.4 to provide that a micro-option 

will have the same minimum increment 

for bids and offers as the minimum 

increment for a standard index option 

on the same index.41 Similar to the 

proposed rule change above to describe 

the difference between the meaning of 

strike prices of micro-options and 

standard index options, the proposed 

rule change amends the Rules to 

describe the difference between the 

meaning of bids and offers for microoptions and standard index options. 

Specifically, proposed Rule 5.3(c)(2) 

provides that notwithstanding Rule 

5.3(a),42 bids and offers for a microoption must be expressed in terms of 

dollars per 1⁄100th part of the total value 

of the contract. For example, an offer of 

‘‘0.50’’ represents an offer of $0.50 for a 

micro-option.43

Similarly, the proposed rule change 

amends Rule 5.3(e)(3) to describe the 

difference between the meaning of bids 

and offers for FLEX Equity Options, 

FLEX Index Options with a multiplier of 

100, and FLEX Micro Options. 

Currently, that rule states that bids and 

offers for FLEX Options must be 

expressed in (a) U.S. dollars and 

decimals if the exercise price for the 

FLEX Option series is a fixed price, or 

(b) a percentage, if the exercise price for 

the FLEX Option series is a percentage 

of the closing value of the underlying 

equity security or index on the trade 

date, per unit.44 As noted above, a FLEX 

Option contract unit consists of 100 

shares of the underlying security or 100 

times the value of the underlying index, 

as they currently have a 100 contract 

multiplier.45 The proposed rule change 

clarifies that bids and offers are 

expressed per unit, if a FLEX Equity 

Option or a FLEX Index Option with a 

multiplier of 100, and adds an example 

(as set forth below). This is true today, 

and merely adds clarity to the Rules. 

The proposed rule change also adds to 

Rule 5.3(e)(3) the meaning of bids and 

offers for FLEX Micro Options. 

Specifically, bids and offers for FLEX 

Micro Options must be expressed in (a) 

U.S. dollars and decimals if the exercise 

price for the FLEX Option series is a 

fixed price, or (b) a percentage, if the 

exercise price for the FLEX Option 

series is a percentage of the closing 

value of the underlying equity security 

or index on the trade date, per 1/100th

unit. Additionally, the proposed rule 

change adds examples of the meaning of 

bids and offers of FLEX Options: If the 

exercise price of a FLEX Option series 

is a fixed price, a bid of ‘‘0.50’’ 

represents a bid of (A) $50 (0.50 times 

100 shares) for a FLEX Equity Option; 

(B) $50 (0.50 times an index multiplier 

of 100) for a FLEX Index Option with a 

multiplier of 100; and (C) $0.50 (0.50 

times an index multiplier of one) for a 

FLEX Micro Option. 

If the exercise price of a FLEX Option 

series is a percentage of the closing 

value of the underlying equity security, 

a bid of ‘‘0.50’’ represents a bid of (A) 

50% (0.50 times 100 shares) of the 

closing value of the underlying equity 

security on the trade date if a FLEX 

Equity Option; (B) 50% (0.50 times an 

index multiplier of 100) of the closing 

value of the underlying index on the 

trade date if a FLEX Index Option with 

a multiplier of 100; and (C) 0.50% (0.50 

times an index multiplier of one) of the 

closing value of the underlying index on 

the trade date if a FLEX Micro Option. 

The Exchange believes this approach 

identifies a clear, transparent 

description of the differences between 

FLEX Index Options with a multiplier of 

100 and FLEX Micro Options. The 

proposed rule change also provides 

additional clarity regarding the meaning 

of bids and offers of FLEX Equity 

Options and FLEX Index Options with 

a multiplier of 100. 

The proposed rule change also 

clarifies that the System rounds bids 

and offers and offers of FLEX Options to 

the nearest minimum increment 

following application of the designated 

percentage to the closing value of the 

underlying security or index. This is 

consistent with current functionality 

and is merely a clarification in the 

Rules. For example, suppose a FLEX 

Trader enters a bid of 0.27 for a FLEX 

Equity Option, and the underlying 

security has a closing value of 24.52 on 

the trade date. Following the close on 

the trade date, the System calculates the 

bid to be 6.6204 (0.27 × 24.52). Because 

the minimum increment for bids and 


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46See Rule 5.50(g). 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. 

47The proposed rule change also conforms the 

definition of ‘‘complex order’’ in Rule 1.1 to the 

definition of ‘‘complex trade’’ in Rule 5.65 to say 

that it may be comprised of different series in the 

same ‘‘underlying security’’ rather than the same 

‘‘class.’’ As discussed above, micro-options will be 

a different class than standard index options 

overlying the same index. This accommodates, for 

example, the fact that a complex order could be 

comprised of mini-options and standard options 

overlying the same stock (as contemplated by the 

current definition) despite being in different 

classes. The proposed rule change also expands the 

definitions of complex order in Rule 1.1 and 

complex trade in Rule 5.65 to provide that it may 

similarly be comprised of different series in the 

same ‘‘underlying index.’’ The Exchange notes that 

full-value indexes and reduced-value indexes are 

separate indexes under the Exchange Rules, so to 

the extent a multi-legged order whose legs overly 

different indexes (such as one leg with a full-value 

index and one leg with a reduced-value index) 

would not qualify for the definition of ‘‘complex 

trade.’’ 48This corresponds to the provision in those 

definitions regarding mini-options, which states 

that for the purpose of applying these ratios to 

complex orders comprised of legs for both minioptions and standard options, ten mini-option 

contracts represent one standard option contract. 49See Rules 5.37(b). 

50Rule 5.86(e) provides that it will be considered 

conduct inconsistent with just and equitable 

principles of trade for any TPH or person associated 

with a TPH, who has knowledge of all material 

terms and conditions of an original order and a 

solicited order, including a facilitation order, that 

matches the original order’s limit, the execution of 

which are imminent, to enter, based on such 

knowledge, an order to buy or sell an option of the 

same class as an option that is the subject of the 

original order, or an order to buy or sell the security 

underlying such class, or an order to buy or sell any 

related instrument until either (1) all the terms and 

conditions of the original order and any changes in 

the terms and conditions of the original order of 

which that Trading Permit Holder or associated 

person has knowledge are disclosed to the trading 

crowd or (2) the solicited trade can no longer 

reasonably be considered imminent in view of the 

passage of time since the solicitation. An order to 

buy or sell a ‘‘related instrument,’’ means, in 

reference to an index option, an order to buy or sell 

securities comprising ten percent or more of the 

component securities in the index or an order to 

buy or sell a futures contract on any economically 

equivalent index. 

offers in a FLEX Option class is $0.01, 

the System rounds 6.6204 to the nearest 

penny, which would be a bid of $6.62. 

Appointment Weights 

The Exchange proposes to add microoptions each as a Tier AA class with a 

Market-Maker appointment weight of 

.001.46 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 

each micro-option will foster 

competition by incentivizing MarketMakers to obtain an appointment in 

these newly listed options and provide 

increased liquidity in a newly listed 

class, to the benefit of all investors. 

Contract Size Limits 

The proposed rule change updates 

various other provisions in the 

following Rules to reflect that onehundred micro-contracts overlying an 

index will be economically equivalent 

to one contract for a standard index 

option overlying the same index: 

• Rules 1.1 (definition of ‘‘complex 

order’’) and 5.65(d) (definition of 

‘‘complex trade’’): The definition of 

‘‘complex order’’ in Rule 1.1 provides, 

among other things that for purposes of 

Rules 5.33 and 5.85(b)(1), the term 

‘‘complex order’’ means a complex 

order with any ratio equal to or greater 

than one-to-three (.333) and less than or 

equal to three-to-one (3.00), an Index 

Combo order, a stock-option order, or a 

security future-option order.47

Similarly, in Rule 5.65(d), the definition 

of ‘‘complex trade’’ (for purposes of the 

options linkage plan) means the 

execution of an order in an option series 

in conjunction with the execution of 

one or more related order(s) in different 

option series in the same underlying 

security occurring at or near the same 

time in a ratio that is equal to or greater 

than one-to-three (.333) and less than or 

equal to three-to-one (3.0) and for the 

purpose of executing a particular 

investment strategy (for the purpose of 

applying the aforementioned ratios to 

complex trades comprised of both minioption contracts and standard option 

contracts, ten (10) mini-option contracts 

will represent one (1) standard option 

contract. The proposed rule change adds 

to the definition in each of Rules 1.1 

and 5.65(d) that for the purposes of 

applying these ratios to complex orders 

comprised of legs for both micro-options 

and standard options, 100 micro-option 

contracts represent one standard option 

contract.48

• Rules 5.37 and 5.38: Rules 5.37 and 

5.38 describe the Exchange’s Automated 

Improvement Mechanism for simple 

(‘‘AIM’’) and complex orders (‘‘C– 

AIM’’), respectively. There is no 

minimum size for an order submitted 

into an AIM or C–AIM Auction. 

However, in an AIM Auction for orders 

less than 50 standard option contracts 

(or 500 mini-option contracts), the stop 

price must be at least one minimum 

increment better than the then-current 

national best-bid or offer or the order’s 

limit price (if the order is a limit price), 

whichever is better. For orders of 50 

standard option contracts (or 500 minioption contracts) or more, the stop price 

must be at or better than the thencurrent national best-bid or offer or the 

order’s limit price (if the order is a limit 

price), whichever is better.49 The 

proposed rule change adds to Rule 

5.37(b) that 5,000 micro-option 

contracts is the corresponding size for 

these stop price restrictions. 

Additionally, Rule 5.37(c) and 5.38(c) 

provide that no concurrent AIM or C– 

AIM Auctions, respectively, are 

permitted for orders less than 50 

standard option contracts (or 500 minioption contracts) (for C–AIM Auctions, 

the size is determined by the smallest 

leg of the complex order), but are 

permitted for orders of 50 standard 

option contracts (or 500 mini-option 

contracts) or greater (for C–AIM 

Auctions, the size is determined by the 

smallest leg of the complex order). The 

proposed rule change adds that 5,000 

micro-option contracts is the 

corresponding size for determining 

whether concurrent auctions are 

permissible. 

• Rules 5.39, 5.40, and 5.74: Rules 

5.39, 5.40, and 5.74 describe the 

Exchange’s Solicitation Auction 

Mechanism for simple (‘‘SAM’’), 

complex (‘‘C–SAM’’), and FLEX (‘‘FLEX 

SAM’’) orders, respectively. An order, or 

the smallest leg of a complex order, 

must be for at least the minimum size 

designated by the Exchange (which may 

not be less than 500 standard option 

contracts or 5,000 mini-option 

contracts). The proposed rule change 

adds that 50,000 micro-option contracts 

or FLEX Micro Options, as applicable, is 

the corresponding minimum size for 

orders submitted into SAM, C–SAM, or 

FLEX SAM Auctions. 

• Rule 5.87: Rule 5.87(f) describes 

when a Floor Broker is entitled to cross 

a certain percentage of an order, subject 

to the requirements in that paragraph. 

Under that Rule, the Exchange may 

determine on a class-by-class basis the 

eligible size for an order that may be 

transacted pursuant to this paragraph; 

however, the eligible order size may not 

be less than 50 standard option 

contracts (or 500 mini-option contracts). 

The proposed rule change adds that 

5,000 micro-option contracts is the 

corresponding minimum size for orders 

that may be crossed in accordance with 

this provision. Additionally, Rule 5.87, 

Interpretation and Policy .07(a) provides 

that Rule 5.86(e) 50 does not prohibit a 

Trading Permit Holder (‘‘TPH’’) from 

buying or selling a stock, security 


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51This discussion focuses on position and 

exercise limits with respect to indexes on which the 

Exchange currently lists standard options and may 

also list micro-options. To the extent the Exchange 

lists micro-options on other indexes in the future, 

they would be subject to the same position and 

exercise limits set forth in the applicable Rules, and 

similarly aggregated with standard options on the 

same indexes, as proposed. 

52As noted above, an index option with a 

reduced multiplier has the same practical effect as 

an index option on a reduced-value index. A microoption is the economic equivalent to a reducedvalue index that is 1⁄100th of the full-value index. 

53Rule 8.32(b) provides the Exchange will make 

these determinations with respect to options on 

each industry index at the commencement of 

trading of such options on the Exchange and 

thereafter review the determination semi-annually 

on January 1 and July 1. 

54These position limits are subject to Rule 

8.32(c), which provides that if the Exchange 

determines, at the time of a semi-annual review, 

that the position limit in effect with respect to 

options on a particular industry index is lower than 

the maximum position limit permitted by the 

criteria set forth in Rule 8.32(a), the Exchange may 

effect an appropriate position limit increase 

immediately. If the Exchange determines, at the 

time of a semi-annual review, that the position limit 

in effect with respect to options on a particular 

industry index exceeds the maximum position limit 

permitted by the criteria set forth in Rule 8.32(a), 

the Exchange shall reduce the position limit 

applicable to such options to a level consistent with 

such criteria; provided, however, that such a 

reduction shall not become effective until after the 

expiration date of the most distantly expiring 

option series relating to the industry index, which 

is open for trading on the date of the review; and 

provide further that such a reduction shall not 

become effective if the Exchange determines, at the 

next succeeding semi-annual review, that the 

existing position limit applicable to such options is 

consistent with the criteria set forth in Rule 8.32(a). 

55As noted above, an index option with a 

reduced multiplier has the same practical effect as 

an index option on a reduced-value index. A microoption is the economic equivalent to a reducedvalue index that is 1⁄100th of the full-value index. 

56The proposed rule change also corrects an 

administrative error in Rule 8.35(a). Currently, there 

are two subparagraphs numbered as (a)(5). The 

proposed rule change amends paragraph (a) to 

renumber the second subparagraph (a)(5) to be 

subparagraph (a)(6). 

futures or futures position following 

receipt of an order, including an option 

order, but prior to announcing such 

order to the trading crowd, provided 

that the option order is in a class 

designated as eligible for ‘‘tied hedge’’ 

transactions and within the eligibility 

size parameters, which are determined 

by the Exchange and may not be smaller 

than 500 standard option contracts (or 

5,000 mini-option contracts). The 

proposed rule change adds that 50,000 

micro-option contracts is the 

corresponding minimum size for orders 

that may qualify as tied hedge 

transactions and not be deemed a 

violation of Rule 5.86(e). 

Position and Exercise Limits 51

Rule 8.31 governs position limits for 

broad-based index options, and 

currently provides that there are no 

position limits for broad-based index 

option contracts (including reducedvalue option contracts) on DJX, OEX, 

XEO, RUT, and SPX classes (among 

others). With respect to the other broadbased index options that the Exchange 

currently lists for trading, the Exchange 

fixes the position limits, which may not 

be larger than the limits in the following 

table: 

Broad-based index Standard limit 

(on the same side of the market) 

Russell 1000 Russell 1000 Growth Russell 1000 Value ......................... 50,000 contracts (no more than 30,000 near-term). 

MSCI Emerging Markets Index MSCI EAFE Index ................................. 50,000 contracts. 

Other ......................................................................................................... 25,000 contracts (no more than 15,000 near-term). 

The proposed rule change adds Rule 

8.31(f) to provide that positions in 

micro-options (with an index multiplier 

of one) will be aggregated with positions 

in standard options (including reducedvalue option contracts) (with an index 

multiplier of 100) on the same broadbased index and, for purposes of 

determining compliance with the 

position limits under Rule 8.31, 100 

micro-option contracts with an index 

multiplier of one equal one standard 

option contract with an index multiplier 

of 100. This is consistent with Rule 

8.31(d), which similarly provides that 

positions in reduced-value index 

options are aggregated with positions in 

full-value index options based on 

economic equivalent values of those 

options.52

Rule 8.32 governs position limits for 

industry index options, and currently 

provides that industry index options are 

subject to the following position limits: 

(1) 18,000 contracts if the Exchange 

determines, at the time of a review 

conducted pursuant to Rule 8.32(b),53

that any single underlying stock 

accounted, on average, for 30% or more 

of the index value during the 30-day 

period immediately preceding the 

review; or 

(2) 24,000 contracts if the Exchange 

determines, at the time of a review 

conducted pursuant to Rule 8.32(b), that 

any single underlying stock accounted, 

on average, for 20% or more of the 

index value or that any five underlying 

stocks together accounted, on average, 

for more than 50% of the index value, 

but that no single stock in the group 

accounted, on average, for 30% or more 

of the index value, during the 30-day 

period immediately preceding the 

review; or 

(3) 31,500 contracts if the Exchange 

determines that the conditions specified 

above which would require the 

establishment of a lower limit have not 

occurred.54

The proposed rule change adds Rule 

8.32(g) to provide that positions in 

micro-options (with an index multiplier 

of one) will be aggregated with positions 

in standard options (including reducedvalue option contracts) (with an index 

multiplier of 100) on the same industry 

index and, for purposes of determining 

compliance with the position limits 

under Rule 8.32, 100 micro-option 

contracts with an index multiplier of 

one equal one standard option contract 

with an index multiplier of 100. This is 

consistent with Rule 8.32(e), which 

similarly provides that positions in 

reduced-value index options are 

aggregated with positions in full-value 

index options based on economic 

equivalent values of those options.55

Rule 8.42(b) governs exercise limits 

for index options, and provides that 

exercise limits for index option 

contracts will be equivalent to the 

position limits prescribed for option 

contracts with the nearest expiration 

date in Rule 8.31, 8.32, or 8.34. As is the 

case for certain broad-based index 

options as noted above, there will be no 

exercise limits for broad-based index 

options (including reduced-value option 

contracts). The proposed rule change 

adds to Rule 8.42(b) that there will 

similarly be no exercise limits on microoption contracts on those same broadbased indexes. 

The proposed rule change amends 

Rule 8.35(a) regarding position limits for 

FLEX Options to describe how FLEX 

Micro Options will be counted for 

purposes of determining compliance 

with position limits.56 Because 100 

FLEX Micro Options are equivalent to 

one FLEX Index Option with a 

multiplier of 100 overlying the same 

index due to the difference in contract 

multipliers, proposed Rule 8.35(a)(7) 


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57Pursuant to Rule 8.43(j), FLEX Index Options 

with a multiplier of one will be aggregated with 

non-FLEX Index Options on the same underlying 

index in the same manner as all other FLEX Index 

Options. 

58 15 U.S.C. 78f(b). 

59 15 U.S.C. 78f(b)(5). 

60 Id. 

states that for purposes of determining 

compliance with the position limits 

under Rule 8.35, 100 FLEX Micro 

Option contracts equal one FLEX Index 

Option contract with a multiplier of 100 

with the same underlying index. The 

proposed rule change makes a 

corresponding change to Rule 8.35(b) to 

clarify that, like reduced-value FLEX 

contracts, FLEX Micro Option contracts 

will be aggregated with full-value 

contracts and counted by the amount by 

which they equal a full-value contract 

for purposes of the reporting obligation 

in that provision (i.e., 100 FLEX Micro 

Options will equal one FLEX Index 

Option contract with a multiplier of 100 

overlying the same index). This is 

consistent with the current treatment of 

other reduced-value FLEX Index 

Options with respect to position limits. 

The proposed rule change adds 

paragraph (g) to Rule 8.42 to make a 

corresponding statement regarding the 

application of exercise limits to FLEX 

Micro Options. The margin 

requirements set forth in Chapter 10 of 

the Rules will apply to FLEX Micro 

Options (as they currently do to all 

FLEX Options).57

Capacity 

The Exchange has analyzed its 

capacity and represents that it believes 

the Exchange and Options Price 

Reporting Authority (‘‘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 microoptions. Because the proposed rule 

change is limited to equity index 

options, which currently represent only 

19 of the option classes listed on the 

Exchange, the Exchange believes any 

additional traffic that may be generated 

from the introduction of micro-options 

will be manageable. The Exchange also 

understands that the OCC will be able 

to accommodate the listing and trading 

of micro-options. 

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.58 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 59 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) 60 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In particular, 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, and, in 

general, protect investors and the public 

interest. The Exchange believes the 

proposed rule change will expand 

investor choice and flexibility by 

providing investors with the ability to 

gain exposure to the market or specific 

industries using index options with a 

notional value of 1⁄100th of the value of 

current index options. The Exchange 

believes there is unmet market demand 

from market participants for microoptions. The availability of microoptions may broaden the base of 

investors that use options to manage 

their trading and investment risk, as the 

Exchange believes they will appeal to 

retail investors who currently may not 

participate in the trading of index 

options. Due to the larger-value of 

indexes (which generally result in 

options with five and six figure notional 

values, as demonstrated above), the 

Exchange believes that investors, most 

notably average retail investors, would 

benefit from the availability of microoptions by making currently high-priced 

options more readily available as an 

investing tool and at more affordable 

and realistic prices and thus with 

reduced investment risk. Micro-options 

will make available to investors a 

relatively low-cost method to hedge or 

speculate on market risk and meet their 

investment needs associated with index 

options. The lower cost of micro-options 

will allow investors to trade index 

options and hedge their portfolios with 

a smaller outlay of capital, and thus 

with less investment risk. This may 

facilitate overall investor participation 

in the markets for index options, which 

may increase the depth and liquidity of 

these markets, to the benefit of all 

investors. 

Additionally, the Exchange will 

further 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 by 

providing additional granularity with 

respect to the prices at which investors 

may execute and exercise index options 

on the Exchange. Micro-options will 

provide investors with an exchangetraded tool to manage more precisely 

based on notional value the positions 

and associated risk in their portfolios, 

which currently may equal a fraction of 

a standard contract. Because microoptions and standard index options will 

overlie the same indexes, market 

participants may use them as hedging 

vehicles to meet their investment needs 

in connection with index-related 

products and cash positions in a similar 

manner as they currently do with 

standard index options, but as a more 

manageably sized contract. The smallersized contract will provide all market 

participants with more precision with 

respect to hedging their portfolios more 

effectively with far greater precision. 

Given the various trading and hedging 

strategies employed by investors, this 

additional granularity may provide 

investors with more control over the 

trading of their investment strategies 

and management of their positions and 

risk associated with option positions in 

their portfolios. 

Additionally, micro-options will 

provide investors with the ability to 

execute and exercise options with a 

smaller index multiplier in a listed 

market environment as opposed to in 

the unregulated OTC options market. 

The proposed rule change may shift 

liquidity from the OTC market onto the 

Exchange, which the Exchange believes 

would increase market transparency as 

well as enhance the process of price 

discovery conducted on the Exchange 

through increased order flow to the 

benefit of all investors. By permitting 

index options to trade with the same 

multiplier currently available to 

customized options in the OTC market, 

the Exchange believes the proposed rule 

change will also promote competition 

and remove impediments to and 

perfects the mechanism of a free and 

open market and a national market 

system by further improving a 

comparable alternative to the OTC 

market in customized options. By 

enhancing our Exchange products to 

provide additional terms available in 

the OTC market but not currently 

available in the listed options market, 


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61See Rule 4.10. 

62Rule 4.11 defines the term ‘‘index multiplier’’ 

as the amount specified in the contract by which 

the current index value is to be multiplied to arrive 

at the value required to be delivered to the holder 

of a call or by the holder of a put upon valid 

exercise of the contract. 

63Option specifications are available on the 

Exchange’s public website, available at cboe.com/ 

tradable_products/. 

64See OCC Bylaws Article I, Section 1, U(5). 

65The ODD is available at https://

www.theocc.com/about/publications/characterrisks.jsp. The ODD states that the exercise price of 

a stock option is multiplied by the number of shares 

underlying the option to determine the aggregate 

exercise price and aggregate premium of that 

option. See ODD at 18. Similarly, the ODD states 

that the total exercise price for an index option is 

the exercise price multiplied by the multiplier, and 

the aggregate premium is the premium multiplied 

by the multiplier. See ODD at 8, 9, and 125. 

66The Exchange notes if it desired to list a 

reduced-value index option on other indexes, or list 

an option on a micro-level index (i.e., an index with 1⁄100th the value of the full-sized index), it could do 

so without Commission approval if the underlying 

index satisfied the generic listing criteria in Rule 

4.12. 

67See, e.g., Securities Exchange Act Release No. 

53484 (March 14, 2006), 71 FR 14268 (March 21, 

2006) (SR–ISE–2005–25) (order approving proposed 

change to permit International Securities Exchange 

(‘‘ISE’’) to list and trade options on the FTSE 100 

Index and FTSE 250 Index based on the full-value 

of the indexes, one-tenth of the value of the 

indexes, and one-hundredth of the value of the 

indexes. 

68See CME contract specifications, available at 

https://www.cmegroup.com/trading/equity-index/ 

us-index/e-mini-sandp500_contract_

specifications.html. In addition to these indexes, 

CME also lists index futures with multipliers of 

$250 and $50 on several other indexes on which the 

Exchange also lists index options (and on which the 

Exchange would be able to list micro-options 

pursuant to the proposed rule change, including the 

FTSE Developed Europe Index, the FTSE Emerging 

Markets Index, the S&P Select Sector Indexes, the 

Russell 1000 Index, the Russell 1000 Growth Index, 

and the Russell 1000 Value Index. 

69These proposed changes correspond to similar 

provisions for mini-options, which also have a 

smaller multiplier than standard-sized options. 

70See, e.g., Rules 4.5, Interpretation and Policy 

.18 (description of strike prices for mini-options, 

which have a multiplier of 10), 5.3(c) (description 

of bids and offers for mini-options), and 5.74(a)(4) 

(description of minimum size of FLEX Agency 

Order for mini-options). Just as terms for minioptions, which have a multiplier of 1⁄10th the size 

of standard options, equal 1⁄10th of the same terms 

for standard options, the proposed terms for FLEX 

Index Options with a multiplier of one, which have 

a multiplier 1⁄100th the size of FLEX Index Options 

with a multiplier of 100, equal 1⁄100th of the same 

terms as FLEX Index Options with a multiplier of 

100. 

the Exchange believes it may be a more 

attractive alternative to the OTC market. 

The Exchange believes market 

participants benefit from being able to 

trade customized options in an 

exchange environment in several ways, 

including but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out positions; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of the 

OCC as issuer and guarantor of all listed 

options. 

The Exchange believes the ability to 

list micro-options is consistent with 

several current rules. Particularly, the 

underlying indexes on which microoptions (and FLEX Micro Options) 

would be listed satisfied the initial 

listing standards for index in the 

Exchange’s current Rules and would 

need to continue to satisfy the 

maintenance listing criteria in the 

Rules.61 Pursuant to the definition of 

index multiplier 62 in Rule 4.11, the 

Exchange may determine the index 

multiplier of an option, which it 

generally does in the specifications for 

an index option.63 Similarly, Article I, 

Section 1, I(3) of the OCC By-Laws 

defines ‘‘index multiplier’’ as the dollar 

amount (as specified by the Exchange 

on which such contract is traded) by 

which the current index value is to be 

multiplied to obtain the aggregate 

current index value. Unlike the 

definition of a unit of trading in the 

OCC By-Laws, which states the unit of 

trading in is designated by OCC but is 

100 shares if not otherwise specified, 

the definition of index multiplier 

includes no such default.64 Therefore, 

the Exchange believes the current index 

multiplier definition in the OCC ByLaws (which would have previously 

been filed with the Commission) 

permits any index multiplier specified 

by the listing Exchange given the lack of 

a default index multiplier for index 

options (and the inclusion of a default 

unit of trading for equity options). This 

is consistent with the lack of default 

number in Exchange’s definition of 

index multiplier and the ability for the 

Exchange to specify the index 

multiplier, as noted above. 

Additionally, the Exchange believes any 

potential risks of index options with a 

multiplier of one are covered by 

disclosures of the ODD, as it considers 

the possibility of differing values of 

index multipliers.65 However, certain 

other Rules reflect an index multiplier 

of 100, and the proposed rule change 

updates those Rules to reflect the 

potential listing of an index option with 

an index multiplier of one. 

The listing of micro-options has the 

same practical effect as the listing of 

reduced-index value options, which the 

Exchange (and other options exchanges) 

currently has the authority to do with 

respect to several indexes (in 

accordance with previously 

Commission-approved rules). For 

example, the Exchange may list options 

on both the S&P 500 Index (SPX 

options) and the Mini-S&P 500 Index 

(XSP options), which is 1⁄10th the value 

of the S&P 500 Index.66 This is 

economically equivalent to if the 

Exchange listed an S&P 500 Index 

option with an index multiplier of 100 

and with an index multiplier of 10, 

respectively. The proposed rule change 

will permit the Exchange to make 

reduced-value options on all indexes 

available without relying on a reporting 

authority to create and disseminate a 

reduced-value index at a reduced-value 

level that the Exchange believes may be 

beneficial to the marketplace. The 

Commission also previously approved a 

proposed rule change of at least one 

other options exchange to list reducedvalue options on a ‘‘micro-index’’(which 

has 1⁄100th the value of the full index) as 

well as the full-value index and ‘‘miniindex’’ (which has 1⁄10th the value of the 

full index).67 Similarly, designated 

contract markets also list index futures 

(with which the Exchange’s options 

contracts compete) with varying 

multipliers. For example, the Chicago 

Mercantile Exchange currently lists 

standard, mini-, and micro- futures on 

the S&P 500 Index, the Russell 2000, 

and the DJIA with multipliers of $250, 

$50 and $5 (which is 1⁄50th the size of 

the full-size future), respectively.68

Therefore, the Exchange believes the 

availability of micro-options will 

increase investor choice and promote 

competition in the listed derivatives 

markets. 

As described above, the proposal 

contains a number of features designed 

to protect investors by reducing investor 

confusion. For example, micro-options 

will be designated by different trading 

symbols from their related standard 

contracts. Additionally, the proposed 

rule change describes in the Rules the 

differences regarding the meanings of 

bids and offers, exercise prices (and 

thus deliverables), and minimum sizes 

of index options contracts with a 

multiplier of one and a multiplier of 

100, all of which are adjusted 

proportionately to reflect the difference 

in multiplier, and thus the difference in 

the deliverable value of the 

underlying.69 The Exchange believes the 

transparency and clarity the proposed 

rule change adds to the Rules regarding 

the distinctions between index options 

due to the different multipliers will 

benefit investors. These proposed 

changes are not novel, as they 

correspond to similar rule provisions 

regarding other reduced-value 

options.70

Other than these differences, microoptions will trade in the same manner 

as index options (and FLEX Micro 

Options will trade in the same manner 


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71This is also similar to position limits for other 

options with multipliers less than 100. See, e.g., 

Rule 8.30, Interpretation and Policy .08 (describing 

position limits for mini-options). 

72See H.R. Rep. No. 94–229, at 92 (1975) (Conf. 

Rep.). 

as all other FLEX Index Options). Each 

micro-option will be on an index 

consisting of the same components as 

the underlying index of standard index 

options that may currently be listed on 

the Exchange, but with 1⁄100th the value 

of those indexes. Because micro-options 

and standard index options overlie the 

same indexes, market participants may 

use micro-options as hedging vehicles to 

meet their investment needs in 

connection with index-related products 

and cash positions in a similar manner 

as they do with standard index options, 

but as a more manageably sized 

contract. The smaller-sized contract may 

provide market participants with more 

precision with respect to hedging their 

portfolios. Additionally, the smaller size 

makes micro-options a lower cost 

option, making it a more affordable and 

lower risk option for investors, 

particularly retail investors. Therefore, 

the Exchange believes it is reasonable 

and appropriate to be able to list the 

same expirations and settlements for 

micro-options as it may for standard 

index options. 

The Exchange believes the proposed 

rule change for the minimum price 

increment for micro-options to be the 

same as the minimum price increment 

for index options overlying the same 

index will benefit investors, as it may 

lessen investor and marketplace 

confusion. While price protection 

between micro-options and standard 

options on the same index is not 

required, the Exchange believes that 

consistency between micro-options and 

standard options as to the minimum 

price variation is desirable and is 

designed to promote just and equitable 

principles of trade. Matching the 

minimum price increment between 

micro-options and standard options on 

the same index would help to eliminate 

any unnecessary arbitrage opportunities 

that could result from having contracts 

on the same underlying index traded in 

different minimum price increments. 

Similarly, the Exchange believes 

matched minimum pricing may generate 

enhanced competition among liquidity 

providers. The Exchange believes that 

matched pricing for micro-options and 

standard options on the same index 

would attract additional liquidity 

providers who would make markets in 

micro-options and standard options on 

the same index. In addition to the 

possibility of more liquidity providers, 

the Exchange believes that the ability to 

quote micro-options and standard 

options on the same index in the same 

minimum increments would hopefully 

result in more efficient pricing via 

arbitrage and possible price 

improvement in both contracts on the 

same index. Finally, having the same 

minimum increment for micro-options 

and standard options would be 

beneficial from a logistical perspective 

since firms’ existing systems are 

generally configured using the ‘‘root 

symbol’’ of an underlying index, and it 

may be difficult and resource-intensive 

for firms to assign different minimum 

pricing to micro-options and standard 

options on the same index. 

The Exchange believes the proposed 

rule change regarding the treatment of 

micro-options with respect to 

determining compliance with position 

and exercise limits is designed to 

prevent fraudulent and manipulative 

acts and practices and promote just and 

equitable principles of trade. Index 

options with a multiplier of one will be 

counted for purposes of those limits in 

a proportional manner to index options 

(including reduced-value indexes) with 

a multiplier of 100 and aggregated with 

options overlying the same index 

(including reduced-value indexes) in 

the same manner as index options 

currently are. This is equivalent to 

current limits imposed on reducedvalue options. As noted above, while 

the multipliers of reduced-value indexes 

are $100, a reduced-value index option 

has an economically equivalent effect to 

an index option with a smaller 

multiplier. An index option with a 

multiplier of one corresponds to an 

option overlying a reduced-valued 

index that is 1⁄100th the value of the fullvalue index. It just uses a different 

multiplier rather than a different value 

of the underlying index.71 The 

Exchange believes its surveillances 

continue to be designed to deter and 

detect violations of Exchange Rules, 

including position and exercise limits 

and possible manipulative behavior, 

and those surveillance will apply to 

index options with a multiplier of one 

that the Exchange determines to list for 

trading. Ultimately, the Exchange does 

not believe that this proposed rule 

change raises any unique regulatory 

concerns because existing safeguards— 

such as position and exercise limits 

(and the aggregation of options 

overlying the same index (including 

reduced-value indexes)) and reporting 

requirements—would continue to apply. 

The Exchange also believes the 

proposed initial low appointment 

weight for micro-options will promote 

competition and efficiency by 

incentivizing more Market-Makers to 

obtain an appointment in each microoption the Exchange lists. 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 the 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 classes to 

likewise promote Market-Maker 

appointment, liquidity and competitive 

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 microoptions. The Exchange further notes that 

current Exchange Rules that apply to the 

trading of other index options traded on 

the Exchange will also apply to the 

trading of micro-options, such as 

Exchange Rules governing customer 

accounts, margin requirements and 

trading halt procedures. The Exchange 

understands that market participants 

may currently, and currently do, 

execute orders in options like the ones 

being proposed in the unregulated OTC 

options market, where neither the 

Exchange nor the Commission has 

oversight over market participants that 

may be purposely trading at prices 

through the listed market. As discussed 

below, the proposed rule change may 

encourage these orders to be submitted 

to the Exchange, which could bring 

these orders into a regulated market and 

be subject to surveillance and oversight 

to which they are currently not subject 

with respect to execution of these 

option orders. 

A robust and competitive market 

requires that exchanges respond to 

investors’ evolving needs by constantly 

improving their offerings. When 

Congress charged the Commission with 

supervising the development of a 

‘‘national market system’’ for securities, 

Congress stated its intent that the 

‘‘national market system evolve through 

the interplay of competitive forces as 

unnecessary regulatory restrictions are 

removed.72 Consistent with this 

purpose, Congress and the Commission 

have repeatedly stated their preference 

for competition, rather than regulatory 

intervention to determine products and 


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73See S. Rep. No. 94–75, 94th Cong., 1st Sess. 8 

(1975) (‘‘The objective [in enacting the 1975 

amendments to the Exchange Act] would be to 

enhance competition and to allow economic forces, 

interacting within a fair regulatory field, to arrive 

at appropriate variations in practices and 

services.’’); Order Approving Proposed Rule Change 

Relating to NYSE Arca Data, Securities Exchange 

Act Release No. 59039 (December 2, 2008), 73 FR 

74770 (December 9, 2008) (‘‘The Exchange Act and 

its legislative history strongly support the 

Commission’s reliance on competition, whenever 

possible, in meeting its regulatory responsibilities 

for overseeing the [self-regulatory organizations] 

and the national market system. Indeed, 

competition among multiple markets and market 

participants trading the same products is the 

hallmark of the national market system.’’); and 

Regulation NMS, 70 FR at 37499 (observing that 

NMS regulation ‘‘has been remarkably successful in 

promoting market competition in [the] forms that 

are most important to investors and listed 

companies’’). 

services in the securities markets.73 This 

consistent and considered judgment of 

Congress and the Commission is correct, 

particularly in light of evidence of 

robust competition in the options 

trading industry. The fact that an 

exchange proposed something new is a 

reason to be receptive, not skeptical— 

innovation is the life-blood of a vibrant 

competitive market—and that is 

particularly so given the continued 

internalization of the securities markets, 

as exchanges continue to implement 

new products and services to compete 

not only in the United States but 

throughout the world. Options 

exchanges continuously adopt new and 

different products and trading services 

in response to industry demands in 

order to attract order flow and liquidity 

to increase their trading volume. This 

competition has led to a growth in 

investment choices, which ultimately 

benefits the marketplace and the public. 

The Exchange believes that the 

proposed rule change will help further 

competition by providing market 

participants with yet another 

investment option for the listed options 

market. 

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 any micro-options the Exchange lists 

for trading will be available for all 

market participants in the same manner 

who wish to trade such options. The 

Exchange may list micro-options on all 

indexes currently authorized to be listed 

on the Exchange, subject to the same 

listing criteria. These options will trade 

in the same manner as index options 

and FLEX Index Options, as applicable, 

with a multiplier of 100, with certain 

terms proportionately adjusted to reflect 

the different contract multipliers. 

Additionally, the Exchange believes that 

the proposed rule change will enhance 

competition by allowing products on 

the same index to be priced in the same 

minimum price increments. The 

Exchange also believes the proposed 

initial low Market-Maker appointment 

cost for micro-options will apply 

equally to all Market-Makers with an 

appointment in micro-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 the 

proposed rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act 

because micro-options may only be 

listed for trading on the Exchange. To 

the extent that the availability of these 

products makes the Exchange a more 

attractive marketplace to market 

participants at other exchanges, market 

participants are free to elect to become 

market participants on the Exchange. As 

noted above, other derivative products 

related to these indexes are listed for 

trading on other exchanges. 

Additionally, the Exchange notes that 

listing and trading micro-options on the 

Exchange will subject such options to 

transparent exchange-based rules as 

well as price discovery and liquidity, as 

opposed to alternatively trading these 

products in the OTC market. 

The Exchange believes that the 

proposed rule change may relieve any 

burden on, or otherwise promote, 

competition. The proposal is designed 

to increase competition for order flow 

on the Exchange in a manner that is 

beneficial to investors by providing 

them with a lower-cost option to hedge 

their investment portfolios. The 

Exchange notes that it operates in a 

highly competitive market in which 

market participants can readily direct 

order flow to competing venues who 

offer similar products. The Exchange 

believes the proposed rule change 

encourages competition amongst market 

participants to provide lower-priced 

(and thus lower risk) and more granular 

option products, which may appeal to 

all market participants, including retail 

investors. 

Additionally, the Exchange believes 

this is an enhancement to a comparable 

alternative to the OTC market in 

customized options. By enhancing our 

trading platform to provide additional 

contract granularity that available in the 

OTC market but not currently available 

in the listed options market, the 

Exchange believes it may be a more 

attractive alternative to the OTC market. 

The Exchange believes market 

participants will benefit from being able 

to trade customized options in an 

exchange environment in several ways, 

including but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out position; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of OCC 

as issuer and guarantor of all listed 

options. 

The proposed nonsubstantive changes 

(to move and clarify the current contract 

multiplier for FLEX Equity Options and 

FLEX Index Options with a multiplier of 

100 in Rule 4.21(b) and to correct the 

numbering of subparagraphs in Rule 

8.35(a), as well as examples of the 

exercise prices and the meanings of bids 

and offers) will have no impact on 

competition, as they merely clarify or 

correct, as applicable, information in the 

Rules and make no changes to how 

FLEX Options trade. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: 

A. By order approve or disapprove 

such proposed rule change, or 

B. institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 


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2018 Federal Register / Vol. 86, No. 6 / Monday, January 11, 2021 / Notices 

74 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4. 

5As defined in Rule 1.5(gg), the Exchange’s 

‘‘System’’ is the electronic communications and 

trading facility designated by the Board through 

which securities orders of Users are consolidated 

for ranking, execution and, when applicable, 

routing. As defined in Rule 1.5(jj), a ‘‘User’’ is a 

member of the Exchange (‘‘Member’’) or sponsored 

participant of a Member who is authorized to obtain 

access to the System pursuant to Rule 11.3. 

6Limit Orders are described in Exchange Rule 

11.8(b) and generally defined as an order to buy or 

sell a stated amount of a security at a specified price 

or better. 

7See Securities Exchange Act Release No. 88806 

(May 4, 2020), 85 FR 27451 

(May 8, 2020) (the ‘‘Approval Order’’). 

8Market Orders are described in Exchange Rule 

11.8(a) and generally defined as an order to buy or 

sell a stated amount of a security that is to be 

executed at the NBBO or better when the order 

reaches the Exchange. 

9See Securities Exchange Act Release No. 89581 

(August 17, 2020), 85 FR 51799 (August 21, 2020) 

(SR–MEMX–2020–04). 

10 In addition to Market Orders and Limit Orders, 

Pegged Orders are the third of three primary order 

types offered by the Exchange. Pegged Orders are 

described in Exchange Rules 11.6(h) and 11.8(c) 

and generally defined as an order that is pegged to 

a reference price and automatically re-prices in 

response to changes in the NBBO. The two types 

of peg instructions for Pegged Orders are: (1) 

Primary Peg, which pegs to the NBB (NBO) for buy 

(sell) orders; and (2) Midpoint Peg, which pegs to 

the midpoint of the NBBO. 

11See Exchange Rule 11.8(c)(7). 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2020–117 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–2020–117. 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–2020–117, and 

should be submitted on or before 

February 1, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.74

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–00199 Filed 1–8–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90849; File No. SR–MEMX– 

2020–17] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend Exchange Rule 

11.8(b) Relating to the Handling of 

Limit Orders When the National Best 

Bid or Offer Is Not Available 

January 5, 2021. 

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 

29, 2020, MEMX LLC (‘‘MEMX’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, and II 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing with the 

Commission a proposed rule change to 

amend Exchange Rule 11.8(b) as it 

relates to the System’s 5 handling of 

Limit Orders 6 when the national best 

bid or offer (‘‘NBBO’’) is not available. 

The text of the proposed rule change is 

provided in Exhibit 5. 

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 

On May 4, 2020, the Commission 

approved the Exchange’s Form 1 

application for registration as a national 

securities exchange, including the 

initial Rules of the Exchange.7 In 

preparation for the Exchange’s launch 

on September 21, 2020, the Exchange 

adopted in August 2020 certain 

additional Rules relating to the System’s 

handling of Market Orders 8 and Limit 

Orders when the NBBO is not 

available.9 Specifically, the Exchange 

adopted Exchange Rule 11.8(a)(7), 

which provides that a Market Order 

received by the System when the NBBO 

is not available will be rejected or 

cancelled back to the entering User, and 

Exchange Rule 11.8(b)(9), which 

similarly provides that a Limit Order 

received by the System when the NBBO 

is not available will be rejected or 

cancelled back to the entering User. 

These Rules were based on language 

applicable to Pegged Orders 10 set forth 

in Exchange Rule 11.8(c)(7) and were 

intended to match the handling of 

Market Orders and Limit Orders with 

the handling of Pegged Orders when the 

NBBO is not available under that Rule 

(i.e., that such orders will be rejected or 

cancelled back to the entering User).11

The Exchange noted in the proposal to 

adopt Exchange Rules 11.8(a)(7) and 

11.8(b)(9) that it believed that, at least 

in connection with the launch of the 


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