42330 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 

15See SR–IEX–2018–16 (pending publication). 

16 15 U.S.C. 78s(b)(3)(A). 

17 17 CFR 240.19b–4(f). 

18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

to amend its own routing fees so that it 

can recoup costs associated with routing 

orders to such away markets. The 

Exchange believes that the proposed 

fees for orders routed to IEX are 

reasonable and equitable because they 

reflect the costs associated with 

executing orders on IEX and additional 

operational expenses incurred by the 

Exchange. The Exchange is proposing to 

increase its routing fees due to an 

announced change in IEX’s fee schedule 

that would result in a significant 

increase in the transaction fees being 

charged by IEX to some orders, 

including orders routed by the 

Exchange.15 The Exchange believes that 

it is reasonable and equitable to pass 

these increased costs to Members that 

use the Exchange to route orders to that 

market. Members that do not wish to 

pay the proposed fee can send their 

routable orders directly to IEX instead of 

using routing functionality provided by 

the Exchange. The Exchange also 

believes that this change is equitable 

and not unfairly discriminatory because 

the proposed fees would apply equally 

to all Members that use the Exchange to 

route orders to IEX using the DIRC 

routing strategy. Routing through the 

Exchange is voluntary, and the 

Exchange operates in a competitive 

environment where market participants 

can readily direct order flow to 

competing venues or providers of 

routing services if they deem fee levels 

to be excessive. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

The proposed changes to the nondisplayed remove fees are designed to 

incentivize displayed liquidity, which 

the Exchange believes will benefit all 

market participants by encouraging a 

transparent and competitive market. 

Furthermore, the proposed change to 

the IEX routing fee is meant to recoup 

costs associated with executing orders 

on that market, and is therefore not 

designed to have any significant impact 

on competition. The Exchange operates 

in a highly competitive market in which 

market participants can readily direct 

their order flow to competing venues. In 

such an environment, the Exchange 

must continually review, and consider 

adjusting, its fees and rebates to remain 

competitive with other exchanges. For 

the reasons described above, the 

Exchange believes that the proposed fee 

changes reflect this competitive 

environment. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act16 and paragraph (f) of Rule 

19b–4 thereunder.17 At any time within 

60 days of the filing of the proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CboeEDGA–2018–014 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–CboeEDGA–2018–014. 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 this 

filing will also 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–CboeEDGA–2018–014 and 

should be submitted on or before 

September 11, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17960 Filed 8–20–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83852; File No. SR– 

CboeBZX–2018–058] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To Permit the 

Listing and Trading of Options That 

Overlie the Mini-SPX Index, the Russell 

2000 Index, and the Dow Jones 

Industrial Average 

August 15, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 2, 

2018, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) 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. 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42331 

3See proposed Rule 29.11, Interpretation and 

Policy .01. 

4 In the event XSP, RUT, or DJX options fails to 

satisfy the maintenance listing standards set forth 

herein, the Exchange will not open for trading any 

additional series of options of that class unless the 

continued listing of that class of index options has 

been approved by the Securities and Exchange 

Commission (the ‘‘Commission’’) under Section 

19(b)(2) of the Exchange Act. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to 

permit the listing and trading of options 

that overlie the Mini-SPX Index (‘‘XSP 

options’’), the Russell 2000 Index (‘‘RUT 

options’’), and the Dow Jones Industrial 

Average (‘‘DJX options’’). 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.markets.cboe.com, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The proposed rule change amends the 

Exchange’s index rules to permit the 

listing and trading of XSP options, RUT 

options, and DJX options. XSP options 

are options on the Mini SPX Index, the 

current value of which is 1/10th the 

value of the Standard & Poor’s 500 

‘‘Stock Index reported by the reporting 

authority.3 RUT options are options on 

the Russell 2000 Index. DJX options are 

options based on 1/100th of the value of 

the Dow Jones Industrial Average. The 

index underlying each of XSP, RUT, and 

DJX options satisfies the criteria of a 

broad-based index for the initial listing 

of options on that index, as set forth in 

Rule 29.3(b): 

(1) The index is broad-based index, as 

defined in Rule 29.2(j) (an index 

designed to be representative of a stock 

market as a whole or of a range of 

companies in unrelated industries); 

(2) the options are designated as A.M.- 

settled; 

(3) the index is capitalizationweighted, modified capitalizationweighted, price-weighted or equal 

dollar-weighted; 

(4) the index consists of 50 or more 

component securities; 

(5) component securities that account 

for at least 95% of the weight of the 

index have a market capitalization of at 

least $75 million, except that 

component securities that account for at 

least 65% of the weight of the index 

have a market capitalization of at least 

$100 million; 

(6) component securities that account 

for at least 80% of the weight of the 

index satisfy the requirements of Rule 

19.3 applicable to individual underlying 

securities; 

(7) each component security that 

accounts for at least 1% of the weight 

of the index has an average daily trading 

volume of at least 90,000 shares during 

the last six-month period; 

(8) no single component security 

accounts for more than 10% of the 

weight of the index, and the five 

highest-weighted component securities 

in the index do not, in the aggregate, 

account for more than 33% of the 

weight of the index; 

(9) each component security must be 

an ‘‘NMS stock’’ as defined in Rule 600 

of Regulation NMS under the Securities 

Exchange Act of 1934 (the ‘‘Exchange 

Act’’); 

(10) non-U.S. component securities 

(stocks or ADRs) that are not subject to 

comprehensive surveillance agreements 

do not, in the aggregate, represent more 

than 20% of the weight of the index; 

(11) the current underlying index 

value is widely disseminated at least 

once every 15 seconds by OPRA, CTA/ 

CQ, NIDS, or one or more major market 

data vendors during the time the index 

options are traded on the Exchange; 

(12) the Exchange reasonably believes 

it has adequate system capacity to 

support the trading of options on the 

index, based on a calculation of the 

Exchange’s current ISCA allocation and 

the number of new messages per second 

expected to be generated by options on 

such index; 

(13) an equal dollar-weighted index is 

rebalanced at least once every calendar 

quarter; 

(14) if an index is maintained by a 

broker-dealer, the index is calculated by 

a third party who is not a broker-dealer, 

and the broker-dealer has erected an 

information barrier around its personnel 

who have access to information 

concerning changes in, and adjustments 

to, the index; and 

(15) the Exchange has written 

surveillance procedures in place with 

respect to surveillance of trading of 

options on the index. 

XSP, RUT, and DJX options will be 

subject to the maintenance listing 

standards set forth in Rule 29.3(c): 

(1) The conditions stated in (1) 

through (3) and (9) through (15) above 

must continue to be satisfied, provided 

that the requirements in (5) through (8) 

must be satisfied only as of the first day 

of January and July in each year; and 

(2) the total number of component 

securities in the index may not increase 

or decrease by more than 10% from the 

number of component securities in the 

index at the time of its initial listing.4

Reporting Authority 

S&P Dow Jones Indices is the 

reporting authority for the Mini-SPX 

Index and the Dow Jones Industrial 

Average, and Frank Russell Company is 

the reporting authority for the Russell 

2000 Index. The proposed rule change 

adds these indexes and reporting 

authorities to Rule 29.2, Interpretation 

and Policy .01. The proposed rule 

change also lists the reporting 

authorities in Rule 29.13(b), which is 

the disclaimer for reporting authorities. 

Rule 29.13(b) would apply to these 

reporting authorities even if not 

specifically listed; however, the 

proposed rule change adds the names of 

the reporting authority to the rule for 

transparency and clarification. 

Minimum Increments 

Rule 29.11(a) states bids and offers are 

expressed in terms of dollars and cents 

per unit of the index. The minimum 

increment applicable to index options is 

set forth in Rule 21.5. The proposed rule 

change adds Interpretation and Policy 

.02 to Rule 21.5, which states for so long 

as SPDR options (SPY) and Diamonds 

options (DIA) participate in the Penny 

Pilot Program pursuant to Interpretation 

and Policy .01, the minimum 

increments for XSP options and DJX 

options, respectively, will be the same 

as SPY and DIA, respectively for all 

option series (including long-term 

option series). Such minimum 

increment would be $0.01 for all SPY 

series, regardless of price, and $0.01 for 

DJX series trading at less than $3.00 and 

$0.05 for DJX series trading at $3.00 or 

higher, respectively, as set forth in Rule 

21.5(a). 

SPY options are options on the SPDR 

S&P 500 exchange-traded fund (ETF), 

which is an ETF that tracks the 

performance of 1/10th the value of the 

S&P 500 Index. DIA options are options 

on the SPDR Dow Jones Industrial 


sradovich on DSK3GMQ082PROD with NOTICES
42332 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 

5See Cboe Options Rule 6.42, Interpretation and 

Policy .03. 

6See Rule 29.3(b). 

7See, e.g., Cboe Options Rule 24.9(b)(1). 

8See id. 

9See proposed Rule 29.11(b)(2)(A). 

10See proposed Rule 29.11(c)(1). 

11This rule excludes series with time to 

expiration of nine months or more from Market 

Makers’ quoting obligations. 

12See, e.g., Cboe Options Rule 24.9, 

Interpretation and Policy .01(a); and Nasdaq PHLX 

LLC (‘‘Phlx’’) Rule 1101A(a). 

Average ETF, which is an ETF that 

tracks the performance of the Dow Jones 

Industrial Average. SPY and DIA 

options currently participate in the 

Penny Pilot Program. XSP options are 

also based on the S&P 500 Index, and 

DJX options are also based on the Dow 

Jones Industrial Average, as discussed 

above. The Exchange believes it is 

important that these products have the 

same minimum increments for 

consistency and competitive reasons. 

The proposed rule change is also the 

same as another options exchange.5

The minimum increment for RUT will 

be as set forth in current Rule 21.5: Five 

cents if the series is trading below $3.00, 

and ten cents if the series is trading at 

or above $3.00. 

Settlement and Exercise Style 

RUT, XSP, and DJX options will be 

A.M., cash-settled contracts with 

European-style exercise. A.M.- 

settlement is consistent with the generic 

listing criteria for broad-based indexes,6

and thus it is common for index options 

to be A.M.-settled. The Exchange 

proposes to amend Rule 29.11(a)(5)(B) 

to add XSP, RUT, and DJX options to 

the list of other A.M.-settled options. 

The Exchange proposes to amend Rule 

29.11(a)(4) to add XSP, RUT, and DJX 

options to the list of other Europeanstyle index options. 

Long-Term Index Options 

Rule 29.11(b)(1) currently states the 

Exchange may list long-term index 

options series that expire from 12 to 60 

months from the date of issuance. The 

proposed rule change permits listing of 

long-term index options series that 

expire from 12 to 180 months from the 

date of issuance. The Exchange 

understands that market participants 

may enter into over-the-counter 

(‘‘OTC’’) positions with longer-dated 

expirations than currently available on 

the Exchange. The proposed rule change 

will permit the Exchange to list longterm index options contracts with 

longer-dated expirations. The Exchange 

believes expanding the eligible term for 

long-term index options contracts to 180 

months is important and necessary to 

the Exchange’s efforts to offer products 

in an exchange-traded environment that 

compete with OTC products. The 

Exchange believes long-term index 

options contracts provide market 

participants and investors with a 

competitive comparable alternative to 

the OTC market in long-term index 

options, which can take on contract 

characteristics similar to long-term 

index options contracts but are not 

subject to the same maximum term 

restriction. By expanding the eligible 

term for long-term index options 

contracts, market participants will now 

have greater flexibility in determining 

whether to execute their long-term 

index options in an exchange 

environment or in the OTC market. The 

Exchange believes market participants 

can benefit from being able to trade 

these long-term index options in an 

exchange environment in several ways, 

including, but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out positions; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of OCC 

as issuer and guarantor of long-term 

index options contracts. 

The Exchange has confirmed with the 

OCC that OCC can configure its systems 

to support long-term equity options 

contracts that have a maximum term of 

180 months (15 years). The proposed 

rule change is also consistent with the 

rules of other options exchanges.7

Pursuant to the proposed rule change, 

the Exchange may list XSP, RUT, and 

DJX options with expirations from 12 to 

180 months from the date of issuance.8

Rule 29.11(b)(2) provides that 

reduced-value long-term option series 

may be approved for trading on 

specified indices.9 A reduced-value 

long-term option series is an option 

series overlying an index that trades in 

units based upon a percentage of the 

value of the underlying index (such as 

10%). As set forth in current Rule 

29.11(b)(2)(B), reduced-value long-term 

options series may expire at six-month 

intervals. The proposed rule change 

adds RUT to the list of indices on which 

the Exchange may list reduced-value 

long-term option series. Reduced-value 

long-term RUT series will be subject to 

the same trading rules as long-term RUT 

series, except the minimum strike price 

interval will be $2.50 for all premiums, 

as discussed below.10 For reduced-value 

long-term RUT series, the underlying 

value will be computed at 10% of the 

value of the Russell 2000. 

Rule 29.11(b)(1)(A) also states strike 

price intervals, bid/ask differential, and 

continuity rules do not apply to longterm index options series until the time 

to expiration is less than twelve months. 

Rule 29.11(c) describes the strike price 

intervals applicable to long-term index 

options. Additionally, Rule 22.6(d) 

describes continuous quoting 

requirements for Market Makers.11 The 

Exchange has no rules imposing bid/ask 

differential requirements. The Exchange 

views these other Rules regarding strike 

price interval and quote continuity 

requirements as superseding the 

language proposed to be deleted. 

Additionally, stating bid/ask different 

rules do not apply to long-term index 

option contracts is unnecessary, as no 

such rules are included in the 

Exchange’s Rules. The Exchange 

believes deletion of the language Rule 

29.11(b)(1)(A) will provide additional 

clarity and eliminate any confusion on 

the applicability of the strike price 

interval and quote continuity 

requirements that may otherwise result 

by including duplicative rules on these 

topics. 

Strike Intervals 

RUT Options 

The proposed rule change amends 

Rule 29.11(c)(1) to provide that the 

interval between strike prices will be no 

less than $2.50 for RUT options (if the 

strike price is less than $200) and 

reduced-value long-term option series. 

This is the same strike interval that 

applies to RUT options and reducedvalue long-term option series pursuant 

to rules of other options exchanges.12

XSP Options 

Additionally, the proposed rule 

change adds Rule 29.11(c)(5), which 

provides that the strike prices for new 

and additional series of XSP options are 

subject to the following: 

(1) If the current value of the MiniSPX Index is less than or equal to 20, 

the Exchange will not list XSP option 

series with a strike price of more than 

100% above or below the current value 

of the Mini-SPX Index; 

(2) if the current value of the MiniSPX Index is greater than 20, the 

Exchange will not list XSP option series 

with a strike price of more than 50% 

above or below the current value of the 

Mini-SPX Index; and 

(3) the lowest strike price interval that 

may be listed for standard XSP option 

series is $1, including the long-term 

option series, and the lowest strike price 

interval that may be listed for XSP 

option series under the Short Term 

Option Series Program in paragraph (h) 

of Rule 29.11. 

The proposed strike prices for XSP 

options will permit strike prices closely 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42333 

13See Cboe Options Rule 24.9, Interpretation and 

Policy .01(a). 14See Rule 19.6, Interpretations and Policies 

.02(b), .04(c) [sic], and .05(c). 15See Cboe Options Rule 24.9, Interpretation and 

Policy .11. 16See Securities Exchange Act Release No. 32893 

(September 14, 1993), 58 FR 49070 (September 21, 

1993) (SR–CBOE–93–12) (order approving listing of 

XSP options). 17See Cboe Options Rule 24.9, Interpretation and 

Policy .01(a). 

18See proposed Rule 29.11(c)(5). 

19Nothing in this rule filing precludes the 

Exchange from submitting a future rule filing 

requesting even finer strike price increments for 

XSP options. 

20See Rule 29.11, Interpretation and Policy .05 

[sic] for a description of the Short Term Options 

Program. 

21Nothing in this rule filing precludes the 

Exchange from submitting a future rule filing 

requesting even finer strike price increments for 

DJX options. 

22See Cboe Options Rule 24.9, Interpretation and 

Policy .01(b). 

aligned with SPX options.13

Additionally, the proposed strike price 

range limitations for XSP options are 

closely aligned with the strike price 

range limitations for equity and 

exchange-traded fund (‘‘ETF’’) 

options.14 The proposed strike prices 

and limitations for XSP options are the 

same as those on another options 

exchange.15 XSP options allow smallerscale investors to gain broad exposure to 

the SPX options market and hedge S&P 

500 Index cash positions.16 As a result, 

XSP options provide retail investors 

with the benefit of trading the broad 

market in a manageably sized contract. 

Current Rule 29.11(c)(1) provides that 

strike prices are permitted only in 

intervals of at least $5. SPX options may 

be listed in intervals of at least $5.17 If 

the S&P 500 Index value was 2700, then 

the Mini-S&P 500 value would be 270. 

SPX options would be permitted to be 

listed with strikes of 2710, 2720, and 

2730. Corresponding XSP options 

strikes would be 271, 272, and 273; 

however, under the current rule, the 

Exchange could only list strikes of 270 

and 275 for XSP options. The proposed 

$1 strike interval for XSP options will 

permit the listing of series with strikes 

that correspond to SPX option strikes. 

Additionally, current Rule 29.11(c)(3) 

requires the exercise price of each series 

of index options to be reasonably related 

to the current index value of the 

underlying index to which the series 

relates at or about the time the series of 

options is first opened for trading on the 

Exchange. Pursuant to Rule 29.11(c)(4), 

the term ‘‘reasonably related to the 

current index value of the underlying 

index’’ means the exercise price must be 

within 30% of the current index value. 

The Exchange may also open for trading 

additional series of index options that 

are more than 30% away from the 

current index value, provided that 

demonstrated customer interest exists 

for the series. The Options Listing 

Procedures Plan sets forth exercise price 

range limitations for equity and ETF 

options (which are the same as those 

being proposed for XSP options). Those 

limitations differ from the limitations 

set forth in the current Rule. For 

example, if the underlying price of an 

equity or ETF option is $200, the 

Exchange would be permitted to list 

strikes ranging from $100 through $300 

(50% above and below the current 

value). However, if the value of the 

Mini-SPX Index was $200, the Exchange 

would only be permitted to list strikes 

ranging from $140 to $260. To put XSP 

options on equal standing with equity 

and ETF options with respect to 

exercise price range limitations, the 

Exchange proposes to impose exercise 

price range limitations on XSP options 

that are equal to those applicable to 

equity and ETF exercise price range 

limitations.18

The Exchange believes these 

permitted strike prices will permit the 

Exchange to list XSP options with 

strikes that more closely reflect the 

current values of the S&P 500 Index, as 

they provide more flexibility and allow 

the Exchange to better respond to 

customer demand for XSP option strike 

prices that relate to current S&P 500 

Index values. In addition, the Exchange 

believes that because the number of 

strikes that may be listed would be 

contained by the percentages above and 

below the current XSP Index value, 

there is no need to restrict the use of $1 

strike price intervals based on the 

amount of the strike price. 

The Exchange recognizes the 

proposed approach does not achieve full 

harmonization between strikes in XSP 

options and SPX options. For example, 

if there is a 2715 strike in SPX options, 

the Exchange is not seeking the ability 

to list a 271.5 strike in XSP options. The 

Exchange believes being able to list the 

271 and 272 strikes in XSP options 

would provide the marketplace with a 

sufficient number of strike prices over a 

range of XSP values.19 The Exchange 

believes this proposed rule change 

would allow retail investors to better 

use XSP options to gain exposure to the 

SPX options market and hedge S&P 500 

cash positions in the event that the S&P 

500 Index value continues to increase. 

The S&P 500 Index is widely used to 

gauge large cap U.S. equities, and as a 

result, investors often use S&P 500 

Index-related products to diversify their 

portfolios and benefit from market 

trends. Full-size SPX options offer these 

benefits to investors, but may be 

expensive given its large notional value. 

Those options are primarily used by 

institutional market participants. By 

contrast, XSP options offer individual 

investors a lower cost options to obtain 

the potential benefits of options on the 

S&P 500 Index. 

DJX Options 

Proposed Rule 29.11(c)(6) provides 

the interval between strike prices may 

be no less than $0.50 for options based 

on 1/100th of the value of the Dow Jones 

Industrial Average, including for series 

listed under the Short Term Options 

Program.20 As noted above, current Rule 

29.11(c)(1) provides that strike prices 

are permitted only in intervals of at least 

$5. As noted above, DJX options are 

based on 1/100th the value of the Dow 

Jones Industrial Average. For example, 

if the value of the Dow Jones Industrial 

Average was 25100, series of an option 

based on the full value of that average 

could be listed with strike prices of 

25105, 25110, and 25115. One-one 

hundredth of the value of the Dow Jones 

Industrial Average would be 251.05, 

251.10, and 251.15, but the Exchange 

would only be able to list series with 

strike prices of $250 and $255. Pursuant 

to the proposed rule change, the 

Exchange could list series with strike 

prices of 251.50, 252, 252.50, and 253. 

The Exchange recognizes the proposed 

approach does not achieve full 

harmonization between strikes in DJX 

options and the full value of the Dow 

Jones Industrial Average. However, the 

Exchange believes being able to list the 

DJX options at strike intervals of $0.50 

would provide the marketplace with a 

sufficient number of strike prices over a 

range of DJX values.21 The Exchange 

believes this proposed rule change 

would allow retail investors to better 

use DJX options to gain exposure to the 

market and hedge Dow Jones Industrial 

Average cash positions in the event that 

the value continues to increase. The 

proposed strike price interval for DJX 

options is the same as those on another 

options exchange.22

Opening Process 

The proposed rule change adds 

paragraph (c) to Rule 21.7 to describe 

the opening process for index options. 

Current Rule 21.7(b) states the System 

will open index options for trading at 

9:30 a.m. Eastern time. Pursuant to the 

current opening process, following 9:30 

a.m., the System will determine a price 

at which a particular series will be 

opened (the ‘‘Opening Price’’) within 30 


sradovich on DSK3GMQ082PROD with NOTICES
42334 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 

23There are currently three criteria for an opening 

price to be valid. See current Rule 21.7(a)(2) 

(proposed Rule 21.7(b)(2)). Since the proposed rule 

change provides that an index option series will 

only open once it receives an NBBO from another 

exchange, in which case there will always be an 

NBB and NBO and thus an NBBO midpoint, the 

only criteria for an opening price to be valid that 

would apply to index options is the criteria 

regarding how far away the NBBO midpoint is from 

the NBB or NBO. 

24See Cboe Options Rule 6.2, Interpretation and 

Policy .01. 25See C2 Rule 6.11(a)(2)(B). 26On BX, a valid width NBBO means a 

combination of all away market quotes and any 

combination of BX Options-registered MarketMaker orders and quotes received over a BXprovided system component through which MarketMakers communicate their quotes within a 

specified bid/ask differential established by BX. See 

BX Chapter VI, Section 8(a)(6). 

27See Rule 16.1(a)(29) (definition of NBBO). 

seconds of that time. Where there are no 

contracts in a particular series that 

would execute at any price, the System 

will open such options for trading 

without determining an Opening Price. 

The Opening Price of a series must be 

a Valid Price, as determined by current 

subparagraph (a)(2), and will be: 

• The midpoint of the NBBO (the 

‘‘NBBO Midpoint’’); 

• Where there is no NBBO Midpoint 

at a Valid Price, the last regular way 

print disseminated pursuant to the 

OPRA Plan after 9:30 a.m. Eastern Time 

(the ‘‘Print’’); 

• Where there is both no NBBO 

Midpoint and no Print at a Valid Price, 

the last regular way transaction from the 

previous trading day as disseminated 

pursuant to the OPRA Plan (the 

‘‘Previous Close’’); or 

• Where there is no NBBO Midpoint, 

no Print, and no Previous Close at a 

Valid Price, the Order Entry Period may 

be extended by 30 seconds or less or the 

series may be opened for trading at the 

discretion of the Exchange. 

A NBBO Midpoint, a Print, and a 

Previous Close will be at a Valid Price: 

• Where there is no NBB and no 

NBO; 

• Where there is either a NBB and no 

NBO or a NBO and no NBB and the 

price is equal to or greater than the NBB 

or equal to or less than the NBO; or 

• Where there is both a NBB and 

NBO, the price is equal to or within the 

NBBO, and the price is less than a 

specified minimum amount away from 

the NBB or NBO for the series. 

Under this Opening Process, if a 

series has not opened yet on another 

exchange on a trading (and thus there is 

no NBBO and no Last Print), if there is 

a Previous Close Price, it will be a valid 

price and will be the Opening Price. 

Additionally, if there are no crossed 

contracts in a series, the series opens 

immediately following the time period 

referenced above. 

The Exchange proposes to modify this 

process with respect to index options. 

Pursuant to the proposed rule change, 

for index options, the System will 

determine the Opening Price within 30 

seconds of an away options exchange(s) 

disseminating a quote in a series. 

Following an away options exchange’s 

dissemination of a quote in a series, if 

there are no contracts in a series that 

would execute at any price, the System 

opens the series for trading without 

determining an Opening Price. The 

Opening Price, if valid, of a series will 

be the NBBO Midpoint. Pursuant to 

proposed subparagraph (c)(2), for index 

options, the NBBO Midpoint is a valid 

price if it is less than a specified 

minimum amount away from the NBB 

or NBO for the series.23 If the NBBO 

Midpoint is not valid, the Exchange in 

its discretion may extend the order 

entry period by up to 30 seconds or 

open the series for trading. In other 

words, the proposed rule change 

provides that an index option series will 

not open (with or without a trade) until 

after the series is open on another 

exchange. To the extent the Exchange 

receives a quote from another Exchange 

within the time period referenced 

above, and there are contracts that may 

trade, the Opening Process will 

essentially be the same, and a series will 

open with the NBBO Midpoint as an 

Opening Price (if valid). Additionally, 

the Exchange will continue to have the 

ability to use a contingent opening to 

open a series for trading if there is no 

valid Opening Price. The proposed rule 

change delays opening of a series on the 

Exchange in an index option series if 

there are no crossed contracts, and 

eliminates the possibility to open using 

the Last Print or Previous Close (as 

those will generally not be necessary if 

the Exchange waits for another 

exchange to open). 

Currently, RUT options trade on Cboe 

Options and C2 Exchange, Inc. (‘‘C2’’), 

and XSP options trade on Cboe Options, 

which are affiliated exchanges of the 

Exchange. Under current Rule 21.7, if a 

RUT series was open on Cboe Options, 

and if there are crossed orders on the 

Exchange, the RUT series on the 

Exchange would open with an Opening 

Price equal to the NBBO Midpoint (if 

valid). If a RUT series was not yet open 

on another Exchange after 9:30 a.m. 

(eastern), and there was a Previous 

Close for the series, the series would 

open on the Exchange with the Previous 

Close as the Opening Price. If there are 

no crossing orders on the Exchange, a 

RUT series would open without an 

opening price, possibly before the RUT 

series was open on Cboe Options. 

RUT options on Cboe Options 

generally open within 30 seconds after 

9:30 a.m., and thus the Exchange 

expects RUT options to open for trading 

within 30 seconds (as set forth in the 

rule) at an Opening Price equal to the 

NBBO Midpoint if there are orders that 

can be crossed. However, it will be 

possible for a RUT series to open prior 

to the opening of that series on Cboe 

Options. This is significant because, on 

certain dates, Cboe Options uses prices 

of RUT options trading on Cboe Options 

to determine settlement values for 

volatility index derivatives.24 While 

trading in these options on volatility 

index derivative settlement days also 

generally opens within a few seconds 

after 9:30 a.m., there have been times 

when series being used to determine the 

settlement value took longer to open. 

Under the proposed rule, series on the 

Exchange would open without an 

Opening Price (if there are no crossed 

orders) or with an Opening Price equal 

to the Previous Close (if there are 

crossed orders) prior to the settlement 

value determination being completed on 

Cboe Options. If this were to occur, 

trading on the Exchange may then be 

occurring at very different prices than 

what is ultimately the opening trade 

price on Cboe Options. Trading on 

another Exchange while Cboe Options is 

not yet open may impact the volatility 

settlement value determination and 

disrupt trading of volatility index 

derivatives. The proposed rule change 

eliminates the possibility of RUT 

options on the Exchange automatically 

opening for trading prior to those 

options being open on Cboe Options 

and thus interfering with the calculation 

of volatility index derivative settlement 

values. 

The proposed rule change is the same 

as the opening process for index options 

on C2.25 Additionally, the opening 

process on Nasdaq BX, LLC (‘‘BX’’) is 

similar to the proposed rule change. 

Pursuant to BX Chapter VI, Section 8(b), 

if there is a possible trade on BX, a 

series will open with a valid width 

NBBO.26 This is similar to the proposed 

rule change, in that a valid NBBO 

Midpoint must be present for an index 

option series to open with a trade 

(which on the Exchange would only 

occur if another exchange was open for 

trading, because on the Exchange, the 

NBBO that is used to determine the 

Opening Price is based on disseminated 

quotes of other exchanges and does not 

include orders and quotes on the 

Exchange prior to the opening of 

trading 27). Additionally, if no trade is 

possible on BX, then BX will depend on 

one of the following to open: (1) A valid 


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Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42335 

28Number (1) above would not apply because, as 

noted above, the NBBO on the Exchange prior to 

the opening of trading does not include orders and 

quotes on the Exchange. 

29See Rule 21.1(f)(6). 

30The proposed rule change makes 

nonsubstantive changes to this provision, including 

to make the rule plain English and eliminate 

passive voice. 

31The proposed rule change modifies the rule to 

say ‘‘its’’ (as the sentence refers to the Exchange) 

rather than ‘‘his or her.’’ 

32See, e.g., Cboe Options Rule 24.7(a). 

33See, e.g., Cboe Options Rule 24.7(a); Phlx Rule 

1047A(c). 

34See, e.g., Cboe Options Rule 24.9, 

Interpretation and Policy .13; and NASDAQ ISE, 

LLC Rule 2009, Supplementary Material .04. 

width NBBO, (2) a certain number of 

other options exchanges (as determined 

by BX) having disseminated a firm 

quote on OPRA, or (3) a certain period 

of time (as determined by the Exchange) 

has elapsed. As proposed, if no trade is 

possible, the Exchange will open an 

index option series after another 

exchange as disseminated a quote, 

which is consistent with number (2) 

above (for example, under BX’s rule, it 

could determine to open if one other 

options exchange was open). While the 

proposed rule change does not 

explicitly provide for additional 

alternatives in the event no trade is 

possible, pursuant to Rule 21.7(f), the 

Exchange may adjust the timing of the 

Opening Process in a class if it believes 

it is necessary in the interests of a fair 

and orderly market.28 Therefore, like 

BX, the Exchange could open a series 

after a certain amount of time has 

passed if the series does not open on 

another exchange. 

Once the System determines an 

opening price for an index option, it 

will open a series with an opening trade 

in the same manner as it does for equity 

options. The proposed rule change 

moves the description of this process 

from current Rule 21.7(a)(3) to proposed 

Rule 21.7(d). The proposed rule change 

also adds to proposed paragraph (d) that 

the System cancels any OPG (also called 

at the open orders) (or unexecuted 

portions) that do not execute during the 

opening process. This is consistent with 

the behavior of orders with the OPG 

time-in-force instruction.29

Additionally, the proposed rule change 

moves the description of a contingent 

open, which will also apply to index 

and equity options, from current Rule 

21.7(a)(4) to proposed Rule 21.7(e).30

The proposed rule change makes other 

nonsubstantive changes (e.g. adding 

headings and updating paragraph 

lettering and numbering). Additionally, 

the proposed rule change clarifies in 

Rule 21.7(a) that re-opening after 

regulatory halts applies only to equity 

options, as regulatory halts only occur 

in equity options. 

Trading Halts 

Current Rule 29.10(b) describes when 

the Exchange may halt trading in an 

index option. It permits the Exchange to 

halt trading in an index option when, in 

its 31 judgment, such action is 

appropriate in the interests of a fair and 

orderly market and to protect investors. 

The Exchange may consider the 

following factors, among others: 

• Whether all trading has been halted 

or suspended in the market that is the 

primary market for a plurality of the 

underlying stocks; 

• Whether the current calculation of 

the index derived from the current 

market prices of the stocks is not 

available; 

• The extent to which the opening 

has been completed or other factors 

regarding the status of the opening; and 

• Other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present, including, but not 

limited to, the activation of price limits 

on futures exchanges. 

The proposed rule change amends the 

first factor to state the Exchange may 

consider the extent to which trading is 

not occurring in the stocks or options 

underlying the index. This provides the 

Exchange with additional flexibility to 

consider trading on all markets on 

which the underlying components trade 

when determining whether to halt 

trading in an index option. The 

Exchange believes flexibility is 

appropriate when determining whether 

to halt trading in an index option so it 

can make such a determination based on 

then-current circumstances to determine 

what will contribute to a fair and 

orderly market. For example, less than 

a ‘‘plurality’’ of underlying components 

may trade on one market, but if trading 

on that market is halted, the Exchange 

may determine halting trading in the 

index option is in the interests of a fair 

and orderly market because of the 

specific components that are not 

trading. This proposed change is 

consistent with the rules of another 

options exchange.32

Rule 29.10 also states trading on the 

Exchange will be halted or suspended 

whenever trading in underlying 

securities whose weighted value 

represents more than 20%, in the case 

of a broad-based index, and 10% for all 

other indices, of the index value is 

halted or suspended. The proposed rule 

change deletes this provision. The first 

factor, as amended by this proposed rule 

change, permits the Exchange to 

determine to halt trading in an index 

option in this specific circumstance. 

This provision provides the Exchange 

with no flexibility to determine what is 

in the interests of a fair and orderly 

market. The rules of other exchanges do 

not have this provision.33

Expirations Listed on Other Exchanges 

Proposed Rule 29.11(j) permits the 

Exchange to list additional expiration 

months on option classes opened for 

trading on the Exchange if such 

expiration months are opened for 

trading on at least one other registered 

national securities exchange. As noted 

above, Rule 29.11(a)(3) permits the 

Exchange to list up to six expiration 

months at any one time for an index 

option class. Other options exchange 

have rules that permit them to list 

additional expiration months if they are 

opened for trading on at least one other 

options exchange.34 This proposed rule 

change will allow the Exchange to 

compete with other exchanges by 

matching the expiration months that 

other exchanges list. 

The Exchange notes that the proposed 

rule change affords additional flexibility 

in that it will permit the exchange to list 

those additional expiration months that 

have an actual demand from market 

participants thereby potentially 

reducing the proliferation of classes and 

series. The Exchange believes the 

proposed rule change is proper, and 

indeed necessary, in light of the need to 

have rules that permit the listing of 

identical expiration months across 

exchanges for products that multiplylisted and fungible with one another. 

The Exchange believes that the 

proposed rule change should encourage 

competition and be beneficial to traders 

and market participants by providing 

them with a means to trade on the 

Exchange securities that are listed and 

traded on other exchanges. 

Obvious Error 

The proposed rule change adds to 

Rule 20.6(g) and (h) language to clarify 

that, for purposes of determining 

whether a trade resulted from an 

erroneous print or quote in the 

underlying, the underlying may include 

index values (as well as Fund Shares 

and HOLDRs, which may also underlie 

options trading on the Exchange 

pursuant to Rule 19.3(g) and (i), 


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42336 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 

35While adding language in this rule provision 

regarding Fund Shares and HOLDRs is unrelated to 

the purpose of this filing, which is to permit the 

listing and trading of certain index options on the 

Exchange, the Exchange believes it is appropriate to 

include this language in the proposed rule text to 

ensure continued harmonization of obvious error 

rules across all exchanges. 

36See, e.g., Cboe Options Rule 6.25(g) and (h). 

37See Cboe Options Rule 24.10. 

38Similarly, pursuant to Cboe Options Chapter 

12, Cboe Options Trading Permit Holders may 

request to have New York Stock Exchange margin 

requirements apply to their trading. 

39 15 U.S.C. 78f(b). 

40 15 U.S.C. 78f(b)(5). 

41 Id. 

respectively).35 This is consistent with 

the rules of another options exchange.36

Restrictions on Contracts 

The proposed rule change adds Rule 

29.15, which states contracts provided 

for in Chapter 29 of the Rules will not 

be subject to the restriction in Rule 

18.12(b). Rule 18.12(b) states whenever 

the issue of a security underlying a call 

option traded on the Exchange is 

engaged or proposes to engage in a 

public underwritten distribution 

(‘‘public distribution’’) of such 

underlying security or securities 

exchangeable for or convertible into 

such underlying security, the 

underwriters may request that the 

exchange impose restrictions upon all 

opening writing transactions in such 

options at a discount where the 

resulting short position will be 

uncovered. The rule includes additional 

conditions that are necessary to impose 

these restrictions. 

Rule 18.12(b) applies to equity 

options, and to restrictions the issuer of 

the security underlying the equity 

option may request. As there is no 

issuer of an ‘‘index,’’ and thus there is 

no possibility of a public distribution of 

an index, the Rule does not apply to 

index options. Rule 29.15 merely states 

this explicitly in the Rules. This will 

also ensure it is clear in the Rules that 

an issuer of a security that is a 

component of an index may not request 

restrictions on the index options, as the 

Exchange does not believe it would be 

appropriate for an issuer of a single 

underlying component to have the 

ability to restrict trading in the index 

option. The proposed rule change is 

consistent with the rules of at least one 

other options exchange.37

Capacity and Surveillance 

The Exchange represents it has an 

adequate surveillance program in place 

for index options. The Exchange is a 

member of the Intermarket Surveillance 

Group (‘‘ISG’’), which is comprised of 

an international group of exchanges, 

market centers, and market regulators. 

The purpose of ISG is to provide a 

framework for the sharing of 

information and the coordination of 

regulatory efforts among exchanges 

trading securities and related products 

to address potential intermarket 

manipulations and trading abuses. ISG 

plays a crucial role in information 

sharing among markets that trade 

securities, options on securities, 

security futures products, and futures 

and options on broad-based security 

indexes. A list of identifying current ISG 

members is available at https://

www.isgportal.org/isgPortal/public/ 

members.htm. 

The Exchange has analyzed its 

capacity and represents that it believes 

the Exchange and OPRA have the 

necessary systems capacity to handle 

the additional traffic associated with the 

listing of XSP, RUT, and DJX options up 

to the proposed number of possible 

expirations and strike prices. The 

Exchange believes any additional traffic 

that would be generated from the 

introduction of XSP, RUT, and DJX 

options will be manageable. The 

Exchange believes its Members will not 

have a capacity issue as a result of this 

proposed rule change. The Exchange 

also represents that it does not believe 

this expansion will cause fragmentation 

of liquidity. The Exchange will monitor 

the trading volume associated with the 

additional options series listed as a 

result of this proposed rule change and 

the effect (if any) of these additional 

series on market fragmentation and on 

the capacity of the Exchange’s 

automated systems. 

Position Limits and Margin 

XSP, RUT, and DJX options will be 

subject to the margin requirements set 

forth in Chapter 28 and the position 

limits set forth in Rule 29.5. Chapter 28 

imposes the margin requirements of 

either Cboe Options or the New York 

Stock Exchange on Exchange Options 

Members. Similarly, Rule 29.5 imposes 

position (and exercise) limits for broadbased index options of Cboe Options on 

Exchange Options Members. XSP, RUT, 

and DJX options are currently listed and 

traded on Cboe Options,38 and thus the 

same margin requirements and position 

and exercise limits that apply to these 

products as traded on Cboe Options will 

apply to these products when listed and 

traded on the Exchange. 

The Exchange Rules and Cboe 

Options rules regarding position and 

exercise limits and margin requirements 

are substantially the same as each other, 

as the Exchange rules currently refer to 

the corresponding Cboe Options rules. 

Therefore, Options Members must 

comply with these Cboe Options rules 

pursuant to the Exchange Rules. 

Pursuant to the proposed rule change, 

the Exchange will be trading index 

options also authorized for trading on 

Cboe Options, so the position and 

exercise limits and margin requirements 

currently applicable to these index 

options that trade on Cboe Options will 

apply to these index options that may be 

listed for trading on the Exchange. The 

proposed rule regarding the listing and 

trading of XSP, RUT, and DJX are 

substantially the same as Cboe Options 

rules regarding the listing and trading of 

XSP, RUT, and DJX, which rules were 

previously approved by the Commission 

and thus they are consistent with the 

Act. Additionally, the rules regarding 

position and exercise limits and margin 

requirements that will apply to XSP, 

RUT, and DJX options listed for trading 

on the Exchange were previously 

approved by the Commission, and thus 

they are consistent with the Act. The 

proposed rule change will also result in 

similar regulatory treatment for similar 

option products. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.39 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 40 requirements that the rules of 

an exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

Additionally, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 41 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

The index underlying each of XSP, 

RUT, and DJX options satisfies the 

initial listing criteria of a broad-based 

index in the Exchange’s Rules. The 

proposed rule change adds these 

indexes to the table regarding reporting 

authorities for indexes, to the list of 

European-style exercise index options, 


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Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42337 

42See also Cboe Options Rules 24.1, 

Interpretation and Policy .01 and 24.9(a)(3) and (4). 

43See Cboe Options Rule 6.42, Interpretation and 

Policy .03. 

44See, e.g., Cboe Options Rule 24.9(b)(1). 

45See, e.g., Cboe Options Rule 24.9. 

46See, e.g., Cboe Options Rule 24.9, 

Interpretation and Policy .01(a); and Nasdaq PHLX 

LLC (‘‘Phlx’’) Rule 1101A(a). 

47See Cboe Options Rule 24.9, Interpretation and 

Policy .11. 

48See Cboe Options Rule 24.9, Interpretation and 

Policy .01(b). 

and to the list of A.M.-settled index 

options. These changes are consistent 

with the Exchange’s existing Rules.42

The proposed rule change related to 

the minimum increment for XSP and 

DJX options will permit consistency 

between pricing of SPY options and 

XSP options, which are both based, in 

some manner, on the value of the S&P 

500 Index, and between DIA options 

and DJX options, which are both based, 

in some manner, on the value of the 

Dow Jones Industrial Average. As a 

result, the Exchange believes it is 

important that these products have the 

same minimum increments for 

competitive reasons. The proposed rule 

change is also the same as another 

options exchange.43

The proposed rule change to permit 

listing of long-term index options 

contracts with terms up to 180 months 

is designed to promote just and 

equitable principles of trade in that the 

availability of long-term index options 

contracts with longer dated expirations 

will give market participants an 

alternative to trading similar products in 

the OTC market. By trading a product in 

an exchange-traded environment (that is 

currently being used in the OTC 

market), the Exchange will be able to 

compete more effectively with the OTC 

market. The Exchange believes the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that it will 

hopefully lead to the migration of 

options currently trading in the OTC 

market to trading to the Exchange. Also, 

any migration to the Exchange from the 

OTC market will result in increased 

market transparency. Additionally, the 

Exchange believes the proposed rule 

change is designed to remove 

impediments to and to perfect the 

mechanism for a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest in that it should create 

greater trading and hedging 

opportunities and flexibility. The 

proposed rule change should also result 

in enhanced efficiency in initiating and 

closing out positions and heightened 

contra-party creditworthiness due to the 

role of OCC as issuer and guarantor of 

long-term index option series. Further, 

the proposed rule change will result in 

increased competition by permitting the 

Exchange to offer products that are 

currently used in the OTC market and 

on other exchanges. Additionally, the 

proposed rule change is consistent with 

the series listing rules of other 

exchanges.44

The proposed rule change to 

eliminate the rule provision regarding 

the applicability of strike price 

intervals, bid/ask differentials and quote 

continuity requirements to long-term 

index option contracts will protect 

investors by eliminating potential 

confusion that may result from 

inclusion of duplicative rules. As 

discussed above, other rules address 

requirements related to strike price 

intervals and quote continuity 

requirements and supersede the 

language regarding these topics, and the 

Exchange has no rules imposing bid/ask 

differential requirements (and thus no 

such requirements apply to long-term 

equity option contracts), thus rendering 

this language unnecessary. The 

Exchange will continue to impose these 

requirements in the manner it does 

today, consistent with the provisions in 

other existing rules, and thus this 

proposed rule change has no impact on 

how the Exchange imposes these 

requirements. The rules of other options 

exchanges do not include this 

provision.45

The proposed minimum strike 

interval for RUT options (if the strike 

price is less than $200) and reducedvalue long-term option series is the 

same as that on another options 

exchanges.46

With respect to the proposed strike 

prices for XSP options, the proposed 

rule change would more closely align 

XSP option strike prices with those of 

SPX option strike prices, and would 

more closely align strike price range 

limitations on XSP options with those of 

equity and ETF options. This would 

provide more flexibility and allow the 

Exchange to better respond to customer 

demand for XSP option strike prices 

that relate to current S&P 500 Index 

values. The Exchange believes this 

proposed rule change would allow retail 

investors to better use XSP options to 

gain exposure to the SPX options market 

and hedge S&P 500 cash positions in the 

event that the S&P 500 Index value 

continues to increase. The Exchange 

does not believe the proposed rule 

change will create additional capacity 

issues. In addition, the Exchange 

believes that because the number of 

strikes that may be listed would be 

contained by the percentages above and 

below the current XSP Index value, the 

number of XSP strikes that may be listed 

will not be unbounded. The proposed 

XSP strike prices and restrictions are the 

same as those on another options 

exchange.47

With respect to the proposed strike 

prices for DJX options, the proposed 

rule change would more closely align 

DJX option strike prices with 1/100th 

the value of the Dow Jones Industrial 

Average. This would provide more 

flexibility and allow the Exchange to 

better respond to customer demand for 

DJX option strike prices that relate to 

current Dow Jones Industrial Average 

values. The Exchange believes this 

proposed rule change would allow retail 

investors to better use DJX options to 

gain exposure to the market and hedge 

Dow Jones Industrial Average cash 

positions in the event that the Dow 

Jones Industrial Average value 

continues to increase. The Exchange 

does not believe the proposed rule 

change will create additional capacity 

issues. The proposed DJX strike prices 

are the same as those on another options 

exchange.48

The proposed rule change that 

permits the Exchange to list additional 

expiration months if they are listed on 

another options exchange will permit 

the Exchange to accommodate requests 

made by its Trading Permit Holders and 

other market participants to list the 

additional expiration months and thus 

encourage competition without harming 

investors or the public interest. 

The proposed rule change with 

respect to the opening process for index 

options eliminates the possibility of 

RUT options on the Exchange 

automatically opening for trading prior 

to those options being open on Cboe 

Options and thus interfering with the 

calculation of volatility index derivative 

settlement values, which promotes just 

and equitable principles of trade and 

perfects the mechanism of a free and 

open market and national market 

system. As discussed above, under 

certain circumstances, the proposed rule 

change is expected to have a de minimis 

impact on the opening of index option 

series on the Exchange because, to the 

extent the Exchange receives a quote 

from another Exchange within the time 

period following 9:30 a.m., and there are 

contracts that may trade, the Opening 

Process will essentially be the same, and 

a series will open with the NBBO 

Midpoint as an Opening Price (if valid). 

Additionally, the Exchange will 

continue to have the ability to use a 

contingent opening to open a series for 


sradovich on DSK3GMQ082PROD with NOTICES
42338 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 

49See C2 Rule 6.11(a)(2)(B). 

50See BX Rule [sic] Section 8(b). 

51See, e.g., Cboe Options Rule 24.9, 

Interpretation and Policy .13; and NASDAQ ISE, 

LLC Rule 2009, Supplementary Material .04. 

52See, e.g., Cboe Options Rule 24.7(a); see also 

Phlx Rule 1047A(c). 

53Cboe Options Rule 6.25(g) and (h). 54Cboe Options Rule 24.10. 

55See Rules 29.2, Interpretation and Policy .01 

and 29.11(a)(4) and (5). 

56See Cboe Options Rules 24.1, Interpretation 

and Policy .01 and 24.9(a)(3) and (4). 

57See Cboe Options Rule 6.42, Interpretation and 

Policy .03. 

trading if there is no valid Opening 

Price. Therefore, if an index option 

series is not yet open on another 

exchange, the Exchange will still have 

the ability to open the series for trading. 

As discussed above, the proposed rule 

change is the same as the opening 

process for index options on C2,49 and 

similar to the opening process of 

another options exchange, which also 

provides that opening for trading may 

be dependent on whether another 

options exchange is open.50

The proposed rule change to permit 

the Exchange to list additional 

expiration months on option classes 

opened for trading on the Exchange if 

such expiration months are opened for 

trading on at least one other registered 

national securities exchange is the same 

as rules of other options exchanges.51

The proposed rule change will remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system by 

allowing the Exchange to match the 

expiration months that other exchanges 

list. This will promote competition 

among exchanges, which benefits 

investors. 

The proposed rule change regarding 

when the Exchange may halt trading in 

index options promotes just and 

equitable principles of trade and 

protects the public interest by providing 

the Exchange with additional flexibility 

when determine whether to halt trading 

in an index option, so it can make such 

a determination based on then-current 

circumstances to determine what it will 

contribute to a fair and orderly market. 

The proposed change is consistent with 

the rules of another options exchange.52

The proposed rule change to clarify 

that, for purposes of determining 

whether a trade resulted from an 

erroneous print or quote in the 

underlying, the underlying may include 

index values (as well as Fund Shares 

and HOLDRs, which may also underlie 

options trading on the Exchange 

pursuant to Rule 19.3(g) and (i), 

respectively) further harmonizes the 

Exchange’s rule related to the 

adjustment and nullification of 

erroneous options transactions with 

those of other options exchanges. The 

proposed rule change is based on the 

rules of another options exchange.53

Proposed Rule 29.15 is merely stating 

explicitly in the Rules that Rule 18.12(b) 

does not apply to index options, which 

is consistent with the current rule. The 

proposed rule change is based on the 

rules of another options exchange.54

The Exchange Rules and Cboe 

Options rules regarding position and 

exercise limits and margin requirements 

are substantially the same as each other, 

as the Exchange rules currently refer to 

the corresponding Cboe Options rules. 

Therefore, Options Members must 

comply with these Cboe Options rules 

pursuant to the Exchange Rules. 

Pursuant to the proposed rule change 

the Exchange will be trading index 

options also authorized for trading on 

Cboe Options, the Cboe Options 

position and exercise limits and margin 

requirements applicable to these index 

options will apply to these index 

options that may be listed for trading on 

the Exchange. Additionally, the 

previously approved Cboe Options rules 

regarding listing of XSP, RUT, and DJX 

index options on the Exchange pursuant 

to this proposed rule change are subject 

to these also previously approved Cboe 

Options rules regarding position and 

exercise limits and margin 

requirements, and thus they are 

consistent with the Act. The proposed 

rule change will also result in similar 

regulatory treatment for similar option 

products. 

The Exchange represents it has an 

adequate surveillance program in place 

for index options. The Exchange is a 

member of the Intermarket Surveillance 

Group (‘‘ISG’’), which is comprised of 

an international group of exchanges, 

market centers, and market regulators. 

The purpose of ISG is to provide a 

framework for the sharing of 

information and the coordination of 

regulatory efforts among exchanges 

trading securities and related products 

to address potential intermarket 

manipulations and trading abuses. ISG 

plays a crucial role in information 

sharing among markets that trade 

securities, options on securities, 

security futures products, and futures 

and options on broad-based security 

indexes. A list of identifying current ISG 

members is available at https://

www.isgportal.org/isgPortal/public/ 

members.htm. 

The Exchange has analyzed its 

capacity and represents that it believes 

the Exchange and OPRA have the 

necessary systems capacity to handle 

the additional traffic associated with the 

listing of XSP, RUT, and DJX options up 

to the proposed number of possible 

expirations and strike prices. The 

Exchange believes any additional traffic 

that would be generated from the 

introduction of XSP, RUT, and DJX 

options will be manageable. The 

Exchange believes its Members will not 

have a capacity issue as a result of this 

proposed rule change. The Exchange 

also represents that it does not believe 

this expansion will cause fragmentation 

of liquidity. The Exchange will monitor 

the trading volume associated with the 

additional options series listed as a 

result of this proposed rule change and 

the effect (if any) of these additional 

series on market fragmentation and on 

the capacity of the Exchange’s 

automated systems. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

The index underlying each of XSP, 

RUT, and DJX options satisfies the 

initial listing criteria of a broad-based 

index in the Exchange’s Rules. The 

proposed rule change adds these 

indexes to the table regarding reporting 

authorities for indexes, to the list of 

European-style exercise index options, 

and to the list of A.M.-settled index 

options. These changes are consistent 

with the Exchange’s existing Rules,55 as 

well as Cboe Options’ rules.56

The proposed rule change related to 

the minimum increment for XSP and 

DJX options will permit consistency 

between pricing of SPY options and 

XSP options, which are both based, in 

some manner, on the value of the S&P 

500 Index, and between pricing of DIA 

options and DJX options, which are both 

based, in some manner, on the value of 

the Dow Jones Industrial Average. As a 

result, the Exchange believes it is 

important that these products have the 

same minimum increments for 

competitive reasons. The proposed rule 

change is also the same as another 

options exchange.57

The proposed rule change to permit 

listing of long-term index options 

contracts with terms up to 180 months 

will give market participants an 

alternative to trading similar products in 

the OTC market. By trading a product in 

an exchange-traded environment (that is 

currently being used in the OTC 

market), the Exchange will be able to 

compete more effectively with the OTC 

market. Additionally, the Exchange 

believes that the proposed rule change 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 42339 

58See Cboe Options Rule 24.9(b)(1). 

59See Cboe Options Rule 24.9. 

60See, e.g., Cboe Options Rule 24.9, 

Interpretation and Policy .01(a); and Nasdaq PHLX 

LLC (‘‘Phlx’’) Rule 1101A(a). 

61See Cboe Options Rule 24.9, Interpretation and 

Policy .11. 

62See Cboe Options Rule 24.9, Interpretation and 

Policy .01(b). 

63See C2 Rule 6.11(a)(2)(B). 

64See BX Rule [sic] Section 8(b). 

65See, e.g., Cboe Options Rule 24.7(a); see also 

Phlx Rule 1047A(c). 

66See, e.g., Cboe Options Rule 24.9, 

Interpretation and Policy .13; and NASDAQ ISE, 

LLC Rule 2009, Supplementary Material .04. 

67Cboe Options Rule 6.25(g) and (h). 68Cboe Options Rule 24.10. 

will create greater trading and hedging 

opportunities and flexibility. The 

proposed rule change should also result 

in enhanced efficiency in initiating and 

closing out positions and heightened 

contra-party creditworthiness due to the 

role of OCC as issuer and guarantor of 

long-term index options contracts. 

Further, the proposal will result in 

increased competition by permitting the 

Exchange to offer products that are 

currently used in the OTC market. 

Additionally, the proposed rule change 

is consistent with the series listing rules 

of other exchanges.58

The proposed rule change to 

eliminate the rule provision regarding 

the applicability of strike price 

intervals, bid/ask differentials and quote 

continuity requirements to long-term 

index option contracts will have no 

impact on Members, as this merely 

eliminates potential confusion that may 

result from inclusion of duplicative 

rules that have been superseded by 

other rules. The Exchange will continue 

to impose these requirements in the 

manner it does today, consistent with 

the provisions in other existing rules, 

and thus this proposed rule change has 

no impact on how the Exchange 

imposes these requirements. The rules 

of other options exchanges do not 

include this provision.59

The proposed minimum strike 

interval for RUT options (if the strike 

price is less than $200) and reducedvalue long-term option series is the 

same as that on another options 

exchanges.60

The proposed strike prices for XSP 

options will be available to all market 

participants that choose to trade XSP 

options on the Exchange. Additionally, 

the proposed XSP strike prices and 

restrictions are the same as those on 

another options exchange.61 The 

proposed strike prices for DJX options 

will be available to all market 

participants that choose to trade DJX 

options on the Exchange. Additionally, 

the proposed DJX strike prices and 

restrictions are the same as those on 

another options exchange.62

With respect to the proposed rule 

change related to the opening process, 

the amended opening process will apply 

in the same manner to all market 

participants that participate in the 

Exchange’s Opening Process for index 

options. The Exchange believes it is 

appropriate to limit the proposed 

change to index options, because some, 

such as RUT, are used to determine the 

settlement value for volatility index 

derivatives. A similar process does not 

occur for equity options, and thus, the 

risk of opening trading in an equity 

option interfering with a settlement 

process on another exchange is not 

present. As discussed above, the 

proposed rule change is the same as the 

opening process for index options on 

C2,63 and similar to the opening process 

of another options exchange, which also 

provides that opening for trading may 

be dependent on whether another 

options exchange is open.64

The proposed rule change regarding 

when the Exchange may halt trading in 

index options will apply to all market 

participants in the same manner to the 

extent the Exchange halts trading 

pursuant to the proposed rule. The rule 

provides the Exchange with additional 

flexibility when determine whether to 

halt trading in an index option, so it can 

make such a determination based on 

then-current circumstances to determine 

what it will contribute to a fair and 

orderly market. The proposed change is 

consistent with the rules of another 

options exchange.65

The proposed rule change to permit 

the Exchange to list additional 

expiration months on option classes 

opened for trading on the Exchange if 

such expiration months are opened for 

trading on at least one other registered 

national securities exchange is the same 

as rules of other options exchanges.66

This proposed rule change will allow 

the Exchange to compete with other 

exchanges by matching the expiration 

months that other exchanges list. 

The proposed rule change to clarify 

that, for purposes of determining 

whether a trade resulted from an 

erroneous print or quote in the 

underlying, the underlying may include 

index values (as well as Fund Shares 

and HOLDRs, which may also underlie 

options trading on the Exchange 

pursuant to Rule 19.3(g) and (i), 

respectively) further harmonizes the 

Exchange’s rule related to the 

adjustment and nullification of 

erroneous options transactions with 

those of other options exchanges. The 

proposed rule change is based on the 

rules of another options exchange.67

Proposed Rule 29.15 is merely stating 

explicitly in the Rules that Rule 18.12(b) 

does not apply to index options, which 

is consistent with the current rule. The 

proposed rule change is based on the 

rules of another options exchange.68

The Exchange Rules and Cboe 

Options rules regarding position and 

exercise limits and margin requirements 

are substantially the same as each other, 

as the Exchange rules currently refer to 

the corresponding Cboe Options rules. 

Therefore, Options Members must 

comply with these Cboe Options rules 

pursuant to the Exchange Rules. 

Pursuant to the proposed rule change, 

the Exchange will be trading index 

options also authorized for trading on 

Cboe Options, so the position and 

exercise limits and margin requirements 

currently applicable to these index 

options that trade on Cboe Options will 

apply to these index options that may be 

listed for trading on the Exchange. The 

proposed rule regarding the listing and 

trading of XSP, RUT, and DJX are 

substantially the same as Cboe Options 

rules regarding the listing and trading of 

XSP, RUT, and DJX, which rules were 

previously approved by the Commission 

and thus they are consistent with the 

Act. Additionally, the rules regarding 

position and exercise limits and margin 

requirements that will apply to XSP, 

RUT, and DJX options listed for trading 

on the Exchange were previously 

approved by the Commission, and thus 

they are consistent with the Act. The 

proposed rule change will also result in 

similar regulatory treatment for similar 

option products. 

The Exchange believes that the 

proposed rule change will relieve any 

burden on, or otherwise promote, 

competition, as the rules are 

substantially the same as those of other 

options exchanges, as noted above. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 


sradovich on DSK3GMQ082PROD with NOTICES
42340 Federal Register / Vol. 83, No. 162 / Tuesday, August 21, 2018 / Notices 

69 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 63316 (Nov. 15, 

2010), 75 FR 71166 (Nov. 22, 2010) (File No. SR– 

FINRA–2010–056). 

4See Id. 

5 17 CFR 200.30 3(a)(12). 

6See Exchange Act Release No. 63933 (Feb. 18, 

2011), 76 FR 10629 (Feb. 25, 2011). 

7 17 CFR 201.430. 

8 17 CFR 201.431(e). 

9 17 CFR 201.431. 

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

2 17 CFR 240.19b–4. 

the Commission will: (a) By order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CboeBZX–2018–058 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–CboeBZX–2018–058. 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–CboeBZX–2018–058, and 

should be submitted on or before 

September 11, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.69

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17957 Filed 8–20–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Securities Exchange Act of 1934; Release 

No. 34–83856/August 15, 2018] 

Order Granting Petition for Review and 

Scheduling Filing of Statements 

In the Matter of Financial Industry 

Regulatory Authority, Inc. 

For an Order Granting the Approval of 

Proposed Rule Change to Adopt FINRA 

Rule 1113 (Restriction Pertaining to New 

Member Applications) and to Amend the 

FINRA Rule 9520 Series (Eligibility 

Proceedings) (File No. SR–FINRA–2010– 

056) 

This matter comes before the 

Securities and Exchange Commission 

(‘‘Commission’’) on petition to review 

the approval, pursuant to delegated 

authority, of the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

proposed rule change to adopt FINRA 

Rule 1113 (Restriction Pertaining to 

New Member Applications) and to 

amend the FINRA Rule 9520 Series 

(Eligibility Proceedings). 

On November 15, 2010, the 

Commission issued a notice of filing of 

the proposed rule change filed with the 

Commission pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 2 thereunder.3 The proposed rule 

change was published for comment in 

the Federal Register on November 22, 

2010.4 On February 18, 2011, after 

consideration of the record for the 

proposed rule change, the Division of 

Trading and Markets (‘‘Division’’), 

pursuant to delegated authority,5

approved the proposed rule change 

(‘‘Approval Order’’).6

On March 4, 2011, pursuant to 

Commission Rule of Practice 430,7

Manuel P. Asensio (‘‘Asensio’’) filed a 

petition for review of the Approval 

Order. Pursuant to Commission Rule of 

Practice 431(e), the Approval Order was 

stayed by the filing with the 

Commission of a notice of intention to 

petition for review.8 Pursuant to Rule 

431 of the Rules of Practice,9 the 

petition for review of the Approval 

Order is granted. Further, the 

Commission hereby establishes that any 

party to the action or other person may 

file a written statement in support of or 

in opposition to the Approval Order on 

or before September 5. 

For the reasons stated above, it is 

hereby: 

Ordered that Asensio’s petition for 

review of the Division’s action to 

approve the proposed rule change by 

delegated authority be Granted; and 

It is further Ordered that any party or 

other person may file a statement in 

support of or in opposition to the action 

made pursuant to delegated authority on 

or before September 5. 

It is further Ordered that the Approval 

Order shall remain stayed pending 

further order by the Commission. 

By the Commission. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–17958 Filed 8–20–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83850; File No. SR–FICC– 

2018–008] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Apply Government Securities Division 

Corporation Default Rule to Sponsored 

Members and Make Other Changes 

August 15, 2018. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 6, 

2018, Fixed Income Clearing 

Corporation (‘‘FICC’’) 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 clearing agency. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 


sradovich on DSK3GMQ082PROD with NOTICES