81592 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices 

34See supra notes 14–19 [sic]. 

35 15 U.S.C. 78s(b)(3)(A)(ii). 

36 17 CFR 240.19b–4(f)(2). 

37 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

comparable to those offered by other 

exchanges as well as to provide a 

competitive rate charged for removing 

liquidity, which the Exchange believes 

will help to encourage Members to send 

orders to the Exchange to the benefit of 

all Exchange participants. As the 

proposed rates are equally applicable to 

all market participants, the Exchange 

does not believe there is any burden on 

intramarket competition. 

With respect to the proposed billing 

errors policy, the proposal would 

establish a clearly defined timeframe for 

fees and rebates to be considered final 

that would apply equally to all Members 

and Non-Members. Additionally, as 

noted above, this proposed change is 

similar to rules of other exchanges and 

therefore does not raise any new or 

novel issues that have not been 

previously considered by the 

Commission.34

For these reasons, the Exchange does 

not believe such proposed changes 

would impair the ability of Members or 

competing order execution venues to 

maintain their competitive standing in 

the financial markets, and therefore, the 

Exchange does not believe the proposal 

will impose any burden on intermarket 

competition. Moreover, because the 

proposed changes would apply equally 

to all Members and Non-Members, as 

applicable, the Exchange does not 

believe the proposal would impose any 

burden on intramarket competition. 

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 

This proposed rule change establishes 

dues, fees or other charges among its 

members and, as such, may take effect 

upon filing with the Commission 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act 35 and paragraph (f)(2) of Rule 19b– 

4 thereunder.36 Accordingly, the 

proposed rule change would take effect 

upon filing with the Commission. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend the rule change if 

it appears to the Commission that the 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or would otherwise further 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or 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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

LTSE–2024–06 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–LTSE–2024–06. 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 (https://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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–LTSE–2024–06 and should be 

submitted on or before October 29, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–23062 Filed 10–7–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101229; File No. SR– 

CBOE–2024–042] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend Its 

Rules To Permit Orders Comprised of 

Options and Futures Legs (‘‘FutureOption Orders’’) 

October 1, 2024. 

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 

September 17, 2024, Cboe Exchange, 

Inc. (the ‘‘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 

Cboe Exchange, Inc. (the ‘‘Exchange’’ 

or ‘‘Cboe Options’’) proposes to amend 

its Rules to permit orders comprised of 

options and futures legs (‘‘future-option 

orders’’). The text of the proposed rule 

change is provided in Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

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

AboutCBOE/CBOELegal

RegulatoryHome.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 


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3As proposed, a ‘‘future-option order’’ is deemed 

an inter-regulatory spread order for purposes of the 

Rules. Rule 1.1 defines an inter-regulatory spread 

order as an order involving the simultaneous 

purchase and/or sale of at least one unit in contracts 

each of which is subject to different regulatory 

jurisdictions at stated limits, or at a stated 

differential, or at market prices on the floor of the 

Exchange. The proposed rule change modernizes 

this definition to apply it to the Exchange in 

general, as opposed to the floor of the Exchange (the 

definition of inter-regulatory spread order was 

adopted when all trading on the Exchange occurred 

in open outcry). 

4The proposed definition of a future-option order 

is similar to the definition of a stock-option order. 

Rule 1.1 defines a ‘‘stock-option order’’ as an order 

to buy or sell a stated number of units of an 

underlying or a related security coupled with either 

(a) the purchase or sale of option contract(s) on the 

opposite side of the market representing either the 

same number of units of the underlying or related 

security or the number of units of the underlying 

security necessary to create a delta neutral position 

or (b) the purchase or sale of an equal number of 

put and call option contracts, each having the same 

exercise price and expiration date, and each 

representing the same number of units of stock as, 

and on the opposite side of the market from, the 

underlying or related security portion of the order. 

The primary difference is the stock-option order 

definition requires the order to be delta neutral, 

while the proposed definition of a future-option 

order requires the order to have a risk offset within 

a specified range (as described below). 

5Pursuant to Rule 1.5, the Exchange announces 

all determinations it makes pursuant to the Rules 

via specifications, Notices, or Regulatory Circulars 

with appropriate advanced notice, which will be 

posted on the Exchange’s website, or as otherwise 

provided in the Rules; electronic message; or other 

communication method as provided in the Rules. 

The Exchange intends to initially permit futureoption orders overlying VIX. However, the 

Exchange may expand the availability of futureoption orders to other underlying securities or 

indexes in the future. If required, the Exchange and 

would submit rule filings in connection with any 

such expansion; for example, the Exchange may 

determine that a different risk offset requirement 

than what is proposed in this filing is appropriate 

for another underlying based on the characteristics 

of the overlying options and futures. 

6The user must include a delta value for each 

option leg of the order when submitting a futureoption order. See Rule 1.1 (proposed paragraph 

(b)(2) of definition of future-option order). While a 

user may use any methodology it chooses to 

calculate the delta value of option legs, the value 

must be reasonable and will be subject to 

surveillance by the Exchange’s regulatory division. 

The System will use the user-submitted delta values 

to calculate the risk offset for the entire order. 

7 If any option contract leg or future contract leg 

cannot be grouped with any future leg(s) or option 

leg(s), respectively, the System rejects a VIX futureoption order. 

8 VX futures have a contract multiplier of 1,000. 

9 VIX options have a contract multiplier of 100. 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Rules to permit future-option orders, 

which would be comprised of both 

options and futures legs. The Exchange 

understands it is common for investors 

to engage in hedging or other 

investment strategies that involve 

options and related futures products. 

However, to execute those investment 

strategies, investors must submit the 

options order to the Exchange and 

separately submit the futures order to a 

designated contract market (‘‘DCM’’) on 

which the futures trade. For example, 

market participants may obtain 

positions in Cboe Volatility Index 

(‘‘VIX’’) options through transactions on 

the Exchange and hedge those positions 

entering into a separate transaction on 

Cboe Futures Exchange, LLC’s (‘‘CFE’’) 

centralized market in VIX futures (‘‘VX 

futures’’). Separate executions of this 

sort create additional risks, including 

risk that one order will execute while 

the other does not and price risk 

resulting from the time it takes to 

complete both transactions. The 

Exchange understands that due to those 

risks and the complexities of multi-part 

transactions, market participants may 

instead transact in the over-the-counter 

(‘‘OTC’’) market or not obtain a hedge at 

all. The proposed rule change adopts a 

mechanism to facilitate the execution of 

these cross-product transactions in a 

simple, efficient manner that reduces 

these execution and price risks. 

The Exchange first proposes to adopt 

a definition of a future-option order. 

Specifically, the proposed rule change 

amends Rule 1.1 to define a ‘‘futureoption order’’ 3 as an order to buy or sell 

a stated number of units of an 

underlying or a related futures 

contract(s) coupled with the purchase or 

sale of an option contract(s) on the 

Exchange.4 The Exchange would 

designate in which classes future-option 

orders would be available.5

The proposed definition of a futureoption order includes a risk offset 

requirement. A user may only submit a 

future-option order if it satisfies the 

applicable risk offset requirement. The 

Exchange believes a risk offset 

requirement will provide market 

participants with sufficient flexibility to 

execute legitimate strategies comprised 

of options and futures while preventing 

a market participant from using the 

proposed execution mechanism to 

execute a futures trade outside of the 

normal trading process on the 

applicable designated contract market 

by combining the future leg(s), for 

example, with an inexpensive out-ofthe-money option leg. 

Pursuant to paragraph (a) of the 

proposed definition of future-option 

order, the System will accept a futureoption order if the future leg(s) provides 

no less than 10% and no greater than 

125% risk offset to the option leg(s).6 A 

future-option order satisfies this risk 

offset requirement if the net delta value 

of the order is no greater than ¥0.10 

and no less than ¥1.25. The delta value 

of an option leg equals the expected 

change in the price of that options 

contract given a $1.00 change in the 

price of the underlying security or 

index. The delta value of a future leg 

equals the amount set forth in the rules 

or contract specifications of the 

designated contract market (‘‘DCM’’) on 

which the future contract trades. The 

delta value of each option and future leg 

is multiplied by the applicable 

multiplier. The sum of the future legs 

delta values divided by the sum of the 

option legs delta values, which equals 

the net delta value for the order. 

For VIX future-option orders, the 

System will calculate the risk offset 

described above using the net delta 

value for each ‘‘group’’ of option legs 

and future legs with the same expiration 

date. The net delta value of each group 

must be no greater than ¥0.10 and no 

less than ¥1.25.7 For example, suppose 

a VIX future-option order is submitted 

with the following components: 

• Sell 1 Dec VX future 8 with a delta of 

¥1 

• Buy 2 Jan VX futures with delta of 1 

• Buy 16 Dec VIX option 9 calls with a 

delta of 0.50 

• Buy 35 Jan VIX option puts with a 

delta of ¥0.60 

The 1 short Dec VX future is grouped 

with the 16 long Dec VIX calls, which 

group has a net delta of/(¥1 × 1,000)/ 

(16 × .50 × 100) = ¥1,000/800 = ¥0.125. 

The 2 long Jan VX futures are grouped 

with the 35 short Jan VIX puts, which 

group has a net delta of (2 × 1,000)/(35 

× ¥0.60 × 100) = ¥2,000/2,100 = 

¥0.9524. This order would satisfy the 

risk offset requirement, as both groups 

have a net delta between ¥0.10 and 

¥1.25. If the System determines that a 

complex strategy comprised of future 

and option legs satisfies the risk offset 

requirement, it accepts all future-option 

orders for that complex strategy for the 

remainder of that trading day. This will 

prevent a situation in which the 

Exchange accepts a future-option order 

for a specific complex strategy on a 

trading day but cannot execute against 


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10 It is for this reason a user may not designate 

a future-option order submitted for electronic 

processing as GTC or GTD. See proposed Rule 1.1 

(proposed paragraph (b)(1) of definition of futureoption order). 

11The term complex order already includes crossproduct orders such as stock-option orders and 

security future-option orders. 

12Unlike stock, a future trades on one DCM, 

which would make such direct communication 

with the DCM possible. This would only be 

available if the DCM and Exchange established 

electronic communication between the two markets 

to permit this direct communication of the futures 

component. 

13As is the case with any order submitted to the 

Exchange, only authorized Users and associated 

persons of Users may establish connectivity to and 

access the Exchange to submit orders. See Rule 

5.5(a). A ‘‘User’’ is defined as a Trading Permit 

Holder (‘‘TPH’’) or Sponsored User who is 

authorized to obtain access to the System pursuant 

to Rule 5.5. See Rule 1.1 (definition of User). The 

Exchange currently has no Sponsored Users, so the 

term ‘‘User’’ at present is synonymous with the 

term ‘‘TPH.’’ The User and any individuals 

associated with the User that submits a futureoption order must have any required futures 

industry registrations and comply with applicable 

rules of the designated contract market on which 

the futures trades and the Commodity Futures 

Trading Commission (‘‘CFTC’’). 

14This requirement is substantially identical to 

that required for stock-option orders. 

15The Exchange intends to establish an 

arrangement with one or more FCMs/IBs that are 

members of the applicable designated contract 

market, pursuant to which arrangement those 

FCMs/IBs will have connectivity to the Exchange to 

receive the futures components of future-option 

orders and communicate those to the applicable 

designated contract market for execution of these 

futures components. 

16The proposed rule change also amends Rule 

5.70(b) to provide that the Exchange may make 

future-option orders available for flexible (FLEX) 

options trading. 

17This flexibility with respect to classes is 

necessary given the Exchange would need to 

establish a relationship with appropriate DCMs on 

which futures trade before it would be able to 

accept future-option orders that contain futures legs 

that trade on those DCMs. 

18The proposed rule change also provides that 

future-option orders will execute (electronically) in 

the same manner as other complex orders except as 

otherwise specified in Rule 5.33. 

19This is consistent with the permissible pricing 

of options legs of complex orders and stock-option 

orders. See Rule 5.4(b) and 5.33(f)(A) and (B). 

20See also proposed Rule 5.33(g)(5) (which 

provides that future-option orders, like stock-option 

orders, may not leg into the simple book). 

future-option orders for the same 

complex strategy submitted later that 

trading day but no longer satisfies the 

risk offset requirement because the delta 

values have changed since the initial 

order was submitted.10

The proposed rule change also 

amends the definition of ‘‘complex 

order’’ in Rule 1.1 to provide that unless 

the context otherwise requires, the term 

complex order will include futureoption orders.11

As proposed in Rule 5.33(o), when a 

user submits a future-option order to the 

Exchange: 

• if the User is also a member of the 

DCM on which the applicable future 

trades and the Exchange has established 

electronic communication with the 

DCM, the Exchange will electronically 

communicate the future component of 

the future-option order to the DCM on 

behalf of the User 12; or 

• if the User is not also a member of 

the DCM on which the applicable future 

trades or opts out of the direct 

communication described in the above 

bulleted paragraph (or such direct 

communication is unavailable), the User 

must designate a specific futures 

commission merchant (‘‘FCM’’) or 

introducing broker (‘‘IB’’) with which it 

has entered into an agreement pursuant 

to proposed Rule 5.33, Interpretation 

and Policy .05 (the ‘‘designated FCM/ 

IB’’) to which the Exchange will 

communicate the futures component of 

the future-option order on behalf of the 

user.13 Proposed Interpretation and 

Policy .05 provides that if the user is not 

also a member of the DCM on which the 

applicable future trades or opts out of 

the direct communication (or such 

direct communication is unavailable), to 

submit a future-option order to the 

Exchange for execution, a user must 

enter into an agreement with one or 

more FCMs or IBs that are not affiliated 

with the Exchange, which FCM/IB(s) the 

Exchange has identified as having 

connectivity to electronically 

communicate the futures components of 

future-option orders to the designated 

contract market on which the futures 

trade.14 This will provide users with 

flexibility to pick which FCM/IB will 

communicate the futures components of 

their orders for execution (if an FCM/IB 

is necessary for communication of the 

futures component to the DCM).15

The proposed rule change first 

amends Rule 5.33 to describe how 

future-option orders may execute 

electronically on the Exchange. The 

proposed rule change adds futureoption order to the list of types of 

complex orders that may be accepted for 

electronic trading.16 Specifically, the 

proposed rule change amends Rule 

5.33(b)(5) to reference the proposed 

definition of future-option order in Rule 

1.1 and state that only future-option 

orders in the classes designated by the 

Exchange 17 with no more than the 

applicable number of legs are eligible 

for electronic processing.18 Futureoption orders submitted for electronic 

processing may execute pursuant to a 

complex order auction (‘‘COA’’) if 

eligible as described in Rule 5.33(d) or 

in the complex order book (‘‘COB’’) as 

described in Rule 5.33(e) and will 

execute in the same manner as other 

complex orders, except as described 

below. 

The proposed rule change adopts rule 

5.33(f)(1)(C) to provide that users may 

express bids and offers for a futureoption order in any decimal price the 

Exchange determines, which will permit 

the Exchange to accommodate the 

available pricing of futures. The 

minimum increment for the option 

leg(s) of a future-option order is $0.01 or 

greater, which the Exchange may 

determine on a class-by-class basis, 

regardless of the minimum increments 

otherwise applicable to the option 

leg(s),19 and the future leg(s) of a futureoption order may be executed in any 

decimal price permitted in the 

designated contract market on which 

the applicable futures trade. Smaller 

minimum increments are appropriate 

for future-option orders as the future 

component may be able to trade at finer 

decimal increments permitted by the 

designated contract market on which 

the futures trade. The Exchange notes 

that even with the flexibility provided 

in the proposed rule, the individual 

options legs must trade at increments 

allowed by the Commission. 

The proposed electronic execution 

process of future-option orders is 

substantially similar to that of stockoption orders. Proposed Rule 5.33(o)(2) 

provides that a future-option order may 

execute against other future-option 

orders (or COA Responses, if 

applicable), but may not execute against 

orders in the simple book.20 If a futureoption order can execute upon entry or 

following a COA, or if it can execute 

following evaluation while resting in 

the COB pursuant to Rule 5.33(i), the 

System executes the option component 

(which may consist of one or more 

option legs) of a future-option order 

against the option component of other 

future-option orders resting in the COB 

or COA responses pursuant to the 

allocation algorithm applicable to the 

class (pursuant Rule 5.33(d)(5)(A)(ii)), as 

applicable, but does not immediately 

send the user a trade execution report, 

and then automatically communicates 

the future component(s) to the DCM or 

the designated FCM/IB, as applicable, 

for execution at the DCM on which the 

futures trade. If the System receives an 

execution report for the future 

component from the DCM or the 

designated FCM/IB, as applicable, the 

Exchange sends the user the trade 

execution report for the future-option 

order, including execution information 

for the future and option components. If 

the System receives a report from the 

DCM or the designated FCM/IB, as 

applicable, that the future component(s) 


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21Execution of the futures components will need 

to satisfy requirements of the applicable designated 

contract market, including informational and 

reporting time requirements, risk controls, and 

price restrictions (such as needing to be within the 

daily quotation range). Pursuant to Rule 5.33(k), 

trading in any complex strategy (including one that 

comprises a future-option order) is suspended if 

any component of a complex strategy (including a 

future leg) is halted. Therefore, if trading in a future 

is halted, it could not execute and would result in 

the future-option order not being executed. 

22The proposed rule change adds subparagraph 

(3) to the definition of SBBO in Rule 5.33(a) to 

provide that the SBBO is the best net bid and best 

net offer on the Exchange for a complex strategy 

calculated using, for future-option orders, the BBO 

for each component (or the national best bid or offer 

(‘‘NBBO’’) for a component if the BBO for that 

component is not available) and the daily quotation 

range for each future component. Similarly, the 

proposed rule change adds subparagraph (3) to the 

definition of synthetic national best bid or offer 

(‘‘SNBBO’’) in Rule 5.33(a) to provide that the 

SNBBO is the national best net bid and net offer for 

a complex strategy calculated using, for futureoption orders, the NBBO for each option component 

and the daily quotation range for each future 

component. 

23The proposed rule change amends the 

definition of ‘‘conforming complex order’’ in Rule 

1.1 to provide that a future-option order is 

conforming (1) if the ratio on the options legs is 

greater than or equal to one-to-three (.333) or less 

than or equal to three-to-one (3.00) or (2) the 

options legs comprise an Index Combo order (as 

defined in Rule 5.33(b)). 

24The proposed rule change amends the 

definition of ‘‘nonconforming complex order’’ in 

Rule 1.1 to provide that a future-option order is 

nonconforming if the ratio of its options legs is less 

than one-to-three (.333) or greater than three-to-one 

(3.00) (unless the options legs comprise an Index 

Combo order). 

25All-or-none complex orders (including futureoption orders) may only execute at prices better 

than the SBBO. 26The proposed rule change also updates Rule 

5.85(g)(2) to provide that a trade representing 

execution of the options leg of a future-option order 

may be cancelled at the request of any TPH that is 

a party to that trade only if market conditions in 

any of the non-Exchange market(s) prevent the 

execution of the non-option leg(s) at the price(s) 

agreed upon. 

cannot execute,21 the Exchange nullifies 

the option component trade and notifies 

the user of the reason for the 

nullification. If a future-option order is 

not marketable, it rests in the COB (if 

eligible to rest) or routes to PAR for 

manual handling, subject to a user’s 

instructions. The Exchange believes this 

proposed process is reasonable, because 

the options and futures components of 

a future-option order are submitted for 

execution as part of the same 

investment strategy. Given this, if the 

future component does not execute, the 

Exchange believes it is reasonable to 

expect that a user that submitted a 

future-option order to request 

nullification of the options trade (as 

permitted by Rule 6.5). If the future 

component does not execute, rather 

than require the user that submitted the 

future-option order to contact the 

Exchange to request nullification of the 

option component execution pursuant 

to Rule 6.5, the proposed rule eliminates 

this requirement for the user to make 

such request. Instead, the proposed rule 

change provides that the Exchange will 

automatically nullify the option 

transaction if the future component does 

not execute. The Exchange believes 

such nullification without a request 

from the user is consistent with the 

purpose of future-option orders, as 

contingent execution at or near the same 

time (and thus reduction in price and 

execution risk) is one of the primary 

goals of future-option orders (as further 

discussed below). 

Future-option orders may also be 

submitted for execution (if eligible) in 

the complex automated improvement 

mechanism (‘‘C–AIM’’) as described in 

Rule 5.38 or complex solicitation 

auction mechanism (‘‘C–SAM’’) as 

described in Rule 5.40. Processing of 

future-option orders through C–AIM or 

C–SAM will occur in the same manner 

as any other complex orders submitted 

into those execution mechanisms. 

Proposed Rule 5.33(o)(2) provides that 

a future-option order may only execute 

if the price complies with subparagraph 

(f)(2)(B). The proposed rule change 

amends Rule 5.33(f)(2) to describe the 

permissible execution prices and 

priority of future-option orders, which 

is substantially similar to that of stockoption orders. Specifically, proposed 

Rule 5.33(f)(2)(C) states for a futureoption order with one option leg, the 

option leg may not trade at a price 

worse than the individual component 

price on the simple book or at the same 

price as a priority customer order on the 

simple book. For a future-option order 

with more than one option leg, the 

option legs must trade at price pursuant 

to Rule 5.33(f)(2)(A), which is the 

permissible execution prices and 

priority for complex orders comprised 

of option legs. The System, therefore, 

will not execute a future-option order at 

a net price: (1) that would cause any 

option component of the complex 

strategy to be executed at a price of zero; 

(2) that would cause any option 

component of the complex strategy to be 

executed at a price worse than the 

individual component prices on the 

simple book; (3) worse than the price 

that would be available if the complex 

order legged into the simple book; or (4) 

worse than the synthetic best bid or 

offer (‘‘SBBO’’) 22 or equal to the SBBO 

when there is a priority customer order 

on any leg comprising the SBBO and, if 

a conforming complex order,23 at least 

one option component of the complex 

order must execute at a price that 

improves the best bid or offer (‘‘BBO’’) 

for that component by at least one 

minimum increment or, if a 

nonconforming complex order,24 the 

option component(s) of the complex 

order for the leg(s) with a priority 

customer order at the BBO must execute 

at a price that improves the price of that 

priority customer order(s) on the simple 

book by at least one minimum 

increment.25 Pursuant to these proposed 

changes, the option component(s) of a 

future-option order will ultimately trade 

in the same manner and in accordance 

with the same priority principles as they 

would if they had been submitted 

without a future leg. 

The proposed rule change also 

amends Rules in Chapter 5, Section G of 

the Rulebook to describe how futureoption orders may execute in open 

outcry on the Exchange’s trading floor, 

which is substantially similar to the 

open outcry execution process of stockoption orders. Specifically, the 

proposed rule change amends Rule 

5.83(b) to provide that the Exchange 

may make future-option orders available 

for PAR routing for manual handling (as 

is the case for other complex orders, 

including stock-option orders). The 

proposed rule change further amends 

this provision to provide that the 

Exchange may determine (as it can for 

other nonconforming complex orders 

and non-conforming stock-option 

orders) to make nonconforming futureoption orders not eligible for electronic 

processing, in which case such orders 

would only be eligible for manual 

handling and open outcry trading. The 

proposed rule change amends Rule 

5.85(g) to provide that a bid or offer that 

is identified to the trading crowd as part 

of a future-option order is made and 

accepted subject to the following 

conditions (which are the same 

conditions applicable to stock-option 

orders): (1) at the time the future-option 

order is announced, the TPH initiating 

the order must disclose to the crowd all 

legs of the order and identify the 

specific market(s) on which and the 

price(s) at which the non-option leg(s) 

of the order is to be filled; and (2) 

concurrent with the execution of the 

options leg of the order, the initiating 

TPH and each TPH that agrees to be a 

contra-party on the non-option leg(s) of 

the order must take steps immediately 

to transmit the non-option leg(s) to the 

identified market(s) for execution.26

Proposed Rule 5.85(b)(3) provides, 

however, that (like the stock component 

of stock-option orders) a floor broker or 

PAR official may, subject to a User’s 

instructions, route the future component 

of a future-option order represented in 

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27The proposed rule change also makes a 

nonsubstantive amendment to Rule 5.85(b)(3) to 

correct the current cross-reference to Rule 5.11 to 

Rule 5.33, Interpretation and Policy .04, which is 

the applicable rule to be referenced. 28 If any TPH that is a party to a trade 

representing the execution of the options leg of a 

future-option order requests, if market conditions in 

any of the non-Exchange market(s) prevent the 

execution of the non-option leg(s) at the price(s) 

agreed upon, the execution of the option leg may 

be cancelled. See proposed Rule 5.87, Interpretation 

and Policy .03. This is consistent with what is 

permissible for stock-option orders, as well as the 

proposed electronic processing of future-option 

orders set forth in proposed Rule 5.33(o). 

29 In other words, if there is a priority customer 

order on every leg comprising the SBBO, at least 

one option leg of the future-option order must 

execute at a price that improves the price of the 

priority customer order on the simple book for that 

leg by at least one minimum increment. This is the 

same priority that applies to a conforming complex 

order (comprised of all option legs) as set forth in 

Rule 5.85(b)(1), and thus the options legs of a 

conforming future-option order will execute subject 

to the same priority as they would if they had been 

submitted without a future leg. 

30 In other words, if there is a priority customer 

order on any leg(s) comprising the SBBO, the 

component(s) of the future-option order for the 

option leg(s) with a priority customer order at the 

BBO must execute at a price that improves the price 

of that priority customer order(s) on the simple 

book by at least one minimum increment. This is 

the same priority that applies to a nonconforming 

complex order (comprised of all option legs) as set 

forth in Rule 5.85(b)(2), and thus the options legs 

of a nonconforming future-option order will execute 

subject to the same priority as they would if they 

had been submitted without a future leg. 

31The Exchange already has one in place with 

CFE for purposes of VIX future-option orders. 

32 15 U.S.C. 78f(b). 

33 15 U.S.C. 78f(b)(5). 

designated FCM/IB not affiliated with 

the Exchange for execution at a 

designated contract market on which 

the futures trade in accordance with 

proposed Rule 5.33, Interpretation and 

Policy .05.27 The Exchange also 

proposes to add subparagraph (5) to 

Rule 5.85(g) (which is substantially 

similar to Rule 5.85(g)(4) for stockoption orders) to provide that a TPH or 

PAR official may route the future 

component of an eligible future-option 

order represented in open outcry from 

PAR directly to a designated FCM/IB (as 

defined in Rule 5.33(o)) not affiliated 

with the Exchange for electronic 

execution at the designated contract 

market on which the futures trade (1) in 

accordance with the order’s terms, and 

(2) as a single order or as a paired 

matching order (including with orders 

transmitted from separate PAR 

workstations). TPHs seeking to route the 

future component of a future-option 

order represented in open outcry 

through PAR to an Exchange-designated 

FCM/IB not affiliated with the Exchange 

for electronic execution at the 

designated contract market on which 

the futures trade must comply with 

proposed Rule 5.33(o).28 The Exchange 

proposes to amend Rule 5.91(g) to 

provide that as they currently can for 

complex orders (including stock-option 

orders), floor brokers may leg futureoption orders where one of the legs is 

executed on the Exchange. 

The proposed rule change amends 

Rule 5.85(b)(3) to describe the priority 

that will apply to future-option orders 

executed on the Exchange’s trading 

floor. Specifically, the proposed rule 

change provides that future-option 

orders have priority over bids (offers) of 

in-crowd market participants but not 

over priority customer bids (offers) in 

the book. Specifically, future-option 

orders, like stock-option orders, will 

have priority over bids and offers of incrowd market participants on the 

trading floor. Further, the options legs of 

conforming and nonconforming futureoption orders may be executed at the 

same net debit and credit prices as the 

options legs of stock-option orders. 

Pursuant to proposed Rule 5.85(b)(4), a 

conforming future-option order may be 

executed at a net debit or credit price 

without giving priority to equivalent 

bids (offers) in the individual series legs 

that are represented in the trading 

crowd or in the book if the price of at 

least one option leg of the order 

improves the corresponding bid (offer) 

of a priority customer order(s) in the 

book by at least one minimum trading 

increment as set forth in Rule 5.4(b).29

Additionally, pursuant to proposed Rule 

5.85(b)(5), a nonconforming futureoption order may be executed at a net 

debit or credit price without giving 

priority to equivalent bids (offers) in the 

individual series legs that are 

represented in the trading crowd or in 

the book if each option leg of the order 

betters the corresponding bid (offer) of 

a priority customer order(s) in the book 

on each leg by at least one minimum 

trading increment as set forth in Rule 

5.4(b).30

The Exchange proposes to amend 

Rule 6.5, Interpretation and Policy .07 to 

describe how a future-option order may 

qualify as an obvious error. As 

proposed, future-option orders will be 

handled in a similar manner as stockoption orders for purposes of Rule 6.5. 

Specifically, if the option leg of a futureoption order qualifies as an obvious 

error under Rule 6.5(c)(1) or 

catastrophic error under Rule 6.5(d)(1), 

then the option leg that is an obvious or 

catastrophic error will be adjusted in 

accordance with Rule 6.5(c)(4)(A) or 

(d)(3), respectively, regardless of 

whether one of the parties is a customer. 

However, the option leg of any customer 

future-option order will be nullified if 

the adjustment would result in an 

execution price higher (lower) for buy 

(sell) transactions than the customer’s 

limit price on the future-option order, 

and the Exchange will attempt to nullify 

the future leg. Whenever a DCM 

nullifies the futures leg(s) of a futureoption order or whenever the future 

leg(s) cannot be executed, the Exchange 

will nullify the option leg upon request 

of one of the parties to the transaction 

or in accordance with Rule 6.5(c)(3). 

Finally, the proposed rule change 

adds Interpretation and Policy .02 to 

Rule 6.6 to clarify that TPHs may update 

only the option component of a futureoption order trade using Clearing Editor 

(and as permitted by Rule 6.6). Any 

updates to the future component would 

need to be done in accordance with the 

Rules of the applicable DCM (if 

permissible). 

Execution of the options components 

of future-option orders will be subject to 

Commission jurisdiction, and execution 

of the futures components of futureoption orders will be subject to 

Commodity Futures Trading 

Commission (‘‘CFTC’’) jurisdiction. 

Further, each of the Exchange and the 

designated contract market on which 

the futures component of a futureoption order trades will regulate 

conduct relating to future-option orders 

and trades with respect to compliance 

with its rules, including bringing 

disciplinary actions for violations of its 

rules. Before authorizing a class of 

future-option orders to trade on the 

Exchange, the Exchange would enter 

into an information sharing agreement 

with the designated contract market on 

which the applicable future trades that 

encompasses information relating to 

future-option orders and trades.31 This 

would allow for the sharing of 

information between the Exchange and 

the DCM to permit the Exchange (and 

the DCM) to have access to all order, 

trade, regulatory, and other data relating 

to these orders and trades. 

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.32 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 33 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 


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34 Id. 

35This would include any rules the designated 

contract market related to the execution of the 

future component of a future-option order. 

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) 34 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, to protect investors and the 

public interest because it will provide 

investors with greater opportunities to 

manage risk. The proposed rule change 

would provide investors with a more 

efficient mechanism to execute options 

and related future products, which 

investors regularly trade as part of 

hedging and other investment strategies. 

The proposed execution mechanism for 

future-option orders will make the 

trading and hedging process for 

investment strategies comprised of 

option and future components more 

efficient, which will reduce execution, 

legging, and price drift risk that 

otherwise accompanies the current 

execution process for these strategies. 

For example, today, investors looking to 

execute an investment strategy 

comprised of option and future 

components must do so through 

separate trades—one for the options and 

one for the futures. This creates risk that 

one trade occurs but the other does not, 

which may leave an investor with an 

unhedged position. Additionally, 

separate transactions create risk because 

market conditions may change between 

the time it takes to execute both 

transactions, which may make the full 

package execute in an unfavorable 

manner for the investor. Investors may 

continue to execute these strategies as 

separate transactions if they so choose. 

However, the addition of the proposed 

execution process (both electronic and 

open outcry) would provide investors 

with an optional, alternative means to 

execute strategies comprised of future 

and options components that would 

reduce these risks, as it would permit 

the entire package to be priced together 

and will result in an execution only if 

both the options and futures 

components are able to trade. The 

proposed single execution mechanism, 

therefore, expands the ability of market 

participants to engage in cross-product 

investment and hedging transactions, 

which the Exchange believes will 

contribute to reduced overall market 

risk and increased liquidity. 

The Exchange believes the proposed 

rule change is designed to prevent 

fraudulent and manipulative acts and 

practices and to promote just and 

equitable principles of trade. The 

proposed risk offset requirement is 

designed to provide market participants 

with sufficient flexibility to execute 

legitimate options strategies comprised 

of options and futures while preventing 

misuse of this mechanism, such as a 

market participant from using the 

proposed execution mechanism to 

execute a futures trade outside of the 

normal trading process on the 

applicable designated contract market 

by combining the future leg(s), for 

example, with an inexpensive out-ofthe-money option leg. 

As discussed above, the Commission 

and the CFTC will maintain jurisdiction 

over execution of the options and 

futures components, respectively, of 

future-option orders. Further, each of 

the Exchange and the DCM on which 

the futures component of a futureoption order trades will regulate 

conduct relating to future-option orders 

and trades with respect to compliance 

with its rules, including bringing 

disciplinary actions for violations of its 

rules.35 The Exchange is a member of 

the Intermarket Surveillance Group 

(‘‘ISG’’). The ISG members work 

together to coordinate surveillance and 

investigative information sharing in the 

futures and options markets, and the 

Exchange would therefore have access 

to information regarding relevant 

trading activity from other ISG 

members, including applicable DCMs 

(as CFE is) that are also members. Before 

authorizing a class of future-option 

orders to trade on the Exchange, if the 

applicable DCM was not a member of 

ISG, or if the applicable DCM was a 

member of ISG but the Exchange still 

deemed appropriate, the Exchange 

would enter into an information sharing 

agreement with the designated contract 

market on which the applicable future 

trades that encompasses information 

relating to future-option orders and 

trades. This would allow for the sharing 

of information between the Exchange 

and the designated contract market to 

permit the Exchange (and the 

designated contract market) to have 

access to all order, trade, regulatory, and 

other data relating to these orders and 

trades, and thus facilitate the 

intermarket surveillance of futureoption orders. As a self-regulatory 

organization, the Exchange recognizes 

the importance of surveillance, among 

other things, to detect and deter 

fraudulent and manipulative trading 

activity as well as other violations of 

Exchange rules and the federal 

securities laws. The Exchange’s current 

rules prohibiting market manipulation 

and fraudulent, noncompetitive, and 

disruptive trading practices will apply 

to future-option orders. The Cboe 

Regulatory Division will incorporate 

information it receives from the 

designated contract market into its 

surveillance procedures to monitor 

trading of future-option orders, 

including to detect any manipulative 

trading activity. The Exchange believes 

its surveillance, along with the 

proposed risk offset requirement, are 

reasonably designed to detect 

manipulative trading and enforce 

compliance with the proposed rules and 

other Exchange Rules. The Exchange 

performs ongoing evaluations of its 

surveillance program to ensure its 

continued effectiveness and will 

continue to review its surveillance 

procedures on an ongoing basis and 

make any necessary enhancements and/ 

or modifications that may be needed for 

future-option orders. 

The Exchange believes the proposed 

execution process will also promote just 

and equitable principles of trade. As 

described above, future-option orders 

will execute in a substantially similar 

way as complex orders, including stockoption orders. The proposed priority for 

future-option orders will protect 

customer orders in the simple book. As 

proposed, the option component(s) of a 

future-option order will ultimately trade 

in the same manner and in accordance 

with the same priority principles as they 

would if they had been submitted 

without a future leg. Further, the 

proposed process to nullify the option 

component execution if the futureoption order does not execute is 

consistent with the purpose of the 

future-option order. Given the option 

and future components of a futureoption order are submitted as part of the 

same investment strategy, if the future 

component does not execute, the 

Exchange believes it is reasonable to 

expect that a user that submitted a 

future-option to request nullification of 

the options trade in accordance with 

current Exchange Rules. If the future 

component does not execute, rather 

than require the user that submitted the 

future-option order to contact the 

Exchange to request nullification of the 


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36Securities Exchange Act Release No. 26271 

(November 10, 1988), 53 FR 46727 (November 18, 

1988) (SR–CBOE–88–17) (‘‘CBOE–CBOT JV 

Approval Order’’); see also Securities Exchange Act 

Release No. 24235 (March 19, 1987), 52 FR 9750 

(March 26, 1987) (SR–Phlx–86–43). 

37See CBOE–CBOT JV Approval Order. 

38 Inter-regulatory spreads subject to that proposal 

were limited to those comprised of S&P 500 Index 

options and CBOE 50 futures, and S&P 100 Index 

options and S&P 250 futures. 

39As noted above, if the Exchange determines a 

different risk offset requirement would be 

appropriate for a different class of future-option 

orders, it will submit a rule filing as necessary to 

implement that requirement. 

40As an example, VX futures trade electronically 

only on CFE. For similar reasons, the Exchange 

believes structuring future-option orders as a joint 

venture is unnecessary, as the individual 

components will continue to trade on the 

applicable market as proposed. As noted above, the 

Exchange will be able to share information with the 

applicable DCM (through ISG or information 

sharing agreements) for regulatory purposes. It is 

possible the Exchange and the designated contract 

market may enter into other agreements as 

appropriate to permit future-option orders (e.g., to 

establish electronic connections for purposes of 

routing the futures component), but such 

agreements would have no impact on the proposed 

rules. 

41See CBOE–CBOT JV Approval Order at 46729. 

42 Id. at 46730. 

43 Id. 

44See Securities Exchange Act Release No. 52824 

(November 22, 2005), 70 FR 72318 (December 2, 

2005) (SR–CBOE–2005–69). 

45See Rule 1.1 (definition of inter-regulatory 

spread). 

46See Rules 5.33 (including subparagraphs 

(f)(1)(B) and (2)(B), paragraph (l), and Interpretation 

and Policy .04), 5.70(b), 5.83(b), and 5.85 (including 

subparagraphs (b)(3) through (5) and paragraph (g)). 

option component execution, the 

proposed rule eliminates this 

requirement for the user to make such 

request. Instead, the proposed rule 

change provides that the Exchange will 

automatically nullify the option 

transaction if the future component does 

not execute. The Exchange believes 

such nullification without a request 

from the user is consistent with the 

purpose of future-option orders, as 

contingent execution at or near the same 

time (and thus reduction in price and 

execution risk) is one of the primary 

goals of future-option orders (as further 

discussed below). 

Additionally, the Exchange believes 

the availability of future-option orders 

will 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 because it will 

provide investors with an alternative to 

the OTC market for investment 

strategies comprised of future and 

option components. The proposed rule 

change will provide investors with the 

ability to execute these investment 

strategies in a listed market 

environment as opposed to in the 

unregulated OTC market. The proposed 

rule change may shift liquidity from the 

OTC market onto the Exchange (as well 

as shift swaps and OTC combos from 

the OTC market onto designated 

contract markets in the form of futures), 

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. The Exchange believes it may 

be a more attractive alternative to the 

OTC market, because trading these 

strategies in an exchange environment 

may benefit market participants 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 clearing 

requirements for listed options and 

futures. 

The Commission previously 

determined that permitting investors to 

submit an order for execution to Cboe 

that included components subject to 

different regulatory jurisdictions was 

consistent with the Act.36 Specifically, 

in 1988, the Commission approved a 

Cboe proposed rule change to allow 

inter-regulatory spread orders (which 

were defined as the simultaneous 

purchase and/or sale of at least one unit 

in contracts each of which is subject to 

different regulatory jurisdictions at 

stated limits, or at a stated differential, 

or at market prices on the floor of the 

Exchange) to trade on Cboe’s trading 

floor.37 The only substantive differences 

between that proposal and the proposed 

rule change regarding future-option 

orders are as follows: 

• The proposed rule change would 

permit future-option orders in classes 

authorized by the Exchange, dependent 

upon agreements the Exchange may 

make with applicable DCMs, compared 

to the prior filing that was limited to 

orders comprised of two options and 

two related futures.38 The Exchange 

believes this is reasonable because the 

proposed rule change will provide the 

Exchange with the ability to expand the 

availability of future-option order 

functionality in the future to 

accommodate additional investment 

strategies of investors, and the proposed 

rules regarding future-option orders 

would apply in the same manner 

regardless of the underlying 

components.39

• The proposed rule change would 

permit electronic execution in addition 

to open outcry execution of futureoption orders. This merely reflects the 

advancement in the availability of 

electronic trading since 1988 and 

provides an additional manner of 

execution for future-option orders. 

• The proposed rule change does not 

create a separate pit on the Exchange’s 

trading floor for the related futures as 

the prior proposal did. Given the 

advances in electronic trading (and the 

fact that many futures exchanges no 

longer have open outcry trading), the 

Exchange believes this is no longer 

necessary to permit future-option 

orders.40

These differences have no impact on 

the fundamental attributes of the 

underlying product that the 

Commission approved in 1988 and that 

the Exchange proposes in this filing, 

which is a multi-part order comprised of 

an option and a related future submitted 

to the Exchange for pricing as a package, 

with execution of each component 

contingent on the other. When 

approving the prior proposal, the 

Commission stated that permitting 

execution of inter-regulatory spreads 

(including for hedging purposes) on the 

Exchange would ‘‘contribute to the 

mechanism of a free and open market by 

enhancing . . . market makers’ ability to 

hedge their positions with futures [and] 

enable market makers to better 

accommodate customer orders and to 

provide deeper and tighter markets.’’ 41

The Commission further stated that the 

proposed rule change was designed to 

minimize regulatory concerns, and 

clarifying the regulatory responsibility 

for each leg of an inter-regulatory spread 

(as the current filing does) would 

‘‘expedite the enforcement of each 

jurisdiction’s regulations and foster 

coordination and cooperation between 

the jurisdictions involved.’’ 42

Ultimately, the Commission found that 

the proposal to execute inter-regulatory 

spreads on Cboe to be consistent with 

the requirements of the Act.43 While 

some time has passed since approving 

inter-regulatory spreads (the Exchange 

notes the rules permitted execution of 

inter-regulatory spreads remained in 

Cboe’s Rulebook until 2005,44 and the 

definition of an inter-regulatory spreads 

remains in Cboe’s Rulebook 45), the 

Exchange is unaware of any changes to 

Section 6(b)(5) of the Act since the 

Commission approved that the trading 

of inter-regulatory spreads that would 

prevent the Commission from approving 

future-option orders at this time. 

Further, as discussed above, the 

proposed rules regarding the handling 

and execution of future-option orders 

are also substantially similar to that of 

stock-option orders,46 and rules 

previously filed with the Commission 


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47See Securities Exchange Act Release No. 49367 

(March 5, 2004), 69 FR 11678 (March 11, 2004) (SR– 

CBOE–2004–14); see also Securities Exchange Act 

Release Nos. 46390 (August 21, 2002), 67 FR 55290 

(August 28, 2002) (SR–ISE–2002–18); and 48894 

(December 8, 2003), 68 FR 70328 (December 17, 

2003) (SR–PCX–2003–42). 

48See H.R. Rep. No. 94–229, at 92 (1975) (Conf. 

Rep.). 

49See 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’’). 

for security-future option orders.47 The 

only substantive difference between 

stock-option orders (and security-future 

option orders) is that one component of 

a future-option order (the future leg(s)) 

is not subject to Commission 

jurisdiction. The Exchange believes 

market participants who trade want to 

trade these strategies because they have 

determined these strategies are the most 

appropriate to achieve their investment 

goals should be able to avail themselves 

of a more efficient and lower risk 

execution mechanism for these 

strategies, even though those strategies 

happen to include a component subject 

to jurisdiction of another regulator. 

Ultimately, 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, to protect investors and the 

public interest because it will provide 

investors with a competitive and 

efficient market mechanism for 

executing investment strategies 

comprised of future-option orders on 

the Exchange, which will provide a 

venue for order exposure and price 

discovery. These are bona fide 

investment strategies that reduce market 

participants’ risk and facilitate hedging. 

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.48 Consistent with this 

purpose, Congress and the Commission 

have repeatedly stated their preference 

for competition, rather than regulatory 

intervention to determine products and 

services in the securities markets.49 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, 

because future-option orders will be 

available to all TPHs and will execute 

in the same manner. Future-option 

orders will be available to all users on 

a voluntary basis, and users will not be 

required to use future-option orders to 

execute investment strategies comprised 

of option and future components. Users 

may continue to execute these strategies 

as they do today by entering an option 

order on the Exchange and separately 

executing the future component on a 

designated contract market. For users 

that elect to use the proposed 

functionality, the proposed rule change 

would reduce price and execution risk 

that currently exists when executing 

these strategies. 

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 other options exchanges may 

propose similar functionality (and 

previously have, as noted above). The 

Exchange understands investors 

currently execute investment strategies 

comprised of option and future 

components today. Investors may 

continue to do so; however, the 

proposed rule change merely provides 

them a simple, efficient, transparent, 

and competitive execution mechanism 

for hedging and other investment 

strategies that contain options and 

related futures components. 

The Exchange believes the proposed 

rule change may relieve any burden on, 

or otherwise promote, competition. The 

proposed rule change is designed to 

provide investors with a more efficient 

and lower risk mechanism to execute 

investment strategies comprised of 

futures and options components. The 

Exchange believes this is an 

enhancement to executing these 

investment strategies in a riskier and 

more complex manner through separate 

transactions or in the unregulated and 

opaque OTC market. The proposed rule 

change would make a more attractive 

alternative to either of these options by 

providing investors with the ability to 

execute these strategies in a single 

transaction in an exchange 

environment. This would result in 

increased market transparency, 

enhanced efficiency in initiating and 

closing out positions, and heightened 

contra-party creditworthiness. 

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 written 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. 


ddrumheller on DSK120RN23PROD with NOTICES1
81600 Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices 

50 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Trust was formed as a Delaware statutory 

trust on August 13, 2024. The Fund is operated as 

a partnership for U.S. federal tax purposes. The 

Trust and the Fund have no fixed termination date. 

4The Commission approved BZX Rule 14.11(e)(4) 

in Securities Exchange Act Release No. 65225 

(August 30, 2011), 76 FR 55148 (September 6, 2011) 

(SR–BATS–2011–018). 

5Any of the statements or representations 

regarding the index composition, the description of 

the portfolio or reference assets, limitations on 

portfolio holdings or reference assets, dissemination 

and availability of index, reference asset, and 

intraday indicative values, or the applicability of 

Exchange listing rules specified in this filing to list 

a series of Other Securities (collectively, 

‘‘Continued Listing Representations’’) shall 

constitute continued listing requirements for the 

Shares listed on the Exchange. 

6On August 16, 2024, the Trust filed with the 

Commission the Registration Statement on Form S– 

1, submitted to the Commission by the Sponsor on 

behalf of the Trust (333–281615). The descriptions 

of the Trust, the Shares, and the Index (as defined 

below) contained herein are based, in part, on 

information in the Registration Statement. The 

Registration Statement is not yet effective and the 

Shares will not trade on the Exchange until such 

time that the Registration Statement is effective. 

7See Exchange Rule 14.11(f). 

8Commodity-Based Trust Shares, as described in 

Exchange Rule 14.11(e)(4), are a type of Trust 

Issued Receipt. 

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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CBOE–2024–042 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–2024–042. 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 (https://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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CBOE–2024–042 and should be 

submitted on or before October 29, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.50

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–23064 Filed 10–7–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101233; File No. SR– 

CboeBZX–2024–091] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To List and 

Trade Shares of the Franklin Crypto 

Index ETF, a Series of the Franklin 

Crypto Trust, Under BZX Rule 

14.11(e)(4), Commodity-Based Trust 

Shares 

October 2, 2024. 

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 

September 19, 2024, Cboe BZX 

Exchange, Inc. (‘‘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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change to list and trade shares of 

the Franklin Crypto Index ETF (the 

‘‘Fund’’), a series of the Franklin Crypto 

Trust (the ‘‘Trust’’),3 under BZX Rule 

14.11(e)(4), Commodity-Based Trust 

Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares under BZX Rule 

14.11(e)(4),4 which governs the listing 

and trading of Commodity-Based Trust 

Shares on the Exchange.5 Franklin 

Holdings, LLC is the sponsor of the 

Fund (‘‘Sponsor’’). The Shares will be 

registered with the Commission by 

means of the Trust’s registration 

statement on Form S–1 (the 

‘‘Registration Statement’’).6

Section 6(b)(5) and the Applicable 

Standards 

The Commission has approved 

numerous series of Trust Issued 

Receipts,7 including Commodity-Based 

Trust Shares,8 to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 


ddrumheller on DSK120RN23PROD with NOTICES1