Federal Register / Vol. 89, No. 209 / Tuesday, October 29, 2024 / Notices 86007 

49 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Phlx Options 8, Section 34 rule text was 

previously amended by two rule changes which are 

effective, but not yet operative. These two prior rule 

changes will be implemented at the same time as 

the rule changes proposed herein. See Securities 

Exchange Act Release Nos. 97658 (June 7, 2023), 88 

FR 38562 (June 13, 2023) (SR–Phlx–2023–22); and 

100321 (June 12, 2024), 89 FR 51580 (June 18, 2024) 

(SR–Phlx–2024–24). Phlx further delayed the 

implementation so that it could implement SR– 

Phlx–2023–22 while also completing an OCC 

industry rule change prior. 

4See Securities Exchange Act Release No. 97658 

(June 7, 2023), 88 FR 38562 (June 13, 2023) (SR– 

Phlx–2023–22) (Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change To Amend 

Various Options 8 Rules). SR–Phlx–2023–22 

amended FLEX Orders in 3 ways. First, the 

Exchange amended the rules to require FLEX 

Orders to be reported into Phlx’s Options Floor 

Based Management System or ‘‘FBMS,’’ thereby 

further automating the execution and reporting of 

FLEX Options. All executed FLEX contracts will be 

reported to OPRA and sent to the OCC for clearing, 

similar to all other equity, equity index and U.S. 

dollar-settled foreign currency options orders 

executed on the Exchange’s trading floor. Second, 

the Exchange removed its RFQ process including 

the BBO Improvement Interval Process, with the 

rule change. Third, the Exchange reorganized 

Options 8, Section 34 to restructure the rule to 

include additional information which describes 

current FLEX trading on Phlx. With respect to 

Cabinet Orders, SR–Phlx–2023–22 amended 

Options 8, Section 33 to require Cabinet Orders to 

be reported into FBMS. With this change, members 

and member organizations will be required to 

record all Cabinet Orders represented in the trading 

crowd into FBMS. All executed contracts will be 

reported to OPRA and sent to OCC for clearing 

similar to all other equity, equity index and U.S. 

dollar-settled foreign currency options orders 

executed on the Exchange’s trading floor. 

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: (i) necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of 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– 

BX–2024–041 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–BX–2024–041. 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–BX–2024–041 and should be 

submitted on or before November 19, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.49

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–25050 Filed 10–28–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101413; File No. SR–Phlx– 

2024–51] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing of 

Proposed Rule Change To Amend 

FLEX Floor Trading Rules 

October 23, 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 October 

8, 2024, Nasdaq PHLX LLC (‘‘Phlx’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Options 8, Section 34, FLEX Trading.3

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/phlx/rules, 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 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 

Options 8, Section 34, FLEX Trading. 

The Exchange also proposes a technical 

amendment to Options 8, Section 33, 

Accommodation Transactions. 

Options 8, Section 34 

FLEX Options are customized equity, 

index, and currency contracts that allow 

investors to tailor contract terms for 

exchange-listed equity and index 

options. By way of background, in 2023, 

the Exchange filed a rule change to 

amend the manner in which FLEX 

Options are transacted on Phlx’s 

Trading Floor.4 Thereafter, the 

Exchange filed to delay the 

implementation of SR–Phlx–2023–22 to 


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5See Securities Exchange Act Release No. 98919 

(November 13, 2023), 88 FR 80363 (November 13, 

2023) (SR–Phlx–2023–48) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Delay the Implementation of the FLEX and 

Cabinet Automation). 

6See Securities Exchange Act Release No. 100321 

(June 12, 2024), 89 FR 51580 (June 18, 2024) (SR– 

Phlx–2024–24) (Notice of Filing and Immediate 

Effectiveness of a Proposed Rule Change To Delay 

Implementation of Certain Exchange Options 8 

Rules and Amend Options 8, Section 34(b)). Phlx 

further delayed the implementation so that it could 

implement SR–Phlx–2023–22 while also 

completing an OCC industry rule change prior. 

7Of note, the Exchange is not proposing to 

provide for Micro FLEX Index Options or to allow 

prices to be expressed as a percentage value, similar 

to Cboe, because the Exchange does not offer these 

features today. 

8The Exchange would remove the rule text in 

current Options 8, Section 34 (f)(5) that provides, 

‘‘except that (i) a FLEX index option that expires 

on or within two business days prior or subsequent 

to a third Friday-of-the-month expiration day for a 

non-FLEX option (except quarterly expiring index 

options) or underlying currency may only have an.’’ 

9See Securities Exchange Act Release No. 99222 

(December 21, 2023), 88 FR 89771 (December 28, 

2023) (SR–CBOE–2023–018) (‘‘FLEX Settlement 

Pilot Approval’’). In support of making the pilot a 

permanent program, Cboe cited to its own review 

of pilot data during the course of the pilot program 

and a study by the Commission’s Division of 

Economic and Risk Analysis (‘‘DERA’’) staff. See 

FLEX Settlement Pilot Approval, notes 18 and 35. 

10Currently, the only broad-based index option 

that would be able to list as a FLEX PM Third 

Friday Option is the Nasdaq-100 Index option 

(‘‘NDX’’ or ‘‘NDX options’’). The Exchange also 

received approval to list a third-Friday-of-themonth p.m. expiration on its standardized market. 

See Securities Exchange Act Release No. 98950 

(November 15, 2023), 88 FR 81172 (November 21, 

2023) (SR–Phlx–2023–45) (Order Approving a 

Proposed Rule Change To Permit the Listing and 

Trading of P.M.-Settled Nasdaq-100 Index Options 

With a Third-Friday-of-the-Month Expiration). 

11 Initially, the Exchange stated at Options 8, 

Section 34(f)(6)(A) that ‘‘respecting FLEX index 

options, the settlement value may be specified as 

the index value reported at the: (i) close (P.M.- 

settled); and (ii) opening (A.M.-settled) of trading 

on the Exchange. American style index options 

exercised prior to the expiration date can only settle 

based on the closing value on the exercise date. 

FLEX index options are settled in U.S. dollars.’’ 

on or before August 30, 2024.5 Finally, 

in 2024, Phlx filed a rule change to 

amend FLEX Options rules at Options 8, 

Section 34(b) and further delay the 

implementation of SR–Phlx–2023–22 to 

the end of Q4 2025.6 At this time, the 

Exchange proposes to further amend the 

rules proposed in SR–Phlx–2023–22 

and SR–Phx–2024–24, which are 

immediately effective, but not yet 

operative. The Exchange proposes to 

implement the amendments in Phlx– 

2023–22 and SR–Phx–2024–24 at the 

same time as the proposed amendments. 

Specifically, the Exchange proposes to 

(1) clarify the Options 8, Section 34 

functionality that will be available with 

the implementation of SR–Phlx–2023– 

22 and SR–Phx–2024–24; (2) list p.m.- 

settled FLEX Index Options whose 

exercise settlement value is derived 

from closing prices on the last trading 

day prior to expiration that expire on or 

within two business days of a third 

Friday-of-the-month expiration day for a 

non-FLEX Option; and (2) permit FLEX 

Options on certain Exchange-Traded 

Funds (‘‘ETFs’’) to be settled by delivery 

in cash if the underlying security meets 

prescribed criteria. Each change will be 

described below. 

Options 8, Section 34 

First, the Exchange proposes to 

capitalize certain terms uniformly 

throughout Options 8, Section 34. The 

Exchange proposes to capitalize the 

following terms: ‘‘FLEX Options,’’ 

‘‘FLEX Equity Options,’’ ‘‘FLEX Index 

Options,’’ and ‘‘FLEX Currency 

Options.’’ The Exchange proposes to 

amend Options 8, Section 34(f)(4) to 

define FLEX U. S. dollar-settled foreign 

currency options as ‘‘FLEX Currency 

Options.’’ 

Second, the Exchange proposes to 

exclude iShares Bitcoin Trust ETF 

(‘‘IBIT’’) from trading as a FLEX 

Options. 

Third, the Exchange proposes to 

adopt a new Options 8, Section 

34(f)(1)(B) to state, ‘‘an underlying 

equity security or index, as applicable 

(the index multiplier for FLEX Index 

Options is 100).’’ This proposed rule 

text reflects the current characteristics 

of underlying interest for FLEX Option. 

The proposed rule text brings greater 

clarity to the Rule. 

Fourth, the Exchange proposes to 

amend the language in Options 8, 

Section 34(f)(3) which was initially 

amended to state, ‘‘The Exchange may 

determine the smallest increment for 

exercise prices of FLEX Options not to 

exceed two decimal places.’’ While not 

substantively amending the exercise 

price, the Exchange proposes to amend 

this sentence to state, ‘‘The Exchange 

may determine the smallest increment 

for exercise prices of FLEX Options on 

a class-by-class basis without going 

lower than the $0.01.’’ The Exchange 

believes that the proposed rule text 

brings greater clarity to Phlx’s rule text 

and is consistent with rule text in Cboe 

Rule 5.3(e)(3).7

Fifth, the Exchange proposes to 

amend the language in Options 8, 

Section 34(f)(5) to provide, ‘‘The 

expiration date may be any business day 

(specified to the day, month, and year) 

no more than 15 years from the date on 

which an executed FLEX equity and 

index option is submitted to the System 

and no more than 3 years from the date 

on which an executed FLEX currency 

option is submitted to the System with 

exercise settlement value on the 

expiration date determined by reference 

to the reported level of the index as 

derived from the opening prices of the 

component securities (‘‘a.m. 

settlement’’) or closing prices (‘‘p.m. 

settlement’’).’’ 8 This amendment aligns 

the rule text related to settlement style 

required for a complex FLEX Order leg 

with rule text in Cboe 4.21(b)(4). The 

Exchange notes that Cboe recently 

received approval of its pilot program 

that permitted it to list p.m.-settled 

FLEX Index Options whose exercise 

settlement value is derived from closing 

prices on the last trading day prior to 

expiration that expire on or within two 

business days of a third Friday-of-themonth expiration day for a non-FLEX 

Option (‘‘FLEX PM Third Friday 

Options’’).9 Consistent with the 

Commission’s approval of Cboe’s 

proposal, the Exchange is proposing to 

allow the listing of FLEX PM Third 

Friday Options on Phlx as well, and will 

align with Cboe Rule 4.21(b)(5)(B)(ii).10

Sixth, the Exchange proposes to restyle Options 8, Section 34(f)(6) to 

change the title from ‘‘Settlement’’ to 

‘‘Settlement type.’’ The Exchange also 

proposes to add a title at (A), ‘‘FLEX 

Equity Options.’’ At proposed Options 

8, Section 34(f)(6)(A)(1) the Exchange 

proposes to add rule text to state ‘‘FLEX 

Options, other than as permitted in 

subparagraph (2) below, are settled with 

physical delivery of the underlying 

security.’’ The Exchange proposes to 

also introduce FLEX Equity Options that 

are cash-settled in proposed Options 8, 

Section 34(f)(6)(A)(2). The Exchange 

will discuss cash-settled FLEX Equity 

Options in greater detail below. The 

Exchange proposes to amend Options 8, 

Section 34(f)(6)(A) to add a title for 

FLEX Index Options at (B) and change 

the current rule text 11 to instead 

provide that FLEX Index Options may 

be specified as the index value reported 

at the 

(1) close (P.M.-settled); and (with exercise 

settlement value determined by reference to 

the reported level of the index derived from 

the reported closing prices of the component 

securities); 

(2) opening (A.M.-settled) of trading on the 

Exchange (with exercise settlement value 

determined by reference to the reported level 

of the index derived from the reported 

opening prices of the component securities). 

While not substantively amending the 

rule text, the Exchange believes that the 

proposed text adds clarity by noting 

how the exercise value is determined 

depending on whether the option is 

a.m.-settled or p.m.-settled. The 

Exchange proposes to add a title ‘‘FLEX 

Currency Options’’ to new Options 8, 

Section 34(f)(6)(C). The Exchange also 


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12The Exchange also proposes to change ‘‘shall’’ 

to ‘‘will in two places in this paragraph. 

13See Cboe Rule 8.35(d)(1) for materially 

identical provisions. 

14The Exchange notes that all FLEX Index 

Options will be cash settled. Cash-settled ETFs will 

be described later in this proposal. 

15This is based on Cboe Rule 8.35(d)(2), except 

the Exchange does not currently list Credit Default 

Options and will therefore not incorporate the 

applicable portion into its proposed rule. 

16See Cboe Rule 8.35(d)(3) for materially 

identical provisions. 

17See Cboe Rule 8.42(g)(2) for materially identical 

provisions. 

18As described above, proposed Options 8, 

Section 34(i)(4) will govern the aggregation of FLEX 

positions generally, while proposed Options 8, 

Section 34(i)(1) will govern the aggregation of cashsettled FLEX Equity Options specifically and that 

positions in such cash-settled FLEX Equity Options 

will be aggregated with positions in physically 

settled options on the same underlying ETF. Cashsettled FLEX Equity Options will be discussed later 

in this filing. 

19See Cboe Rule 8.42(g)(3) for materially identical 

provisions. 

20See Phlx Options 8, Section 34(b)(8)(D) for 

materially identical provisions. 

21See proposed Options 8, Section 34(f)(6)(A)(1). 

22See proposed Options 8, Section 34(f)(6)(A)(2). 

As discussed below, cash settlement is also 

permitted in the OTC market. 

proposes a technical amendment to 

underline ‘‘Market Maker’’ in Options 8, 

Section 34(g)(3). SR–Phlx–2023–22 

inadvertently did not underline that 

text, thereby designating it as new text. 

Seventh, the Exchange proposes to 

amend Position Limits in Options 8, 

Section 34(i) to add a new paragraph 

stating that, 

There shall be no position limits for FLEX 

Equity Options, other than as set forth in this 

paragraph and (4) below. Position limits for 

FLEX Equity Options where the underlying 

security is an ETF that is settled in cash 

pursuant to subparagraph (f)(6)(A) shall be 

subject to the position limits set forth in 

Options 9, Section 13, and subject to the 

exercise limits set forth in Options 9, Section 

15. Positions in such cash-settled FLEX 

Options shall be aggregated with positions in 

physically-settled options on the same 

underlying ETF for the purpose of calculating 

the position limits set forth in Options 9, 

Section 13, and the exercise limits set forth 

in Options 9, Section 15. 

The Exchange will describe position 

limits for an ETF that is settled in cash 

below with the description of its 

proposal to permit a cash-settled ETF. 

The Exchange proposes to remove 

certain numbering as unnecessary in 

proposed Options 8, Section 34(i)(2), 

which is currently Options 8, Section 

34(i)(1). The Exchange would create a 

new Options 8, Section 34(i)(2) and title 

it ‘‘Reports.’’ The Exchange would 

remove ‘‘However’’ from this new 

paragraph and start the paragraph with 

‘‘Each.’’ 

The Exchange proposes to add the tile 

‘‘Additional Margin Requirements’’ to 

proposed Options 8, Section 34(i)(3). 

The Exchange proposes to amend 

proposed Options 8, Section 34(i)(3), 

current Options 8, Section 34(i)(3), by 

renumbering it to ‘‘(4)’’ and adding a 

title ‘‘Aggregation of FLEX Positions.’’ 

Further, the Exchange proposes to note 

that, ‘‘For purposes of the position 

limits and reporting requirements set 

forth in this Rule, FLEX Option 

positions shall not be aggregated with 

positions in non-FLEX Options other 

than as noted in this subparagraphs 

(i)(3) and (4), and positions in FLEX 

Index Options on a given index shall 

not be aggregated with options on any 

stocks included in the index or with 

FLEX Index Option positions on another 

index.’’ 12 Pursuant to proposed Options 

8, Section 34(i)(4)(a), commencing at the 

close of trading two business days prior 

to the last trading day of the calendar 

quarter, positions in P.M.-settled FLEX 

Index Options (i.e., FLEX Index Options 

having an exercise settlement value 

determined by the level of the index at 

the close of trading on the last trading 

day before expiration) shall be 

aggregated with positions in Quarterly 

Options Series on the same index with 

the same expiration and shall be subject 

to the position limits set forth in 

Options 4A, Section 6.13 Pursuant to 

proposed Options 8, Section 34(i)(4)(b), 

commencing at the close of trading two 

business days prior to the last trading 

day of the week, positions in FLEX 

Index Options that are cash settled 14

shall be aggregated with positions in 

Short Term Option Series on the same 

underlying (e.g., same underlying index 

as a FLEX Index Option) with the same 

means for determining exercise 

settlement value (e.g., opening or 

closing prices of the underlying index) 

and same expiration, and shall be 

subject to the position limits set forth in 

Options 4A, Section 6.15 Pursuant to 

proposed Options 8, Section 34(i)(4)(c), 

as long as the options positions remain 

open, positions in FLEX Options that 

expire on a third Friday-of-the-month 

expiration day shall be aggregated with 

positions in non-FLEX Options on the 

same underlying, and shall be subject to 

the position limits set forth in Options 

4A, Section 6, or Options 9, Section 13, 

as applicable, and the exercise limits set 

forth in Options 9, Section 15, as 

applicable.16

Eighth, the Exchange proposes to 

amend Exercise Limits in Options 8, 

Section 34(j) to provide further detail 

and rearrange the rule text. The 

Exchange proposes to relocate the rule 

text in Options 8, Section 34(j)(1) that 

provides, ‘‘Positions in FLEX options 

shall not be taken into account when 

calculating exercise limits for non-FLEX 

options, except as provided in 

paragraph (d) above. The minimum 

exercise size shall be the lesser of $1 

million underlying equivalent value for 

FLEX index options, and 25 contracts 

for FLEX equity and currency options, 

or the remaining size of the position.’’ 

Instead, the Exchange proposes to 

provide at Options 8, Section 34(j)(1)(a) 

that, ‘‘The minimum value size for 

FLEX Equity Option exercises shall be 

25 contracts or the remaining size of the 

position, whichever is less.’’ Proposed 

Options 8, Section 34(j)(1)(b) will 

require that the minimum value size for 

FLEX Index Option exercises be $1 

million Underlying Equivalent Value (as 

defined below) or the remaining 

Underlying Equivalent Value of the 

position, whichever is less.17 Proposed 

Options 8, Section 34(j)(1)(c) will 

stipulate that except as provided in 

proposed subparagraph (i) and (i)(4) 

above,18 FLEX Options shall not be 

taken into account when calculating 

exercise limits for non-FLEX Option 

contracts.19 Proposed Options 8, Section 

34(j)(1)(d) will set forth the definition of 

Underlying Equivalent Value as the 

aggregate value of a FLEX Index Option 

(index multiplier times the current 

index value) multiplied by the number 

of FLEX Index Options.20 Finally, the 

Exchange proposes to add a sentence to 

the end of Options 8, Section 34(j) that 

provides, ‘‘There shall be no exercise 

limits for broad-based FLEX Index 

Options (including reduced value 

option contracts) on the broad-based 

index options listed in Options 4A, 

Section 6(a).’’ 

Options 8, Section 33 

The Exchange also proposes to make 

a technical amendment to Options 8, 

Section 33, Accommodation 

Transactions, at paragraph (e) to remove 

correct improperly placed 

parentheticals from SR–Phlx–2024–22. 

Cash-Settled Exchange Traded Funds 

(‘‘ETFs’’) 

Generally, FLEX Equity Options will 

be settled by physical delivery of the 

underlying security,21 while all FLEX 

Index Options will be settled by 

delivery in cash.22 The Exchange 

proposes to allow FLEX Equity Options 

where the underlying security is an ETF 

to be settled by delivery in cash if the 

underlying security meets prescribed 

criteria. The Exchange notes that cashsettled FLEX ETF Options will be 

subject to the same trading rules and 

procedures described in Options 8, 

Section 34 that will govern the trading 


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23See Securities Exchange Act Release No. 88131 

(February 5, 2020), 85 FR 7806 (February 11, 2020) 

(SR–NYSEAmer–2019–38) (Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 1, To Allow Certain Flexible 

Equity Options To Be Cash Settled). 24Cboe also filed an immediately effective rule 

change to allow certain FLEX Options to be cash 

settled. See Securities Exchange Act Release No. 

98044 (August 2, 2023), 88 FR 53548 (August 8, 

2023) (SR–Cboe–2023–036) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Allow Certain Flexible Exchange Equity Options 

To Be Cash Settled). 

25As noted below, the Exchange plans to conduct 

the bi-annual review on January 1 and July 1 of 

each year. As such, the six-month periods will be 

from January to June, and from July to December 

each year. 

26See Cboe Rule 4.21(b)(5)(A)(ii) for materially 

identical provisions. 

27See introductory paragraph of Cboe Rule 

4.21(b) for materially identical provisions. All nonFLEX Equity Options (including on ETFs) are 

physically settled. Note all FLEX and non-FLEX 

Equity Options (including ETFs) are p.m.-settled. 

28See proposed Options 8, Section 

34(f)(6)(A)(2)(b), which is based on Cboe Rule 

4.21(b)(5)(A)(ii)(a). The Exchange plans to conduct 

the bi-annual review on January 1 and July 1 of 

each year. As such, the six-month periods will be 

from January to June, and from July to December 

each year. The results of the bi-annual review will 

be announced via an Options Trader Alert and any 

new securities that qualify would be permitted to 

have cash settlement as a contract term beginning 

on February 1 and August 1 of each year. If the 

Exchange initially begins listing cash-settled FLEX 

Equity Options on a different date (e.g., September 

1), it would initially list securities that qualified as 

of the last bi-annual review (e.g., the one conducted 

on July 1). 

29See proposed Options 8, Section 

34(f)(6)(A)(2)(a), which is based on Cboe Rule 

4.21(b)(5)(A)(ii)(a). 

30See proposed Options 8, Section 

34(f)(6)(A)(2)(b), which is based on Cboe Rule 

4.21(b)(5)(A)(ii)(b). If a listing is closing only, 

pursuant to Options 4, Section 4(a), opening 

transactions by Market Makers executed to 

accommodate closing transactions of other market 

participants are permitted. 

31 ‘‘Authorized Participant’’ means a member or 

participant of a clearing agency registered with the 

Commission, which has a written agreement with 

the exchange-traded fund or one of its service 

providers that allows the authorized participant to 

place orders for the purchase and redemption of 

creation units. See SEC Rule 6c–11(a)(1). 

of other FLEX Options on the Exchange, 

with the exception of the rules to 

accommodate the cash-settlement 

feature proposed as follows. Today, 

NYSE American Rule 903G 23 and Cboe 

Rule 4.21(b)(5)(A) 24 allow for cashsettled FLEX ETF Options as well. 

To permit cash settlement of certain 

FLEX ETF Options, the Exchange 

proposes rule text in Options 8, Section 

34(f)(6)(A)(2) to provide that the 

exercise settlement for a FLEX ETF 

Option may be by physical delivery of 

the underlying ETF or by delivery in 

cash if the underlying security, 

measured over a defined six-month 

period,25 has an average daily notional 

value of $500 million or more and a 

national average daily volume (‘‘ADV’’) 

of at least 4,680,000 shares.26

The Exchange also proposes in 

Options 8, Section 34(f) that a FLEX 

Equity Option overlying an ETF (cashor physically-settled) may not be the 

same type (put or call) and may not 

have the same exercise style, expiration 

date, and exercise price as a non-FLEX 

Equity Option overlying the same 

ETF.27 In other words, regardless of 

whether a FLEX Equity Option 

overlying an ETF is cash or physically 

settled, at least one of the exercise style 

(i.e., American-style or European-style), 

expiration date, and exercise price of 

that FLEX Option must differ from those 

terms of a non-FLEX Option overlying 

the same ETF in order to list such a 

FLEX Equity Option. For example, 

suppose a non-FLEX SPY option (which 

is physically settled, p.m.-settled and 

American-style) with a specific 

September expiration and exercise price 

of 475 is listed for trading. A FLEX 

Trader could not submit an order to 

trade a FLEX SPY option (which is p.m.- 

settled) that is cash-settled (or 

physically settled) and American-style 

with the same September expiration and 

exercise price of 475. 

In addition, the Exchange proposes 

new Options 8, Section 34(f)(6)(A)(2)(a), 

which would provide that the Exchange 

will determine bi-annually the 

underlying ETFs that satisfy the 

notional value and trading volume 

requirements in (f)(6)(A)(2) by using 

trading statistics for the defined sixmonth period.28 The proposed rule 

would further provide that the Exchange 

will permit cash settlement as a contract 

term on no more than 50 underlying 

ETFs that meet the criteria in this 

subparagraph (f)(6)(A)(2) and that if 

more than 50 underlying ETFs satisfy 

the notional value and trading volume 

requirements, then the Exchange would 

select the top 50 ETFs that have the 

highest average daily volume.29

Proposed new Options 8, Section 

34(f)(6)(A)(2)(b) would further provide 

that if the Exchange determines 

pursuant to the bi-annual review that an 

underlying ETF ceases to satisfy the 

requirements under proposed 

(f)(6)(A)(2)(a), any new position 

overlying such ETF entered into will be 

required to have exercise settlement by 

physical delivery, and any open cashsettled FLEX ETF Option positions may 

be traded only to close the position.30

The Exchange believes it is 

appropriate to introduce cash settlement 

as an alternative contract term to the 

select group of ETFs because they are 

among the most highly liquid and 

actively traded ETF securities. As 

described more fully below, the 

Exchange believes that the deep 

liquidity and robust trading activity in 

the ETFs identified by the Exchange as 

meeting the criteria mitigate against 

historic concerns regarding 

susceptibility to manipulation. 

Characteristics of ETFs 

ETFs are funds that have their value 

derived from assets owned. The net 

asset value (‘‘NAV’’) of an ETF is a daily 

calculation that is based off the most 

recent closing prices of the assets in the 

fund and an actual accounting of the 

total cash in the fund at the time of 

calculation. The NAV of an ETF is 

calculated by taking the sum of the 

assets in the fund, including any 

securities and cash, subtracting out any 

liabilities, and dividing that by the 

number of shares outstanding. 

Additionally, each ETF is subject to a 

creation and redemption mechanism to 

ensure the price of the ETF does not 

fluctuate too far away from its NAV— 

which mechanisms reduce the potential 

for manipulative activity. Each business 

day, ETFs are required to make publicly 

available a portfolio composition file 

that describes the makeup of their 

creation and redemption ‘‘baskets’’ (i.e., 

a specific list of names and quantities of 

securities or other assets designed to 

track the performance of the portfolio as 

a whole). ETF shares are created when 

an Authorized Participant,31 typically a 

market maker or other large institutional 

investor, deposits the daily creation 

basket or cash with the ETF issuer. In 

return for the creation basket or cash (or 

both), the ETF issues to the Authorized 

Participant a ‘‘creation unit’’ that 

consists of a specified number of ETF 

shares. For instance, IWM is designed to 

track the performance of the Russell 

2000 Index. An Authorized Participant 

will purchase all the Russell 2000 

constituent securities in the exact same 

weight as the index prescribes, then 

deliver those shares to the ETF issuer. 

In exchange, the ETF issuer gives the 

Authorized Participant a block of 

equally valued ETF shares, on a one-forone fair value basis. This process can 

also work in reverse. A redemption is 

achieved when the Authorized 

Participant accumulates a sufficient 

number of shares of the ETF to 

constitute a creation unit and then 

exchanges these ETF shares with the 

ETF issuer, thereby decreasing the 

supply of ETF shares in the market. 

The principal, and perhaps most 

important, feature of ETFs is their 

reliance on an ‘‘arbitrage function’’ 

performed by market participants that 

influences the supply and demand of 

ETF shares and, thus, trading prices 

relative to NAV. As noted above, new 


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32As noted below, options on GBTC and IBIT are 

not yet available. 

ETF shares can be created and existing 

shares redeemed based on investor 

demand; thus, ETF supply is openended. This arbitrage function helps to 

keep an ETF’s price in line with the 

value of its underlying portfolio, i.e., it 

minimizes deviation from NAV. 

Generally, in the Exchange’s view, the 

higher the liquidity and trading volume 

of an ETF, the more likely the price of 

the ETF will not deviate from the value 

of its underlying portfolio, making such 

ETFs less susceptible to price 

manipulation. 

Trading Data for the ETFs Proposed for 

Cash Settlement 

The Exchange believes that average 

daily notional value is an appropriate 

proxy for selecting underlying securities 

that are not readily susceptible to 

manipulation for purposes of 

establishing a settlement price. Average 

daily notional value considers both the 

trading activity and the price of an 

underlying security. As a general matter, 

the more expensive an underlying 

security’s price, the less cost-effective 

manipulation could become. Further, 

manipulation of the price of a security 

encounters greater difficulty the more 

volume that is traded. To calculate 

average daily notional value (provided 

in the table below), the Exchange 

summed the notional value of each 

trade for each symbol (i.e., the number 

of shares times the price for each 

execution in the security) and divided 

that total by the number of trading days 

in the six-month period (from January 1, 

2024 through June 30, 2024) reviewed 

by the Exchange. 

Further, the Exchange proposes that 

qualifying ETFs also meet an ADV 

standard. The purpose for this second 

criteria is to prevent unusually 

expensive underlying securities from 

qualifying under the average daily 

notional value standard while not being 

one of the most actively traded 

securities. The Exchange believes an 

ADV requirement of 4,680,000 shares a 

day is appropriate because it represents 

average trading in the underlying ETF of 

200 shares per second. While no 

security is immune from all 

manipulation, the Exchange believes 

that the combination of average daily 

notional value and ADV as prerequisite 

requirements would limit cash 

settlement of FLEX ETF Options to 

those underlying ETFs that would be 

less susceptible to manipulation in 

order to establish a settlement price. 

The Exchange believes that the 

proposed objective criteria would 

ensure that only the most robustly 

traded and deeply liquid ETFs would 

qualify to have cash settlement as a 

contract term. As provided in the below 

table, from January 1, 2024 to June 30, 

2024, the Exchange would be able to 

provide cash settlement as a contract 

term for FLEX ETF Options on 48 

underlying ETFs, as only this group of 

securities would currently meet the 

requirement of $500 million or more 

average daily notional value and a 

minimum ADV of 4,680,000 shares. The 

table below provides the list of the 48 

ETFs that, for the period covering 

January 1, 2024 through June 30, 2024, 

would be eligible to have cash 

settlement as a contract term.32

Symbol Security name 

Average daily 

notional value 

(in dollars) 

(1/1/24–6/30/24) 

Average daily 

volume 

(in shares) 

(1/1/24–6/30/24) 

AGG .................. iShares Core U.S. Aggregate Bond ETF ................................................................. $806,096,032 8,295,918 

ARKK ................ ARK Innovation ETF ................................................................................................. 588,267,283 12,516,087 

BIL .................... SPDR Bloomberg 1–3 Month T-Bill ETF ................................................................. 618,700,170 6,753,925 

BND .................. Vanguard Total Bond Market Index Fund ETF ........................................................ 514,223,054 7,130,093 

EEM .................. iShares MSCI Emerging Markets ETF ..................................................................... 1,164,586,979 28,535,696 

EFA ................... iShares MSCI EAFE ETF ......................................................................................... 1,104,421,854 14,216,699 

EMB .................. iShares JPMorgan USD Emerging Markets Bond ETF ........................................... 542,748,575 6,149,042 

EWJ .................. iShares MSCI Japan ETF ........................................................................................ 509,554,399 7,481,823 

EWZ .................. iShares MSCI Brazil ETF ......................................................................................... 683,919,536 21,690,846 

FXI .................... iShares China Large-Cap ETF ................................................................................. 1,027,752,868 42,009,611 

GBTC ................ Grayscale Bitcoin Trust * .......................................................................................... 683,447,931 13,105,251 

GDX .................. VanEck Gold Miners ETF ......................................................................................... 774,584,258 24,682,952 

GLD .................. SPDR Gold Shares .................................................................................................. 1,511,241,142 7,344,884 

HYG .................. iShares iBoxx $ High Yield Corporate Bond ETF .................................................... 2,850,542,598 37,011,783 

IBIT ................... iShares Bitcoin Trust ETF * ...................................................................................... 1,338,731,551 35,140,151 

IEF .................... iShares 7–10 Year Treasury Bond ETF ................................................................... 743,974,086 7,917,457 

IEFA .................. iShares Core MSCI EAFE ETF ................................................................................ 577,266,076 7,997,376 

IEMG ................. iShares Core MSCI Emerging Markets ETF ............................................................ 519,063,454 10,129,994 

IVV .................... iShares Core S&P 500 ETF ..................................................................................... 2,774,452,994 5,417,239 

IWM .................. iShares Russell 2000 ETF ....................................................................................... 6,731,230,018 33,649,687 

IYR .................... iShares U.S. Real Estate ETF ................................................................................. 537,339,035 6,177,644 

KRE .................. SPDR S&P Regional Banking ETF .......................................................................... 676,589,675 13,902,921 

KWEB ............... KraneShares CSI China Internet ETF ...................................................................... 555,987,739 20,766,407 

LQD .................. Shares iBoxx $ Investment Grade Corporate Bond ETF ........................................ 3,007,311,016 27,902,549 

NVDL ................ GraniteShares 2x Long NVDA Daily ETF ................................................................ 682,096,758 11,387,201 

QQQ ................. Invesco QQQ Trust .................................................................................................. 17,916,413,637 41,065,771 

RSP .................. Invesco S&P 500 Equal Weight ETF ....................................................................... 982,482,303 6,062,567 

SLV ................... iShares Silver Trust .................................................................................................. 602,178,901 24,515,577 

SMH .................. VanEck Semiconductor ETF .................................................................................... 1,783,514,710 8,199,564 

SOXL ................ Direxion Daily Semiconductor Bull 3x Shares ......................................................... 2,703,451,838 64,700,251 

SOXS ................ Direxion Daily Semiconductor Bear 3x Shares ........................................................ 695,294,352 92,188,004 

SPXL ................. Direxion Daily S&P 500 Bull 3X Shares .................................................................. 737,685,244 6,096,062 

SPY ................... SPDR S&P 500 ETF Trust ....................................................................................... 33,559,628,313 66,151,690 

SQQQ ............... ProShares UltraPro Short QQQ ETF ....................................................................... 1,461,906,416 131,905,524 

TLT ................... iShares 20+ Year Treasury Bond ETF ..................................................................... 3,779,166,025 40,682,936 

TNA ................... Direxion Daily Small Cap Bull 3X Shares ................................................................ 697,479,128 18,832,200 


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33See, e.g., PHLX FX Options traded on Nasdaq 

PHLX and S&P 500® Index Options traded on Cboe 

Options Exchange. The Commission approved, on 

a pilot basis, the listing and trading of RealDayTM

Options on the SPDR S&P 500 Trust on the BOX 

Options Exchange LLC (‘‘BOX’’). See Securities 

Exchange Act Release No. 79936 (February 2, 2017), 

82 FR 9886 (February 8, 2017) (‘‘RealDay Pilot 

Program’’). The RealDay Pilot Program was 

extended until February 2, 2019. See Securities 

Exchange Act Release No. 82414 (December 28, 

2017), 83 FR 577 (January 4, 2018) (SR–BOX–2017– 

38). The RealDay Pilot Program was never 

implemented by BOX. See also Securities Exchange 

Act Release Nos. 56251 (August 14, 2007), 72 FR 

46523 (August 20, 2007) (SR–Amex–2004–27) 

(Order approving listing of cash-settled Fixed 

Return Options (‘‘FROs’’)); and 71957 (April 16, 

2014), 79 FR 22563 (April 22, 2014) (SR– 

NYSEMKT–2014–06) (Order approving name 

change from FROs to ByRDs and re-launch of these 

products, with certain modifications. 

34See Securities Exchange Act Release Nos. 

88131 (February 5, 2020), 85 FR 7806 (February 11, 

2020) (SR–NYSEAMER–2019–38) (Order Approving 

a Proposed Rule Change, as Modified by 

Amendment No. 1, to Allow Certain Flexible Equity 

Options To Be Cash Settled); 97231 (March 31, 

2023), 88 FR 20587 (April 6, 2023) (SR– 

NYSEAMER–2023–22) (Notice of Filing and 

Immediate Effectiveness of Proposed Change to 

Make a Clarifying Change to the Term Settlement 

Style Applicable to Flexible Exchange Options); 

and 98044 (August 2, 2023), 88 FR 53548 (August 

8, 2023) (SR–Cboe–2023–036) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Allow Certain Flexible Exchange Equity Options 

To Be Cash Settled. 

35The Exchange proposes to add to proposed 

Options 8, Section 34(i)(1) a cross reference to 

proposed subparagraph (f)(6)(A), as proposed 

Section 34(i)(1) also contains provisions about 

position limits for FLEX Equity Options that would 

be exceptions to the statement in proposed Section 

(i)(1) that FLEX Equity Options have no position 

limits (in addition to the language in proposed 

34(i)(1)). The Exchange also proposes to add to 

proposed Options 8, Section 34(i)(4) a crossreference to proposed subparagraph subparagraph 

(i)(1), as the proposed rule adds language regarding 

aggregation of positions for purposes of position 

limits, which will be covered in proposed Section 

34(i)(4). 

36See proposed Options 8, Section 34(i)(1), which 

is based on Cboe Rule 8.35(c)(1)(B). The aggregation 

of position and exercise limits would include all 

positions on physically settled FLEX and non-FLEX 

Options on the same underlying ETFs. 

Symbol Security name 

Average daily 

notional value 

(in dollars) 

(1/1/24–6/30/24) 

Average daily 

volume 

(in shares) 

(1/1/24–6/30/24) 

TQQQ ............... ProShares UltraPro QQQ ......................................................................................... 3,796,209,774 64,941,840 

VCIT .................. Vanguard Intermediate-Term Corp Bond Idx Fund ETF ......................................... 597,752,071 7,484,828 

VEA ................... Vanguard Tax Managed Fund FTSE Developed Markets ETF ............................... 517,396,977 10,583,858

VOO .................. Vanguard S&P 500 ETF ........................................................................................... 2,425,398,743 5,177,005 

XBI .................... SPDR S&P Biotech ETF .......................................................................................... 979,943,806 10,728,380 

XLE ................... Energy Select Sector SPDR Fund ........................................................................... 1,411,567,713 15,798,449 

XLF ................... Financial Select Sector SPDR Fund ........................................................................ 1,736,012,363 43,157,138 

XLI .................... Industrial Select Sector SPDR Fund ........................................................................ 1,114,661,946 9,277,779 

XLK ................... Technology Select Sector SPDR Fund .................................................................... 1,274,025,061 6,202,031 

XLP ................... Consumer Staples Select Sector SPDR Fund ......................................................... 907,491,273 12,108,426 

XLU ................... Utilities Select Sector SPDR Fund ........................................................................... 944,774,031 14,540,920 

XLV ................... Health Care Select Sector SPDR Fund ................................................................... 1,127,277,467 7,876,680 

* Options on this ETF are not yet available. 

The Exchange believes that permitting 

cash settlement as a contract term for 

FLEX ETF Options for the ETFs in the 

above table would broaden the base of 

investors that use FLEX Equity Options 

to manage their trading and investment 

risk, including investors that currently 

trade in the OTC market for customized 

options, where settlement restrictions 

do not apply. 

The Exchange notes that the SEC has 

previously approved a rule filing of 

another exchange that allowed for the 

trading of cash-settled options 33 and, 

specifically, cash-settled FLEX ETF 

Options (which the Exchange proposes 

to list in the same manner as that 

exchange).34

Today, equity options are settled 

physically at The Options Clearing 

Corporation (‘‘OCC’’), i.e., upon 

exercise, shares of the underlying 

security must be assumed or delivered. 

Physical settlement may possess certain 

risks with respect to volatility and 

movement of the underlying security at 

expiration against which market 

participants may need to hedge. The 

Exchange believes cash settlement may 

be preferable to physical delivery in 

some circumstances as it does not 

present the same risk. If an issue with 

the delivery of the underlying security 

arises, it may become more expensive 

(and time consuming) to reverse the 

delivery because the price of the 

underlying security would almost 

certainly have changed. Reversing a 

cash payment, on the other hand, would 

not involve any such issue because 

reversing a cash delivery would simply 

involve the exchange of cash. 

Additionally, with physical settlement, 

market participants that have a need to 

generate cash would have to sell the 

underlying security while incurring the 

costs associated with liquidating their 

position as well as the risk of an adverse 

movement in the price of the underlying 

security. 

With respect to position and exercise 

limits, cash-settled FLEX ETF Options 

would be subject to the position limits 

set forth in proposed Options 8, Section 

34(i). Accordingly, the Exchange 

proposes to add Options 8, Section 

34(i)(1), which would provide that a 

position in FLEX Equity Options where 

the underlying security is an ETF that 

is settled in cash pursuant to Options 8, 

Section 34(f)(6)(A) shall be subject to 

the position limits set forth in Options 

9, Section 13, and subject to the exercise 

limits set forth in Options 9, Section 

15.35 The proposed rule would further 

state that positions in such cash-settled 

FLEX Equity Options shall be 

aggregated with positions in physically 

settled options on the same underlying 

ETF for the purpose of calculating the 

position limits set forth in Options 9, 

Section 13 and the exercise limits set 

forth in Options 9, Section 15.36 The 

Exchange further proposes to add in 

Options 8, Section 34(i)(1) a crossreference to subparagraph (f)(6)(A), as 

subparagraph (i)(1) would also contain 

provisions about position limits for 

FLEX Equity Options that would be 

exceptions to the first sentence in this 

paragraph stating that FLEX Equity 

Options have no position limits. The 

Exchange also proposes to add in 

paragraph (i)(4), a cross-reference to 

proposed subparagraphs (i)(1) as the 

proposed rule adds language regarding 

aggregation of positions for purposes of 

position limits, which will be covered 

by paragraph (i)(4). Given that each of 

the underlying ETFs that would 

currently be eligible to have cashsettlement as a contract term have 

established position and exercise limits 

applicable to physically settled options, 

the Exchange believes it is appropriate 

for the same position and exercise limits 

to also apply to cash-settled options. 

Accordingly, of the 48 underlying 

securities that would currently be 


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37Options 9, Section 13(d)(5) provides that to be 

eligible for the 250,000 contract limit, either the 

most recent six (6) month trading volume of the 

underlying security must have totalled at least 100 

million shares or the most recent six-month trading 

volume of the underlying security must have 

totalled at least seventy-five (75) million shares and 

the underlying security must have at least 300 

million shares currently outstanding. Further as 

noted above, options on GBTC and IBIT are not yet 

available. 

38These were based on position limits as of 

September 13, 2024. Position limits are available on 

at https://www.theocc.com. Position limits for ETFs 

are always determined in accordance with the 

Exchange’s Rules regarding position limits. 

39As noted above, other options exchanges have 

received approval to list certain cash-settled FLEX 

ETF Options. See Securities Exchange Act Release 

No. 88131 (February 5, 2020), 85 FR 7806 (February 

11, 2020) (SR–NYSEAmer–2019–38) (Notice of 

Filing of Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To Allow 

Certain Flexible Equity Options To Be Cash 

Settled). Cboe also filed an immediately effective 

rule change to allow certain FLEX Options to be 

cash settled. See Securities Exchange Act Release 

No. 98044 (August 2, 2023), 88 FR 53548 (August 

8, 2023) (SR–Cboe–2023–036) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

To Allow Certain Flexible Exchange Equity Options 

To Be Cash Settled). 

40See supra note 39. 

41See Securities Exchange Act Release No. 34– 

94910 (May 13, 2022), 87 FR 30531 (May 19, 2022) 

(SR–OCC–2022–003). 

42For example, the regulatory program for the 

Exchange includes surveillance designed to identify 

manipulative and other improper options trading, 

including, spoofing, marking the close, front 

running, wash sales, etc. 

eligible to have cash settlement as a 

FLEX contract term, 33 would have a 

position limit of 250,000 contracts 

pursuant to Options 9, Section 

13(d)(5).37 Further, pursuant to 

Supplementary Material .01 to Options 

9, Section 13, seven would have a 

position limit of 500,000 contracts (EWJ, 

EWZ, TLT, HYG, XLF, LQD, and GDX); 

four (EEM, FXI, IWM, and EFA) would 

have a position limit of 1,000,000 

contracts; one (QQQ) would have a 

position limit of 1,800,000 contracts; 

and one (SPY) would have a position 

limit of 3,600,000.38

The Exchange understands that cashsettled ETF options are currently traded 

in the OTC market by a variety of 

market participants, e.g., hedge funds, 

proprietary trading firms, and pension 

funds.39 These options are not fungible 

with the exchange listed options. The 

Exchange believes some of these market 

participants would prefer to trade 

comparable instruments on an 

exchange, where they would be cleared 

and settled through a regulated clearing 

agency. The Exchange expects that users 

of these OTC products would be among 

the primary users of exchange-traded 

cash-settled FLEX ETF Options. The 

Exchange also believes that the trading 

of cash-settled FLEX ETF Options 

would allow these same market 

participants to better manage the risk 

associated with the volatility of 

underlying equity positions given the 

enhanced liquidity that an exchangetraded product would bring. 

In the Exchange’s view, cash-settled 

FLEX ETF Options traded on the 

Exchange would have three important 

advantages over the contracts that are 

traded in the OTC market. First, as a 

result of greater standardization of 

contract terms, exchange-traded 

contracts should develop more 

liquidity. Second, counter-party credit 

risk would be mitigated by the fact that 

the contracts are issued and guaranteed 

by OCC. Finally, the price discovery and 

dissemination provided by the 

Exchange and its members would lead 

to more transparent markets. The 

Exchange believes that its ability to offer 

cash-settled FLEX ETF Options would 

aid it in competing with the OTC market 

and at the same time expand the 

universe of products available to 

interested market participants. The 

Exchange believes that an exchangetraded alternative may provide a useful 

risk management and trading vehicle for 

market participants and their customers. 

Further, the Exchange believes listing 

cash-settled FLEX ETF Options would 

provide investors with competition on 

an exchange platform, as other options 

exchanges have received Commission 

approval to list the same options.40

The Exchange notes that OCC has 

received approval from the Commission 

for rule changes that will accommodate 

the clearance and settlement of cashsettled ETF options.41 The Exchange has 

also analyzed its capacity and 

represents that it and The Options Price 

Reporting Authority (‘‘OPRA’’) have the 

necessary systems capacity to handle 

the additional traffic associated with the 

listing of cash-settled FLEX ETF 

Options. The Exchange believes any 

additional traffic that would be 

generated from the introduction of cashsettled FLEX ETF Options would be 

manageable. The Exchange expects that 

members will not have a capacity issue 

as a result of this proposed rule change. 

The Exchange also does not believe this 

proposed rule change 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. 

The Exchange does not believe that 

allowing cash settlement as a contract 

term would render the marketplace for 

equity options more susceptible to 

manipulative practices. The Exchange 

believes that manipulating the 

settlement price of cash-settled FLEX 

ETF Options would be difficult based 

on the size of the market for the 

underlying ETFs that are the subject of 

this proposed rule change. The 

Exchange notes that each underlying 

ETF in the table above is sufficiently 

active to alleviate concerns about 

potential manipulative activity. Further, 

in the Exchange’s view, the vast 

liquidity in the 48 underlying ETFs that 

would currently be eligible to be traded 

as cash-settled FLEX options under the 

proposal ensures a multitude of market 

participants at any given time. 

Moreover, given the high level of 

participation among market participants 

that enter quotes and/or orders in 

physically settled options on these 

ETFs, the Exchange believes it would be 

very difficult for a single participant to 

alter the price of the underlying ETF or 

options overlying such ETF in any 

significant way without exposing the 

would-be manipulator to regulatory 

scrutiny. The Exchange further believes 

any attempt to manipulate the price of 

the underlying ETF or options overlying 

such ETF would also be cost 

prohibitive. As a result, the Exchange 

believes there is significant 

participation among market participants 

to prevent manipulation of cash-settled 

FLEX ETF Options. 

Still, the Exchange believes it has an 

adequate surveillance program in place 

and intends to apply the same program 

procedures to cash-settled FLEX ETF 

Options that it applies to the Exchange’s 

other options products.42 FLEX options 

products and their respective symbols 

will be integrated into the Exchange’s 

existing surveillance system 

architecture and will thus be subject to 

the relevant surveillance processes, as 

applicable. The Exchange believes that 

the existing surveillance procedures at 

the Exchange are capable of properly 

identifying unusual and/or illegal 

trading activity, which procedures the 

Exchange would utilize to surveil for 

aberrant trading in cash-settled FLEX 

ETF Options. 

With respect to regulatory scrutiny, 

the Exchange believes its existing 

surveillance technologies and 

procedures adequately address potential 

concerns regarding possible 

manipulation of the settlement value at 

or near the close of the market. The 

Exchange notes that the regulatory 

program operated by and overseen by 


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43Phlx maintains a regulatory services agreement 

with Financial Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) whereby FINRA provides certain 

regulatory services to the exchanges, including 

cross-market surveillance, investigation, and 

enforcement services. 

44As it relates to Reg SHO violations, the 

Exchange will enforce this through its Stock-Tied 

Reg SHO price protections in Options 3, Section 

16(b). See supra note 65 for Stock-Tied Reg SHO 

discussion. NES will only execute the underlying 

covered security component of a Complex Order if 

the underlying covered security component is in 

accordance with Rule 201 of Regulation SHO. 

Additionally, FINRA’s regulatory program 

addresses Reg SHO compliance for its member 

firms (which includes Exchange Members). 

45Such surveillance procedures generally focus 

on detecting securities trading subject to opening 

price manipulation, closing price manipulation, 

layering, spoofing or other unlawful activity 

impacting an underlying security, the option, or 

both. The Exchange has price movement alerts, 

unusual market activity and order book alerts active 

for all trading symbols. 

46See proposed Options 8, Section 34(i)(1), which 

is based on Cboe Rule 8.35(c)(1)(B). The aggregation 

of position and exercise limits would include all 

positions on physically settled FLEX and non-FLEX 

Options on the same underlying ETFs. 

Phlx 43 includes cross-market 

surveillance designed to identify 

manipulative and other improper 

trading, including spoofing, algorithm 

gaming, marking the close and open, as 

well as more general, abusive behavior 

related to front running, wash sales, and 

quoting/routing, which may occur on 

the Exchange or other markets.44 These 

cross-market patterns incorporate 

relevant data from various markets 

beyond the Exchange and its affiliates 

and from markets not affiliated with the 

Exchange. The Exchange represents 

that, today, its existing trading 

surveillances are adequate to monitor 

trading in the underlying ETFs and 

subsequent trading of options on those 

securities listed on the Exchange. 

Further, with the introduction of cashsettled FLEX ETF Options, the Exchange 

would leverage its existing surveillances 

to monitor trading in the underlying 

ETFs and subsequent trading of options 

on those securities listed on the 

Exchange with respect to cash-settled 

FLEX ETF options.45

Additionally, for options, the 

Exchange utilizes an array of patterns 

that monitor manipulation of options, or 

manipulation of equity securities 

(regardless of venue) for the purpose of 

impacting options prices on the 

Exchange (i.e., mini-manipulation 

strategies). That surveillance coverage is 

initiated once options begin trading on 

the Exchange. Accordingly, the 

Exchange believes that the cross-market 

surveillance performed by the Exchange 

or FINRA, on behalf of the Exchange, 

coupled with Phlx’s own monitoring for 

violative activity on the Exchange 

comprise a comprehensive surveillance 

program that is adequate to monitor for 

manipulation of the underlying ETF and 

overlying option. Furthermore, the 

Exchange believes that the existing 

surveillance procedures at the Exchange 

are capable of properly identifying 

unusual and/or illegal trading activity, 

which the Exchange would utilize to 

surveil for aberrant trading in cashsettled FLEX ETF Options. 

In addition to the surveillance 

procedures and processes described 

above, improvements in audit trails (i.e., 

the Consolidated Audit Trail), 

recordkeeping practices, and interexchange cooperation over the last two 

decades have greatly increased the 

Exchange’s ability to detect and punish 

attempted manipulative activities. In 

addition, 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 

stock and options markets. For 

surveillance purposes, the Exchange 

would therefore have access to 

information regarding trading activity in 

the pertinent underlying securities. 

The proposed rule change is designed 

to allow investors seeking to effect cashsettled FLEX ETF Options with the 

opportunity for a different method of 

settling option contracts at expiration if 

they choose to do so. As noted above, 

market participants may choose cash 

settlement because physical settlement 

possesses certain risks with respect to 

volatility and movement of the 

underlying security at expiration that 

market participants may need to hedge 

against. The Exchange believes that 

offering innovative products flows to 

the benefit of the investing public. A 

robust and competitive market requires 

that exchanges respond to members’ 

evolving needs by constantly improving 

their offerings. Such efforts would be 

stymied if exchanges were prohibited 

from offering innovative products for 

reasons that are generally debated in 

academic literature. The Exchange 

believes that introducing cash-settled 

FLEX ETF Options would further 

broaden the base of investors that use 

FLEX Equity Options to manage their 

trading and investment risk, including 

investors that currently trade in the OTC 

market for customized options, where 

settlement restrictions do not apply. The 

proposed rule change is also designed to 

encourage market makers to shift 

liquidity from the OTC market onto the 

Exchange, which, it believes, would 

enhance the process of price discovery 

conducted on the Exchange through 

increased order flow. The Exchange also 

believes that this may open up cashsettled FLEX ETF Options to more retail 

investors. The Exchange does not 

believe that this proposed rule change 

raises any unique regulatory concerns 

because existing safeguards—such as 

position limits (and the aggregation of 

cash-settled positions with physicallysettled positions), exercise limits (and 

the aggregation of cash-settled positions 

with physically-settled positions), and 

reporting requirements—would 

continue to apply. The Exchange 

believes the proposed position and 

exercise limits may further help mitigate 

the concerns that the limits are designed 

to address about the potential for 

manipulation and market disruption in 

the options and the underlying 

securities.46

Given the novel characteristics of 

cash-settled FLEX ETF Options, the 

Exchange will conduct a review of the 

trading in cash-settled FLEX ETF 

Options over an initial five-year period. 

The Exchange will furnish five reports 

to the Commission based on this review, 

the first of which would be provided 

within 60 days after the first anniversary 

of the initial listing date of the first 

cash-settled FLEX ETF Option under the 

proposed rule and each subsequent 

annual report to be provided within 60 

days after the second, third, fourth and 

fifth anniversary of such initial listing. 

At a minimum, each report will provide 

a comparison between the trading 

volume of all cash-settled FLEX ETF 

Options listed under the proposed rule 

and physically settled options on the 

same underlying security, the liquidity 

of the market for such options products 

and the underlying ETF, and any 

manipulation concerns arising in 

connection with the trading of cashsettled FLEX ETF Options under the 

proposed rule. The Exchange will also 

provide additional data as requested by 

the Commission during this five year 

period. The reports will also discuss any 

recommendations the Exchange may 

have for enhancements to the listing 

standards based on its review. The 

Exchange believes these reports will 

allow the Commission and the Exchange 

to evaluate, among other things, the 

impact such options have, and any 

potential adverse effects, on price 

volatility and the market for the 

underlying ETFs, the component 

securities underlying the ETFs, and the 

options on the same underlying ETFs 

and make appropriate 

recommendations, if any, in response to 

the reports. 

Implementation 

The Exchange proposes to implement 

this rule change on or before December 

23, 2024. The Exchange will announce 


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47 15 U.S.C. 78f(b) 

48 15 U.S.C. 78f(b)(5). 

49 15 U.S.C. 78f(b)(5). 

50See Securities Exchange Act Release No. 

101128 (September 20, 2024), 89 FR 78942 

(September 26, 2024) (SR–ISE–2024–03) (Notice of 

Filing of Amendment Nos. 4 and 5 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment Nos. 1, 4, and 

5, To Permit the Listing and Trading of Options on 

the iShares Bitcoin Trust). 

51 Id. 

52See Securities Exchange Act Release No. 99222 

(December 21, 2023), 88 FR 89771 (December 28, 

2023) (SR–CBOE–2023–018) (‘‘FLEX Settlement 

Pilot Approval’’). In support of making the pilot a 

permanent program, Cboe cited to its own review 

of pilot data during the course of the pilot program 

and a study by the Commission’s Division of 

Economic and Risk Analysis (‘‘DERA’’) staff. See 

FLEX Settlement Pilot Approval, notes 18 and 35. 

53See Securities Exchange Act Release Nos. 

98454 (September 20, 2023) (SR–CBOE–2023–005) 

(order approving proposed rule change to make 

permanent the operation of a program that allows 

the Exchange to list p.m.-settled third Friday-of-themonth SPX options series) (‘‘SPXPM Approval’’); 

98455 (September 20, 2023) (SR–CBOE–2023–019) 

(order approving proposed rule change to make 

permanent the operation of a program that allows 

the Exchange to list p.m.-settled third Friday-of-themonth XSP and MRUT options series) (‘‘XSP and 

MRUT Approval’’); and 98456 (September 20, 2023) 

(SR–CBOE–2023–020) (order approving proposed 

rule change to make the nonstandard expirations 

pilot program permanent) (‘‘Nonstandard 

Approval’’). See also Securities Exchange Act 

Release Nos. 98451 (September 20, 2023), 88 FR 

66088 (September 26, 2023) (SR–Phlx–2023–07) 

(Order Granting Approval of a Proposed Rule 

Change, as Modified by Amendment No. 1, To 

Make Permanent Certain P.M.-Settled Pilots); and 

98950 (November 15, 2023), 88 FR 81172 

(November 21, 2023) (SR–Phlx–2023–45) (Order 

Approving a Proposed Rule Change To Permit the 

Listing and Trading of P.M.-Settled Nasdaq-100 

Index Options With a Third-Friday-of-the-Month 

Expiration). 

54Notably, Cboe did not identify any significant 

economic impact (including on pricing or volatility 

or in connection with reversals) on related futures, 

the underlying indexes, or the underlying 

component securities of the underlying indexes 

surrounding the close as a result of the quantity of 

FLEX PM Third Friday Options or the amount of 

expiring open interest in FLEX PM Third Friday 

Options, nor any demonstrated capacity for options 

hedging activity to impact volatility in the 

underlying markets. See Securities Exchange Act 

Release No. 99222 (December 21, 2023), 88 FR 

89771 (December 28, 2023) (SR–CBOE–2023–018) 

(‘‘FLEX Settlement Pilot Approval’’). In support of 

making the pilot a permanent program, Cboe cited 

to its own review of pilot data during the course 

of the pilot program and a study by the 

Commission’s Division of Economic and Risk 

Analysis (‘‘DERA’’) staff. See FLEX Settlement Pilot 

Approval, notes 18 and 35. 

55See Securities Exchange Act Release No. 99222 

(December 21, 2023), 88 FR 89771 (December 28, 

2023) (SR–CBOE–2023–018) (‘‘FLEX Settlement 

Pilot Approval’’). In support of making the pilot a 

permanent program, Cboe cited to its own review 

of pilot data during the course of the pilot program 

and a study by the Commission’s Division of 

Economic and Risk Analysis (‘‘DERA’’) staff. See 

FLEX Settlement Pilot Approval, notes 18 and 35. 

Additionally, these studies measured any impact on 

related futures, the underlying indexes, or the 

underlying component securities of the underlying 

indexes surrounding the close. Despite FLEX SPX 

options (which represent approximately half of the 

year-to-date 2023 volume of FLEX Index Options 

but only approximately 0.3% of total SPX volume) 

not being included in the DERA staff study and 

corresponding Cboe study, those studies concluded 

that during the time periods covered (which 

included the period of time in which the Pilot 

Program has been operating), there was no 

significant economic impact on the underlying 

index or related products. Therefore, the Exchange 

believes it is reasonable to conclude that any FLEX 

SPX Options that executed during the timeframes 

covered by the studies had no significant impact on 

the underlying index or related products, as neither 

DERA staff nor Cboe observed any significant 

economic impact on the underlying index or related 

product. 

an implementation date by issuing an 

Options Trader Alert. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,47 in general, and furthers the 

objectives of Section 6(b)(5) of the Act.48

Specifically, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 49 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. 

Permissible Series 

The Exchange’s proposal to not 

authorize for trading a FLEX Option on 

iShares Bitcoin Trust ETF (‘‘IBIT’’) is 

consistent with ISE’s Approval Order of 

iShares Bitcoin Trust.50 ISE stated that 

the position limit for IBIT options shall 

be 25,000 contracts.51 Phlx proposes to 

exclude IBIT Options from trading as a 

FLEX Options to continue to limit the 

position limits for IBIT Options. 

Characteristics of ETFs 

The Exchange’s proposal to provide in 

Options 8, Section 34(f)(1)(B) that, ‘‘an 

underlying equity security or index, as 

applicable (the index multiplier for 

FLEX Index Options is 100)’’ is 

consistent with the Act and will protect 

investors and the general public because 

this rule text adds transparency to the 

current characteristics of underlying 

interest for FLEX Option. 

Minimum Trading Increments 

The Exchange’s proposal to amend 

Options 8, Section 34(f)(3) to provide 

that, ‘‘The Exchange may determine the 

smallest increment for exercise prices of 

FLEX Options on a class-by-class basis 

without going lower than the $0.01.’’ is 

consistent with the Act and will protect 

investors and the general public because 

this rule text provides clear, transparent 

language regarding the minimum 

trading increments for FLEX Options. 

The language is consistent with Cboe 

Rule 5.3(e)(3) except the Exchange is not 

proposing to provide for Micro FLEX 

Index Options or to allow prices to be 

expressed as a percentage value because 

the Exchange does not offer these 

features today. 

FLEX PM Third Friday Options 

The Exchange’s proposal to amend 

Options 8, Section 34(f)(5) to allow the 

listing of FLEX PM Third Friday 

Options, is consistent with the 

Commission’s recent approval of Cboe’s 

proposal to make its pilot a permanent 

program.52 The Exchange believes that 

aligning to Cboe will allow Phlx to 

compete effectively with Cboe’s product 

offering. Like Cboe, the Exchange 

believes that FLEX PM Third Friday 

Options will provide investors with 

greater trading opportunities and 

flexibility. The Exchange notes that the 

Commission recently approved 

proposals to make other pilots 

permitting p.m.-settlement of index 

options permanent after finding those 

pilots were consistent with the Act and 

the options subject to those pilots had 

no significant impact on the market.53

The Exchange further believes that 

permitting Phlx to list FLEX PM Third 

Friday Options, similar to Cboe, will 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and 

protect investors, while maintaining a 

fair and orderly market. As described in 

the FLEX Settlement Pilot Approval, 

Cboe observed no significant adverse 

market impact or identified any 

meaningful regulatory concerns during 

the nearly 14-year operation of the FLEX 

PM Third Friday Program as a pilot nor 

during the 15 years since P.M.-settled 

index options (SPX) were reintroduced 

to the marketplace.54

As discussed in the FLEX Settlement 

Pilot Approval, the DERA staff study 

and corresponding Cboe study 

concluded that a significantly larger 

amount of non-FLEX p.m.-settled index 

options had no significant adverse 

market impact and caused no 

meaningful regulatory concerns. 

Therefore, the Exchange believes it is 

reasonable to conclude that the 

relatively small amount of FLEX Index 

Option volume would similarly have no 

significant adverse market impact or 

cause no meaningful regulatory 

concerns.55

The Exchange also believes the 

introduction of FLEX PM options had 


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56See Securities Exchange Act Release No. 99222 

(December 21, 2023), 88 FR 89771 (December 28, 

2023) (SR–CBOE–2023–018) (‘‘FLEX Settlement 

Pilot Approval’’). In support of making the pilot a 

permanent program, Cboe cited to its own review 

of pilot data during the course of the pilot program 

and a study by the Commission’s Division of 

Economic and Risk Analysis (‘‘DERA’’) staff. See 

FLEX Settlement Pilot Approval, notes 18 and 35. 

57Specifically, Cboe evaluated each FLEX PM 

Third Friday Options trade for more than 500 

contracts that occurred on Cboe during a two-year 

timeframe and analyzed the market quality 

(specifically, the average time-weighted quote 

spread and size 30 minutes prior to the trade and 

the average time-weighted quote spread and size 30 

minutes after the trade) of series non-FLEX a.m.- 

settled options overlying the same index with 

similar terms as the FLEX PM Third Friday Option 

that traded (time to expiration, type (call or put), 

and strike price) as set forth in the Cboe’s data. See 

Securities Exchange Act Release No. 99222 

(December 21, 2023), 88 FR 89771 (December 28, 

2023) (SR–CBOE–2023–018) (‘‘FLEX Settlement 

Pilot Approval’’). In support of making the pilot a 

permanent program, Cboe cited to its own review 

of pilot data during the course of the pilot program 

and a study by the Commission’s Division of 

Economic and Risk Analysis (‘‘DERA’’) staff. See 

FLEX Settlement Pilot Approval, notes 18 and 35. 

58The Exchange acknowledges that, while FLEX 

PM Third Friday Options has historically 

represented a very small percentage of overall 

volume, it is possible trading in these options may 

grow in the future. 

59See Cboe Rules 8.35(a), (b), (d), and 8.42(g) and 

Phlx Options 4A, Sections 6(a), 9(a)(13), and 

9(a)(14). 60See proposed Options 8, Section 34(i)(4)(c) and 

Section 34(j)(1)(c). See also Cboe Rules 8.35(d)(3) 

and 8.42(g)(3); NYSE Arca Rules 5.35–O(a)(iii), (b) 

and 5.36–O; NYSE American Rules 906G and 907G; 

and Phlx Options 8, Section 34(e) and (f). 61See Securities Exchange Act Release No. 42223 

(December 10, 1999), 64 FR 71158, 71159 

(December 20, 1999) (SR–Amex–99–40) (SR–PCX– 

99–41) (SR–CBOE–99–59) (Order Granting 

Accelerated Approval to Proposed Rule Change 

Relating to the Permanent Approval of the 

Elimination of Position and Exercise Limits for 

FLEX Equity Options). 

no significant impact on the market 

quality of corresponding a.m.-settled 

options or other options. As discussed 

in the FLEX Settlement Pilot Approval, 

Cboe’s analysis conducted after the 

introduction of SPXW options with 

Tuesday and Thursday expirations 

demonstrated no statistically significant 

impact on the bid-ask or effective 

spreads of SPXW options with Monday, 

Wednesday, and Friday expirations after 

trading in the SPXW options with 

Tuesday and Thursday expirations 

began.56 Further, Cboe concluded that 

large FLEX PM Third Friday Options 

trades had no material negative impact 

(and likely no impact) on quote quality 

of non-FLEX a.m.-settled options 

overlying the same index with similar 

terms as the FLEX PM Third Friday 

Option upon evaluating data that 

showed that the spreads were relatively 

stable before and after large trades.57

Therefore, the Exchange believes Cboe’s 

evaluation effectively demonstrates it is 

likely that FLEX PM Third Friday 

Options have had no significant 

negative impact on the market quality of 

non-FLEX Options with a.m.- 

settlement.58

Additionally, the significant changes 

in the closing procedures of the primary 

markets in recent decades, including 

considerable advances in trading 

systems and technology, has 

significantly minimized risks of any 

potential impact of FLEX PM Third 

Friday Options on the underlying cash 

markets. As such, the Exchange believes 

that this proposal does not raise any 

unique or prohibitive regulatory 

concerns and that such trading has not, 

and will not, adversely impact fair and 

orderly markets on expiration Fridays 

for the underlying indexes or their 

component securities. 

FLEX Options Terms 

The Exchange’s proposal to amend 

Options 8, Section 34(f)(6)(A) to note 

how the exercise value is determined 

depending on whether it is a.m.-settled 

or p.m.-settled is consistent with the Act 

and will protect investors and the 

general public because this rule text 

adds transparency to the current 

settlement of FLEX Index Options. 

Position and Exercise Limits 

Position and exercise limits are 

designed to address potential 

manipulative schemes and adverse 

market impacts surrounding the use of 

options, such as disrupting the market 

in the security underlying the options. 

While position and exercise limits 

should address and discourage the 

potential for manipulative schemes and 

adverse market impact, if such limits are 

set too low, participation in the options 

market may be discouraged. The 

Exchange believes that any decision 

regarding imposing position and 

exercise limits for FLEX Options must 

therefore be balanced between 

mitigating concerns of any potential 

manipulation and the cost of inhibiting 

potential hedging activity that could be 

used for legitimate economic purposes. 

As it relates to FLEX Index Options, 

the Exchange believes that the proposed 

amendments to position and exercise 

limits in Options 8, Section 34(i) and (j) 

are reasonably designed to prevent a 

member organization from using FLEX 

Index Options to evade the position 

limits applicable to comparable nonFLEX Index Options. Further, by 

establishing the proposed position and 

exercise limits for FLEX Index Options 

and, importantly, aggregating such 

positions in the manner described in 

proposed Options 8, Section 34(i)(4) the 

Exchange believes that the position and 

exercise limit requirements for FLEX 

Index Options should help to ensure 

that the trading of FLEX Index Options 

would not increase the potential for 

manipulation or market disruption and 

could help to minimize such incentives. 

The Exchange also notes that proposed 

position and exercise limits are 

consistent with the rules of other 

options exchanges that offer FLEX Index 

Options, as well as the rules of its own 

standard non-FLEX index options 

market, and therefore raise no novel 

issues for the Commission.59

As it relates to FLEX Equity Options, 

while no position limits are proposed 

for FLEX Equity Options, there are 

several mitigating factors, which 

include aggregation of FLEX Equity 

Option and non-FLEX Equity Option 

positions that expire on a third Fridayof-the-month and subjecting those 

positions to position and exercise limits, 

and daily monitoring of market activity. 

Similar to the other exchanges that trade 

FLEX Equity Options, the Exchange 

believes that eliminating position and 

exercise limits for FLEX Equity Options, 

while requiring positions in FLEX 

Equity Options that expire on a third 

Friday-of-the-month to be aggregated 

with positions in non-FLEX Equity 

Options on the same underlying 

security,60 removes impediments to and 

perfects the mechanism of a free and 

open market and a national market 

system because it allows the Exchange 

to create a product and market that is an 

improved but comparable alternative to 

the OTC market in customized options. 

OTC transactions occur through 

bilateral agreements, the terms of which 

are not publicly disclosed to the 

marketplace. As such, OTC transactions 

do not contribute to the price discovery 

process that exists on a public exchange. 

The Exchange believes that the 

proposed elimination of position and 

exercise limits for FLEX Equity Options 

may encourage market participants to 

transfer their liquidity demands from 

OTC markets to exchanges and enable 

liquidity providers to provide additional 

liquidity to Phlx through transactions in 

FLEX Equity Options. The Exchange 

notes that the Commission previously 

approved the elimination of position 

and exercise limits for FLEX Equity 

Options, finding that such elimination 

would allow exchanges ‘‘to better 

compete with the growing OTC market 

in customized equity options, thereby 

encouraging fair competition among 

brokers and dealers and exchange 

markets.’’ 61 The Commission has also 

stated that the elimination of position 

and exercise limits for FLEX Equity 


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62See id. 

63The Exchange notes that it is responsible for 

FINRA’s performance under this regulatory services 

agreement. 

64See Cboe Rules 8.35(d) and 8.42(g). 

65See Securities Exchange Act Release No. 88131 

(February 5, 2020), 85 FR 7806 (February 11, 2020) 

(SR–NYSEAmer–2019–38) (Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 1, To Allow Certain Flexible 

Equity Options To Be Cash Settled). Cboe also filed 

an immediately effective rule change to allow 

certain FLEX Options to be cash settled. See 

Securities Exchange Act Release No. 98044 (August 

2, 2023), 88 FR 53548 (August 8, 2023) (SR–Cboe– 

2023–036) (Notice of Filing and Immediate 

Effectiveness of a Proposed Rule Change To Allow 

Certain Flexible Exchange Equity Options To Be 

Cash Settled). 

66See supra note 39. 

Options ‘‘could potentially expand the 

depth and liquidity of the FLEX equity 

market without significantly increasing 

concerns regarding intermarket 

manipulations or disruptions of the 

options or the underlying securities.’’ 62

Additionally, the Exchange believes 

that requiring positions in FLEX Equity 

Options that expire on a third Friday-ofthe-month to be aggregated with 

positions in non-FLEX Equity Options 

on the same underlying security 

subjects FLEX Equity Options and nonFLEX Equity Options to the same 

position and exercise limits on third 

Friday-of-the-month expirations. These 

limitations are intended to serve as a 

safeguard against potential adverse 

effects of large FLEX Equity Option 

positions expiring on the same day as 

non-FLEX Equity Option positions. As 

noted above, Cboe Rules 8.35(d)(3) and 

8.42(g)(3) have the same requirements. 

The Exchange believes that any 

potential risk of manipulative activity is 

mitigated by existing surveillance 

technologies, procedures, and reporting 

requirements at the Exchange, which 

allows the Exchange to properly identify 

disruptive and/or manipulative trading 

activity. In addition to its own 

surveillance programs, the Exchange 

also works with other SROs and 

exchanges on intermarket surveillance 

related issues. Through its participation 

in ISG, the Exchange shares information 

and coordinates inquiries and 

investigations with other exchanges 

designed to address potential 

intermarket manipulation and trading 

abuses. The Exchange also notes that 

FINRA conducts cross-market 

surveillances on behalf of the Exchange 

pursuant to a regulatory services 

agreement.63 The Exchange also 

represents that it is reviewing its 

procedures to detect potential 

manipulation in light of any changes 

required for FLEX Options to confirm 

appropriate surveillance coverage. 

These procedures utilize daily 

monitoring of market activity via 

automated surveillance techniques to 

identify unusual activity in both options 

and their underlying securities and are 

designed to protect investors and the 

public interest by ensuring that the 

Exchange has an adequate surveillance 

program in place. 

Lastly, the Exchange notes that other 

exchanges currently trading FLEX 

options have similar position and 

exercise limits described above.64

Cash-Settled Exchange Traded Funds 

(‘‘ETFs’’) 

Introducing cash-settled FLEX ETF 

Options will increase order flow to the 

Exchange, increase the variety of 

options products available for trading, 

and provide a valuable tool for investors 

to manage risk. 

The Exchange believes that the 

proposal to permit cash settlement as a 

contract term for options on the 

specified group of equity securities 

would remove impediments to and 

perfect the mechanism of a free and 

open market as cash-settled FLEX ETF 

Options would enable market 

participants to receive cash in lieu of 

shares of the underlying security, which 

would, in turn provide greater 

opportunities for market participants to 

manage risk through the use of a cashsettled product to the benefit of 

investors and the public interest. The 

Exchange does not believe that allowing 

cash settlement as a contract term for 

options on the specified group of equity 

securities would render the marketplace 

for equity options more susceptible to 

manipulative practices. As illustrated in 

the table above, each of the qualifying 

underlying securities is actively traded 

and highly liquid and thus would not be 

susceptible to manipulation because, 

over a six-month period, each security 

had an average daily notional value of 

at least $500 million and an ADV of at 

least 4,680,000 shares, which indicates 

that there is substantial liquidity present 

in the trading of these securities, and 

that there is significant depth and 

breadth of market participants providing 

liquidity and of investor interest. The 

Exchange believes the proposed biannual review to determine eligibility 

for an underlying ETF to have cash 

settlement as a contract term would 

remove impediments to and perfect the 

mechanism of a free and open market as 

it would permit the Exchange to select 

only those underlying ETFs that are 

actively traded and have robust 

liquidity as each qualifying ETF would 

be required to meet the average daily 

notional value and average daily volume 

requirements, as well as to select the 

same underlying ETFs on which other 

exchanges may list cash-settled FLEX 

ETF Options.65

The Exchange believes the proposed 

change that, for FLEX ETF Options, at 

least one of exercise style, expiration 

date, and exercise price must differ from 

options in the non-FLEX market will 

provide clarity and eliminate confusion 

regarding permissible terms of FLEX 

ETF Options, including the proposed 

cash-settled FLEX ETF Options. 

The Exchange believes that the data 

provided by the Exchange supports the 

supposition that permitting cash 

settlement as a FLEX term for the 48 

underlying ETFs that would currently 

qualify to have cash settlement as a 

contract term would broaden the base of 

investors that use FLEX Equity Options 

to manage their trading and investment 

risk, including investors that currently 

trade in the OTC market for customized 

options, where settlement restrictions 

do not apply. 

The Exchange believes that the 

proposal to permit cash settlement for 

certain FLEX ETF options would 

remove impediments to and perfect the 

mechanism of a free and open market 

because the proposed rule change 

would provide members and member 

organizations with enhanced methods to 

manage risk by receiving cash if they 

choose to do so instead of the 

underlying security. In addition, this 

proposal would promote just and 

equitable principles of trade and protect 

investors and the general public because 

cash settlement would provide investors 

with an additional tool to manage their 

risk. Further, the Exchange notes that 

another exchange has previously 

received approval that allows for the 

trading of cash-settled options, and, 

specifically, cash-settled FLEX ETF 

Options in an identical manner as the 

Exchange proposes to list them pursuant 

to this rule filing.66 The proposed rule 

change therefore should not raise issues 

for the Commission that it has not 

previously addressed. 

The proposed rule change to permit 

cash settlement as a contract term for 

options on up to 50 ETFs is designed to 

promote just and equitable principles of 

trade in that the availability of cash 

settlement as a contract term would 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 traded in the OTC market), the 

Exchange would be able to compete 

more effectively with the OTC market. 

The Exchange believes the proposed 


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86018 Federal Register / Vol. 89, No. 209 / Tuesday, October 29, 2024 / Notices 

67Among other things, Phlx’s regulatory program 

includes cross-market surveillance designed to 

identify manipulative and other improper trading, 

including spoofing, algorithm gaming, marking the 

close and open, as well as more general abusive 

behavior related to front running, wash sales, and 

quoting/routing, which may occur on the Exchange 

and other markets. Furthermore, the Exchange 

stated that it has access to information regarding 

trading activity in the pertinent underlying 

securities as a member of ISG. As it relates to Reg 

SHO violations, the Exchange will enforce this 

through its Stock-Tied Reg SHO price protections 

in Options 3, Section 16(b). Specifically, Options 3, 

Section 16(b) provides that when the short sale 

price test in Rule 201 of Regulation SHO is triggered 

for a covered security, NES will not execute a short 

sale order in the underlying covered security 

component of a Complex Order if the price is equal 

to or below the current national best bid. However, 

NES will execute a short sale order in the 

underlying covered security component of a 

Complex Order if such order is marked ‘‘short 

exempt,’’ regardless of whether it is at a price that 

is equal to or below the current national best bid. 

If NES cannot execute the underlying covered 

security component of a Complex Order in 

accordance with Rule 201 of Regulation SHO, the 

Exchange will cancel back the Complex Order to 

the entering member organization. For purposes of 

this paragraph, the term ‘‘covered security’’ shall 

have the same meaning as in Rule 201(a)(1) of 

Regulation SHO. NES will only execute the 

underlying covered security component of a 

Complex Order if the underlying covered security 

component is in accordance with Rule 201 of 

Regulation SHO. 

68 15 U.S.C. 78s(g). 

rule change is designed to prevent 

fraudulent and manipulative acts and 

practices in that it would lead to the 

migration of options currently trading in 

the OTC market to trading on the 

Exchange. Also, any migration to the 

Exchange from the OTC market would 

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 

the proposed cash-settled options. 

Further, the proposed rule change 

would result in increased competition 

by permitting the Exchange to offer 

products that are currently available for 

trading only in the OTC market and are 

approved to trade on another options 

exchange. 

The Exchange believes that 

establishing position limits for cashsettled FLEX ETF Options to be the 

same as physically settled options on 

the same underlying security, and 

aggregating positions in cash-settled 

FLEX ETF Options with physically 

settled options on the same underlying 

security for purposes of calculating 

position limits is reasonable and 

consistent with the Act. By establishing 

the same position limits for cash-settled 

FLEX ETF Options as for physically 

settled options on the same underlying 

security and, importantly, aggregating 

such positions, the Exchange believes 

that the position limit requirements for 

cash-settled FLEX ETF Options should 

help to ensure that the trading of cashsettled FLEX ETF Options would not 

increase the potential for manipulation 

or market disruption and could help to 

minimize such incentives. For the same 

reasons, the Exchange believes the 

proposed exercise limits are reasonable 

and consistent with the Act. 

Finally, the Exchange represents that 

it has an adequate surveillance program 

in place to detect manipulative trading 

in cash-settled FLEX ETF Options and 

the underlying ETFs. Regarding the 

proposed cash settlement, the Exchange 

would use the same surveillance 

procedures currently utilized for the 

Exchange’s other FLEX Options. For 

surveillance purposes, the Exchange 

would have access to information 

regarding trading activity in the 

pertinent underlying ETFs. The 

Exchange believes that limiting cash 

settlement to no more than 50 

underlying ETFs (currently, 48 ETFs 

would be eligible to have cashsettlement as a contract term) would 

minimize the possibility of 

manipulation due to the robust liquidity 

in both the equities and options 

markets. 

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. As discussed 

above, Phlx has adequate surveillance 

procedures in place to monitor trading 

in cash-settled FLEX ETF Options and 

the underlying securities, including to 

detect manipulative trading activity in 

both the options and the underlying 

ETF.67 The Exchange further notes the 

liquidity and active markets in the 

underlying ETFs, and the high number 

of market participants in both the 

underlying ETFs and existing options 

on the ETFs, helps to minimize the 

possibility of manipulation. The 

Exchange further notes that under 

Section 19(g) of the Act, the Exchange, 

as a self-regulatory organization, is 

required to enforce compliance by its 

members and persons associated with 

its members with the Act, the rules and 

regulations thereunder, and the rules of 

the Exchange.68 The Exchange believes 

its surveillance, along with the liquidity 

criteria and position and exercise limits 

requirements, are reasonably designed 

to mitigate manipulation and market 

disruption concerns and will permit it 

to enforce compliance with the 

proposed rules and other Exchange 

rules in accordance with Section 19(g) 

of the Act. 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 the cash settlement 

of FLEX ETF Options. 

Additionally, the Exchange will 

monitor any effect additional options 

series listed under the proposed rule 

change may have on market 

fragmentation and the capacity of the 

Exchange’s automated systems. The 

Exchange will take prompt action, 

including timely communication with 

the Commission and with other selfregulatory organizations responsible for 

oversight of trading in options, the 

underlying ETFs, and the ETFs’ 

component securities, should any 

unanticipated adverse market effects 

develop. 

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 intra-market competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act, 

as all member organizations who wish 

to trade FLEX Options will be able to 

trade such options in the same manner. 

Additionally, positions in FLEX Options 

of all member organizations will be 

subject to the same position limits, and 

such positions will be aggregated in the 

same manner as described in proposed 

Options 8, Section 34(i)(4). 

The Exchange also does not believe 

that the proposed rule change will 

impose any burden on inter-market 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. The proposal 

promotes inter-market competition by 

providing another alternative (i.e., 

exchange markets) to bilateral OTC 

trading of options with flexible terms. 

Exchange markets, in contrast with 

bilateral OTC trading, are centralized, 

transparent, and have the guarantee of 

OCC for options traded. 


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Federal Register / Vol. 89, No. 209 / Tuesday, October 29, 2024 / Notices 86019 

69 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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 

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, 

the Commission shall: (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 (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

Phlx–2024–51 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–Phlx–2024–51. 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–Phlx–2024–51 and should be 

submitted on or before November 19, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.69

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–25052 Filed 10–28–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101415; File No. SR– 

CBOE–2024–041] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change With Respect 

to Amendments to the Seventh 

Amended and Restated Bylaws (the 

‘‘CGM Bylaws’’) of Its Parent 

Corporation, Cboe Global Markets, Inc. 

(‘‘Cboe’’ or ‘‘Corporation’’) 

October 23, 2024. 

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 October 

11, 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’’) is filing with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) a proposed rule 

change with respect to amendments to 

the Seventh Amended and Restated 

Bylaws (the ‘‘CGM Bylaws’’) of its 

parent corporation, Cboe Global 

Markets, Inc. (‘‘Cboe’’ or ‘‘Corporation’’). 

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 

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 

At Cboe’s annual meeting held on 

May 16, 2024, Cboe’s stockholders 

considered two advisory proposals that 

would provide Cboe stockholders with 

the right to call a special meeting of the 

stockholders provided that a certain 

threshold percentage of stockholders 

propose to call such a meeting. The two 

proposals were submitted separately. 

One of the proposals was submitted by 

an individual stockholder (‘‘Stockholder 

Proposal’’). The other proposal was 

submitted by Cboe Management 

(‘‘Management Proposal’’). The 

Stockholder Proposal, which did not 

pass but received 45% of the votes cast, 

requested that the CGM Board take steps 

to enable stockholders having at least 

10% of Cboe’s voting power to call a 

special meeting of the stockholders. The 

Management Proposal, which passed 

with 65% of the votes cast, requested 

that the CGM Board take steps to enable 

stockholders having at least 25% of 

Cboe’s voting power to call a special 

meeting of the stockholders. 

The Nominating & Governance 

Committee of the CGM Board reviewed 

the voting results of the Stockholder 


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