Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices 44411 

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

2 17 CFR 240.19b–4. 

3On August 4, 2021, the Exchange filed Partial 

Amendment No. 1 to the proposed rule change. The 

Exchange withdrew Partial Amendment No. 1 on 

August 6, 2021. 

4See Rule 4.11 (definition of micro-option). 

Currently, the Exchange has the authority to list 

options on 13 indexes that satisfy this criteria: S&P 

500 Index, Mini-S&P 500 Index (XSP), Russell 2000 

Index (RUT), Mini-Russell 2000 Index (MRUT), 

Dow Jones Industrial Average (DJX), S&P 100 Index 

(OEX and XEO), S&P 500 ESG Index (SPESG), MSCI 

EAFE Index (MXEA), MSCI Emerging Markets 

Index (MXEF), Russell 1000 Growth Index (RLG), 

Russell 1000 Value Index (RLV), Russell 1000 Index 

(RUI), and FTSE 100 Mini-Index (UKXM). The 

proposed rule change would authorize the 

Exchange to list Micro FLEX Index Options on the 

same 13 indexes. 

5This assumes an S&P 500 Index value of 

4,327.70. 

6An investor could also trade 23 SPX options and 

11 micro-options. We do not, however, expect 

investors to make two separate trades in this 

manner due to the additional price and execution 

risk that accompanies two separate trades compared 

to a single trade. 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

(b) the accuracy of the agency’s estimate 

of the burden imposed by the collection 

of information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burden of the collection of 

information on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology. Consideration will be given 

to comments and suggestions submitted 

in writing within 60 days of this 

publication. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number. 

Please direct your written comment to 

David Bottom, Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o Cynthia 

Roscoe, 100 F Street NE, Washington, 

DC 20549 or send an email to: PRA_

Mailbox@sec.gov. 

Dated: August 6, 2021. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–17157 Filed 8–11–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92599; File No. SR–CBOE– 

2021–041] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change To Amend 

Certain Rules To Accommodate the 

Listing and Trading of Micro FLEX 

Index Options and To Make Other 

Clarifying and Nonsubstantive 

Changes 

August 6, 2021. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on July 23, 

2021, Cboe Exchange, Inc. (the 

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

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange.3

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

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

or ‘‘Cboe Options’’) proposes to amend 

certain Rules to accommodate the listing 

and trading of Micro FLEX Index 

Options and to make other clarifying 

and nonsubstantive changes. 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 

The purpose of this proposed rule 

change is to amend certain rules to 

accommodate the listing and trading of 

certain FLexible EXchange (‘‘FLEX’’) 

index options with an index multiplier 

of one (‘‘Micro FLEX Index Options’’). 

The Exchange has the authority to list 

options on broad-based indexes for 

which the value of the underlying is at 

least 100 with an index multiplier of 

one 4 and proposes to expand that 

authority to list FLEX Index Options on 

the same indexes with an index 

multiplier of one. The Exchange 

believes Micro FLEX Index Options will 

expand investors’ choices and flexibility 

by listing and trading FLEX Options on 

larger-valued broad-based indexes, 

which provide investors with the ability 

to gain exposure to the market, with a 

notional value of 1/100th of the value of 

currently available FLEX Index Options. 

The Exchange believes the additional 

granularity provided by Micro FLEX 

Index Options with respect to the prices 

at which investors may execute and 

exercise index options on the Exchange 

will appeal to institutional investors by 

providing them with an additional 

exchange-traded tool to manage the 

positions and associated risk in their 

portfolios more precisely based on 

notional value, which currently may 

equal a fraction of a standard contract. 

For example, suppose an investor holds 

a security portfolio of $10,000,000 and 

desires to hedge its portfolio with SPX 

options. In order to hedge the entire 

portfolio with SPX options, the investor 

would need to trade 23.11 contracts 

($10,000,000/$432,770).5 The nearest 

whole number of contracts would be 23 

contracts, which would have a total 

notional value of $9,953,710. As a 

result, the investor could only hedge 

within $46,290 of its portfolio value 

with SPX options with an index 

multiplier of 100 and would be 

underhedged. However, with SPX 

micro-options, the investor would need 

to trade 2,310.70 contracts ($10,000,000/ 

$4,327.70). The nearest whole number 

of contracts would be 2,311 SPX microoptions,6 which would have a total 

notional value of $10,001,314.70. This 

will allow the investor to hedge within 

$1,315 of its portfolio value. Therefore, 

the proposed rule change would permit 

this investor to hedge its portfolio more 

effectively with far greater precision. 

The Exchange notes investors may 

currently execute and exercise options 

with this smaller contract multiplier in 

the unregulated over-the-counter 

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

understands that investors may prefer to 

trade such options in a listed 

environment to receive the benefits of 

trading listing options, including (1) 

enhanced efficiency in initiating and 


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44412 Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices 

7These are the same indexes on which the 

Exchange may list micro-options (non-FLEX 

options with an index multiplier of one). 

8For example, a standard FLEX Index Option for 

index ABC with an index multiplier of 100 may 

have symbol 4ABC, while a Micro FLEX Index 

Option for index ABC with a multiplier of one may 

have symbol 4ABC9. Similarly, in the non-FLEX 

market, a non-FLEX option on index ABC with an 

index multiplier of 100 may have symbol ABC, 

while a non-FLEX micro-option would have a 

different symbol (such as ABC9). 

9A ‘‘FLEX Trader’’ is a Trading Permit Holder the 

Exchange has approved to trade FLEX Options on 

the Exchange. 

10These terms include, in addition to the 

underlying equity security or index, the type of 

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

settlement type, and exercise price. See Rule 

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

FLEX Options. The submission of a FLEX Order 

makes the FLEX Option series in that order eligible 

for trading. See Rule 5.72(b). 

11As discussed below, these are the terms 

designated by the Commission as those that 

constitute standardized options, and therefore, the 

Exchange believes the proposed rule change is 

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

Securities Exchange Act Release No. 31910 

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

(‘‘1993 FLEX Approval Order’’). 12See Rule 4.21(a)(1). 

13To the extent the non-FLEX Index Option is 

later delisted, then opening trades of the Micro 

FLEX Index Option may resume after that occurs. 

closing out position; (2) increased 

market transparency; and (3) heightened 

contra-party creditworthiness due to the 

role of OCC as issuer and guarantor of 

all listed options. The Exchange 

believes the proposed rule change may 

shift liquidity from the OTC market onto 

the Exchange, which the Exchange 

believes would increase market 

transparency as well as enhance the 

process of price discovery conducted on 

the Exchange through increased order 

flow. 

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

index multiplier for FLEX Index 

Options is 100. The proposed rule 

change adds that the index multiplier 

for FLEX Index Options on broad-based 

indexes for which the value of the 

underlying is at least 100 7 may also be 

one (a ‘‘Micro FLEX Index Option’’) (in 

addition to the current index multiplier 

of 100), and that a FLEX Trader must 

specify when submitting a FLEX Order. 

To the extent the Exchange lists a 

Micro FLEX Index Option on an index 

on which it also lists a standard FLEX 

Index option, it will be listed with a 

different trading symbol than the 

standard index option with the same 

underlying index to reduce any 

potential confusion.8 The Exchange 

believes that the clarity of this approach 

is appropriate and transparent. The 

Exchange recognizes the need to 

differentiate Micro FLEX Index Options 

from standard FLEX Index Options and 

believes the proposed rule change will 

provide the necessary differentiation. 

When submitting a FLEX Order, the 

submitting FLEX Trader 9 must include 

all required terms of a FLEX Option 

series.10 Pursuant to current Rule 

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

must include the underlying equity 

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

class) on the FLEX Order. The proposed 

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

state that if a FLEX Trader specifies an 

index on a FLEX Order, the FLEX 

Trader must also include whether the 

index option has an index multiplier of 

100 or 1 when identifying the class of 

FLEX Order. The Exchange is specifying 

it may list FLEX Index Option classes 

with an index multiplier of either 1 or 

100. Therefore, each FLEX Index Option 

series in a Micro FLEX Index Option 

class will include the same flexible 

terms as any other FLEX Option series, 

including strike price, settlement, 

expiration date, and exercise style as 

required by Rule 4.21(b).11

FLEX Micro Options will be traded in 

the same manner as all other FLEX 

Options pursuant to Chapter 5, Section 

F of the Rules. There are two important 

distinctions between FLEX Index 

Options with a multiplier of 100 and 

FLEX Micro Options due to the 

difference in multipliers. 

Term 

Index 

(multiplier 

of 100) 

Index 

(multiplier 

of 1) 

Strike Price ....... 4330 4330 

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

Total Value of 

Deliverable .... $433,000 $4,330 

Total Value of 

Contract ......... $3,205 $32.05 

The proposed rule change amends 

certain Rules describing the exercise 

prices and bids and offers of FLEX 

Options to reflect these distinctions (as 

further described below). 

The Rules permit trading in a put or 

call FLEX Option series only if it does 

not have the same exercise style, same 

expiration date, and same exercise price 

as a non-FLEX Option series on the 

same underlying security or index that 

is already available for trading.12 In 

other words, a FLEX Option series may 

not have identical terms as a non-FLEX 

Option series listed for trading. The 

proposed rule change adds to the 

introductory paragraph of Rule 4.21(b) 

that a FLEX Index Option with an index 

multiplier of one may not be the same 

type (put or call) and may not have the 

same exercise style, expiration date, 

settlement type, and exercise price as a 

non-FLEX Index Option overlying the 

same index listed for trading (regardless 

of the index multiplier of the non-FLEX 

Index Option) (i.e., a Micro FLEX Index 

Option may not have the same terms as 

a non-FLEX Index Option or non-FLEX 

micro-option). This will prevent a Micro 

FLEX Index Option from being listed 

with terms identical to those of a nonFLEX Index Option (with an index 

multiplier of 1 or 100) on the same 

index. 

Pursuant to Rule 4.22(a), a FLEX 

Option position becomes fungible with 

a non-FLEX option that becomes listed 

with identical terms. As discussed 

above, options with different multipliers 

are different classes, and an option 

series in one class cannot be fungible 

with an option series in another classes, 

even if they are economically 

equivalent. Fungibility is only possible 

for series with identical terms. This is 

similar to how a FLEX XSP Index 

Option series is not fungible with an 

economically equivalent non-FLEX SPX 

Option series. Therefore, a FLEX Micro 

Option would become fungible with a 

non-FLEX micro-option with the same 

terms pursuant to Rule 4.22(a), but 

would not be fungible with a non-FLEX 

option overlying the same index with a 

multiplier of 100 with the same 

expiration date, settlement, and exercise 

price. Because the proposed rule change 

will not permit a Micro FLEX Index 

Option to be listed with the same terms 

as a non-FLEX Index Option regardless 

of the index multiplier, proposed Rule 

4.22(b)(2) states if a non-FLEX Index 

Option series with an index multiplier 

of 100 and the same terms as a FLEX 

Index Option overlying the same index 

with a multiplier of one is listed for 

trading, a position established under the 

FLEX trading procedures may be closed 

using the FLEX trading procedures in 

Chapter 5, Section F against another 

closing only FLEX position during the 

time period that non-FLEX Index 

Option series is listed for trading. No 

FLEX Orders may be submitted into an 

electronic auction or represented for 

open outcry trading pursuant to Rule 

5.72 for a FLEX Index Option series 

with a multiplier of one with the same 

terms as the non-FLEX Index Option 

series overlying the same index with an 

index multiplier of 100, unless the 

FLEX Order is a closing order, during 

the time that non-FLEX Index Option 

series is listed for trading.13 This 

proposed ‘‘closing only’’ process is 

similar to the current ‘‘closing only’’ 

process for non-FLEX Option Americanstyle series added intraday, as set forth 

in current Rule 4.22(b) (which the 

Exchange proposes to number as Rule 

4.22(b)(1), accompanied by 

nonsubstantive punctuation mark 

changes to reflect proposed Rule 


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14 If the Exchange lists a non-FLEX Index Option 

with a multiplier of one with identical terms as a 

Micro FLEX Index Option, then current Rule 4.22(a) 

applies to the fungibility of those options (or 

proposed Rule 4.22(b)(1) if it is an American-style) 

series added intraday). 

15Certain indexes close trading at 4:00 p.m. 

Eastern time. See Rule 5.1. 

16The System rounds bids and offers to the 

nearest minimum increment. 

17The proposed rule change reorganizes the 

language in this provision to make clear that the 

phrase ‘‘if the exercise price for the FLEX Option 

series is a percentage of the closing value of the 

underlying equity security or index on the trade 

date’’ applies to the entire clause (B) of 5.3(e)(3). 

The proposed rule change also adds a crossreference to Rule 5.4 to provide that bids and offers 

in U.S. dollars and decimals and percentages of the 

closing values of the underlying equity security or 

index on the trade date must be in the applicable 

minimum increment as set forth in Rule 5.4. 

18See current Rule 4.21(b)(1). 

4.22(b)(2)). This provision will prevent 

new Micro FLEX Index Option positions 

from being opened when a non-FLEX 

Index Option with a multiplier of 100 

with the same terms is listed for 

trading.14

Trading Hours 

Pursuant to Rule 5.1(b)(3)(A) and 

(c)(1), Micro FLEX Index Options will 

be available for trading during the same 

hours as non-FLEX Index Options 

pursuant to Rule 5.1(b)(2). Therefore, 

Regular Trading Hours for Micro FLEX 

Index Options will generally be 9:30 

a.m. to 4:15 p.m. Eastern time.15 To the 

extent an index option is authorized for 

trading during Global Trading Hours, 

the Exchange may also list Micro FLEX 

Index Options during that trading 

session as well, the hours for which 

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

Eastern time. 

Expiration, Settlement, and Exercise 

Style 

In accordance with Rule 4.21(b), 

FLEX Traders may designate the type 

(put or call), exercise style, expiration 

date, and settlement type of Micro FLEX 

Index Options. 

Exercise Prices 

The proposed rule change amends 

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

between the meaning of the exercise 

price of a FLEX Index Option with a 

multiplier of 100 and a Micro FLEX 

Index Option. Specifically, the proposed 

rule change states that the exercise price 

for a FLEX Index Option series in a class 

with a multiplier of one is set at the 

same level as the exercise price for a 

FLEX Index Option series in a class 

with a multiplier of 100. 

The proposed rule change also adds 

the following examples to Rule 

4.21(b)(6) regarding how the deliverable 

for a Micro FLEX Index Option will be 

calculated (as well as for a FLEX Index 

Option with a multiplier of 100 and a 

FLEX Equity Option, for additional 

clarity and transparency): If the exercise 

price of a FLEX Option series is a fixed 

price of 50, it will deliver: (A) 100 

shares of the underlying security at $50 

(with a total deliverable of $5,000) if a 

FLEX Equity Option; (B) cash equal to 

100 (i.e. the index multiplier) times 50 

(with a total deliverable value of $5,000) 

if a FLEX Index Option with a 

multiplier of 100; and (C) cash equal to 

1 (i.e. the index multiplier) times 50 

(with a total deliverable value of $50) if 

a Micro FLEX Index Option. If the 

exercise price of a FLEX Option series 

is 50% of the closing value of the 

underlying security or index, as 

applicable, on the trade date, it will 

deliver: (A) 100 shares of the underlying 

security at a price equal to 50% of the 

closing value of the underlying security 

on the trade date (with a total 

deliverable of 100 times that percentage 

amount) if a FLEX Equity Option; (B) 

cash equal to 100 (i.e., the index 

multiplier) times a value equal to 50% 

of the closing value of the underlying 

index on the trade date (with a total 

deliverable of 100 times that percentage 

amount) if a FLEX Index Option with a 

multiplier of 100; and (C) cash equal to 

1 (i.e., the index multiplier) times a 

value equal to 50% of the closing value 

of the underlying index on the trade 

date (with a total deliverable of one 

times that percentage amount) if a Micro 

FLEX Index Option. 

The descriptions of exercise prices for 

FLEX Equity Options and FLEX Index 

Options with a multiplier of 100 are true 

today. The proposed rule change merely 

adds for purposes of clarity examples to 

the rule regarding the exercise price of 

a FLEX Equity Option or a FLEX Index 

Option with a multiplier of 100 (the 

deliverables for which are equal to the 

exercise price times the 100 contract 

multiplier to determine the deliverable 

dollar value). Because a Micro FLEX 

Index Option has a multiplier of 1/100 

of the multiplier of a FLEX Index 

Option with a multiplier of 100, the 

value of the deliverable of a FLEX Micro 

Option as a result is 1/100 of the value 

of the deliverable of a FLEX Index 

Option with a deliverable of 100. 

Bids and Offers 

Pursuant to Rule 5.4(c), the Exchange 

will determine the minimum increment 

for bids and offers on Micro FLEX Index 

Options (as it does for all other FLEX 

Options) on a class-by-class basis, 

which may not be smaller than (1) 

$0.01, if the exercise price for the FLEX 

Option series is a fixed price, or (2) 

0.01%, if the exercise price for the FLEX 

Option series is a percentage of the 

closing value of the underlying equity 

security or index on the trade date.16

The proposed rule change amends Rule 

5.3(e)(3) to describe the difference 

between the expression of bids and 

offers for FLEX Equity Options, FLEX 

Index Options with a multiplier of 100, 

and Micro FLEX Index Options. 

Currently, that rule states that bids and 

offers for FLEX Options must be 

expressed in (a) U.S. dollars and 

decimals if the exercise price for the 

FLEX Option series is a fixed price, or 

(b) a percentage, if the exercise price for 

the FLEX Option series is a percentage 

of the closing value of the underlying 

equity security or index on the trade 

date, per unit.17 As noted above, a FLEX 

Option contract unit consists of 100 

shares of the underlying security or 100 

times the value of the underlying index, 

as they currently have a 100 contract 

multiplier.18 The proposed rule change 

clarifies that bids and offers are 

expressed per unit, if a FLEX Equity 

Option or a FLEX Index Option with a 

multiplier of 100, and adds an example 

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

and merely adds clarity to the Rules. 

The proposed rule change adds to 

Rule 5.3(e)(3) a description of the 

expression of bids and offers for Micro 

FLEX Index Options. Specifically, bids 

and offers for Micro FLEX Index 

Options must be expressed in (a) U.S. 

dollars and decimals if the exercise 

price for the FLEX Option series is a 

fixed price, or (b) a percentage per 1/ 

100th unit of the underlying security or 

index, as applicable, if the exercise 

price for the FLEX Option series is a 

percentage of the closing value of the 

underlying equity security or index on 

the trade date. Additionally, the 

proposed rule change adds examples 

describing the expression of bids and 

offers of FLEX Options: If the exercise 

price of a FLEX Option series is a fixed 

price, a bid of ‘‘0.50’’ represents a bid 

of (A) $50 (0.50 times 100 shares) for a 

FLEX Equity Option; (B) $50 (0.50 times 

an index multiplier of 100) for a FLEX 

Index Option with a multiplier of 100; 

and (C) $0.50 (0.50 times an index 

multiplier of one) for a Micro FLEX 

Index Option. If the exercise price of a 

FLEX Option series is a percentage of 

the closing value of the underlying 

equity security, a bid of ‘‘0.50’’ 

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

100 shares) of the closing value of the 

underlying equity security on the trade 

date if a FLEX Equity Option; (B) 50% 

(0.50 times an index multiplier of 100) 

of the closing value of the underlying 


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44414 Federal Register / Vol. 86, No. 153 / Thursday, August 12, 2021 / Notices 

19Rule 5.86(e) provides that it will be considered 

conduct inconsistent with just and equitable 

principles of trade for any TPH or person associated 

with a TPH, who has knowledge of all material 

terms and conditions of an original order and a 

solicited order, including a facilitation order, that 

matches the original order’s limit, the execution of 

which are imminent, to enter, based on such 

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

same class as an option that is the subject of the 

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

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

related instrument until either (1) all the terms and 

conditions of the original order and any changes in 

the terms and conditions of the original order of 

which that Trading Permit Holder or associated 

person has knowledge are disclosed to the trading 

crowd or (2) the solicited trade can no longer 

reasonably be considered imminent in view of the 

passage of time since the solicitation. An order to 

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

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

securities comprising ten percent or more of the 

component securities in the index or an order to 

buy or sell a futures contract on any economically 

equivalent index. 

20This discussion focuses on position and 

exercise limits with respect to indexes on which the 

Exchange currently lists standard options and may 

also list Micro FLEX Index Options. To the extent 

the Exchange lists Micro FLEX Index Options on 

other indexes in the future, they would be subject 

to the same position and exercise limits set forth in 

the applicable Rules, and similarly aggregated with 

standard options on the same indexes, as proposed. 

21The proposed rule change also corrects an 

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

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

proposed rule change amends paragraph (a) to 

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

subparagraph (a)(6). 

22As it does today with respect to reduced-value 

indexes, the Exchange will count Micro FLEX Index 

Options as a percentage of a FLEX Index Option 

with a multiplier of 100 when calculating positions 

to determine compliance with position limits. For 

example, currently, since 10 XSP contracts equals 

1 SPX contract, 5 XSP contracts equals 0.5 SPX 

contracts for position limit purposes. With respect 

to Micro FLEX Index Options, since 100 Micro 

FLEX SPX Options equals 1 FLEX SPX Option, 4 

Micro FLEX SPX Options will equal 0.47 FLEX SPX 

Options for purposes of position limits. 

23Pursuant to Rule 8.43(j), FLEX Index Options 

with a multiplier of one will be aggregated with 

non-FLEX Index Options on the same underlying 

index in the same manner as all other FLEX Index 

Options. 

index on the trade date if a FLEX Index 

Option with a multiplier of 100; and (C) 

0.50% (0.50 times an index multiplier of 

one) of the closing value of the 

underlying index on the trade date if a 

Micro FLEX Index Option. The 

Exchange believes this approach 

identifies a clear, transparent 

description of the differences between 

FLEX Index Options with a multiplier of 

100 and Micro FLEX Index Options. The 

proposed rule change also provides 

additional clarity regarding how bids 

and offers of FLEX Equity Options and 

FLEX Index Options with a multiplier of 

100 are expressed. 

Contract Size Limits 

The proposed rule change updates 

various other provisions in the 

following Rules to reflect that onehundred micro-contracts overlying an 

index will be economically equivalent 

to one contract for a standard index 

option overlying the same index: 

• Rule 5.74: Rule 5.74 describes the 

Exchange’s FLEX Solicitation Auction 

Mechanism (‘‘FLEX SAM’’). An order, 

or the smallest leg of a complex order, 

must be for at least the minimum size 

designated by the Exchange (which may 

not be less than 500 standard option 

contracts or 5,000 mini-option 

contracts). The proposed rule change 

adds that 50,000 Micro FLEX Index 

Options is the corresponding minimum 

size for orders submitted into FLEX 

SAM Auctions. 

• Rule 5.87: Rule 5.87(f) describes 

when a Floor Broker is entitled to cross 

a certain percentage of an order, subject 

to the requirements in that paragraph. 

Under that Rule, the Exchange may 

determine on a class-by-class basis the 

eligible size for an order that may be 

transacted pursuant to this paragraph; 

however, the eligible order size may not 

be less than 50 standard option 

contracts (or 500 mini-option contracts 

or 5,000 for micro-options). The 

proposed rule change adds that 5,000 

FLEX Index Option contracts with an 

index multiplier of one is the 

corresponding minimum size for orders 

that may be crossed in accordance with 

this provision. Additionally, Rule 5.87, 

Interpretation and Policy .07(a) provides 

that Rule 5.86(e) 19 does not prohibit a 

Trading Permit Holder (‘‘TPH’’) from 

buying or selling a stock, security 

futures or futures position following 

receipt of an order, including an option 

order, but prior to announcing such 

order to the trading crowd, provided 

that the option order is in a class 

designated as eligible for ‘‘tied hedge’’ 

transactions and within the eligibility 

size parameters, which are determined 

by the Exchange and may not be smaller 

than 500 standard option contracts (or 

5,000 mini-option contracts or 50,000 

micro-options). The proposed rule 

change adds that 50,000 FLEX Index 

Option contracts with a multiplier of 

one is the corresponding minimum size 

for orders that may qualify as tied hedge 

transactions and not be deemed a 

violation of Rule 5.86(e). 

Position and Exercise Limits 20

The proposed rule change amends 

Rule 8.35(a) regarding position limits for 

FLEX Options to describe how Micro 

FLEX Index Options will be counted for 

purposes of determining compliance 

with position limits.21 Because 100 

Micro FLEX Index Options are 

equivalent to one FLEX Index Option 

with a multiplier of 100 overlying the 

same index due to the difference in 

contract multipliers, proposed Rule 

8.35(a)(7) states that for purposes of 

determining compliance with the 

position limits under Rule 8.35, 100 

Micro FLEX Index Option contracts 

equal one FLEX Index Option contract 

with a multiplier of 100 with the same 

underlying index. The proposed rule 

change makes a corresponding change 

to Rule 8.35(b) to clarify that, like 

reduced-value FLEX contracts, Micro 

FLEX Index Option contracts will be 

aggregated with full-value contracts and 

counted by the amount by which they 

equal a full-value contract for purposes 

of the reporting obligation in that 

provision (i.e., 100 Micro FLEX Index 

Options will equal one FLEX Index 

Option contract with a multiplier of 100 

overlying the same index).22 The 

proposed rule change also adds that 

Micro FLEX Index Options on certain 

broad-based indexes for which FLEX 

Index Options with a multiplier of 100 

have no position limits will also have 

no position limits. The proposed rule 

change amends Rule 8.42(g) to make 

corresponding changes regarding the 

application of exercise limits to Micro 

FLEX Index Options. This is consistent 

with the current treatment of other 

reduced-value FLEX Index Options with 

respect to position and exercise limits. 

The margin requirements set forth in 

Chapter 10 of the Rules will apply to 

FLEX Micro Options (as they currently 

do to all FLEX Options).23

Capacity 

The Exchange has analyzed its 

capacity and represents that it believes 

the Exchange and Options Price 

Reporting Authority (‘‘OPRA’’) have the 

necessary systems capacity to handle 

the additional traffic associated with the 

listing of new series that may result 

from the introduction of the Micro FLEX 

Index Options. Because the proposed 

rule change is limited to broad-based 

index options, which currently 

represent only 13 of the indexes on 

which the Exchange listed on the 

Exchange, the Exchange believes any 

additional traffic that may be generated 

from the introduction of Micro FLEX 

Index Options will be manageable. The 

Exchange also understands that the OCC 

will be able to accommodate the listing 

and trading of Micro FLEX Index 

Options. 

Nonsubstantive and Clarifying Changes 

The proposed rule change specifies 

the actual permissible minimum 

amounts for exercise prices for FLEX 

Equity Options or FLEX Index Options 


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24The proposed rule change makes 

nonsubstantive changes to the structure of this 

sentence to accommodate the addition of the 

specific minimum increments for the exercise price. 

25The Exchange believes this flexibility is 

appropriate to permit the Exchange to make 

determinations based on the market characteristics 

of different classes. The Exchange notes the rules 

of another options exchange similarly permit that 

exchange to determine on a class-by-class basis both 

minimum increments for exercise prices and 

premiums (i.e., bids and offers) stated using a 

percentage-based methodology. See, e.g., NYSE 

Arca, Inc. (‘‘Arca’’) Rule 5.32–O(e)(2)(C). 

that are not Cliquet-settled rather than 

identifying them by reference to Rule 

5.4, which defines permissible 

minimum increments for bids and 

offers. Current Rule 4.21(b)(6) states the 

exercise price (which the System rounds 

to the nearest minimum increment as 

set forth in Rule 5.4), which may be for 

a FLEX Equity Option or FLEX Index 

Option that is not Cliquet-settled, a 

fixed price expressed in terms of dollars 

and decimals or a specific index value, 

as applicable, or a percentage of the 

closing value of the underlying equity 

security or index, as applicable, on the 

trade date. The Exchange has 

historically interpreted this rule to mean 

that the smallest permissible increments 

for exercise prices of FLEX Options are 

the same as the minimum increments 

for bids and offers of FLEX Options, 

which smallest increments the 

Exchange may determine on a class-byclass basis (as the Exchange may do for 

minimum increments for bids and 

offers). 

Rather than identify the minimum 

increments for exercise prices by 

reference to the rule describing the 

minimum increments for bids and 

offers, the proposed rule change adds 

the language specifying the actual 

minimum increments for exercise prices 

for FLEX Equity Options and FLEX 

Index Options that are not Cliquetsettled, which minimum increments are 

the same as minimum increments for 

bids and offers. Specifically, the 

proposed rule change states that the 

exercise price may be in increments no 

smaller than (which language is taken 

from Rule 5.4(c)(4)) (1) for a FLEX 

Equity Option or FLEX Index Option 

that is not Cliquet-settled, (a) $0.01, if 

the exercise price for the FLEX Option 

series is expressed as a fixed price in 

terms of dollars and decimals or a 

specific index value, as applicable, or 

(b) 0.01%, if the exercise price for the 

FLEX Option series is expressed as a 

percentage of the closing value of the 

underlying equity security or index on 

the trade date, as applicable.24 The 

minimum permissible amounts of $0.01 

and 0.01% for FLEX Options with fixed 

exercise prices and percentage exercise 

prices, respectively, submitted into 

FLEX Auctions added to Rule 4.21(b)(6) 

are the current minimum increments 

permissible for these FLEX Options. 

Therefore, the proposed rule change 

makes no substantive changes to the 

minimum increments of exercise prices 

for FLEX Orders submitted into FLEX 

Auctions. The Exchange believes this 

will make the rule regarding permissible 

exercise prices for FLEX Options more 

transparent and thus may eliminate 

potential confusion regarding 

permissible exercise prices. 

The proposed rule change adds to 

Rule 4.21(b)(6) after subparagraph (B) 

that the Exchange may determine the 

smallest increment for exercise prices of 

FLEX Options on a class-by-class basis. 

As discussed above, this is consistent 

with the Exchange’s longstanding 

interpretation of the current Rule, which 

refers to the minimum increment for 

bids and offers as set forth in Rule 5.4 

when identifying the minimum 

increments for exercise prices of FLEX 

Options. Rule 5.4(c)(4) states that the 

Exchange may determine the minimum 

increment for bids and offers on FLEX 

Options on a class-by-class basis, which 

may be no smaller than the amounts 

specified in that rule. Therefore, the 

Exchange has interpreted Rule 4.21(b)(6) 

to mean that those same provisions 

apply to the minimum increments for 

exercise prices for FLEX Options. The 

proposed rule change codifies this 

longstanding interpretation in the Rules, 

which the Exchange believes will make 

the rule regarding permissible exercise 

prices for FLEX Options more 

transparent and thus may eliminate 

potential confusion regarding 

permissible exercise prices.25

The proposed rule change moves the 

parenthetical regarding the System 

rounding the exercise price to the 

nearest minimum increment for bids 

and offers in the class (as set forth in 

Rule 5.4) from the introductory clause 

in Rule 4.21(b)(6) to the end of 

subclause (A)(ii) so that it applies only 

to that subclause. While not specified in 

the Rules, such rounding would only 

occur for exercise prices expressed as a 

percentage, so the proposed rule 

clarifies that it applies only for exercise 

prices expressed as a percentage and 

specifies that the System rounds the 

actual exercise prices to the nearest 

fixed price minimum increment for bids 

and offers in the class. The proposed 

rule change also adds to the 

parenthetical in Rule 4.21(b)(6)(A)(ii) 

that the System rounds the ‘‘actual’’ 

exercise price to the nearest fixed price 

minimum increment to provide 

additional clarity to the provision, as 

the dollar value of an exercise price 

expressed as a percentage determined 

after the closing value is available 

would be rounded to the nearest 

minimum dollar value increment, 

which dollar value would represent the 

ultimate, ‘‘actual’’ exercise price. 

Similarly, the proposed rule change 

clarifies in Rule 5.3(e)(3) and 5.4(c)(4) 

that the System rounds the final 

transaction prices (rather than bids and 

offers) of FLEX Options to the nearest 

fixed price minimum increment for the 

class as set forth in Rule 5.4(c)(4)(A) 

following application of the designated 

percentage to the closing value of the 

underlying security or index. This is 

consistent with current functionality 

and is merely a clarification in the Rules 

to more accurately reflect how the 

System currently works. For example, 

suppose a FLEX Trader enters a 

percentage bid of 0.27 for a FLEX Equity 

Option, which is the price at which the 

order for that option ultimately trades, 

and the underlying security has a 

closing value of 24.52 on the trade date. 

Following the close on the trade date, 

the System calculates the transaction 

price to be 6.6204 (0.27 × 24.52). 

Assuming the minimum increment for 

bids and offers in a FLEX Option class 

is $0.01, the System rounds 6.6204 to 

the nearest penny, which would be a 

transaction price of $6.62. The dollar 

value of the transaction price of a FLEX 

Option for which the bids and offers 

were expressed as a percentage (the 

‘‘final’’) determined after the closing 

value is available would be rounded to 

the nearest fixed price minimum 

increment for the class (e.g., the nearest 

$0.01, if that is the minimum 

determined for the class). This is the 

same rounding process that applies 

today for these options. 

Currently, as clarified by these 

proposed rule changes (and the 

additional description regarding 

rankings of bids and offers in FLEX 

Auction, as discussed below), bids and 

offers expressed as a percentage of the 

closing value of the underlying on the 

trade date are ranked by the percentage 

amount for FLEX Option series for 

which the exercise price is expressed as 

such a percentage. As a result, the 

transaction ‘‘price(s)’’ at the conclusion 

of a FLEX Auction will be a percentage 

amount(s), rather than bids and offers. 

Once the closing value of the underlying 

on the trade date is available, the 

System determines the exercise price 

and transaction price in a dollar amount 

using that closing value and rounds 

each to the minimum dollar amount 

increment at that time. The proposed 

rule change replaces the phrase ‘‘bids 

and offers’’ with ‘‘final transaction 


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26As set forth in Rule 4.21(b)(6), a FLEX Option 

series with a percentage exercise price reflects a 

percentage of the closing value of the underlying 

equity security or index, as applicable, on the trade 

date. Therefore, in this example, the actual exercise 

price is the percentage (50.24%) of the closing value 

of underlying ABC on the trade date ($47.63), 

which is 23.929, which the System rounds to 

$23.93. Contract multipliers are applied after any 

rounding occurs. 

27As set forth in Rule 5.4(c)(4), a FLEX Option 

series with a percentage bid or offer reflects a 

percentage of the closing value of the underlying 

equity security or index, as applicable, on the trade 

date. Therefore, in this example, the actual 

transaction price is the percentage (7.01%) of the 

closing value of underlying ABC on the trade date 

($47.63), which is 3.338, which the System rounds 

to $3.34. 

28The proposed rule change also clarifies this in 

Rule 5.72(d)(2) by adding a cross-reference to Rule 

5.85(a)(1), which states that, with respect to open 

outcry trading on the Exchange’s trading floor, bids 

and offers with the highest bid and lowest offer 

have priority. This is a nonsubstantive change that 

is currently true for open outcry FLEX Auctions, 

and the proposed rule change merely makes this 

explicit in Rule 5.72(d)(2), which cross-reference 

was previously inadvertently omitted from the 

Rules. 

29 15 U.S.C. 78f(b). 

30 15 U.S.C. 78f(b)(5). 

31 Id. 

prices’’ in Rules 5.3(e)(3) and 5.4(c)(4). 

This is consistent with current 

functionality and is merely a 

clarification in the Rules to more 

accurately reflect how the System 

currently works. For example, suppose 

a FLEX Trader submits an order to buy 

100 contracts of FLEX Option series 

ABC Mar 50.24% into a FLEX Auction. 

There are two responses, each to sell 

100, with response 1 offering to sell at 

7.01% and response 2 to sell at 7.03%. 

Response 1 is a better price for the buy 

order (i.e. is ranked higher than 

response 2), so response 1 executes 

against the buy order at the conclusion 

of the auction for a transaction price of 

7.01% of the closing value of the 

underlying on that date. Following the 

close of trading, the closing price of 

ABC on the day of that trade is $47.63. 

At that time, the System determines the 

actual exercise price in dollars to be 

$23.93 (rounded from 23.929).26 At that 

time, the System also determines the 

final transaction price in dollars to be 

$3.34 (rounded from 3.338).27

In addition, the proposed rule change 

makes a clarifying, nonsubstantive 

change to Rule 5.3(e)(3). Rule 5.3(e)(3) 

currently states that bids and offers for 

FLEX Options must be expressed in (a) 

U.S. dollars and decimals, if the 

exercise price for the FLEX Option 

series is a fixed price, or (b) a 

percentage, if the exercise price for the 

FLEX Option series is a percentage of 

the closing value of the underlying 

equity security or index on the trade 

date, per unit of the underlying security 

or index, as applicable. The System 

rounds bids and offers to the nearest 

minimum increment. The proposed rule 

change clarifies in the proposed 

parenthetical in the first paragraph of 

Rule 5.3(e)(3)(B) (as described above) 

that bids and offers would be in the 

applicable minimum increment as set 

forth in Rule 5.4. This is true today and 

merely incorporates a cross-reference to 

Rule 5.4, which describes permissible 

minimum increments for bids and 

offers. The Exchange believes the 

addition of this cross-reference will 

provide additional transparency and 

clarity to this Rule. 

The proposed rule change also 

codifies in Rules 5.72(c)(3)(A) and 

(d)(2), 5.73(e), and 5.74(e) how FLEX 

Auction response bids and offers (as 

well as Initiating Orders and 

Solicitation Orders with respect to FLEX 

AIM Auctions and FLEX SAM Auctions, 

respectively) are ranked during the 

allocation process following each type 

of FLEX Auction (i.e., electronic FLEX 

Auction, open outcry FLEX Auction, 

FLEX AIM Auction, and FLEX SAM 

Auction, respectively). FLEX Orders 

will always first be allocated to 

responses at the best price, as 

applicable.28 With respect to responses 

to all types of FLEX Auctions for a FLEX 

Option series with an exercise price 

expressed as a dollar and decimal, the 

‘‘prices’’ at which FLEX Traders 

submitting responses are competing are 

the dollar and decimal amounts of the 

response bids and offers entered as fixed 

amounts (as is the case with all nonFLEX Options), and the proposed rule 

change codifies this in the Rules. With 

respect to responses to all types of FLEX 

Auctions for a FLEX Option series with 

an exercise price expressed as a 

percentage, the ‘‘prices’’ at which FLEX 

Traders submitting responses are 

competing are the percentage values of 

the response bids and offers entered as 

percentages (which ultimately become a 

dollar value after the closing value for 

the underlying security or index, as 

applicable, is available), and the 

proposed rule change codifies this in 

the Rules. These are nonsubstantive 

changes, as they reflect how ranking 

following FLEX Auctions occurs today, 

and the Exchange believes these 

changes will provide additional 

transparency in the Rules. 

Finally, in Rule 4.22(b), the proposed 

rule change modernizes (and moves to 

make clear it will apply to the entire 

paragraph (b) (as proposed to be 

amended) the provision regarding how 

FLEX Traders are notified when a FLEX 

Option series becomes restricted. 

Currently, Rule 4.22(b) states a FLEX 

Official announces to FLEX Traders 

when such a FLEX Option series is 

restricted to closing only transactions. 

This was true when FLEX Options were 

traded only in open outcry and a verbal 

announcement was made to the trading 

floor. Currently, because FLEX Options 

are available for electronic and open 

outcry trading, the Exchange notifies 

FLEX Traders when a FLEX Option 

series is restricted to closing only 

transactions. In accordance with Rule 

1.5, the Exchange currently notifies 

FLEX Traders of restricted FLEX Option 

series by electronic message. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.29 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 30 requirements that the rules of 

an exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

Additionally, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 31 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

In particular, the Exchange believes 

the proposed rule change will remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, protect investors and the public 

interest. The Exchange believes the 

proposed rule change will expand 

investor choice and flexibility by 

providing investors with the ability to 

gain exposure to the market using FLEX 

Index options with a notional value of 

1/100th of the value of current FLEX 

Index options. The Exchange believes 

there is unmet market demand from 

market participants for Micro FLEX 

Index Options. Micro FLEX Index 

Options will provide additional 

granularity with respect to the prices at 

which investors may execute and 

exercise index options on the Exchange. 

Micro FLEX Index Options will provide 


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32The Exchange notes if it desired to list a 

reduced-value index option on other indexes, or list 

an option on a micro-level index (i.e., an index with 

1/100th the value of the full-sized index), it could 

do so without Commission approval if the 

underlying index satisfied the generic listing 

criteria in Rule 4.12. 

33See Securities and Exchange Act Release No. 

91528 (April 9, 2021), 86 FR 19933 (April 15, 2021) 

(SR–CBOE–2020–117) (Commission approval of 

micro-options). 

34These proposed changes correspond to similar 

provisions for mini-options and micro-options, 

which also have a smaller multiplier than standardsized options. 

35See, e.g., Rules 4.5, Interpretation and Policy 

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

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

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

size of FLEX Agency Order for mini-options and 

micro-options). Just as terms for micro-options, 

which have a multiplier of 1/100th the size of 

standard options, equal 1/100th of the same terms 

for standard options, the proposed terms for Micro 

FLEX Index Options, which have a multiplier 1/ 

100th the size of FLEX Index Options with a 

multiplier of 100, equal 1/100th of the same terms 

as FLEX Index Options with a multiplier of 100. 

investors with an exchange-traded tool 

to manage more precisely based on 

notional value the positions and 

associated risk in their portfolios, which 

currently may equal a fraction of a 

standard contract. Because Micro FLEX 

Index Options and standard FLEX Index 

Options (as well as non-FLEX index 

options) will overlie the same indexes, 

market participants may use them as 

hedging vehicles to meet their 

investment needs in connection with 

index-related products and cash 

positions in a similar manner as they 

currently do with standard FLEX Index 

Options, but as a more manageably 

sized contract. The smaller-sized 

contract will provide all market 

participants with more precision with 

respect to hedging their portfolios more 

effectively with far greater precision. 

Given the various trading and hedging 

strategies employed by investors, this 

additional granularity may provide 

investors with more control over the 

trading of their investment strategies 

and management of their positions and 

risk associated with option positions in 

their portfolios. 

Additionally, Micro FLEX Index 

Options will provide investors with the 

ability to execute and exercise options 

with a smaller index multiplier in a 

listed market environment as opposed 

to in the unregulated OTC options 

market. The proposed rule change may 

shift liquidity from the OTC market onto 

the Exchange, which the Exchange 

believes would increase market 

transparency as well as enhance the 

process of price discovery conducted on 

the Exchange through increased order 

flow to the benefit of all investors. By 

permitting index options to trade with 

the same multiplier currently available 

to customized options in the OTC 

market, the Exchange believes the 

proposed rule change will also promote 

competition and remove impediments 

to and perfects the mechanism of a free 

and open market and a national market 

system by further improving a 

comparable alternative to the OTC 

market in customized options. By 

enhancing our Exchange products to 

provide additional terms available in 

the OTC market but not currently 

available in the listed options market, 

the Exchange believes it may be a more 

attractive alternative to the OTC market. 

The Exchange believes market 

participants benefit from being able to 

trade customized options in an 

exchange environment in several ways, 

including but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out positions; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of the 

OCC as issuer and guarantor of all listed 

options. 

The listing of Micro FLEX Index 

Options has the same practical effect as 

the listing of FLEX Index Options on 

reduced-value indexes, which the 

Exchange (and other options exchanges) 

currently has the authority to do with 

respect to several indexes (in 

accordance with previously 

Commission-approved rules). For 

example, the Exchange may list FLEX 

Options on both the S&P 500 Index 

(SPX options) and the Mini-S&P 500 

Index (XSP options), which is 1/10th 

the value of the S&P 500 Index.32 This 

is economically equivalent to if the 

Exchange listed an S&P 500 Index 

option with an index multiplier of 100 

and with an index multiplier of 10, 

respectively. The Commission approved 

the Exchange’s authority to list nonFLEX Options on broad-based indexes 

with a value of at least 100 with an 

index multiplier of 1, and the proposed 

rule change extends that authority to list 

FLEX Options on the same indexes.33

As described above, the proposal 

contains a number of features designed 

to protect investors by reducing investor 

confusion. For example, Micro FLEX 

Index Options will be designated by 

different trading symbols from standard 

FLEX Index Options. Additionally, the 

proposed rule change describes in the 

Rules the differences regarding the 

meanings of bids and offers, exercise 

prices (and thus deliverables), and 

minimum sizes of index options 

contracts with a multiplier of one and 

a multiplier of 100, all of which are 

adjusted proportionately to reflect the 

difference in multiplier, and thus the 

difference in the deliverable value of the 

underlying.34 The Exchange believes the 

transparency and clarity the proposed 

rule change adds to the Rules regarding 

the distinctions between index options 

due to the different multipliers will 

benefit investors. These proposed 

changes are not novel, as they 

correspond to similar rule provisions 

regarding other reduced-value 

options.35

Other than these differences, Micro 

FLEX Index Options will trade in the 

same manner as all other FLEX Index 

Options. Because Micro FLEX Index 

Options and standard FLEX Index 

Options (and non-FLEX options) overlie 

the same indexes, market participants 

may use Micro FLEX Index Options as 

hedging vehicles to meet their 

investment needs in connection with 

index-related products and cash 

positions in a similar manner as they do 

with standard index options, but as a 

more manageably sized contract. The 

smaller-sized contract may provide 

market participants with more precision 

with respect to hedging their portfolios. 

Therefore, the Exchange believes it is 

reasonable and appropriate to permit 

FLEX Traders to trade Micro FLEX 

Index Options in the same manner as all 

other FLEX Options. 

The Exchange believes the proposed 

rule change regarding the treatment of 

Micro FLEX Index Options with respect 

to determining compliance with 

position and exercise limits is designed 

to prevent fraudulent and manipulative 

acts and practices and promote just and 

equitable principles of trade. Micro 

FLEX Index Options will be counted for 

purposes of those limits in a 

proportional manner to FLEX Index 

Options (including reduced-value 

indexes) with a multiplier of 100 and 

aggregated with FLEX Index Options 

overlying the same index (including 

reduced-value indexes) and non-FLEX 

Options in the same manner as index 

options currently are. This is equivalent 

to current limits imposed on reducedvalue options and micro-options. As 

noted above, while the multipliers of 

reduced-value indexes are $100, a 

reduced-value index option has an 

economically equivalent effect to an 

index option with a smaller multiplier. 

An index option with a multiplier of 

one corresponds to an option overlying 

a reduced-valued index that is 1/100th 

the value of the full-value index. It just 

uses a different multiplier rather than a 

different value of the underlying 


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36This is also similar to position limits for other 

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

Rule 8.30, Interpretation and Policy .08 (describing 

position limits for mini-options). 

37For example, if an insurance company has a 

$40,000,000,000 portfolio, 1% of that portfolio 

equates to $400,000,000. 

38The Exchange notes the total unhedged risk 

across the insurance industry would be multiplied 

if each insurance company were unable to hedge 

the full notional value of its portfolio. 

39The index multiplier is 100. 

index.36 The Exchange believes its 

surveillances continue to be designed to 

deter and detect violations of Exchange 

Rules, including position and exercise 

limits and possible manipulative 

behavior, and those surveillance will 

apply to index options with a multiplier 

of one that the Exchange determines to 

list for trading. Ultimately, the Exchange 

does not believe that this proposed rule 

change raises any unique regulatory 

concerns because existing safeguards— 

such as position and exercise limits 

(and the aggregation of options 

overlying the same index (including 

reduced-value indexes)) and reporting 

requirements—would continue to apply. 

The Exchange represents that it has 

the necessary systems capacity to 

support the new option series given 

these proposed specifications. The 

Exchange believes that its existing 

surveillance and reporting safeguards 

are designed to deter and detect possible 

manipulative behavior which might 

arise from listing and trading Micro 

FLEX Index Options. The Exchange 

further notes that current Exchange 

Rules that apply to the trading of other 

FLEX Index Options traded on the 

Exchange will also apply to the trading 

of Micro FLEX Index Options, such as 

Exchange Rules governing customer 

accounts, margin requirements and 

trading halt procedures. The Exchange 

understands that market participants 

may currently, and currently do, 

execute orders in options like the ones 

being proposed in the unregulated OTC 

options market, where neither the 

Exchange nor the Commission has 

oversight over market participants that 

may be purposely trading at prices 

through the listed market. The proposed 

rule change may encourage these orders 

to be submitted to the Exchange, which 

could bring these orders into a regulated 

market and be subject to surveillance 

and oversight to which they are 

currently not subject with respect to 

execution of these option orders. 

The Exchange believes the proposed 

rule change will protect investors by 

preventing a Micro FLEX Index Option 

series to be listed with the same terms 

as a non-FLEX Index Option. Therefore, 

Micro FLEX Index Options will be 

permissible with the same terms as 

FLEX Index Options with a multiplier of 

100 are currently available for trading. 

The Exchange believes this restriction 

eliminates any possible price protection 

concerns that permitting a FLEX Option 

with the same terms a but a different 

index multiplier than a non-FLEX 

Option on the same underlying index 

may allow FLEX options with a 

multiplier of one to gain priority over 

customer orders on the book for similar 

non-FLEX index options overlying the 

same index and to bypass or trade 

through the NBBO in non-FLEX options, 

potentially leading to market 

fragmentation. 

The Exchange believes the proposed 

rule change will move volume currently 

being executed in the OTC market to the 

Exchange. As discussed above, the 

precision the proposed rule change will 

add to the Exchange is currently 

available in the OTC market, and the 

Exchange understands this precision is 

necessary for certain market 

participants’ investment strategies. The 

Exchange has heard from numerous 

institutional investors—insurance 

companies, in particular—who use 

index options to hedge their portfolio 

risk. These investors have indicated 

they execute a significant portion of 

their hedging transactions in the OTC 

market because the Exchange does not 

offer a product that provides them with 

the level of precision they need for their 

hedging activity. However, they have 

expressed their preference to transact on 

the Exchange to eliminate the 

counterparty risk they must incur by 

trading in the OTC market. The 

Exchange understands that it is a critical 

and regular part of an insurance 

company’s business to hedge their risk, 

which many do with index options. 

When insurance companies issue 

policies to their customers, those 

companies accumulate liabilities for the 

payouts they may need to make to their 

customers pursuant to those policies. 

Insurance companies regularly hedge 

the notional amount of these liabilities 

to protect against downturns in the 

market. Because they are looking to 

protect against broad market downturns, 

broad-based index options are a tool 

insurance companies often use for this 

protection. One insurance company 

informed the Exchange that it has 

hedged approximately 25% of the 

notional value of its $40 billion 

portfolio with index options executed in 

the OTC market, and the Exchange 

understands several other companies 

have similarly used index options to 

hedge significant portions of their 

portfolios. Given the size of insurance 

companies’ portfolios, which can be in 

the tens of billions of dollars, that 

translates to index options with an 

aggregate notional value of billions of 

dollars being transacted annually in the 

nontransparent, unregulated, and riskier 

OTC market (where there is 

counterparty risk and no price 

protection exists for these customers). 

For a customer to achieve a precise 

hedge for a specific notional value 

amount using currently available 

products on the Exchange, the Exchange 

understands a customer would need to 

make at least four separate trades 

(which multiple trades introduce 

additional costs, inefficiencies, and 

execution risk) to achieve a result close 

to identical to the result it could achieve 

with a single trade in the OTC market. 

The inability of insurance companies to 

precisely hedge the notional value of 

their portfolios ultimately harms their 

customers. If an insurance company, for 

example, ‘‘underhedges’’ the notional 

value of its portfolio (which, again, is 

generally at least tens of billions of 

dollars), even 1% of such ‘‘slippage’’ 

would leave hundreds of millions of 

dollars of that portfolio unhedged,37

which creates significant risk for that 

company.38 Alternatively, if an 

insurance company ‘‘overhedges’’ the 

notional value of its portfolio, that 

would unnecessarily tie up some of its 

financial reasons, as the difference in 

value of the options and the value of the 

portfolio is serving no purpose. Either 

case will likely result in higher 

premiums or reduced benefits for 

customers. As a result, because these 

companies are unable to achieve a more 

precise hedge on the Exchange, they 

turn to the OTC market where the 

precision they need to implement their 

hedging strategies more efficiently is 

available and not unnecessarily harm 

their customers. 

For example, if an insurance company 

sells to a customer a $247,589,000 

annuity policy, the insurance company 

may seek to obtain positions in broadbased index options with an equivalent 

notional value. On the Exchange, if the 

company used SPX options, it would 

need 651 SPX contracts if the index 

level of the S&P 500 Index was 3801.19 

(247,589,000/3801.19/100 39 = 651.34). 

However, 651 SPX contracts would 

equate to $247,457,469, leaving that one 

policy underhedged by $131,531. The 

company could also trade 6514 XSP 

options, which would equate to 

$247,609,517, which would overhedge 

the policy by $20,517 and unnecessarily 

use that amount of funds for hedging its 

portfolio rather than, for example, pay 


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40As this relates to only a single policy in the 

insurance company’s portfolio, the harm that may 

be caused by the lack of precision only increases 

for each policy for which the company is unable to 

precisely hedge. 

41See Securities Exchange Act Release No. 31920 

(February 24, 1993), 58 FR 12280 (March 3, 1993) 

(SR–CBOE–92–17) (‘‘Initial Cboe FLEX Approval’’). 

42See 1993 FLEX Approval Order. 

43See Rule 4.20. 

44Similar to previous changes in the past, the 

Commission has the authority to designate FLEX 

Options with an index multiplier of one to be 

standardized options pursuant to Rule 9b–1 under 

the Exchange Act if it believes such designation is 

appropriate. 

45See H.R. Rep. No. 94–229, at 92 (1975) (Conf. 

Rep.). 

46See S. Rep. No. 94–75, 94th Cong., 1st Sess. 8 

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

amendments to the Exchange Act] would be to 

enhance competition and to allow economic forces, 

interacting within a fair regulatory field, to arrive 

at appropriate variations in practices and 

services.’’); Order Approving Proposed Rule Change 

Relating to NYSE Arca Data, Securities Exchange 

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

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

its legislative history strongly support the 

Commission’s reliance on competition, whenever 

possible, in meeting its regulatory responsibilities 

for overseeing the [self-regulatory organizations] 

and the national market system. Indeed, 

competition among multiple markets and market 

participants trading the same products is the 

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

Regulation NMS, 70 FR at 37499 (observing that 

NMS regulation ‘‘has been remarkably successful in 

promoting market competition in [the] forms that 

are most important to investors and listed 

companies’’). 

out insurance benefits to customers.40

With a one multiplier, the company 

could instead trade 65135 FLEX SPX 

Option contracts with a multiplier of 

one (as the company may do today in 

the OTC market), which would equate 

to $247,590,511, which is far closer to 

the value of the policy and thus is the 

most efficient use of the insurance 

company’s hedging resources. 

This example demonstrates the value 

one insurance company could receive 

from the availability of FLEX Index 

Options with a multiplier of one for a 

hedge related to a single policy. The 

aggregate value to the insurance 

industry, and their customers, created 

by the availability of FLEX Index 

Options with a multiplier of one would 

be extensive if multiple insurance 

companies used these options to hedge 

their portfolios, as the Exchange expects 

them to do. As a result, a substantial 

number of index options transactions 

that currently occur with no 

transparency and counterparty risk 

would have the opportunity to receive 

the benefits of occurring on a national 

securities exchange. The availability of 

this product on the Exchange would 

provide these companies with a more 

transparent, lower risk option that 

would allow them to use their resources 

more efficiently and pass on those 

savings to their customers. 

The Exchange’s surveillance program 

will incorporate Micro FLEX Index 

Options. Broker-dealers are also subject 

to due diligence and best execution 

obligations, which obligations may 

require broker-dealers to consider the 

prices of economically equivalent 

options when executing customer 

orders. Market participants may 

currently, and the Exchange 

understands they currently do, execute 

orders like the ones being proposed in 

the unregulated OTC market, where 

neither the Exchange nor the 

Commission has oversight over market 

participants that may be purposely 

trading at prices through the listed 

market. 

The Commission initially approved 

the listing and trading of FLEX Options 

on only two indexes—the S&P 100 and 

S&P 500.41 As noted above, the 

Commission issued a separate order 

designating FLEX Options as 

standardized options under Rule 9b–1 

of the Exchange Act, which order 

specifically referenced FLEX Options on 

those two indexes.42 While the initial 

scope of FLEX Options was limited, the 

use of FLEX Options has significantly 

expanded since 1993. The Exchange 

may now list FLEX Options on any 

equity or index for which it is 

authorized to trade non-FLEX 

Options.43 The expansion of the use of 

FLEX Options is consistent with the 

initial purpose for which the Exchange 

initially proposed to adopt FLEX 

Options, which was to permit trading in 

options that were otherwise permissible 

in the OTC market to provide investors 

with the benefits of trading options on 

a listed market versus the OTC market. 

Since 1993, the Commission, through 

designated authority, has approved 

numerous proposed rule changes to 

expand the applicability of FLEX 

Options and designated those FLEX 

Options as standardized options under 

Rule 9b-1 of the Exchange Act, 

including FLEX Options with terms 

different than those initially approved 

by the Commission in 1993.44 The 

proposed rule change similarly seeks to 

expand the availability of FLEX Options 

in a manner consistent with the initial 

purpose for which the Exchange 

initially adopted, and has since then 

expanded the applicability of, FLEX 

Options. Options with an index 

multiplier of one are currently 

permissible in the OTC market but not 

in the listed market. The proposed rule 

change seeks to meet the demands of 

investors that currently may only obtain 

more precise hedging as described 

above through the OTC markets. The 

Exchange believes it benefits the 

investing public to continue to enhance 

product offerings to evolve to constantly 

changing needs of investors, even if 

certain products were initially 

introduced in a more limited manner. 

A robust and competitive market 

requires that exchanges respond to 

investors’ evolving needs by constantly 

improving their offerings. When 

Congress charged the Commission with 

supervising the development of a 

‘‘national market system’’ for securities, 

Congress stated its intent that the 

‘‘national market system evolve through 

the interplay of competitive forces as 

unnecessary regulatory restrictions are 

removed.45 Consistent with this 

purpose, Congress and the Commission 

have repeatedly stated their preference 

for competition, rather than regulatory 

intervention to determine products and 

services in the securities markets.46 This 

consistent and considered judgment of 

Congress and the Commission is correct, 

particularly in light of evidence of 

robust competition in the options 

trading industry. The fact that an 

exchange proposed something new is a 

reason to be receptive, not 

skepticalinnovation is the life-blood of a 

vibrant competitive marketand that is 

particularly so given the continued 

internalization of the securities markets, 

as exchanges continue to implement 

new products and services to compete 

not only in the United States but 

throughout the world. Options 

exchanges continuously adopt new and 

different products and trading services 

in response to industry demands in 

order to attract order flow and liquidity 

to increase their trading volume. This 

competition has led to a growth in 

investment choices, which ultimately 

benefits the marketplace and the public. 

The Exchange believes that the 

proposed rule change will help further 

competition by providing market 

participants with yet another 

investment option for the listed options 

market. 

The Exchange believes the proposed 

nonsubstantive, codifying, and 

clarifying changes described above 

increase the transparency of the Rules 

and ultimately benefit investors. With 

respect to the codification of how FLEX 

orders and auction responses will be 

ranked, the Exchange believes ranking 

percentage-priced premiums at the time 

of the auction rather than after the close 

of trading (when the dollar amount of 

the price is determined) will promote 

just and equitable principles of trade 

because it is consistent with the ranking 

of dollar-priced premiums. This also 


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provides FLEX Traders with real-time 

executions as opposed to waiting until 

the close of trading to know if it 

received an execution and, if so, for how 

many contracts. FLEX Traders are 

competing in auctions based on the 

percentage amount of their bids and 

offers (in the same manner they do with 

dollar bids and offers) and thus should 

be ranked based on that amount, as they 

do not know at the time of submitting 

those bids and offers to what final price 

they will be rounded. Like bids and 

offers in dollar amounts, the Exchange 

believes a FLEX Trader willing to pay 

more (or receive less) at the time of a 

FLEX Auction should receive priority. 

As long as it is possible that different 

percentage bids and offers could differ 

after the close of trading, the Exchange 

believes a more aggressive auction 

response bares the risk that the adjusted 

price may also be more aggressive, and 

the responder should be rewarded for 

taking on that risk by receiving a higher 

ranking. The Exchange believes 

consistency in ranking of bids and offers 

submitted in all FLEX Auctions (and 

non-FLEX Auctions) will benefit 

investors, and providing FLEX Traders 

that submit more aggressive responses 

with priority will encourage FLEX 

Traders to submit competitive 

responses, which ultimately benefits 

investors as well. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange does not believe that the 

proposed rule change will impose any 

burden on intramarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act 

as any Micro FLEX Index Options the 

Exchange lists for trading will be 

available for all market participants in 

the same manner who wish to trade 

such options. The Exchange may list 

Micro FLEX Index Options for trading 

on all broad-based indexes with a value 

of at least 100 currently authorized to be 

listed on the Exchange, subject to the 

same listing criteria (the Exchange is 

currently authorized to list microoptions on the same indexes). These 

options will trade in the same manner 

as FLEX Index Options with a 

multiplier of 100, with certain terms 

proportionately adjusted to reflect the 

different contract multipliers. 

The Exchange does not believe the 

proposed rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act 

because Micro FLEX Index Options may 

only be listed for trading on the 

Exchange. To the extent that the 

availability of these products makes the 

Exchange a more attractive marketplace 

to market participants at other 

exchanges, market participants are free 

to elect to become market participants 

on the Exchange. As noted above, other 

derivative products related to these 

indexes are listed for trading on other 

exchanges. Additionally, the Exchange 

notes that listing and trading Micro 

FLEX Index Options on the Exchange 

will subject such options to transparent 

exchange-based rules as well as price 

discovery and liquidity, as opposed to 

alternatively trading these products in 

the OTC market. 

The Exchange believes that the 

proposed rule change may relieve any 

burden on, or otherwise promote, 

competition. The proposal is designed 

to increase competition for order flow 

on the Exchange in a manner that is 

beneficial to investors by providing 

them with a lower-cost option to hedge 

their investment portfolios. The 

Exchange notes that it operates in a 

highly competitive market in which 

market participants can readily direct 

order flow to competing venues who 

offer similar products. The Exchange 

believes this is an enhancement to a 

comparable alternative to the OTC 

market in customized options. By 

enhancing our FLEX trading platform to 

provide additional contract granularity 

that available in the OTC market but not 

currently available in the listed options 

market, the Exchange believes it may be 

a more attractive alternative to the OTC 

market. The Exchange believes market 

participants will benefit from being able 

to trade customized options in an 

exchange environment in several ways, 

including but not limited to the 

following: (1) Enhanced efficiency in 

initiating and closing out position; (2) 

increased market transparency; and (3) 

heightened contra-party 

creditworthiness due to the role of OCC 

as issuer and guarantor of all listed 

options. 

The proposed nonsubstantive, 

clarifying, and codifying changes will 

have no impact on competition, as they 

merely clarify or codify information in 

the Rules and make no changes to how 

FLEX Options trade. With respect to the 

codification of how FLEX orders and 

auction responses will be ranked, the 

Exchange believes the proposed rule 

change will not impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act, because it will rank 

FLEX orders and auction responses in 

the same manner regardless of the form 

of the exercise price of a series. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: 

A. By order approve or disapprove 

such proposed rule change, or 

B. institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CBOE–2021–041 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–CBOE–2021–041. 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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 


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47 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Cboe Global Markets, U.S. Equities Market 

Volume Summary, Month-to-Date (July 26, 2021), 

available at https://markets.cboe.com/us/equities/ 

market_statistics/. 

4Fee code ‘BB’ is appended to orders that remove 

liquidity from EDGX (Tape B) and is assessed a fee 

of $0.00285 per share. 

5Fee code ‘N’ is appended to orders that remove 

liquidity from EDGX (Tape C) and is assessed a fee 

of $0.00285 per share. 

6Fee code ‘W’ is appended to orders that remove 

liquidity from EDGX (Tape A) and is assessed a fee 

of $0.00285 per share. 

7ADAV means average daily added volume 

calculated as the number of shares added per day. 

ADAV is calculated on a monthly basis. 

8TCV means total consolidated volume 

calculated as the volume reported by all exchanges 

and trade reporting facilities to a consolidated 

transaction reporting plan for the month for which 

the fees apply. 

9Fee code ‘B’ is appended to orders that add 

liquidity to EDGX (Tape B) and is provided a rebate 

of $0.0016 per share. 

10Fee code ‘V’ is appended to orders that add 

liquidity to EDGX (Tape A) and is provided a rebate 

of $0.0016 per share. 

11Fee code ‘Y’ is appended to orders that add 

liquidity to EDGX (Tape C) and is provided a rebate 

of $0.0016 per share. 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2021–041, and 

should be submitted on or before 

September 2, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.47

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–17175 Filed 8–11–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92593; File No. SR– 

CboeEDGX–2021–036] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Its 

Fee Schedule 

August 6, 2021. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that, on August 

2, 2021, Cboe EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the Exchange. The 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 EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’ or ‘‘EDGX 

Equities’’) proposes to amend its Fee 

Schedule. 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://markets.cboe.com/us/ 

options/regulation/rule_filings/edgx/) 

[sic], at the Exchange’s Office of the 

Secretary, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Fee Schedule applicable to its equities 

trading platform (‘‘EDGX Equities’’) to 

modify the fee associated with Remove 

Volume Tier 2. 

The Exchange first notes that it 

operates in a highly competitive market 

in which market participants can 

readily direct order flow to competing 

venues if they deem fee levels at a 

particular venue to be excessive or 

incentives to be insufficient. More 

specifically, the Exchange is only one of 

16 registered equities exchanges, as well 

as a number of alternative trading 

systems and other off-exchange venues 

that do not have similar self-regulatory 

responsibilities under the Exchange Act, 

to which market participants may direct 

their order flow. Based on publicly 

available information,3 no single 

registered equities exchange has more 

than 17% of the market share. Thus, in 

such a low-concentrated and highly 

competitive market, no single equities 

exchange possesses significant pricing 

power in the execution of order flow. 

The Exchange in particular operates a 

‘‘Maker-Taker’’ model whereby it pays 

rebates to members that add liquidity 

and assesses fees to those that remove 

liquidity. The Exchange’s Fee Schedule 

sets forth the standard rebates and rates 

applied per share for orders that provide 

and remove liquidity, respectively. 

Currently, for orders in securities priced 

at or above $1.00, the Exchange 

provides a standard rebate of $0.00160 

per share for orders that add liquidity 

and assesses a fee of $0.00285 per share 

for orders that remove liquidity. For 

orders in securities priced below $1.00, 

the Exchange provides a standard rebate 

of $0.00009 per share for orders that add 

liquidity and assesses a fee of 0.30% of 

total dollar value for orders that remove 

liquidity. Additionally, in response to 

the competitive environment, the 

Exchange also offers tiered pricing 

which provides Members opportunities 

to qualify for higher rebates or reduced 

fees where certain volume criteria and 

thresholds are met. Tiered pricing 

provides an incremental incentive for 

Members to strive for higher tier levels, 

which provides increasingly higher 

benefits or discounts for satisfying 

increasingly more stringent criteria. 

Pursuant to footnote 1 of the Fee 

Schedule, the Exchange currently offers 

Remove Volume Tiers that provide 

Members an opportunity to receive a 

reduced fee from the standard fee 

assessed for liquidity removing orders 

that yield fee codes BB,4 N,5 and W.6

The Remove Volume Tiers offer two 

different tiers that vary in criteria 

difficulty and incentive opportunities 

which Members may qualify for reduced 

fees for such orders. For example, the 

Remove Volume Tier 2 currently 

provides a reduced fee of $.00270 for 

Members who have either (1) an ADAV 7

greater than or equal to 0.25% of the 

TCV 8 with displayed orders that yield 

fee codes B,9 V 10 or Y; 11 or (2) Retail 


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