Document ID: SEC-2015-2085-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.,
Posted Date: 2015-12-17T05:00Z

[Federal Register Volume 80, Number 242 (Thursday, December 17, 2015)]
[Notices]
[Pages 78794-78797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31685]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76626; File No. SR-CBOE-2015-100]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Options That Overlie a 
Reduced Value of the FTSE 100 Index

December 11, 2015.

I. Introduction

    On October 30, 2015, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade options that 
overlie a reduced value of the FTSE 100 Index. The proposed rule change 
was published for comment in the Federal Register on November 10, 
2015.\3\ On December 10, 2015, the Exchange filed Amendment No. 1 to 
the proposed rule change.\4\ This order grants approval of

[[Page 78795]]

the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76353 (November 4, 
2015), 80 FR 69751 (``Notice'').
    \4\ Amendment No. 1 makes certain technical modifications to 
Exhibit 5 to reflect the current CBOE rulebook and to remove a 
reference to ``(1/10th)'' that was inadvertently included. It also 
revises rule text to make additional technical edits. As the changes 
made by Amendment No. 1 are technical in nature and do not 
materially alter the substance of the proposed rule change or raise 
any novel regulatory issues, Amendment No. 1 is not subject to 
notice and comment.
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade A.M. cash-settled, 
European-style options on the FTSE 100 Index.\5\ According to the 
Exchange, the FTSE 100 Index is a free float-adjusted market 
capitalization index that is designed to measure the performance of the 
100 largest companies traded on the London Stock Exchange and valued in 
the British pound (``GBP'').\6\ The Exchange states that the index is 
monitored and maintained by FTSE International Limited (``FTSE'').\7\ 
Adjustments to the index could be made on a daily basis with respect to 
corporate events and dividends, and FTSE reviews the index quarterly.
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    \5\ The Exchange proposes to list up to twelve near-term 
expiration months at any one time for the FTSE 100 Index options. 
The Exchange also proposes to list up to ten expirations in Long-
Term Index Option Series (LEAPS) on the reduced value of the FTSE 
100 Index Options. The Exchange proposes that options on the FTSE 
100 Index would be eligible for all other expirations permitted for 
other broad-based indexes (e.g., End of Week/End of Month 
Expirations, Short Term Option Series, and Quarterly Options 
Series). In addition, the Exchange proposes to designate the FTSE 
100 Index as eligible for trading as FLEX options.
    \6\ The Exchange states that the FTSE 100 Index meets the 
definition of a broad-based index as set forth in Exchange Rule 
24.1(i)(1).
    \7\ The Exchange proposes to designate FTSE as the reporting 
authority for the FTSE 100 Index.
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    According to the Exchange, the FTSE 100 Index is calculated and 
published in GBP on a real-time basis during United Kingdom and United 
States trading hours.\8\ The methodology used to calculate the FTSE 100 
Index is similar to the methodology used to calculate the value of 
other benchmark market-capitalization weighted indexes.\9\ Real-time 
data is distributed at least every 15 seconds while the index is being 
calculated using FTSE's real-time calculation engine to Bloomberg L.P. 
(``Bloomberg''), Thomson Reuters (``Reuters'') and other major vendors. 
End of day data is distributed daily to clients through FTSE as well as 
through major quotation vendors, including Bloomberg and Reuters.
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    \8\ The Exchange states that from 2:00-10:30 a.m. (Chicago time) 
the real-time index is calculated using real time prices of the 
securities. At 10:30 a.m. (Chicago time) the real time index closes 
using the closing prices from the London Stock Exchange. Thus, 
between 10:30 a.m. and 3:15 p.m. (Chicago time) the FTSE 100 Index 
level is a static value that market participants can access via data 
vendors.
    \9\ Specifically, the FTSE 100 Index is governed by the Ground 
Rules for the FTSE UK Index Series. The level of the FTSE 100 Index 
reflects the free float-adjusted market value of the component 
stocks relative to a particular base date and is computed by 
dividing the total market value of the companies in the FTSE 100 
Index by the index divisor. Further detail regarding this 
methodology can be found in the Notice, supra note 3, at n.5 and 
accompanying text.
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    The Exchange proposes that trading hours for FTSE 100 Index options 
would be from 8:30 a.m. (Chicago time) to 3:15 p.m. (Chicago time).
    The Exchange proposes that FTSE 100 Index options would expire on 
the third Friday of the expiration month.\10\ The exercise settlement 
value would be one-tenth (1/10th) of the value of the FTSE 100 Index 
calculated via an intra-day auction on the London Stock Exchange that 
is held on the morning of the expiration date (generally a Friday). The 
exercise settlement amount would be equal to the difference between the 
exercise-settlement value and the exercise price of the option, 
multiplied by the contract multiplier ($100).\11\ Exercise would result 
in delivery of cash on the business day following expiration.
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    \10\ According to the Exchange, when the last trading day/
expiration date is moved because of an Exchange holiday or closure, 
the last trading day/expiration date for expiring options would be 
the immediately preceding business day.
    \11\ According to the Exchange, if the exercise settlement value 
is not available or the normal settlement procedure cannot be 
utilized due to a trading disruption or other unusual circumstance, 
the settlement value would be determined in accordance with the 
rules and bylaws of The Options Clearing Corporation.
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    The Exchange proposes to create specific initial and maintenance 
listing criteria for options on the FTSE 100 Index. Specifically, the 
Exchange proposes to add new Interpretation and Policy .02(a) to Rule 
24.2 to provide that the Exchange may trade FTSE 100 Index options if 
each of the following conditions is satisfied: (1) The index is broad-
based, as defined in Rule 24.1(i)(1); (2) options on the index are 
designated as A.M.-settled index options; (3) the index is 
capitalization-weighted, price-weighted, modified capitalization-
weighted or equal dollar-weighted; (4) the index consists of 90 or more 
component securities; (5) each of the component securities of the index 
will have a market capitalization of greater than $100 million; (6) no 
single component security accounts for more than fifteen percent (15%) 
of the weight of the index, and the five highest weighted component 
securities in the index do not, in the aggregate, account for more than 
fifty percent (50%) of the weight of the index; (7) non-U.S. component 
securities (stocks or ADRs) that are not subject to comprehensive 
surveillance agreements do not, in the aggregate, represent more than 
twenty percent (20%) of the weight of the FTSE 100 Index; (8) during 
the time options on the index are traded on the Exchange, the current 
index value is widely disseminated at least once every fifteen (15) 
seconds by one or more major market data vendors; however, the Exchange 
may continue to trade FTSE 100 options after trading in all component 
securities has closed for the day and the index level is no longer 
widely disseminated at least once every fifteen (15) seconds by one or 
more major market data vendors, provided that FTSE 100 futures 
contracts are trading and prices for those contracts may be used as a 
proxy for the current index value; (9) the Exchange reasonably believes 
it has adequate system capacity to support the trading of options on 
the index, based on a calculation of the Exchange's current Independent 
System Capacity Advisor allocation and the number of new messages per 
second expected to be generated by options on such index; and (10) the 
Exchange has written surveillance procedures in place with respect to 
surveillance of trading of options on the index.
    Additionally, the Exchange proposes to add new Interpretation and 
Policy .02(b) to Rule 24.2 to set forth the following maintenance 
listing standards for options on the FTSE 100 Index: (1) The conditions 
set forth in subparagraphs .02(a) (1), (2), (3), (4), (7), (8), (9) and 
(10) must continue to be satisfied, the conditions set forth in 
subparagraphs .02(a)(5) and (6) must be satisfied only as of the first 
day of January and July in each year; and (2) the total number of 
component securities in the index may not increase or decrease by more 
than ten percent (10%) from the number of component securities in the 
index at the time of its initial listing. In the event a class of index 
options listed on the Exchange pursuant to Interpretation and Policy 
.02(b) fails to satisfy these maintenance listing standards, the 
Exchange shall not open for trading any additional series of options of 
that class unless the continued listing of that class of index options 
has been approved by the Commission under Section 19(b)(2) of the Act.
    The contract multiplier for the FTSE 100 Index options would be 
$100. The FTSE 100 Index options would be quoted in index points and 
one point would equal $100. The Exchange proposes that the minimum tick 
size for series trading below $3 would be 0.05 ($5.00), and at or above 
$3 would be 0.10 ($10.00). The Exchange also proposes that the strike 
price interval for FTSE 100 Index options would be no less than $5, 
except that the strike price interval would be no less than $2.50 if 
the strike price is less than $200.

[[Page 78796]]

    The Exchange proposes to apply the default position limits for 
broad-based index options of 25,000 contracts on the same side of the 
market (and 15,000 contracts near-term limit) to FTSE 100 Index 
options. All position limit hedge exemptions would apply. The exercise 
limits for FTSE 100 Index options would be equivalent to the position 
limits for those options. In addition, the Exchange proposes that the 
position limits for FLEX options on the FTSE 100 Index would be equal 
to the position limits for non-FLEX options on the FTSE 100 Index. The 
exercise limits for FLEX options on the FTSE 100 Index would be 
equivalent to the position limits for those options.
    The Exchange states that, except as modified by the proposal, 
Exchange Rules in Chapters I through XIX, XXIV, XXIVA, and XXIVB would 
equally apply to FTSE 100 Index options. The Exchange also states that 
FTSE 100 Index options would be subject to the same rules that 
currently govern other CBOE index options, including sales practice 
rules, margin requirements,\12\ and trading rules.\13\
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    \12\ The Exchange states that FTSE 100 Index options would be 
margined as broad-based index options.
    \13\ See, e.g., Exchange Rule Chapters IX (Doing Business with 
the Public), XII (Margins), IV (Business Conduct), VI (Doing 
Business on the Exchange Floor), VIII (Market-Makers, Trading Crowds 
and Modified Trading Systems), and XXIV (Index Options).
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    The Exchange represents that it has an adequate surveillance 
program in place for FTSE 100 Index options and intends to use the same 
surveillance procedures currently utilized for each of the Exchange's 
other index options to monitor trading in the proposed options. The 
Exchange also states that it is a member of the Intermarket 
Surveillance Group, is an affiliate member of the International 
Organization of Securities Commissions, and has entered into various 
comprehensive surveillance agreements and/or Memoranda of Understanding 
with various stock exchanges, including the London Stock Exchange. 
Finally, the Exchange represents that it believes it and the Options 
Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the additional traffic associated with the listing 
of new series that would result from the introduction of FTSE 100 Index 
options.\14\
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    \14\ For a complete description of the Exchange's proposal, 
please see the Notice, supra note 3.
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\15\ Specifically, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act,\16\ which requires, among other things, that the 
rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, 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.
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    \15\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the listing and trading of FTSE 100 
Index options will broaden trading and hedging opportunities for 
investors by providing an options instrument based on an index designed 
to measure the performance of the 100 largest companies traded on the 
London Stock Exchange.
    Because the FTSE 100 Index is a broad-based index composed of 
actively-traded, well-capitalized stocks, the trading of options on the 
index does not raise unique regulatory concerns. The Commission 
believes that the listing standards, which are created specifically and 
exclusively for the index, are consistent with the Act, for the reasons 
discussed below.\17\
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    \17\ The Commission notes that it previously approved the 
listing and trading reduced value index options on the FTSE 100 
Index on the Exchange, International Securities Exchange, Inc. and 
NYSE Arca, Inc. See Securities Exchange Act Release Nos. 29722 
(September 23, 1991), 56 FR 49807 (October 1, 1991) (order approving 
SR-CBOE-91-07); 53484 (March 14, 2006) 71 FR 14268 (March 21, 2006) 
(order approving SR-ISE-2005-25); and 58008 (June 24, 2008) 73 FR 
36945 (June 30, 2008) (order approving SR-NYSEArca-2008-61).
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    The Commission notes that proposed Interpretation and Policy .02 to 
Exchange Rule 24.2 would require that the FTSE 100 Index consist of 90 
or more component securities. Further, for options on the FTSE 100 
Index to trade, each of the minimum of 90 component securities would 
need to have a market capitalization of greater than $100 million.
    The Commission notes that the proposed listing standards for 
options on the FTSE 100 Index would not permit any single component 
security to account for more than 15% of the weight of the index, and 
would not permit the five highest weighted component securities to 
account for more than 50% of the weight of the index in the aggregate. 
The Commission believes that, in view of the requirement on the number 
of securities in the index and on each security's market 
capitalization, this concentration standard is consistent with the Act. 
As noted above, the Exchange represents that it has an adequate 
surveillance program in place for FTSE 100 Index options and intends to 
use the same surveillance procedures currently utilized for each of the 
Exchange's other index options to monitor trading in the proposed 
options.
    The Commission notes that, consistent with the Exchange's generic 
listing standards for broad-based index options, non-U.S. component 
securities of the FTSE 100 Index that are not subject to comprehensive 
surveillance agreements will not, in the aggregate, represent more than 
20% of the weight of the index.
    The proposed listing standards require that, during the time 
options on the FTSE 100 Index are traded on the Exchange, the current 
index value is widely disseminated at least once every 15 seconds by 
one or more major market data vendors. However, the Exchange may 
continue to trade FTSE 100 Index options after trading in all component 
securities has closed for the day and the index level is no longer 
widely disseminated at least once every 15 seconds by one or more major 
market data vendors, provided that FTSE 100 futures contracts are 
trading and prices for those contracts may be used as a proxy for the 
current index value.\18\
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    \18\ The Exchange notes that, because trading in the components 
of the FTSE 100 Index starts at approximately 2:00 a.m. (Chicago 
time) and ends at approximately 10:30 a.m. (Chicago time), there 
will not be a current FTSE 100 Index level calculated and 
disseminated during a portion of the time when the FTSE 100 Index 
options would be traded (from approximately 10:30 a.m. (Chicago 
time) to 3:15 p.m. (Chicago time)). However, the Exchange states 
that the FTSE 100 Index futures contracts will be trading during 
this time period and that the futures prices would be a proxy for 
the current FTSE 100 Index level during this time period. The 
Exchange states that FTSE 100 Index futures contracts are listed for 
trading on the Chicago Mercantile Exchange Inc.
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    In addition, the proposed listing standards require the Exchange to 
reasonably believe that it has adequate system capacity to support the 
trading of options on the FTSE 100 Index. As noted above, the Exchange 
represents that it believes it and the OPRA have the necessary systems 
capacity to handle the additional traffic associated with the listing 
of new series that would result

[[Page 78797]]

from the introduction of FTSE 100 Index options.
    As a national securities exchange, the Exchange is required, under 
Section 6(b)(1) of the Act,\19\ to enforce compliance by its members, 
and persons associated with its members, with the provisions of the 
Act, Commission rules and regulations thereunder, and its own rules. As 
noted above, the Exchange states that, except as modified by the 
proposal, Exchange Rules in Chapters I through XIX, XXIV, XXIVA, and 
XXIVB would equally apply to FTSE 100 Index options. The Exchange also 
states that FTSE 100 Index options would be subject to the same rules 
that currently govern other CBOE index options, including sales 
practice rules, margin requirements, and trading rules.
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    \19\ 15 U.S.C. 78f(b)(1).
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    The Commission further believes that the Exchange's proposed 
position and exercise limits, trading hours, margin, strike price 
intervals, minimum tick size, series openings, and other aspects of the 
proposed rule change, as modified by Amendment No. 1, are appropriate 
and consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-CBOE-2015-100), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31685 Filed 12-16-15; 8:45 am]
 BILLING CODE 8011-01-P