Document ID: SEC-2022-1048-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2022-08-04T04:00Z

[Federal Register Volume 87, Number 149 (Thursday, August 4, 2022)]
[Notices]
[Pages 47803-47806]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16657]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95392; File No. SR-CBOE-2022-039]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend Rule 4.13

July 29, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 21, 2022, Cboe Exchange, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Rule 4.13. The text of the proposed rule change is provided 
below.

(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe Exchange, Inc.

* * * * *

Rule 4.13. Series of Index Options

* * * * *
    (e) Nonstandard Expirations Pilot Program.
    (1) Weekly Expirations. The Exchange may open for trading Weekly 
Expirations on any broad-based index eligible for standard options 
trading to expire on any Monday, Wednesday, or Friday (other than 
the third Friday-of-the-month or days that coincide with an EOM 
expiration). In addition, the Exchange may also open for trading 
Weekly Expirations on S&P 500 Index and Mini-S&P 500 Index options 
to expire on any Tuesday or Thursday (other than days that coincide 
with an EOM expiration). Weekly Expirations shall be subject to all 
provisions of this Rule and treated the same as options on the same 
underlying index that expire on the third Friday of the expiration 
month; provided, however, that Weekly Expirations shall be P.M.-
settled and new series in Weekly Expirations may be added up to and 
including on the expiration date for an expiring Weekly Expiration.
    The maximum number of expirations that may be listed for each 
Weekly Expiration (i.e., a Monday expiration, Tuesday expiration, 
Wednesday expiration, Thursday expiration, or Friday expiration, as 
applicable) in a given class is the same as the maximum number of 
expirations permitted in Rule 4.13(a)(2) for standard options on the 
same broad-based index. Weekly Expirations need not be for 
consecutive Monday, Tuesday, Wednesday, Thursday, or Friday 
expirations as applicable; however, the expiration date of a non-
consecutive expiration may not be beyond what would be considered 
the last expiration date if the maximum number of expirations were 
listed consecutively. Weekly Expirations that are first listed in a 
given class may expire up to four weeks from the actual listing 
date. If the Exchange lists EOMs and Weekly Expirations as 
applicable in a given class, the Exchange will list an EOM instead 
of a Weekly Expiration that expires on the same day in the given 
class. Other expirations in the same class are not counted as part 
of the maximum number of Weekly Expirations for an applicable broad-
based index class. If the Exchange is not open for business on a 
respective Monday, the normally Monday expiring Weekly Expirations 
will expire on the following business day. If the Exchange is not 
open for business on a respective Tuesday, Wednesday, Thursday, or 
Friday, the normally Tuesday, Wednesday, Thursday, or Friday 
expiring Weekly Expirations will expire on the previous business 
day. If two different Weekly Expirations on S&P 500 Index or Mini-
S&P 500 Index options would expire on the same day because the 
Exchange is not open for business on a certain weekday, the Exchange 
will list only one of such Weekly Expirations.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

[[Page 47804]]

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 Rule 4.13(e), which governs its 
Nonstandard Expirations Pilot Program (``Pilot Program''), to permit 
P.M.-settled options on the Mini-S&P 500 Index (``XSP options'') that 
expire on Tuesday or Thursday. Under the existing Pilot Program, the 
Exchange is permitted to list P.M.-settled options on broad-based 
indexes that expire on: (1) any Monday, Wednesday, or Friday and, with 
respect to options on the S&P 500 Index (``SPX options'') any Tuesday 
or Thursday (``Weekly Expirations'' or ``EOWs'') and (2) the last 
trading day of the month (``End of Month Expirations'' or ``EOMs'').\3\ 
The proposed XSP options that expire on Tuesday or Thursday would be 
listed under the Pilot Program, which is currently set to expire on 
November 7, 2022. The Exchange notes that permitting XSP options with 
Tuesday and Thursday expirations, as proposed, would be in addition to 
the XSP options with Monday, Wednesday and Friday expirations that the 
Exchange may (and does) already list, as they are permissible Weekly 
Expirations for options on a broad-based index (e.g., the Mini-S&P 500 
Index) pursuant to Rule 4.13(e)(1).
---------------------------------------------------------------------------

    \3\ See Rule 4.13(e).
---------------------------------------------------------------------------

    The Pilot Program for Weekly Expirations will apply to XSP options 
with Tuesday and Thursday expirations in the same manner as it 
currently applies to all other P.M.-settled broad-based index options 
with Monday, Wednesday, and Friday expirations and to SPX options with 
Tuesday and Thursday expirations. Specifically, as set forth in Rule 
4.13(e), Weekly Expirations, including the proposed XSP options with 
Tuesday and Thursday expirations, are subject to all provisions of Rule 
4.13 and treated the same as options on the same underlying index that 
expire on the third Friday of the expiration month; provided, however, 
that Weekly Expirations are P.M.-settled, and new series in Weekly 
Expirations may be added up to and including on the expiration date for 
an expiring Weekly Expiration. The maximum number of expirations that 
may be listed for each Weekly Expiration (i.e., a Monday expiration, 
Tuesday expiration, Wednesday expiration, Thursday expiration, or 
Friday expiration, as applicable) in a given class (including XSP) is 
the same as the maximum number of expirations permitted in Rule 
4.13(a)(2) for standard options on the same broad-based index (which is 
12 for XSP options). Weekly Expirations need not be for consecutive 
Monday, Tuesday, Wednesday, Thursday, or Friday expirations as 
applicable; however, the expiration date of a nonconsecutive expiration 
may not be beyond what would be considered the last expiration date if 
the maximum number of expirations were listed consecutively. Weekly 
Expirations that are first listed in a given class may expire up to 
four weeks from the actual listing date. If the Exchange lists EOMs and 
Weekly Expirations as applicable in a given class, the Exchange will 
list an EOM instead of a Weekly Expiration that expires on the same day 
in the given class. Other expirations in the same class are not counted 
as part of the maximum number of Weekly Expirations for an applicable 
broad-based index class. If the Exchange is not open for business on a 
respective Monday, the normally Monday expiring Weekly Expirations will 
expire on the following business day. If the Exchange is not open for 
business on a respective Tuesday, Wednesday, Thursday, or Friday, the 
normally Tuesday, Wednesday, Thursday, or Friday expiring Weekly 
Expirations will expire on the previous business day.
    The proposed rule change also adds that if two different Weekly 
Expirations on Mini-S&P 500 Index options (as is the case of S&P 500 
Index options) would expire on the same day because the Exchange is not 
open for business on a certain weekday, the Exchange will list only one 
of such Weekly Expirations. The Exchange believes it is appropriate to 
clarify in the rule text that the Exchange will list just one Weekly 
Expiration in such a case, as the two Weekly Expirations would 
essentially be the same options contract. For example, if the Exchange 
listed XSP options with proposed Thursday expirations and Friday 
expirations and the Exchange was closed for business on a Friday then, 
pursuant to current Rule 4.13(e)(1), the normally expiring Friday 
expiration would expire on the previous business day--essentially 
making it an XSP option with a Thursday expiration. Thus, expiring XSP 
options in this case will always have the same weekday expiration (per 
the example, it is an XSP option with a Thursday expiration, whether it 
was listed as an XSP with a Thursday expiration or a Friday 
expiration). As such, for the sake of clarity in the rules and to 
mitigate any confusion regarding the listing of Weekly XSP options when 
the Exchange is closed for business, the proposed rule change provides 
that the Exchange will list just one Weekly Expiration if two Weekly 
Expirations would expire on the same day due to the Exchange being 
closed for business. In addition, like all Weekly Expirations listed 
pursuant to Rule 4.13(e)(4), transactions in expiring XSP options with 
Tuesday and Thursday expirations may be effected on the Exchange 
between the hours of 9:30 a.m. and 4:00 p.m. on their last trading day 
(Eastern Time).
    The Exchange believes that that the introduction of XSP options 
with Tuesday and Thursday expirations will expand hedging tools 
available to market participants while also providing greater trading 
opportunities. By offering XSP options with Tuesday and Thursday 
expirations along with the current Monday, Wednesday and Friday 
expirations, the proposed rule change will allow market participants to 
purchase XSP options in a manner more aligned with specific timing 
needs and more effectively tailor their investment and hedging 
strategies and manage their portfolios. In particular, the proposed 
rule change will allow market participants to roll their positions on 
more trading days, thus with more precision, spread risk across more 
trading days and incorporate daily changes in the markets, which may 
reduce the premium cost of buying protection.
    The Exchange proposes to abide by the same reporting requirements 
for the trading of XSP options that expire on any Tuesday or Thursday 
that it does for the trading of P.M.-settled options on broad-based 
indexes that expire on any Monday, Wednesday, or Friday and for SPX 
options that expire on Tuesday or Thursday pursuant to the Pilot 
Program. The Exchange proposes to include data regarding XSP options 
that expire on Tuesdays or Thursdays as it does for all other Weekly 
Expirations in the Pilot Program annual report that it submits to the 
Securities and Exchange Commission (``Commission'') at least

[[Page 47805]]

two months prior to the expiration date of the Pilot Program.\4\ The 
Exchange is required to submit an annual report at least yearly. The 
annual report to the Commission addresses the following areas: Analysis 
of Volume & Open Interest, Monthly Analysis of Weekly Expirations & EOM 
Trading Patterns and Provisional Analysis of Index Price Volatility. 
Going forward, the Exchange will include the same areas of analysis for 
XSP options with Tuesday and Thursday expirations in the annual 
reports. The Exchange also proposes to include the following market 
quality data, over sample periods determined by the Exchange and the 
Commission, for XSP options as part of the annual report, as it does 
for SPX options:
---------------------------------------------------------------------------

    \4\ See Nonstandard Expirations Pilot Approval Order.
---------------------------------------------------------------------------

     time-weighted relative quoted spreads;
     relative effective spreads; and
     time-weighted bid and offer sizes.
    The Exchange also will provide the Commission with any additional 
data or analyses the Commission requests because it deems such data or 
analyses necessary to determine whether the Pilot Program, including 
XSP options with Tuesday and Thursday expirations as proposed, is 
consistent with the Exchange Act. As it does for current Pilot Program 
products, the Exchange will make public on its website all data and 
analyses in connection with XSP options with Tuesday and Thursday 
expirations it submits to the Commission under the Pilot Program.
    The Exchange believes there is sufficient investor interest and 
demand in XSP options with Tuesday and Thursday expirations to warrant 
inclusion in the Pilot Program and that the Pilot Program, as amended, 
will continue to provide investors with additional means of managing 
their risk exposures and carrying out their investment objectives.\5\ 
The Exchange notes that during the Pilot Program's approximately 12-
year tenure, the Exchange has not observed any significant adverse 
market effects or identified any regulatory concerns as a result of the 
Pilot Program, nor does it believe that additional expirations listed 
under the Pilot Program would result in any such impact or regulatory 
concerns. Based on a study conducted by Commission staff on the pilot 
data (including quarterly, weekly, EOM and third Friday expirations for 
P.M.-settled XSP options),\6\ there is no evidence of any significant 
adverse economic impact to the futures, index, or underlying index 
component securities markets as a result of the quantity of P.M.-
settled XSP options that settle at the close or the amount of expiring 
open interest in P.M.-settled XSP options.\7\
---------------------------------------------------------------------------

    \5\ The Exchange currently lists Tuesday and Thursday 
expirations in SPX options. The Exchange also already allows XSP 
options to expire on Tuesdays for normally Monday or Wednesday 
expiring XSP options when the Exchange is not open for business on a 
respective Monday or Wednesday (as applicable), and already allows 
XSP options to expire on Thursdays for normally Friday expiring XSP 
options when the Exchange is not open for business on a respective 
Friday. Also, EOM options in XSP (and other broad-based indexes) may 
currently be listed to expire on a Tuesday or Thursday.
    \6\ See Securities and Exchange Commission, Division of Economic 
Risk and Analysis, Memorandum, Cornerstone Analysis of PM Cash-
Settled Index Option Pilots (February 2, 2021) (``SEC PM Pilot 
Memo'') at 13, available at: https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf (``Option 
settlement quantity data for a.m.- and p.m.-settled options were 
obtained from the Cboe, including the number of contracts that 
settled in-the-money for each exchange-traded option series on the 
S&P 500 index . . . on expiration days from January 20, 2006 through 
December 31, 2018. Daily open interest and volume data for [XSP] 
option series were also obtained from Cboe, including open interest 
data from January 3, 2006 through December 31, 2018 and trading 
volume data from January 3, 2006 through December 31, 2018.'')
    \7\ See id. at 3. For example, the largest settlement event that 
occurred during the time period of the study (a settlement of $100.4 
billion of notional on December 29, 2017) had an estimated impact on 
the futures price of only approximately 0.02% (a predicted impact of 
$0.54 relative to a closing futures price of $2,677).
---------------------------------------------------------------------------

    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it believes that 
the Exchange and OPRA have the necessary systems capacity to handle any 
potential additional traffic associated with trading of XSP options 
with Tuesday and Thursday expirations. The Exchange does not believe 
that its Trading Permit Holders (``TPHs'') will experience any capacity 
issues as a result of this proposal and represents that it will monitor 
the trading volume associated with any possible additional options 
series listed as a result of this proposal and the effect (if any) of 
these additional series on market fragmentation and on the capacity of 
the Exchange's automated systems.
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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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 facilitation 
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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed rule change 
will remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest by providing investors with greater 
trading and hedging opportunities and flexibility, allowing them to 
transact in XSP options in a manner more aligned with specific timing 
needs and more effectively tailor their investment and hedging 
objectives by listing XSP options that expire each trading day of the 
week. The Exchange does not believe that the addition of XSP options 
with Tuesday and Thursday expirations to the Pilot Program will raise 
any prohibitive regulatory concerns or adversely impact fair and 
orderly markets on expiration days. The Exchange has not observed any 
meaningful regulatory concerns or adverse impact on fair and orderly 
markets in connection with the listing and trading of XSP options with 
Monday, Wednesday and Friday expirations or with the recent listing and 
trading SPX options with expirations on Monday through. Particularly, 
the Exchange does not believe an increase in the number of P.M.-settled 
XSP options series will have any significant adverse economic impact on 
the futures, index, or underlying index component securities markets.
    The Exchange will include analysis in connection with XSP options 
that expire on Tuesdays and Thursdays in the same manner that it 
currently does for other Pilot Program products, as described above, in 
the annual reports it submits to the Commission. The Exchange also will 
provide the Commission with any additional data or analyses that it may 
request if it deems such data or analyses necessary to determine 
whether the

[[Page 47806]]

Pilot Program, including XSP options with Tuesday and Thursday 
expirations as proposed, is consistent with the Exchange Act. The 
Exchange represents that it believes that it has the necessary systems 
capacity to support any additional traffic associated with trading of 
XSP options with Tuesday and Thursday expirations and does not believe 
that its TPHs will experience any capacity issues as a result of this 
proposal. The Exchange will monitor the trading volume associated with 
any possible additional options series listed and the effect (if any) 
of these additional series on market fragmentation and on the capacity 
of the Exchange's automated systems.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because XSP options with Tuesday 
and Thursday expirations will be available to all market participants. 
By listing XSP options that expire Tuesdays and Thursdays, the proposed 
rule change will provide all investors that participate in the XSP 
options market greater trading and hedging opportunities and 
flexibility to meet their investment and hedging needs. Additionally, 
Tuesday and Thursday expiring XSP options will trade in the same manner 
as Weekly Expirations currently trade.
    The Exchange does not believe that the proposal to list XSP options 
with Tuesday and Thursday expirations will impose any burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because XSP options are 
proprietary Exchange products. Other exchanges offer nonstandard 
expiration programs for index options as well as short-term options 
programs for certain equity options and are welcome to similarly 
propose to list Tuesday and Thursday options on those indexes or equity 
products. To the extent that the addition of XSP options that expire on 
Tuesdays and Thursdays available for trading on the Exchange makes the 
Exchange a more attractive marketplace to market participants at other 
exchanges, such market participants are free to elect to become market 
participants on the Exchange.

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 [email protected]. Please include 
File Number SR-CBOE-2022-039 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-2022-039. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2022-039, and should be submitted 
on or before August 25, 2022.
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16657 Filed 8-3-22; 8:45 am]
BILLING CODE P