Document ID: SEC-2018-1529-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2018-10-03T04:00Z

[Federal Register Volume 83, Number 192 (Wednesday, October 3, 2018)]
[Notices]
[Pages 49960-49962]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21486]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84299; File No. SR-CboeEDGX-2018-035]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Order 
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 and 
3, To Permit the Listing and Trading of Options That Overlie the Mini-
SPX Index and the Russell 2000 Index

September 27, 2018.

I. Introduction

    On August 10, 2018, Cboe EDGX Exchange, Inc. (``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'' or 
``SEC''), 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 permit the listing and trading of options that overlie the 
Mini-SPX Index (``XSP options''), the Russell 2000 Index (``RUT 
options''), and the Dow Jones Industrial Average (``DJX options''). The 
proposed rule change was published for comment in the Federal Register 
on August 21, 2018.\3\ The Commission received no comments in response 
to the Notice. On September 18, 2018, the Exchange filed Amendment No. 
1 to the proposal.\4\ On September 25, 2018, the Exchange filed 
Amendment No. 3 to the proposal.\5\ This order approves the proposed 
rule change, as modified by Amendment Nos. 1 and 3 thereto.
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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. 83853 (August 15, 
2018), 83 FR 42344 (``Notice'').
    \4\ Amendment No. 1 provides that the lowest strike price 
interval that may be listed for XSP option series under the Short 
Term Option Series Program is $0.50. The Exchange notes that this 
provision was inadvertently omitted in the initial filing. Amendment 
No. 1 is available at https://www.sec.gov/comments/sr-cboeedgx-2018-035/srcboeedgx2018035-4388446-175573.pdf. Because Amendment No. 1 
does not materially alter the substance of the proposed rule change 
or raise unique or novel regulatory issues, Amendment No. 1 is not 
subject to notice and comment.
    \5\ The Exchange filed Amendment No. 2 to the proposal on 
September 24, 2018. On September 25, 2018, the Exchange withdrew 
Amendment No. 2 and replaced it with Amendment No. 3. Amendment No. 
3 removes all aspects of the proposal related to the listing and 
trading of DJX options. Amendment No. 3 is available at https://www.sec.gov/comments/sr-cboeedgx-2018-035/srcboeedgx2018035-4423273-175678.pdf. Because Amendment No. 3 removes all references specific 
to the listing and trading of DJX options from the original proposal 
and does not raise unique or novel regulatory issues, Amendment No. 
3 is not subject to notice and comment.
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II. Description of the Amended Proposal 6
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    \6\ For a more complete description of the proposed rule change, 
see Notice, supra note 3; Amendment No. 1, supra note 4; and 
Amendment No. 3, supra note 5.
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    The Exchange proposes to amend the Exchange's index options rules 
to permit the listing and trading of XSP options and RUT options. As 
more fully set forth in the Notice and Amendment Nos. 1 and 3 and 
further described below, the proposed new rules and changes to existing 
rules of the Exchange are based on the existing rules of other options 
exchanges.\7\
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    \7\ See, e.g., Cboe Options Rules 6.42, 24.7, and 24.9; C2 Rule 
6.11(a)(2).
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    XSP and RUT options will be A.M., cash-settled contracts with 
European-style exercise.\8\ XSP options are options on the Mini-SPX 
Index, the current value of which is 1/10th the value of the Standard & 
Poor's 500 Stock Index reported by the reporting authority.\9\ RUT 
options are options on the Russell 2000 Index.\10\ According to the 
Exchange, the index underlying each of XSP and RUT options satisfies 
the criteria of a broad-based index for the initial listing of options 
on that index, as set forth in Rule 29.3(b). XSP and RUT options will 
be subject to the maintenance listing standards set forth in Rule 
29.3(c).\11\
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    \8\ See proposed changes to Rule 29.11(a)(4) and Rule 
29.11(a)(5)(B).
    \9\ See proposed Interpretation and Policy .01 to Rule 29.11, 
which states that the current index value of XSP options will be 1/
10th the value of the Standard & Poor's 500 Stock Index reported by 
the reporting authority. The Exchange states that the S&P Dow Jones 
Indices is the reporting authority for the Mini-SPX Index. See 
proposed Interpretation and Policy .01 to Rule 29.2.
    \10\ The Exchange states that the Frank Russell Company is the 
reporting authority for the Russell 2000 Index. See proposed 
Interpretation and Policy .01 to Rule 29.2.
    \11\ In the event XSP or RUT options fails to satisfy the 
maintenance listing standards set forth in Rule 29.3(c), the 
Exchange states that it will 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. See Notice, supra note 3, at 42345, n. 
4.
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    As described more fully in the Notice and Amendment Nos. 1 and 3, 
the Exchange has proposed rules related to the listing and trading of 
XSP and RUT, including the minimum increments applicable to XSP \12\ 
and strike intervals applicable to both XSP and RUT.\13\ In addition, 
the Exchange has proposed changes to its long-term index options

[[Page 49961]]

rules, including proposing to extend the maximum term to 180 months (15 
years) \14\ and adding RUT to the list of indices on which the Exchange 
may list reduced-value long-term options series.\15\ The proposed rule 
change also modifies the Exchange's rules to describe the opening 
process for index options,\16\ which the Exchange states will be the 
same as the opening process for index options on C2 Exchange, Inc. 
(``C2'').\17\ The Exchange also proposed rule changes to clarify the 
applicability of certain provisions of its rules.\18\ Additionally, the 
Exchange has proposed changes to its rules relating to trading 
halts,\19\ the obvious error process,\20\ and listing additional 
expiration months \21\ that are consistent with the rules of another 
options exchange.\22\
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    \12\ See proposed Rule 21.5, Interpretation and Policy .02. The 
minimum increment for RUT will be as set forth in current Rule 21.5: 
Five cents if the series is trading below $3.00, and ten cents if 
the series is trading at or above $3.00. See Notice, supra note 3, 
at 42345.
    \13\ See proposed changes to Rule 29.11(c)(1) and (c)(5).
    \14\ See proposed change to Rule 29.11(b)(1). The Exchange 
represents that it has confirmed with the Options Clearing 
Corporation (``OCC'') that OCC can configure its systems to support 
long-term options contracts that have a maximum term of 180 months 
(15 years). See Notice, supra note 3, at 42346.
    \15\ See proposed change to Rule 29.11(b)(2). The Exchange 
represents that the reduced-value long-term RUT series will be 
subject to the same trading rules as long-term RUT series, except 
the minimum strike price interval will be $2.50 for all series 
regardless of the strike price. See Notice, supra note 3, at 42346. 
The Exchange also states that for reduced-value long-term RUT 
series, the underlying value will be computed at 10% of the value of 
the Russell 2000 Index. See id.
    \16\ See proposed changes to Rule 21.7.
    \17\ See Notice, supra note 3, at 42348.
    \18\ See proposed changes to Rules 29.11(b)(1)(A), 29.13(b); 
proposed Rule 29.15.
    \19\ See proposed changes to Rule 29.10(b).
    \20\ See proposed changes to Rule 20.6(g) and (h).
    \21\ See proposed Rule 29.11(i).
    \22\ See Cboe Options Rule 6.42, Interpretation and Policy .03; 
Cboe Options Rule 6.25(g) and (h); and Cboe Options Rule 24.9, 
Interpretation and Policy .01(b).
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    The Exchange represents it has an adequate surveillance program in 
place for index options, and that it is a member of the Intermarket 
Surveillance Group (``ISG'').\23\ Additionally, the Exchange represents 
that has analyzed its capacity and believes that it and the Options 
Price Reporting Authority (``OPRA'') have the necessary systems 
capacity to handle the additional traffic associated with the listing 
of XSP and RUT options up to the proposed number of possible 
expirations and strike prices.\24\ The Exchange believes that any 
additional traffic that would be generated from the introduction of XSP 
and RUT options will be manageable, and that its Members will not have 
a capacity issue as a result of this proposed rule change.\25\ The 
Exchange also represents that it does not believe this expansion will 
cause fragmentation of liquidity.\26\ The Exchange states that it will 
monitor the trading volume associated with the additional options 
series listed as a result of this proposed rule change and the effect 
(if any) of these additional series on market fragmentation and on the 
capacity of the Exchange's automated systems.\27\
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    \23\ See Notice, supra note 3, at 42349-50.
    \24\ Id. at 42350.
    \25\ Id.
    \26\ Id.
    \27\ Id.
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    The Exchange states that XSP and RUT options will be subject to the 
margin requirements set forth in Chapter 28 and the position limits set 
forth in Rule 29.5. Chapter 28 imposes the margin requirements of 
either Cboe Options or the New York Stock Exchange on Exchange Options 
Members. Similarly, Rule 29.5 imposes position (and exercise) limits 
for broad-based index options of Cboe Options on Exchange Options 
Members. XSP and RUT options are currently listed and traded on Cboe 
Options, and the Exchange proposes that the same margin requirements 
and position and exercise limits that apply to these products as traded 
on Cboe Options will apply to these products when listed and traded on 
the Exchange.\28\
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    \28\ Id.
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III. Discussion and Commission's Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\29\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\30\ which requires, among other things, 
that the rules of a national securities exchange be designed 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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    \29\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \30\ 15 U.S.C. 78f(b).
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    The Commission believes that the Exchange's proposal gives options 
investors the ability to make an additional investment choice in a 
manner consistent with the requirements of Section 6(b)(5) of the 
Act.\31\ The Commission notes that the Exchange represents that the 
index underlying each of XSP and RUT options satisfies the criteria of 
a broad-based index for the initial listing of options on that index in 
Rule 29.3(b), which rule has previously been approved by the 
Commission.\32\ In considering the proposed changes to the Exchange 
rules related to the listing and trading of XSP and RUT, including the 
rules related to minimum increments \33\ and strike price 
intervals,\34\ the Commission notes that the proposed rules are 
consistent with the rules of another exchange.\35\ In addition, the 
Commission notes that the proposed rule changes related to long-term 
options series,\36\ trading halts,\37\ the obvious error process,\38\ 
the opening process \39\ and listing additional expiration months \40\ 
are also consistent with the rules of other exchanges.\41\ The 
Commission believes that the Exchange's proposal does not raise any 
novel regulatory issues, as it is consistent with the rules of other 
national securities exchanges previously approved by the Commission. 
Finally, the Commission notes that certain of the Exchange's proposed 
rule changes are intended to promote clarity about the applicability of 
the Exchange's rules,\42\ thereby reducing any potential investor 
confusion.
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    \31\ 15 U.S.C. 78f(b)(5).
    \32\ See Securities Exchange Act Release No. 75650 (August 7, 
2015), 80 FR 48600 (August 13, 2015). Additionally, the Commission 
notes that options on XSP and RUT will be subject to the maintenance 
listing standards of Rule 29.3(c). The Exchange represents that in 
the event XSP or RUT options fails to satisfy the maintenance 
listing standards set forth herein, the Exchange will 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 Exchange Act. See 
Notice, supra note 3, at 42345, n. 4.
    \33\ See proposed Rule 21.5, Interpretation and Policy .02.
    \34\ See proposed Rule 29.11(c)(1) and (c)(5).
    \35\ See Cboe Options Rule 6.42, Interpretation and Policy .03; 
Cboe Options Rule 24.9. Interpretations and Policies .01(a), .11.
    \36\ See proposed changes to Rule 29.11(b).
    \37\ See proposed changes to Rule 29.10(b).
    \38\ See proposed changes to Rule 20.6(g) and (h).
    \39\ See proposed changes to Rule 21.7.
    \40\ See proposed Rule 29.11(i).
    \41\ See, e.g., Cboe Options Rule 24.9(b)(1); Cboe Options Rule 
24.9, Interpretation and Policy .13; Cboe Options Rule 24,7(a); Phlx 
Rule 1047A(c); Cboe Options Rule 6.25(g) and (h); C2 Rule 
6.11(a)(2).
    \42\ See, e.g., proposed changes to Rule 29.11(b)(1)(A); Rule 
29.13; Rule 29.15.
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    The Commission further believes that the Exchange's proposed 
position and exercise limits, margin requirements and other aspects of 
the proposed rule change related to the listing and trading of XSP and 
RUT options are appropriate and consistent with the Act. In particular, 
the Commission notes that the Exchange rules regarding position and 
exercise limits and margin requirements incorporate by reference the 
corresponding Cboe Options rules

[[Page 49962]]

which were previously approved by the Commission. The Commission notes 
that the Exchange represents that it has an adequate surveillance 
program in place for index options.\43\ Further, the Exchange is a 
member of the ISG, which provides for the sharing of information and 
the coordination of regulatory efforts among exchanges trading 
securities and related products to address potential intermarket 
manipulations and trading abuses.
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    \43\ See Notice, supra note 3, at 42349-50.
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    In approving the proposed rule change, the Commission has also 
relied upon the Exchange's representation that it and OPRA have the 
necessary systems capacity to support the new options series that will 
result from this proposal, and that the Exchange will monitor the 
trading volume associated with the additional options series listed as 
a result of this proposed rule change and the effect (if any) of these 
additional series on market fragmentation and on the capacity of the 
Exchange's automated systems.\44\
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    \44\ See id. at 42350.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\45\ that the proposed rule change (SR-CboeEDGX-2018-035), as 
modified by Amendment Nos. 1 and 3, be approved.
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    \45\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21486 Filed 10-2-18; 8:45 am]
 BILLING CODE 8011-01-P