Document ID: SEC-2015-1093-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2015-07-01T04:00Z

[Federal Register Volume 80, Number 126 (Wednesday, July 1, 2015)]
[Notices]
[Pages 37692-37695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16085]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75296; File No. SR-CBOE-2015-052]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend Rule 5.3.06

June 25, 2015.
    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 June 15, 2015, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    CBOE proposes to amend Rule 5.3.06 to allow the listing of options 
overlying Exchange-Traded Fund Shares (``ETFs'') that are listed 
pursuant to generic listing standards on equities exchanges for series 
of portfolio depositary receipts and index fund shares based on 
international or global indexes under which a comprehensive 
surveillance agreement is not required. The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of 
the Secretary, and at the Commission.

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 5.3.06 to allow the listing of 
options overlying ETFs (referred to as ``Units'' in Rule 5.3.06) that 
are listed pursuant to generic listing standards on equities exchanges 
for series of portfolio depositary receipts and index fund shares based 
on international or global indexes under which a comprehensive 
surveillance sharing agreement (``comprehensive surveillance 
agreement'' or ``CSSA'') is not required.\5\ This proposal will enable 
the Exchange to list and trade options on ETFs without a CSSA provided 
that the ETF is listed on an equities exchange pursuant to the generic 
listings standards that do not require a CSSA pursuant to Rule 19b-4(e) 
\6\ of the Exchange Act. Rule 19b-4(e) provides that the listing and 
trading of a new

[[Page 37693]]

derivative securities product by a self-regulatory organization 
(``SRO'') shall not be deemed a proposed rule change, pursuant to 
paragraph (c)(1) of Rule 19b-4, if the Commission has approved, 
pursuant to Section 19(b) of the Exchange Act, the SRO's trading rules, 
procedures and listing standards for the product class that would 
include the new derivatives securities product, and the SRO has a 
surveillance program for the product class.\7\ In other words, the 
proposal will amend the listing standards to allow the Exchange to list 
and trade options on ETFs based on international or global indexes to a 
similar degree that they are allowed to be listed on several equities 
exchanges.\8\
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    \5\ See e.g., NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 
Equities Rule 5.2(j)(3) Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii).
    \6\ 17 CFR 240.19b-4(e).
    \7\ When relying on Rule 19b-4(e), the SRO must submit Form 19b-
4(e) to the Commission within five business days after the SRO 
begins trading the new derivative securities products. See 
Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952 (December 22, 1998).
    \8\ See NYSE MKT Rule 1000 Commentary .03(a)(B); NYSE Arca 
Equities Rule 5.2(j)(3) Commentary .01(a)(B); NASDAQ Rule 
5705(a)(3)(A)(ii); and BATS Rule 14.11(b)(3)(A)(ii). See also 
Securities Exchange Act Release Nos. 54739 (November 9, 2006), 71 FR 
66993 (SR-Amex-2006-78); 55269 (February 9, 2007), 72 FR 7490 
(February 15, 2007) (SR-NASDAQ-2006-050); 55621 (April 12, 2007), 72 
FR 19571 (April 18, 2007) (SR-NYSEArca-2006-86).
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Exchange Traded Funds
    The Exchange allows for the listing and trading of options on ETFs 
(referred to as ``Units'' in Rule 5.3.06). Rule 5.3.06(v)(A)-(C) 
provide the listings standards for options on ETFs with non-U.S. 
component securities, such as ETFs based on international or global 
indexes. Rule 5.3.06(v)(A) requires that any non-U.S. component 
securities of an index or portfolio of securities on which the Units 
are based that are not subject to comprehensive surveillance agreements 
do not in the aggregate represent more than 50% of the weight of the 
index or portfolio. Rule 5.3.06(v)(B) requires that component 
securities of an index or portfolio of securities on which the Units 
are based for which the primary market is in any one country that is 
not subject to a comprehensive surveillance agreement do not represent 
20% or more of the weight of the index. Rule 5.3.06(v)(C) requires that 
component securities of an index or portfolio of securities on which 
the Units are based for which the primary market is in any two 
countries that are not subject to comprehensive surveillance agreements 
do not represent 33% or more of the weight of the index.
Generic Listing Standards for Exchange-Traded Funds
    The Exchange notes that the Commission has previously approved 
generic listing standards pursuant to Rule 19b-4(e) \9\ of the Exchange 
Act for ETFs based on indexes that consist of stocks listed on U.S. 
exchanges.\10\ In general, the criteria for the underlying component 
securities in the international and global indexes are similar to those 
for the domestic indexes, but with modifications as appropriate for the 
issues and risks associated with non-U.S. securities.
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    \9\ 17 CFR 240.19b-4(e).
    \10\ See Commentary .03 to Amex Rule 1000 and Commentary .02 to 
Amex Rule 1000A. See also Securities Exchange Act Release No. 42787 
(May 15, 2000), 65 FR 33598 (May24, 2000).
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    In addition, the Commission has previously approved the listing and 
trading of ETFs based on international indexes--those based on non-U.S. 
component stocks--as well as global indexes--those based on non-U.S. 
and U.S. component stocks.\11\
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    \11\ See e.g., Securities Exchange Act Release Nos. 50189 
(August 12, 2004), 69 FR 51723 (August 20, 2004) (approving the 
listing and trading of certain Vanguard International Equity Index 
Funds); 44700 (August 14, 2001), 66 FR 43927 (August 21, 2001) 
(approving the listing and trading of series of the iShares Trust 
based on certain S&P global indexes).
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    In approving ETFs for equities exchange trading, the Commission 
thoroughly considered the structure of the ETFs, their usefulness to 
investors and to the markets, and SRO rules that govern their trading. 
The Exchange believes that allowing the listing of options overlying 
ETFs that are listed pursuant to the generic listing standards on 
equities exchanges for ETFs based on international and global indexes 
and applying Rule 19b-4(e) \12\ should fulfill the intended objective 
of that Rule by allowing options on those ETFs that have satisfied the 
generic listing standards to commence trading, without the need for the 
public comment period and Commission approval. The proposed rule has 
the potential to reduce the time frame for bringing options on ETFs to 
market, thereby reducing the burdens on issuers and other market 
participants. The failure of a particular ETF to comply with the 
generic listing standards under Rule 19b-4(e) \13\ would not, however, 
preclude the Exchange from submitting a separate filing pursuant to 
Section 19(b)(2),\14\ requesting Commission approval to list and trade 
options on a particular ETF.
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    \12\ 17 CFR 240.19b-4(e).
    \13\ 17 CFR 240.19b-4(e).
    \14\ 15 U.S.C. 78s(b)(2).
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Requirements for Listing and Trading Options Overlying ETFs Based on 
International and Global Indexes
    Options on ETFs listed pursuant to these generic standards for 
international and global indexes would be traded, in all other 
respects, under the Exchange's existing trading rules and procedures 
that apply to options on ETFs and would be covered under the Exchange's 
surveillance program for options on ETFs. Pursuant to the proposed 
rule, the Exchange may list and trade options on an ETF without a CSSA 
provided that the ETF is listed pursuant to generic listing standards 
for series of portfolio depositary receipts and index fund shares based 
on international or global indexes under which a comprehensive 
surveillance agreement is not required. The Exchange believes that 
these generic listing standards are intended to ensure that stocks with 
substantial market capitalization and trading volume account for a 
substantial portion of the weight of an index or portfolio. The 
Exchange believes that this proposed listing standard for options on 
ETFs is reasonable for international and global indexes, and, when 
applied in conjunction with the other listing requirements,\15\ will 
result in options overlying ETFs that are sufficiently broad-based in 
scope and not readily susceptible to manipulation. The Exchange also 
believes that allowing the Exchange to list options overlying ETFs that 
are listed on equities exchanges pursuant to generic standards for 
series of portfolio depositary receipts and index fund shares based on 
international or global indexes under which a CSSA is not required, 
will result in options overlying ETFs that are adequately diversified 
in weighting for any single security or small group of securities to 
significantly reduce concerns that trading in options overlying ETFs 
based on international or global indexes could become a surrogate for 
trading in unregistered securities.
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    \15\ All of the other listing criteria under the Exchange's 
rules will continue to apply to any options listed pursuant to the 
proposed rule change.
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    The Exchange believes that ETFs based on international and global 
indexes that have been listed pursuant to the generic standards are 
sufficiently broad-based enough as to make options overlying such ETFs 
not susceptible instruments for manipulation. The Exchange believes 
that the threat of manipulation is sufficiently mitigated for 
underlying ETFs that have been listed on equities exchanges pursuant to 
generic listing standards for series of portfolio depositary receipts 
and index fund shares based on international or global indexes under 
which a comprehensive surveillance agreement is not required and for 
the overlying options, that the Exchange does not see

[[Page 37694]]

the need for CSSA to be in place before listing and trading options on 
such ETFs. The Exchange notes that its proposal does not replace the 
need for a CSSA as provided in the current rule. The provisions of the 
current rule, including the need for a CSSA, remain materially 
unchanged in the proposed rule and will continue to apply to options on 
ETFs that are not listed on an equities exchange pursuant to generic 
listing standards for series of portfolio depositary receipts and index 
fund shares based on international or global indexes under which a 
comprehensive surveillance agreement is not required. Instead, the 
proposed rule adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange.
Proposed Non-Substantive Reorganizational Changes
    The Exchange proposes to take this opportunity to reorganize the 
provisions set forth in Rule 5.3.06. As background, the Exchange states 
that there are three general areas addressed in Rule 5.3.06. First, 
current subparagraphs (i) to (v) identify general and specific types of 
ETFs eligible for options listing. The Exchange is proposing to 
maintain this organization. Second, subparagraph (v)(E) sets forth the 
two ways in which an ETF may meet the Exchange's initial listing 
criteria. Third, subparagraphs (A)-(D) and (F) set forth additional 
initial listing criteria for ETFs based on the particular type of ETF. 
The Exchange believes that reorganizing the presentation of these 
paragraphs would make Rule 5.3.06 clearer and more user-friendly. As a 
result, CBOE proposes to move the contents of current subparagraph 
(v)(E) to be set forth as new paragraphs (B)(i) and (ii), after the 
general and specific types of ETFs eligible for options listing are 
identified. The Exchange believes that this placement would make it 
clearer that this provision applies to all ETFs. Finally, the Exchange 
proposes to add new subparagraph lettering to existing rule text and to 
re-letter existing rule text. These these [sic] are technical 
organizational changes and are not substantive changes.
    CBOE also proposes to amend Rule 5.4.08 by updating internal cross-
references to Rule 5.3.06 to reflect renumbering changing being 
proposed in this current filing to Rule 5.3.06. These proposed changes 
to Rule 5.4.08 are technical and non-substantive.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\16\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\17\ in particular, in that it 
is 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 facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b).
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    In particular, the proposed rules have the potential to reduce the 
time frame for bringing options on ETFs to market, thereby reducing the 
burdens on issuers and other market participants. The Exchange also 
believes enabling the listing and trading of options on ETFs pursuant 
to this new listing standard will benefit investors by providing them 
with valuable risk management tools. The Exchange notes that its 
proposal does not replace the need for a CSSA as provided in the 
current rule. The provisions of the current rule, including the need 
for a comprehensive surveillance sharing agreement, remain materially 
unchanged in the proposed rule and will continue to apply to options on 
ETFs that are not listed on an equities exchange pursuant to generic 
listing standards for series of portfolio depositary receipts and index 
fund shares based on international or global indexes under which a 
comprehensive surveillance agreement is not required. Instead, the 
proposed rule adds an additional listing mechanism for certain 
qualifying options on ETFs to be listed on the Exchange in a manner 
that is 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 facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
    The Exchange believes that the proposed non-substantive 
reorganizational changes to Rule 5.3.06 would be beneficial to market 
participants and users of CBOE's Rulebook because these proposed 
changes would generally result in a clearer and more user-friendly 
presentment of the provisions set forth in CBOE's Rulebook.

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. To the contrary, the 
proposed rule change is a competitive change that is substantially 
similar to recent rule changes filed by the MIAX Options Exchange 
(``MIAX''), NASDAQ OMX PHLX, LLC (``Phlx'') and International 
Securities Exchange, LLC (``ISE'').\18\ Furthermore, the Exchange 
believes this proposed rule change will benefit investors by providing 
additional methods to trade options on ETFs, and by providing them with 
valuable risk management tools. Specifically, the Exchange believes 
that market participants on the Exchange would benefit from the 
introduction and availability of options on ETFs in a manner that is 
similar to equities exchanges and will provide investors with a venue 
on which to trade options on these products. For all the reasons stated 
above, the Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, and believes the proposed 
change will enhance competition.
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    \18\ See Securities Exchange Act Release Nos. 74509 (March 13, 
2015), 80 FR 14425 (March 19, 2015) (SR-MIAX-2015-04); 74553 (March 
20, 2015), 80 FR 16072 (March 26, 2015) (SR-Phlx-2015-27) and 74832 
(April 29, 2015), 80 FR 25738 (May 5, 2015) (SR-ISE-2015-16).
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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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.

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[[Page 37695]]

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \21\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
stated that waiver of the operative delay will permit the Exchange to 
list and trade certain ETF options on the same basis as other options 
markets.\23\ Moreover, the Exchange has represented that the 
reorganizational changes are non-substantive and would assist market 
participants by providing a clearer rule. The Commission believes the 
waiver of the operative delay is consistent with the protection of 
investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal operative upon 
filing.\24\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ See supra note 18.
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2015-052 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2015-052. 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 Web site (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 Web site 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2015-052, and should be 
submitted on or before July 22, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16085 Filed 6-30-15; 8:45 am]
BILLING CODE 8011-01-P