Document ID: SEC-2017-1724-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2017-10-20T04:00Z

[Federal Register Volume 82, Number 202 (Friday, October 20, 2017)]
[Notices]
[Pages 48858-48861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22754]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81879; File No. SR-CBOE-2017-065]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To List and Trade S&P Select Sector Index Options

October 16, 2017.
    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 October 4, 2017, 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)(iii) 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)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend certain rules in connection with 
listing S&P Select Sector Indexes under generic narrow-based listing 
standards.
    The text of the proposed rule change is also 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'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 
in connection with the Exchange's plans to list and trade ten S&P 
Select Sector Index options.
    Each S&P Select Sector Index represents the performance of 
companies that are components of the Standard & Poor's 500 Index (``S&P 
500'') within one of the following sectors (each of which is referred 
to as a ``S&P Select Sector Index''):
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    \5\ These symbols represent the index. The corresponding option 
symbols are SIXM, SIXE, SIXT, SIXV, SIXU, SIXR, SIXI, SIXY, SIXB, 
and SIXRE, respectively.

[[Page 48859]]

------------------------------------------------------------------------
                                                              Number of
                Sector                      Symbol \5\        components
------------------------------------------------------------------------
Financial............................  IXM                            66
Energy...............................  IXE                            32
Technology...........................  IXT                            72
Health Care..........................  IXV                            61
Utilities............................  IXU                            28
Consumer Staples.....................  IXR                            35
Industrials..........................  IXI                            68
Consumer Discretionary...............  IXY                            85
Materials............................  IXB                            26
Real Estate..........................  IXRE                           32
------------------------------------------------------------------------

    Each constituent of a Select Sector Index is a constituent of the 
S&P 500, and each Select Sector index is a subindex of the S&P 500. S&P 
Dow Jones Indices \6\ assigns constituents to a S&P Select Sector Index 
based on the constituent's classification under a global industry 
classification standard. S&P Dow Jones Indices monitors and maintains 
each Select Sector Index and rebalances each S&P Select Sector Index 
quarterly.
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    \6\ S&P Dow Jones Indices is the reporting authority for the S&P 
Select Sector Indexes. See proposed Rule 24.1, Interpretation and 
Policy .01.
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Initial and Maintenance Listing Criteria
    Each S&P Select Sector Index meets the definition of a narrow-based 
index as set forth in Rule 24.1(i)(2) (an index designed to be 
representative of a particular industry or a group of related 
industries and include indices having component securities that are all 
headquartered within a single country). Additionally, each S&P Select 
Sector Index option satisfies the initial listing criteria of a narrow-
based index, as set forth in Rule 24.2(b):
    (1) Options will be A.M.-settled;
    (2) the index is capitalization-weighted, price-weighted, equal 
dollar-weighted, or modified capitalization-weighted, and consists of 
ten or more component securities (the S&P Select Sector Indexes are 
modified capitalization-weighted);
    (3) each component security has a market capitalization of at least 
$75 million, except that for each of the lowest weighted component 
securities in the index that in the aggregate account for no more than 
10% of the weight of the index, the market capitalization is at least 
$50 million;
    (4) trading volume of each component security has been at least one 
million shares for each of the last six months, except that for each of 
the lowest weighted component securities in the index that in the 
aggregate account for no more than 10% of the weight of the index, 
trading volume has been at least 500,000 shares for each of the last 
six months;
    (5) in a capitalization-weighted index or a modified 
capitalization-weighted index, the lesser of the five highest weighted 
component securities in the index or the highest weighted component 
securities in the index that in the aggregate represent at least 30% of 
the total number of component securities in the index each have had an 
average monthly trading volume of at least 2,000,000 shares over the 
past six months;
    (6) no single component security represents more than 25% 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 50% (60% for 
an index consisting of fewer than 25 component securities) of the 
weight of the index;
    (7) component securities that account for at least 90% of the 
weight of the index and at least 80% of the total number of component 
securities in the index satisfy the requirements of Rule 5.3 applicable 
to individual underlying securities;
    (8) all component securities are ``reported securities'' as defined 
in Rule 11A a3-1 under the Exchange Act;
    (9) non-U.S. component securities (stocks or ADRs) that are not 
subject to comprehensive surveillance agreements do not in the 
aggregate represent more than 20% of the weight of the index;
    (10) the current underlying index value will be reported at least 
once every fifteen seconds during the time the index options are traded 
on the Exchange;
    (11) an equal dollar-weighted index will be rebalanced at least 
once every calendar quarter; and
    (12) if an underlying index is maintained by a broker-dealer, the 
index is calculated by a third party who is not a broker-dealer, and 
the broker-dealer has erected a ``Chinese Wall'' around its personnel 
who have access to information concerning changes in and adjustments to 
the index.
    The S&P Select Sector Index options will be subject to the 
maintenance listing standards set forth in Rule 24.2(c):
    (1) The conditions stated in (1), (3), (6), (7), (8), (9), (10), 
(11) and (12) above must continue to be satisfied, provided that the 
conditions stated in (6) above must be satisfied only as of the first 
day of January and July in each year;
    (2) the total number of component securities in the index may not 
increase or decrease by more than 33\1/3\% from the number of component 
securities in the index at the time of its initial listing, and in no 
event may be less than nine component securities;
    (3) trading volume of each component security in the index must be 
at least 500,000 shares for each of the last six months, except that 
for each of the lowest weighted component securities in the index that 
in the aggregate account for no more than 10% of the weight of the 
index, trading volume must be at least 400,000 shares for each of the 
last six months; and
    (4) in a capitalization-weighted index or a modified 
capitalization-weighted index, the lesser of the five highest weighted 
component securities in the index or the highest weighted component 
securities in the index that in the aggregate represent at least 30% of 
the total number of stocks in the index each have had an average 
monthly trading volume of at least 1,000,000 shares over the past six 
months.\7\
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    \7\ As is the case with other index options authorized for 
listing and trading on CBOE, in the event a S&P Select Sector Index 
fails to satisfy the maintenance listing standards, the Exchange 
will not open for trading any additional series of options of that 
class unless such failure is determined by the Exchange not to be 
significant and the Commission concurs in that determination, or 
unless the continued listing of that class of index options has been 
approved by the Securities and Exchange Commission (the 
``Commission'') under Section 19(b)(2) of the Securities and 
Exchange Act (the ``Act'').
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Expiration Months, Settlement, and Exercise Style
    Consistent with existing rules for certain index options, the 
Exchange will allow up to twelve near-term expiration months.\8\ The 
Exchange elects to have the ability to list up to twelve near-term 
expiration months, as that is the same amount the Rules permit for 
options on the S&P 500 (``SPX options''). The S&P Select Sector 
Indexes, in the aggregate, consist of the same components as the S&P 
500, as discussed above. Because of the relation [sic] between the S&P 
Select Sector Indexes and the S&P 500, which will likely result in 
market participants' investment and hedging strategies consisting of 
options over both, the Exchange believes it is appropriate to permit 
the same number of monthly expirations for S&P Select Sector Index 
options as SPX options.
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    \8\ See proposed Rule 24.9(a)(2).
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    The S&P Select Sector Index options will be A.M., cash-settled 
contracts with European-style exercise.\9\ A.M.-settlement is 
consistent with the generic listing criteria for industry-based indexes 
\10\ (as well as broad-based indexes \11\), and thus it is common for

[[Page 48860]]

index options to be A.M.-settled. The Exchange proposes to amend Rule 
24.9(a)(4) to add the S&P Select Sector Index options to the list of 
other A.M.-settled options. Standard third-Friday SPX options are A.M.-
settled. European-style exercise is consistent with many index options, 
as set forth in Rule 24.9(a)(3). Standard third-Friday SPX options are 
A.M.-settled with European-style exercise. The Exchange proposes to 
amend Rule 24.9(a)(3) to add S&P Select Sector Index options to the 
list of other European-style index options. Because of the relation 
between the S&P Select Sector Indexes and the S&P 500, which will 
likely result in market participants' investment and hedging strategies 
consisting of options over both, the Exchange believes it is 
appropriate to list S&P Select Sector Index options with the same 
settlement and exercise style as SPX options.
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    \9\ See proposed Rule 24.9(a)(3)(cxiv) through (cxxiii).
    \10\ See Rule 24.2(b)(1).
    \11\ See Rule 24.2(f)(2).
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Appointment Costs
    The Exchange proposes a Market-Maker appointment cost of .001 for 
each S&P Select Sector Index option, and each will have a Market-Maker 
appointment cost of .001.\12\ The Exchange determines appointment costs 
of Tier AA classes based on several factors, including, but not limited 
to, competitive forces and trading volume. The Exchange believes the 
proposed initial appointment cost for each S&P Select Sector Index 
option will foster competition by incentivizing Market-Makers to obtain 
an appointment in these newly listed options, which may increase 
liquidity in the new classes.
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    \12\ See proposed Rule 8.3(c)(i). S&P Select Sector Index 
Options will be in Tier AA (as are other S&P index options). While 
the appointment costs of Tier AA classes are not subject to 
quarterly rebalancing under Rule 8.3(c)(iv), the Exchange regularly 
reviews the appointment costs of Tier AA classes to ensure that they 
continue to be appropriate. The Exchange determines appointment 
costs of Tier AA classes based on several factors, including, but 
not limited to, competitive forces and trading volume.
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Capacity
    CBOE has analyzed its capacity and represents that it believes the 
Exchange and 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 S&P Select Sector Index options up to 
the proposed number of possible expirations. Because the proposal is 
limited to ten classes, the Exchange believes any additional traffic 
that would be generated from the introduction of S&P Select Sector 
Index options would be manageable.
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.\13\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \14\ 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) \15\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    In particular, the Exchange believes that the proposed rule change 
will further the Exchange's goal of introducing new and innovative 
products to the marketplace. Currently, the Exchange believes that 
there is unmet market demand for exchange-listed security options 
listed on these ten popular cash indexes. Sector SPDRs and E-mini S&P 
Select Sector future products are listed and traded on other exchanges. 
As a result, CBOE believes that S&P Select Sector Index options are 
designed to provide different and additional opportunities for 
investors to hedge or speculate on the market risk associated with the 
S&P Select Sector Indexes by listing an option directly on these 
indexes.
    The S&P Select Sector Index options satisfy the initial listing 
standards for narrow-based indexes in the Exchange's current rules. The 
proposed rule change merely adds the S&P Select Sector Indexes to the 
table regarding reporting authorities for indexes, to the rule 
regarding number of permissible expirations, to the list of European-
style exercise index options, and to the list of A.M.-settled index 
options. These changes are consistent [sic] existing rules and index 
options currently authorized and listed for trading on the Exchange. 
The Exchange notes, with respect to these changes, standard third-
Friday SPX options (which overly the S&P 500, which consist of the same 
components as the S&P Select Sector Indexes in the aggregate) currently 
have the same reporting authority, the same number of permissible 
expirations, the same settlement, and the same exercise style. The 
Exchange has observed no trading or capacity issues in SPX trading 
given the number of permissible expirations, a.m. settlement, and 
European-style exercise. Because of the relation between the S&P Select 
Sector Indexes and the S&P 500, which will likely result in market 
participants' investment and hedging strategies consisting of options 
over both, the Exchange believes it is appropriate to have the same 
number of expiration, settlement, and exercise style for both. The 
Exchange also represents that it has the necessary systems capacity to 
support the new option series given these proposed specifications.
    The Exchange believes the proposed initial low appointment cost for 
each S&P Select Sector Index option promotes competition and efficiency 
by incentivizing more Market-Makers to obtain an appointment in the 
newly listed classes. The Exchange believes this may result in 
liquidity and competitive pricing in these classes, which ultimately 
benefits investors. The proposed rule change does not result in unfair 
discrimination, as the appointment cost will apply to all Market-Makers 
in these classes.

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

    CBOE 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. S&P Select Sector Indexes 
satisfy initial listing standards set forth in the Rules, and the 
proposed number of expirations, settlement, and exercise style are 
consistent with current rules applicable to index options, including 
standard third-Friday SPX options. Because of the relation [sic] 
between the S&P Select Sector Indexes and the S&P 500, which will 
likely result in market participants' investment and hedging strategies 
consisting of options over both, the Exchange believes it is 
appropriate to have the same number of expirations, settlement, and 
exercise style for both options. S&P Select Sector Index options will 
provide investors with different and additional opportunities to hedge 
or speculate on the market associated with the S&P Select Sector 
indexes.
    The Exchange believes the proposed initial low appointment cost for 
each

[[Page 48861]]

S&P Select Sector Index option promotes competition and efficiency by 
incentivizing more Market-Makers to obtain an appointment in the newly 
listed classes. The Exchange believes this may result in liquidity and 
competitive pricing in these classes, which ultimately benefits 
investors. The proposed rule change does not result in unfair 
discrimination, as the appointment cost will apply to all Market-Makers 
in these classes.

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 foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \16\ and 
Rule 19b-4(f)(6) \17\ thereunder.\18\ 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 will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
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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-2017-065 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-2017-065. 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 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; 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-2017-065 and should be 
submitted on or before November 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22754 Filed 10-19-17; 8:45 am]
 BILLING CODE 8011-01-P