Document ID: SEC-2016-1751-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2016-10-03T04:00Z

[Federal Register Volume 81, Number 191 (Monday, October 3, 2016)]
[Notices]
[Pages 68071-68074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23755]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78954; File No. SR-CBOE-2016-069]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule To Amend the Nonstandard Expirations Pilot Program To 
Permit New Series To Be Added Up to and Including on the Expiration 
Date

September 27, 2016.
    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 September 16, 2016, Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the

[[Page 68072]]

Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I, II, and III 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

    CBOE proposes to align CBOE's listing ability under the Nonstandard 
Expirations Pilot Program with CBOE's listing ability under the Short 
Term Option Series (``STOs'') Program (which is an industry-wide 
program). Specifically, CBOE proposes to permit new series to be added 
up to and including on the expiration date for expirations listed under 
the Nonstandard Expirations Pilot Program. 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
    CBOE proposes to permit new series to be added up to and including 
on the expiration date for expirations listed under the Nonstandard 
Expirations Pilot Program. The Exchange states that the ability to list 
new series up to and including on their last trading day or expiration 
date (as applicable) is currently permitted for expirations listed 
under the STOs Program, which is an industry-wide program.\5\ This 
proposal seeks to align CBOE's listing ability under the two Programs.
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    \5\ The STOs Program is set forth in Rule 5.5(d) (which governs 
the STOs Program for stock and exchange-traded product (``ETP'') 
option classes) and Rule 24.9(a)(2)(A) (which governs the STOs 
Program for index option classes). The last trading day and 
expiration date for an options class are generally determined by its 
exercise-settlement style. For P.M.-settled contracts, the last 
trading day and expiration date occur on the same business day. For 
A.M.-settled contracts, the last trading is on the business day 
before the expiration date. Because the expirations listed under the 
Nonstandard Expirations Pilot Program are P.M.-settled, the last 
trading and expiration date for these expirations occur on the same 
business day.
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    In July 2005, the Commission approved a CBOE rule filing to 
establish the STOs Program on a pilot basis.\6\ When it was adopted, 
the STOs Program permitted CBOE to list series in an approved class 
(i.e., stock, ETP or index) on any Friday to expire at the close of 
business on the next Friday that is a business day (excluding third 
Fridays).\7\ Importantly, under the Program then and now, STOs are 
settled in the same manner as monthly (standard) expiration series in 
the same class. For example, if the monthly option contract for a 
particular class is A.M.-settled, as most index options are, STOs for 
that class are also A.M.-settled. This means that the last trading day 
for A.M.-settled index STOs is on the business day prior to their 
expiration day (Thursday) and the exercise settlement value is based on 
the reported level of the index calculated using opening prices of the 
index components on the expiration day.\8\ A.M.-settled index STOs and 
P.M.-settled index STOs expire at the close of business on their 
expiration dates.
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    \6\ See Securities Exchange Act Release No. 52011 (July 12, 
2005), 70 FR 41451 (July 19, 2005) (order approving SR-CBOE-2004-
63).
    \7\ Similar versions of the STOs Program have been adopted by 
the majority, if not all, of the other options exchanges, see e.g., 
BOX IM-5050-6 to Rule 5050 (Short Term Option Series Program) and 
ISE Rule 504.02 (Short Term Option Series Program), MIAX Rule 404.02 
(Short Term Option Series Program).
    \8\ The last trading day and expiration date are the same day 
(Friday) for P.M.-settled index STOs and the exercise settlement 
value is based on the reported level of the index calculated using 
the last reported prices of the index components on the expiration 
date. CBOE currently lists P.M.-settled index STOs on the S&P 100 
Index (OEX which has American-style exercise and XEO which has 
European-style exercise). These index STOs are P.M.-settled because 
monthly (standard) expiration series in OEX and XEO are P.M.-
settled.
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    The STOs Program was made permanent \9\ and has been expanded 
several times so that currently, among other things, STOs expirations 
may be listed to expire on the next five Fridays that are business days 
(excluding third Fridays and days on which Quarterly Option Series 
expire) and new series of STOs may be added up to and including on 
their last trading day or expiration date (as applicable).\10\
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    \9\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009) (order approving SR-CBOE-2009-018).
    \10\ See Securities Exchange Act Release No. 71005 (December 6, 
2013), 78 FR 75395 (December 11, 2013) (order approving SR-CBOE-
2013-096).
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    Due to the same expiration style restriction for STOs on broad-
based indexes, CBOE submitted a proposal in 2009 to establish a pilot 
program under which CBOE is permitted to list P.M.-settled options on 
broad-based indexes that expire on (a) any Friday of the month, other 
than the third Friday-of-the-month, and (b) the last trading day of the 
month.\11\ This pilot program is currently named the ``Nonstandard 
Expirations Pilot Program'' and expirations listed under this Program 
compete with expirations listed under the industry wide STOs 
Program.\12\
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    \11\ See Securities Exchange Act Release No. 62911 (September 
14, 2010), 75 FR 57539 (September 21, 2010) (order approving SR-
CBOE-2009-075).
    \12\ See Securities Exchange Act Release Nos. 76909 (January 14, 
2016), 81 FR 3512 (January 21, 2016) (order approving SR-CBOE-2015-
106) and 78531 (August 10, 2016), 81 FR 54643 (August 16, 2016) 
(order approving SR-CBOE-2016-046).
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    Unlike new series listed under the STOs Program, the listing of new 
series under the Nonstandard Expirations Pilot Program is treated the 
same as standard options on the same underlying index (other than being 
P.M.-settled).\13\ Specifically, Rule 24.9.01(c) governs the listing of 
new series under the Nonstandard Expirations Pilot Program and that 
Rule provides, in relevant part, that new series of index options may 
be added up to the fifth business day prior to expiration. As a result, 
classes traded under the Nonstandard Expirations Pilot Program are 
competitively disadvantaged to classes traded under the STOs Program. 
This is because new series of STOs may be added past the time that they 
may be added for Nonstandard Expirations. Additionally, Rule 24.9.01 
permits new series to be added up to and including on the last trading 
day for other index options that expire on a weekly basis (i.e., VIX 
options and VXST options, which are both classes that have weekly 
expirations).\14\
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    \13\ For standard stock and ETP options, new series may 
generally be added until the beginning of the month in which the 
option contract will expire Due to unusual market conditions, the 
Exchange, in its discretion, may add new series of options on an 
individual stock until the close of trading on the second business 
day prior to expirations. See Rule 5.5.04.
    \14\ VIX and VXST are A.M.-settled index options and do not 
trade on their expiration date. Because series listed under the 
Nonstandard Expirations Pilot Program are P.M.-settled and trade 
throughout the day on their expiration date, the Exchange is seeking 
to permit new series in Nonstandard Expirations to be added up to 
and including on their expiration date (which is their last trading 
day, too). This proposed change tracks the Exchange's listing 
ability for P.M.-settled series listed under the industry-wide STOs 
Program.

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[[Page 68073]]

    Accordingly, the Exchange seeks to align CBOE's listing ability 
under the Nonstandard Expirations Pilot Program with CBOE's listing 
ability under the STOs Program and with other index options that expire 
on a weekly basis. Specifically, the Exchange proposes to amend Rule 
24.9(e)(1) and Rule 24.9(e)(2) to expressly permit the addition of new 
series up to and including on the expiration date for series listed 
under the Nonstandard Expirations Pilot Program. As with intraday 
series added under the STOs Program, The Options Clearing Corporation 
(``OCC'') has the ability to accommodate same day series adds under the 
Nonstandard Expirations Pilot Program.
    The Exchange is proposing to correct two typographical errors in 
Rule 24.9(e)(1). This proposed change is a cleanup change and is non-
substantive.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\15\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \16\ 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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    In particular, because expirations listed under the Nonstandard 
Expirations Pilot Program compete with expirations listed under the 
STOs Program (both intra and inter-market), the Exchange believes that 
is necessary for competitive reasons (both intra and inter-market) to 
have the same series listing abilities under each Program. Market 
participants would also benefit from this proposal because they would 
be able to request and receive strikes in competing products up to and 
including on the expiration date for these competing products. The 
Exchange notes that the ability to list series up to and including on 
expiration for P.M.-settled STOs (and their last trading day for A.M.-
settled STOs and weekly VIX and VXST options) already exists. As a 
result, permitting new series listed under the Nonstandard Expirations 
Pilot Program to be added up to and including on their expiration date 
is not a new or novel proposal.
    Finally, the Exchange is proposing to make two technical changes to 
the text of Rule 5.5(d). One proposed change is grammatical and the 
other deletes a repetitive word. These changes would benefit investors 
because CBOE's Rulebook would read correctly.

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

    CBOE does not believe that the proposed rule change would impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that new 
series are permitted to be added up to and including on their last 
trading day or expiration date (as applicable) for series listed under 
the STOs Program and on their last trading day for certain weekly 
expiring index options. As a result, permitting new series to be added 
up to and including on the expiration date for Nonstandard Expirations 
is not a new or novel proposal. Additionally, the current rule change 
is being proposed to allow Nonstandard Expirations to compete (both 
intra and inter-market) with series listed under the STOs program. CBOE 
believes this proposed rule change is necessary to ensure fair 
competition among the options exchanges. Also, the Exchange does not 
believe the proposal would impose any burden on intramarket 
competition, as all market participants would be treated in the same 
manner and would have more tools for trading if CBOE has the same 
listing ability in both programs.

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 \17\ and 
Rule 19b-4(f)(6) \18\ thereunder. 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
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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-2016-069 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-2016-069. 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

[[Page 68074]]

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-2016-069 and should be submitted on or before 
October 24, 2016.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-23755 Filed 9-30-16; 8:45 am]
 BILLING CODE 8011-01-P