Document ID: SEC-2015-0428-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2015-03-10T04:00Z

[Federal Register Volume 80, Number 46 (Tuesday, March 10, 2015)]
[Notices]
[Pages 12675-12680]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05477]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74430; File No. SR-CBOE-2015-023]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change To List and 
Trade Options on the MSCI EAFE Index and on the MSCI Emerging Markets 
Index

March 4, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on February 26, 2015, the 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, II, and III 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 proposes to list and trade options that overlie the MSCI EAFE 
Index and the MSCI Emerging Markets Index (``EAFE options'' and ``EM 
options''). EAFE and EM options would be P.M., cash-settled contracts 
with European-style exercise. 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 self-regulatory organization 
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 those 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 parts of such statements.

[[Page 12676]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to permit the Exchange 
to list and trade options that overlie the MSCI EAFE Index and the MSCI 
Emerging Markets Index (``EAFE options'' and ``EM options''). EAFE and 
EM options would be P.M., cash-settled contracts with European-style 
exercise.\3\
---------------------------------------------------------------------------

    \3\ CBOE's proposed rule change is substantially similar to 
approved filings made by NASDAQ OMX Phlx (``Phlx'') in 2011 and 2012 
to list and trade EM and EAFE options, respectively. See Securities 
Exchange Act Release Nos. 66420 (February 17, 2012), 77 FR 11177 
(February 24, 2012) (approving SR-Phlx-2011-179 to list EM options) 
and 66861 (April 26, 2012), 77 FR 26056 (May 2, 2012) (approving SR-
Phlx-2012-28 to list EAFE options).
---------------------------------------------------------------------------

MSCI EAFE Index Design, Methodology and Dissemination
    The MSCI EAFE Index (Europe, Australasia, Far East) is a free, 
[sic] float-adjusted market capitalization index that is designed to 
measure the equity market performance of developed markets, excluding 
the U.S. & Canada. The MSCI EAFE Index consists of the following 21 
developed market country indexes: Australia, Austria, Belgium, Denmark, 
Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the 
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, 
Switzerland, and the United Kingdom. The MSCI EAFE Index consists of 
large and midcap components, has 910 constituents and ``covers 
approximately 85% of the free float-adjusted market capitalization in 
each country.'' \4\
---------------------------------------------------------------------------

    \4\ See MSCI EAFE Index fact sheet (dated December 31, 2014) 
located at: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-eafe-index-usd-price.pdf.
---------------------------------------------------------------------------

    The MSCI EAFE Index was launched on December 31, 1969 and is 
calculated by MSCI Inc. (``MSCI''), which is a provider of investment 
support tools. The MSCI EAFE Index is calculated in U.S. dollars on a 
real-time basis from the open of the first market on which the 
components are traded to the closing of the last marked [sic] on which 
the components are traded. The methodology used to calculate the MSCI 
EAFE Index is similar to the methodology used to calculate the value of 
other benchmark market-capitalization weighted indexes. Specifically, 
the MSCI EAFE Index is based on the MSCI Global Investable Market 
Indexes (``GIMI'') Methodology.\5\ The level of the MSCI EAFE Index 
reflects the free float-adjusted market value of the component stocks 
relative to a particular base date and is computed by dividing the 
total market value of the companies in the MSCI EAFE Index by the index 
divisor.
---------------------------------------------------------------------------

    \5\ Summary and comprehensive information about the GIMI 
methodology may be reviewed at: http://www.msci.com/products/indexes/size/all_cap/methodology.html.
---------------------------------------------------------------------------

    The MSCI EAFE Index is monitored and maintained by MSCI. 
Adjustments to the MSCI EAFE Index are made on a daily basis with 
respect to corporate events and dividends. MSCI reviews the MSCI EAFE 
Index quarterly (February, May, August and November) ``with the 
objective of reflecting change in the underlying equity markets in a 
timely manner, while limiting undue index turnover. During the May and 
November reviews, the [MSCI EAFE Index] is rebalanced and the large and 
mid capitalization cutoff points are recalculated.'' \6\
---------------------------------------------------------------------------

    \6\ See MSCI EAFE Index fact sheet (dated December 31, 2014) 
located at: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-eafe-index-usd-price.pdf.
---------------------------------------------------------------------------

    Real-time data is distributed approximately every 15 seconds while 
the index is being calculated using MSCI's real-time calculation engine 
to Bloomberg L.P. (``Bloomberg''), FactSet Research Systems, Inc. 
(``FactSet'') and Thomson Reuters (``Reuters''). End of day data is 
distributed daily to clients through MSCI as well as through major 
quotation vendors, including Bloomberg, FactSet, and Reuters.
    The Exchange notes that the iShares MSCI EAFE exchange traded fund 
(``ETF'') is an actively traded product. CBOE also lists options 
overlying that ETF (``EFA options'') and those options are actively 
traded as well. MSCI EAFE Mini Index (``EAFE'') futures contracts are 
listed for trading on the Intercontinental Exchange, Inc. (``ICE'') \7\ 
and other derivatives contracts on the MSCI EAFE Index are listed for 
trading in Europe.
---------------------------------------------------------------------------

    \7\ See EAFE futures contract specifications located at: https://globalderivatives.nyx.com/node/10864.
---------------------------------------------------------------------------

EM Index Design and Calculation
    The MSCI EM Index is a free float-adjusted market capitalization 
index that is designed to measure equity market performance of emerging 
markets. The MSCI EM Index consists of the following 23 emerging market 
country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, 
Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, 
Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, 
Turkey and United Arab Emirates. The MSCI EM Index consists of large 
and midcap components, has 834 constituents and ``covers approximately 
85% of the free float-adjusted market capitalization in each country.'' 
\8\
---------------------------------------------------------------------------

    \8\ See MSCI EM Index fact sheet (dated December 31, 2014) 
located at: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-price.pdf.
---------------------------------------------------------------------------

    The MSCI EM Index was launched on June 30, 1988 and is calculated 
by MSCI. The MSCI EM Index is calculated in U.S. dollars on a real-time 
basis from the open of the first market on which the components are 
traded to the closing of the last marked [sic] on which the components 
are traded. The methodology used to calculate the MSCI EM Index is 
similar to the methodology used to calculate the value of other 
benchmark market-capitalization weighted indexes. Specifically, the 
MSCI EM Index is based on the MSCI GIMI Methodology.\9\ The level of 
the MSCI EM Index reflects the free float-adjusted market value of the 
component stocks relative to a particular base date and is computed by 
dividing the total market value of the companies in the MSCI EM Index 
by the index divisor.
---------------------------------------------------------------------------

    \9\ Summary and comprehensive information about the GIMI 
methodology may be reviewed at: http://www.msci.com/products/indexes/size/all_cap/methodology.html.
---------------------------------------------------------------------------

    The MSCI EM Index is monitored and maintained by MSCI. Adjustments 
to the MSCI EM Index are made on a daily basis with respect to 
corporate events and dividends. MSCI reviews the MSCI EM Index 
quarterly (February, May, August and November) ``with the objective of 
reflecting change in the underlying equity markets in a timely manner, 
while limiting undue index turnover. During the May and November 
reviews, the [MSCI EM Index] is rebalanced and the large and mid 
capitalization cutoff points are recalculated.'' \10\
---------------------------------------------------------------------------

    \10\ See MSCI EM Index fact sheet (dated December 31, 2014) 
located at: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-price.pdf.
---------------------------------------------------------------------------

    Real-time data is distributed approximately every 15 seconds using 
MSCI's real-time calculation engine to Bloomberg, FactSet and Reuters. 
End of day data is distributed daily to clients through MSCI as well as 
through major quotation vendors, including Bloomberg, FactSet, and 
Reuters.
    The Exchange notes that the iShares MSCI Emerging Markets ETF is an 
actively traded product. CBOE also lists options overlying that ETF 
(``EEM options'') and those options are actively traded as well. MSCI 
Emerging Markets Mini Index (``EM'') futures contracts are listed for 
trading on ICE \11\ and other

[[Page 12677]]

derivatives contracts on the MSCI EM Index are listed for trading in 
Europe.
---------------------------------------------------------------------------

    \11\ See EM futures contract specifications located at: https://globalderivatives.nyx.com/node/10846.
---------------------------------------------------------------------------

Initial and Maintenance Listing Criteria
    The MSCI EAFE Index and MSCI EM Index each meet the definition of a 
broad-based index as set forth in Rule 24.1(i)(1).\12\ In addition, the 
Exchange proposes to create specific initial and maintenance listing 
criteria for options on the MSCI EAFE Index and on the MSCI EM Index. 
Specifically, the Exchange proposes to add new Interpretation and 
Policy .01(a) to Rule 24.2, Designation of the Index, to provide that 
he [sic] Exchange may trade EAFE and EM options if each of the 
following conditions is satisfied: (1) The index is broad-based, as 
defined in Rule 24.1(i)(1); (2) Options on the index are designated as 
P.M.-settled index options; (3) The index is capitalization-weighted, 
price-weighted, modified capitalization-weighted or equal dollar-
weighted; (4) The index consists of 500 or more component securities; 
(5) All of the component securities of the index will have a market 
capitalization of greater than $100 million; (6) No single component 
security accounts for more than fifteen percent (15%) 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 fifty percent 
(50%) of the weight of the index; (7) Non-U.S. component securities 
(stocks or ADRs) that are not subject to comprehensive surveillance 
agreements do not, in the aggregate, represent more than: (i) Twenty 
percent (20%) of the weight of the EAFE Index, and (ii) twenty-two and 
a half percent (22.5%) of the weight of the EM Index; (8) During the 
time options on the index are traded on the Exchange, the current index 
value is widely disseminated at least once every fifteen (15) seconds 
by one or more major market data vendors. However, the Exchange may 
continue to trade EAFE options after trading in all component 
securities has closed for the day and the index level is no longer 
widely disseminated at least once every fifteen (15) seconds by one or 
more major market data vendors, provided that EAFE futures contracts 
are trading and prices for those contracts may be used as a proxy for 
the current index value; (9) The Exchange reasonably believes it has 
adequate system capacity to support the trading of options on the 
index, based on a calculation of the Exchange's current Independent 
System Capacity Advisor (ISCA) allocation and the number of new 
messages per second expected to be generated by options on such index; 
and (10) The Exchange has written surveillance procedures in place with 
respect to surveillance of trading of options on the index.
---------------------------------------------------------------------------

    \12\ Rule 24.2(i)(1) [sic] defines a broad-based index to mean 
an index designed to representative [sic] of a stock market as a 
whole or of a range of companies in unrelated industries.
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to add new Interpretation and 
Policy .01(b) to Rule 24.2, Designation of the Index, to set forth the 
following maintenance listing standards for options on the MSCI EAFE 
Index and on the MSCI EM Index: (1) The conditions set forth in 
subparagraphs .01(a)(1), (2), (3), (4), (7), (8), (9) and (10) must 
continue to be satisfied. The conditions set forth in subparagraphs 
.01(a)(5) and (6) must be satisfied only as of the first day of January 
and July in each year; and (2) the total number of component securities 
in the index may not increase or decrease by more than thirty-five 
percent (35%) from the number of component securities in the index at 
the time of its initial listing. In the event a class of index options 
listed on the Exchange fails to satisfy the maintenance listing 
standards set forth herein, the Exchange shall 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.
    The Exchange believes that P.M. settlement is appropriate for EAFE 
and EM options due to the natures of these indexes that encompass 
multiple markets around the world. As to the MSCI EAFE Index, the 
components open with the start of trading in certain parts of Asia at 
approximately 5:00 p.m. (Chicago time) (prior day) and close with the 
end of trading in Europe at approximately 11:30 a.m. (Chicago time) 
(next day) as closing prices from Ireland are accounting [sic] for in 
the closing calculation. The closing MSCI EAFE Index level is 
distributed by MSCI between approximately 1:00 p.m. and 2:00 p.m. 
(Chicago time) each trading day.
    As a result, there will not be a current MSCI EAFE Index level 
calculated and disseminated during a portion of the time during which 
EAFE options would be traded (from approximately 11:30 a.m. (Chicago 
time) to 3:15 p.m. (Chicago time)).\13\ However, the EAFE futures 
contract that trades on ICE will be trading during this time 
period.\14\ The Exchange believes that the EAFE futures prices would be 
a proxy for the current MSCI EAFE Index level. Therefore, the Exchange 
believes that EAFE options should be permitted to trade after trading 
in all component securities has closed for the day and the index level 
is no longer widely disseminated at least once every fifteen (15) 
seconds by one or more major market data vendors, provided that EAFE 
futures contracts are trading and prices for those contracts may be 
used as a proxy for the current index value.
---------------------------------------------------------------------------

    \13\ The trading hours for multiply listed EFA options are from 
8:30 a.m. (Chicago time) to 3:15 p.m. (Chicago time). See EFA 
Options Product Specifications located at: http://www.cboe.com/micro/efa/specifications.aspx.
    \14\ The trading hours for EAFE futures are from 6:16 p.m. 
(Chicago time) to 4:00 p.m. (Chicago time) the following day, Sunday 
through Friday. See MSCI EAFE Mini Index Future Contract 
specifications located at: https://globalderivatives.nyx.com/node/10864.
---------------------------------------------------------------------------

    As to the MSCI EM index, the components open with the start of 
trading in certain parts of Asia at approximately 6:00 p.m. (Chicago 
time) (prior day) and close with the end of trading in Mexico and Peru 
at approximately 3:30 p.m. (Chicago time) (next day) as closing prices 
from Brazil, Chile, Peru and Mexico, including late prices, are 
accounted for in the closing calculation. The closing MSCI EM Index 
level is distributed at approximately 5:00 p.m. (Chicago time) each 
trading day.\15\
---------------------------------------------------------------------------

    \15\ Late prices indicate that while the last real-time stock 
tick come [sic] in at approximately 3:00 p.m. (Chicago time), the 
MSCI EM Index will stay open for a few minutes longer to allow any 
late price information to be obtained. At approximately 3:30 p.m. 
(Chicago time), the final foreign currency rates are applied and the 
last real-time MSCI EM Index value is disseminated.
---------------------------------------------------------------------------

    Because the MSCI EAFE Index and on [sic] the MSCI EM Index each has 
a large number of component securities, representative of many 
countries, the Exchange believes that the initial listing requirements 
are appropriate to trade options on this index [sic]. In addition, 
similar to other broad based indexes, the Exchange proposes various 
maintenance requirements, which require continual compliance and 
periodic compliance.
Options Trading
    Generally, the proposed trading rules for EAFE and EM options would 
be the same except for their respective trading hours, which the 
Exchange will describe separately below. Exhibit 3 presents contract 
specifications for EAFE and EM options.
    The contract multiplier for EAFE and EM options would be $100. EAFE 
and EM options would be quoted in index points and one point would 
equal $100. The minimum tick size for series trading below $3 would be 
0.05 ($5.00) and above $3 will be 0.10 ($10.00).
    Initially, the Exchange would initially list in-, at- and out-of-
the-money strike prices. Additional series may be opened

[[Page 12678]]

for trading as the underlying index level moves up or down.\16\ The 
minimum strike price interval for EAFE and EM series would be 2.5 
points if the strike price is less than 200. When the strike price is 
200 or above, strike price intervals would be no less than 5 
points.\17\ New series would be permitted to be added up to the fifth 
business day prior to expiration.\18\
---------------------------------------------------------------------------

    \16\ See Rules 24.9(c) [sic] and 24.9.04. These rules set forth 
the criteria for listing additional series of the same class as the 
current value of the underlying index moves. Generally, additional 
series must be ``reasonably related'' to the current index value, 
which means that strike prices must be within 30% of the current 
index value. Series exceeding the 30% range may be listed based on 
demonstrated customer interest.
    \17\ See proposed amendments to Rule 24.9.01(a) adding EAFE and 
EM as classes eligible for 2.5 point minimum strikes if the strike 
price is below 200.
    \18\ See Rule 24.9.01(c).
---------------------------------------------------------------------------

    The Exchange would be permitted to list up to twelve near-term 
expiration months.\19\ The Exchange would also be permitted to list up 
to ten expirations in Long-Term Index Option Series (``LEAPS'') on the 
EAFE and EM indexes and those indexes would be eligible for all other 
expirations permitted for other broad-based indexes, e.g., End of Week/
End of Month Expirations, Short Term Option Series and Quarterly Option 
Series.\20\
---------------------------------------------------------------------------

    \19\ See proposed amendments to Rule 24.9(a)(2). The Exchange is 
proposing to allow the listing of up to twelve expiration months at 
any one time for EAFE and EM options.
    \20\ See, e.g., Rules 24.9(b) (LEAPS), 24.9(e) (End of Week/End 
of Month Expirations), 24.9(a)(2)(A) (Short Term Option Series) and 
24.9(a)(2)(B) (Quarterly Option Series).
---------------------------------------------------------------------------

    The trading hours for EAFE options would be from 8:30 a.m. (Chicago 
time) to 3:15 p.m. (Chicago time), except that trading in expiring EAFE 
options would end at 10:00 a.m. (Chicago time) on their expiration 
date. The Exchange is proposing that EAFE options trade only during a 
portion of the day on their expiration date to align the trading hours 
of expiring EAFE options with expiring EAFE futures. EAFE futures trade 
on ICE and stop trading at 10:00 a.m. (Chicago time) on the third 
Friday of the futures contract month.\21\
---------------------------------------------------------------------------

    \21\ See EAFE futures contract specifications located at: 
https://globalderivatives.nyx.com/node/10864. See also Securities 
Exchange Act Release No. 67070 [sic] (May 29, 2012), 77 FR 33013 
(June 4, 2012) (Notice of SR-Phlx-2012-67 to close the trading of 
expiring EAFE options at 10:00 a.m. (Chicago time) on their 
expiration date).
---------------------------------------------------------------------------

    The trading hours for EM options would be from 8:30 a.m. to 3:15 
p.m. (Chicago time).
Exercise and Settlement
    The proposed EAFE and EM options would expire on the third Friday 
of the expiring month. Trading in expiring EAFE options would cease at 
10:00 a.m. (Chicago time) on their expiration date and trading in 
expiring EM options would cease at 3:15 p.m. (Chicago time) on their 
expiration date. When the last trading day/expiration date is moved 
because of an Exchange holiday or closure, the last trading day/
expiration date for expiring options would be the immediately preceding 
business day.
    Exercise would result in delivery of cash on the business day 
following expiration. EAFE and EM options would be P.M.-settled. The 
exercise settlement value would be the official closing values of the 
MSCI EAFE Index and the MSCI EM Index as reported by MSCI on the last 
trading day of the expiring contract.\22\
---------------------------------------------------------------------------

    \22\ See proposed amendment to Rule 24.1.01(a) [sic] to identify 
MSCI Inc. as the Reporting Authority for the MSCI EAFE Index (EAFE) 
and the MSCI Emerging Markets Index (EM). As the designated 
Reporting Authority for each of these indexes, the disclaimers set 
forth in Rule 24.14 (Disclaimers) would apply to MSCI Inc.
---------------------------------------------------------------------------

    The exercise settlement amount would be equal to the difference 
between the exercise-settlement value and the exercise price of the 
option, multiplied by the contract multiplier ($100).
    If the exercise settlement value is not available or the normal 
settlement procedure cannot be utilized due to a trading disruption or 
other unusual circumstance, the settlement value would be determined in 
accordance with the rules and bylaws of The Options Clearing 
Corporation (``OCC'').\23\
---------------------------------------------------------------------------

    \23\ See Rule 24.7.
---------------------------------------------------------------------------

Position and Exercise Limits
    The Exchange proposes to apply the default position limits for 
broad-based index options to EAFE and EM options. Specifically, the 
chart set forth in Rule 24.4(a), Position Limits for Broad-Based Index 
Options, provides that the positions limits applicable to ``other 
broad-based indexes'' is 25,000 contracts (standard limit/on the same 
side of the market) and 15,000 contracts (near-term limit). Pursuant to 
Rule 24.5, Exercise Limits, the exercise limits for EAFE and EM options 
would be equivalent to the position limits for EAFE and EM options. All 
position limit hedge exemptions would apply.
Margin
    The Exchange proposes that EAFE and EM options be margined as 
``broad-based index'' options, and under CBOE rules, especially, Rule 
12.3(c)(5)(A), the margin requirement for a short put or call shall be 
100% of the current market value of the contract plus 15% of the 
``product of the current index group value and the applicable index 
multiplier,'' reduced by any out-of-the-money amount. There would be a 
minimum margin requirement of 100% of the current market value of the 
contract plus: 10% of the aggregate put exercise price amount in the 
case of puts, and 10% of the product of the current index group value 
and the applicable index multiplier in the case of calls. Additional 
margin may be required pursuant to Rules 12.3(h) and 12.10 (Margin 
Required is Minimum).
Exchange Rules Applicable
    Except as modified herein, the rules in Chapters I through XIX, 
XXIV, XXIVA, and XXIVB would equally apply to EAFE and EM options. EAFE 
and EM options would be subject to the same rules that currently govern 
other CBOE index options, including sales practice rules,\24\ margin 
requirements \25\ and trading rules.\26\
---------------------------------------------------------------------------

    \24\ See Chapter IX (Doing Business with the Public).
    \25\ See Chapter XII (Margins).
    \26\ See, e.g., Chapters IV (Business Conduct), VI (Doing 
Business on the Trading Floor), Chapter VIII (Market-Makers, Trading 
Crowds and Modified Trading Systems) and Chapter XXIV (Index 
Options).
---------------------------------------------------------------------------

    The Exchange hereby designates EAFE and EM options as eligible for 
trading as Flexible Exchange Options as provided for in Chapters XXIVA 
(Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System).\27\
---------------------------------------------------------------------------

    \27\ See proposed amendments to Rules 24A.7, Position Limits and 
Reporting Requirements, and 24B.7, Position Limits and Reporting 
Requirements, providing that the position limits for FLEX Index 
options on the MSCI EAFE Index and on the MSCI Emerging Market [sic] 
Index would be equal to the position limits for Non-FLEX options on 
those indexes. Per existing Rules 24A.8, Exercise Limits, and 24B.8, 
Exercise Limits, the exercise limits for FLEX EAFE and EM option 
would be equivalent to the position limits for FLEX EAFE and EM 
options.
---------------------------------------------------------------------------

Surveillance and Capacity
    The Exchange represents that is [sic] has an adequate surveillance 
program in place for EAFE and EM options and intends to use the same 
surveillance procedures currently utilized for each of the Exchange's 
other index options to monitor trading in EAFE and EM options.
    The Exchange is a member of the Intermarket Surveillance Group 
(``ISG''), which ``covers major self-regulatory bodies across the 
world.'' ``The purpose of the ISG is to provide a framework 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. The ISG plays a crucial 
role in

[[Page 12679]]

information sharing among markets that trade securities, options on 
securities, security futures products, and futures and options on 
broad-based security indexes.'' A list identifying the current ISG 
members is available at: https://www.isgportal.org/home.html.
    The Exchange is also an affiliate member of the International 
Organization of Securities Commissions (``IOSCO''), which has members 
from over 100 different countries. Each of the countries from which 
there is a component security in the [sic] both the MSCI EAFE and MSCI 
EM Indexes is a member of IOSCO.\28\ A list identifying the current 
ordinary IOSCO members is available at: http://www.iosco.org/about/?subsection=membership&memid=1. Finally, the Exchange has entered into 
various comprehensive surveillance agreements (``CSAs'') and/or 
Memoranda of Understanding with various stock exchanges. Given the 
capitalization of the EAFE and EM Indexes and the deep and liquid 
markets for the securities underlying these Indexes, the concerns for 
market manipulation and/or disruption in the underlying markets are 
greatly reduced.
---------------------------------------------------------------------------

    \28\ There are three categories of IOSCO members: ordinary, 
associate and affiliate. In general, the ordinary members (124) are 
the national securities commissions in their respective 
jurisdictions. Associate members (12) are usually agencies or 
branches of government, other than the principal national securities 
regulator in their respective jurisdictions that have some 
regulatory competence over securities markets, or intergovernmental 
international organizations and other international standard-setting 
bodies, such as the IMF and the World Bank, with a mission related 
to either the development or the regulation of securities markets. 
Affiliate members (62) are self-regulatory organizations, stock 
exchanges, financial market infrastructures, investor protection 
funds and compensation funds, and other bodies with an appropriate 
interest in securities regulation. See IOSCO Fact Sheet located at: 
http://www.iosco.org/about/pdf/IOSCO-Fact-Sheet.pdf.
---------------------------------------------------------------------------

    The Exchange notes that the EFA and EM ETFs are actively traded 
products. CBOE also lists options overlying those ETFS (EFA and EEM 
options) and those options are actively traded as well.
    CBOE has analyzed its capacity and represents that it believes the 
Exchange and the Options Price Reporting Authority (``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 EAFE and EM options. Because the proposal is limited to two new 
classes, the Exchange believes that the additional traffic that would 
be generated from the introduction of EAFE and EM 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.\29\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \30\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to remove impediments to and to 
perfect the mechanism for a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 two 
popular cash indexes. (CBOE understands that Phlx no longer lists EAFE 
and EM options). As described above, the iShares MSCI EAFE ETF and 
iShares MSCI Emerging Markets ETF are actively traded products, as are 
the options on those ETFs. EAFE and EM futures are listed for trading 
on ICE. In addition, other derivatives contracts on the MSCI EAFE Index 
and the MSCI EM Index are listed for trading in Europe. As a result, 
CBOE believes that EAFE and EM options are designed to provide 
different and additional opportunities for investors to hedge or 
speculate on the market risk on the MSCI EAFE Index and the MSCI EM 
Index by listing an option directly on these indexes.
    The Exchanges believes that both the MSCI EAFE Index and the MSCI 
EM Index are not easily susceptible to manipulation. Both indexes are 
broad-based indexes and have high market capitalizations. The MSCI EAFE 
Index is comprised of 910 component stocks and no single component 
comprises more than 5% of the index, making it not easily subject to 
market manipulation. Similarly, the MSCI EM Index is comprised of 834 
components stocks and no single component comprises more than 3% to 5% 
of the index, making it not easily subject to market manipulation.
    Additionally, the iShares MSCI EAFE and iShares MSCI Emerging 
Markets ETFs are actively traded products, as are options on those 
ETFs. Because both indexes have large numbers of component securities, 
are representative of many countries and trade a large volume with 
respect to ETFs and options on those ETFs, the Exchange believes that 
the initial listing requirements are appropriate to trade options on 
these indexes. In addition, similar to other broad-based indexes, the 
Exchange proposes to adopt various maintenance criteria, which would 
require continual compliance and periodic compliance.
    EAFE and EM options would be subject to the same rules that 
currently govern other CBOE index options, including sales practice 
rules,\31\ margin requirements \32\ and trading rules.\33\ The Exchange 
would apply the same default position limits for broad-based index 
options to EAFE and EM options. Specifically, the applicable position 
limits would be 25,000 contracts (standard limit/on the same side of 
the market) and 15,000 contracts (near-term limit). The exercise limits 
for EAFE and EM options would be equivalent to the position limits for 
EAFE and EM options. These same position and exercise limits would 
apply to FLEX trading. All position limit hedge exemptions would apply. 
The Exchange would apply existing index option margin requirements for 
the purchase and sale of EAFE and EM options.
---------------------------------------------------------------------------

    \31\ See Chapter IX (Doing Business with the Public).
    \32\ See Chapter XII (Margins).
    \33\ See, e.g., Chapters IV (Business Conduct), VI (Doing 
Business on the Trading Floor), Chapter VIII (Market-Makers, Trading 
Crowds and Modified Trading Systems) and Chapter XXIV (Index 
Options).
---------------------------------------------------------------------------

    The Exchange represents that is [sic] has an adequate surveillance 
program in place for EAFE and EM options. The Exchange also represents 
that it has the necessary systems capacity to support the new option 
series.

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 not necessary or appropriate in furtherance of 
the purposes of the Act. Specifically, CBOE believes that the 
introduction of new cash index options will enhance competition among 
market participants and will provide a new type of options to compete 
with domestic products such as EFA and EEM options, EAFE and EM futures 
and European-traded derivatives on the MSCI EAFE Index and the MSCI EM 
Index to the benefit of investors and the marketplace.

[[Page 12680]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to 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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2015-023 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-2015-023. 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 CBOE. 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-2015-023 and should be 
submitted on or before March 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05477 Filed 3-9-15; 8:45 am]
 BILLING CODE 8011-01-P