Document ID: SEC-2018-1309-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe EDGX Exchange, Inc.
Posted Date: 2018-08-21T04:00Z

[Federal Register Volume 83, Number 162 (Tuesday, August 21, 2018)]
[Notices]
[Pages 42344-42354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17959]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83853; File No. SR-CboeEDGX-2018-035]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change To Permit the Listing and Trading 
of Options That Overlie the Mini-SPX Index, the Russell 2000 Index, and 
the Dow Jones Industrial Average

August 15, 2018.
    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 August 10, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to permit the listing and trading of 
options that overlie the Mini-SPX Index (``XSP options''), the Russell 
2000 Index (``RUT options''), and the Dow Jones Industrial Average 
(``DJX options'').
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.com, at the principal office of the 
Exchange, 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 parts of such 
statements.

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

1. Purpose
    The proposed rule change amends the Exchange's index rules to 
permit the listing and trading of XSP options, RUT options, and DJX 
options. XSP options are options on the Mini SPX Index, the current 
value of which is 1/10th the value of the Standard & Poor's 500 Stock 
Index reported by the reporting authority.\3\ RUT options are options 
on the Russell 2000 Index. DJX options are options based on 1/100th of 
the value of the Dow Jones Industrial Average. The index underlying 
each of XSP, RUT, and DJX options satisfies the criteria of a broad-
based index for the initial listing of options on that index, as set 
forth in Rule 29.3(b):
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    \3\ See proposed Rule 29.11, Interpretation and Policy .01.
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    (1) The index is broad-based index, as defined in Rule 29.2(j) (an 
index designed to be representative of a stock market as a whole or of 
a range of companies in unrelated industries);
    (2) The options are designated as A.M.-settled;

[[Page 42345]]

    (3) The index is capitalization-weighted, modified capitalization-
weighted, price-weighted or equal dollar-weighted;
    (4) The index consists of 50 or more component securities;
    (5) Component securities that account for at least 95% of the 
weight of the index have a market capitalization of at least $75 
million, except that component securities that account for at least 65% 
of the weight of the index have a market capitalization of at least 
$100 million;
    (6) Component securities that account for at least 80% of the 
weight of the index satisfy the requirements of Rule 19.3 applicable to 
individual underlying securities;
    (7) Each component security that accounts for at least 1% of the 
weight of the index has an average daily trading volume of at least 
90,000 shares during the last six-month period;
    (8) No single component security accounts for more than 10% 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 33% of the 
weight of the index;
    (9) Each component security must be an ``NMS stock'' as defined in 
Rule 600 of Regulation NMS under the Securities Exchange Act of 1934 
(the ``Exchange Act'');
    (10) 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;
    (11) The current underlying index value is widely disseminated at 
least once every 15 seconds by OPRA, CTA/CQ, NIDS, or one or more major 
market data vendors during the time the index options are traded on the 
Exchange;
    (12) 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 ISCA allocation and the number of 
new messages per second expected to be generated by options on such 
index;
    (13) An equal dollar-weighted index is rebalanced at least once 
every calendar quarter;
    (14) If an 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 an information barrier around its personnel who have 
access to information concerning changes in, and adjustments to, the 
index; and
    (15) The Exchange has written surveillance procedures in place with 
respect to surveillance of trading of options on the index.
    XSP, RUT, and DJX options will be subject to the maintenance 
listing standards set forth in Rule 29.3(c):
    (1) The conditions stated in (1) through (3) and (9) through (15) 
above must continue to be satisfied, provided that the requirements in 
(5) through (8) 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 10% from the number of component 
securities in the index at the time of its initial listing.\4\
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    \4\ In the event XSP, RUT, or DJX options fails to satisfy the 
maintenance listing standards set forth herein, the Exchange will 
not open for trading any additional series of options of that class 
unless the continued listing of that class of index options has been 
approved by the Securities and Exchange Commission (the 
``Commission'') under Section 19(b)(2) of the Exchange Act.
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Reporting Authority
    S&P Dow Jones Indices is the reporting authority for the Mini-SPX 
Index and the Dow Jones Industrial Average, and Frank Russell Company 
is the reporting authority for the Russell 2000 Index. The proposed 
rule change adds these indexes and reporting authorities to Rule 29.2, 
Interpretation and Policy .01. The proposed rule change also lists the 
reporting authorities in Rule 29.13(b), which is the disclaimer for 
reporting authorities. Rule 29.13(b) would apply to these reporting 
authorities even if not specifically listed; however, the proposed rule 
change adds the names of the reporting authority to the rule for 
transparency and clarification.
Minimum Increments
    Rule 29.11(a) states bids and offers are expressed in terms of 
dollars and cents per unit of the index. The minimum increment 
applicable to index options is set forth in Rule 21.5. The proposed 
rule change adds Interpretation and Policy .02 to Rule 21.5, which 
states for so long as SPDR options (SPY) and Diamonds options (DIA) 
participate in the Penny Pilot Program pursuant to Interpretation and 
Policy .01, the minimum increments for XSP options and DJX options, 
respectively, will be the same as SPY and DIA, respectively for all 
option series (including long-term option series). Such minimum 
increment would be $0.01 for all SPY series, regardless of price, and 
$0.01 for DJX series trading at less than $3.00 and $0.05 for DJX 
series trading at $3.00 or higher, respectively, as set forth in Rule 
21.5(a).
    SPY options are options on the SPDR S&P 500 exchange-traded fund 
(ETF), which is an ETF that tracks the performance of 1/10th the value 
of the S&P 500 Index. DIA options are options on the SPDR Dow Jones 
Industrial Average ETF, which is an ETF that tracks the performance of 
the Dow Jones Industrial Average. SPY and DIA options currently 
participate in the Penny Pilot Program. XSP options are also based on 
the S&P 500 Index, and DJX options are also based on the Dow Jones 
Industrial Average, as discussed above. The Exchange believes it is 
important that these products have the same minimum increments for 
consistency and competitive reasons. The proposed rule change is also 
the same as another options exchange.\5\
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    \5\ See Cboe Options Rule 6.42, Interpretation and Policy .03.
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    The minimum increment for RUT will be as set forth in current Rule 
21.5: Five cents if the series is trading below $3.00, and ten cents if 
the series is trading at or above $3.00.
Settlement and Exercise Style
    RUT, XSP, and DJX options will be A.M., cash-settled contracts with 
European-style exercise. A.M.-settlement is consistent with the generic 
listing criteria for broad-based indexes,\6\ and thus it is common for 
index options to be A.M.-settled. The Exchange proposes to amend Rule 
29.11(a)(5)(B) to add XSP, RUT, and DJX options to the list of other 
A.M.-settled options. The Exchange proposes to amend Rule 29.11(a)(4) 
to add XSP, RUT, and DJX options to the list of other European-style 
index options.
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    \6\ See Rule 29.3(b).
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Long-Term Index Options
    Rule 29.11(b)(1) currently states the Exchange may list long-term 
index options series that expire from 12 to 60 months from the date of 
issuance. The proposed rule change permits listing of long-term index 
options series that expire from 12 to 180 months from the date of 
issuance. The Exchange understands that market participants may enter 
into over-the-counter (``OTC'') positions with longer-dated expirations 
than currently available on the Exchange. The proposed rule change will 
permit the Exchange to list long-term index options contracts with 
longer-dated expirations. The Exchange believes expanding the eligible 
term for long-term index options contracts to 180 months is important 
and necessary to the Exchange's efforts to offer products in an 
exchange-traded environment that compete with OTC products. The 
Exchange believes long-term index options contracts provide market

[[Page 42346]]

participants and investors with a competitive comparable alternative to 
the OTC market in long-term index options, which can take on contract 
characteristics similar to long-term index options contracts but are 
not subject to the same maximum term restriction. By expanding the 
eligible term for long-term index options contracts, market 
participants will now have greater flexibility in determining whether 
to execute their long-term index options in an exchange environment or 
in the OTC market. The Exchange believes market participants can 
benefit from being able to trade these long-term index options in an 
exchange environment in several ways, including, but not limited to the 
following: (1) Enhanced efficiency in initiating and closing out 
positions; (2) increased market transparency; and (3) heightened 
contra-party creditworthiness due to the role of OCC as issuer and 
guarantor of long-term index options contracts.
    The Exchange has confirmed with the OCC that OCC can configure its 
systems to support long-term equity options contracts that have a 
maximum term of 180 months (15 years). The proposed rule change is also 
consistent with the rules of other options exchanges.\7\ Pursuant to 
the proposed rule change, the Exchange may list XSP, RUT, and DJX 
options with expirations from 12 to 180 months from the date of 
issuance.\8\
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    \7\ See, e.g., Cboe Options Rule 24.9(b)(1).
    \8\ See id.
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    Rule 29.11(b)(2) provides that reduced-value long-term option 
series may be approved for trading on specified indices.\9\ A reduced-
value long-term option series is an option series overlying an index 
that trades in units based upon a percentage of the value of the 
underlying index (such as 10%). As set forth in current Rule 
29.11(b)(2)(B), reduced-value long-term options series may expire at 
six-month intervals. The proposed rule change adds RUT to the list of 
indices on which the Exchange may list reduced-value long-term option 
series. Reduced-value long-term RUT series will be subject to the same 
trading rules as long-term RUT series, except the minimum strike price 
interval will be $2.50 for all premiums, as discussed below.\10\ For 
reduced-value long-term RUT series, the underlying value will be 
computed at 10% of the value of the Russell 2000.
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    \9\ See proposed Rule 29.11(b)(2)(A).
    \10\ See proposed Rule 29.11(c)(1).
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    Rule 29.11(b)(1)(A) also states strike price intervals, bid/ask 
differential, and continuity rules do not apply to long-term index 
options series until the time to expiration is less than twelve months. 
Rule 29.11(c) describes the strike price intervals applicable to long-
term index options. Additionally, Rule 22.6(d) describes continuous 
quoting requirements for Market Makers.\11\ The Exchange has no rules 
imposing bid/ask differential requirements. The Exchange views these 
other Rules regarding strike price interval and quote continuity 
requirements as superseding the language proposed to be deleted. 
Additionally, stating bid/ask different rules do not apply to long-term 
index option contracts is unnecessary, as no such rules are included in 
the Exchange's Rules. The Exchange believes deletion of the language 
Rule 29.11(b)(1)(A) will provide additional clarity and eliminate any 
confusion on the applicability of the strike price interval and quote 
continuity requirements that may otherwise result by including 
duplicative rules on these topics.
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    \11\ This rule excludes series with time to expiration of nine 
months or more from Market Makers' quoting obligations.
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Strike Intervals
RUT Options
    The proposed rule change amends Rule 29.11(c)(1) to provide that 
the interval between strike prices will be no less than $2.50 for RUT 
options (if the strike price is less than $200) and reduced-value long-
term option series. This is the same strike interval that applies to 
RUT options and reduced-value long-term option series pursuant to rules 
of other options exchanges.\12\
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    \12\ See, e.g., Cboe Options Rule 24.9, Interpretation and 
Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a).
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XSP Options
    Additionally, the proposed rule change adds Rule 29.11(c)(5), which 
provides that the strike prices for new and additional series of XSP 
options are subject to the following:
    (1) If the current value of the Mini-SPX Index is less than or 
equal to 20, the Exchange will not list XSP option series with a strike 
price of more than 100% above or below the current value of the Mini-
SPX Index;
    (2) if the current value of the Mini-SPX Index is greater than 20, 
the Exchange will not list XSP option series with a strike price of 
more than 50% above or below the current value of the Mini-SPX Index; 
and
    (3) the lowest strike price interval that may be listed for 
standard XSP option series is $1, including the long-term option 
series, and the lowest strike price interval that may be listed for XSP 
option series under the Short Term Option Series Program in paragraph 
(h) of Rule 29.11.
    The proposed strike prices for XSP options will permit strike 
prices closely aligned with SPX options.\13\ Additionally, the proposed 
strike price range limitations for XSP options are closely aligned with 
the strike price range limitations for equity and exchange-traded fund 
(``ETF'') options.\14\ The proposed strike prices and limitations for 
XSP options are the same as those on another options exchange.\15\ XSP 
options allow smaller-scale investors to gain broad exposure to the SPX 
options market and hedge S&P 500 Index cash positions.\16\ As a result, 
XSP options provide retail investors with the benefit of trading the 
broad market in a manageably sized contract.
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    \13\ See Cboe Options Rule 24.9, Interpretation and Policy 
.01(a).
    \14\ See Rule 19.6, Interpretations and Policies .02(b), .04(c) 
[sic], and .05(c).
    \15\ See Cboe Options Rule 24.9, Interpretation and Policy .11.
    \16\ See Securities Exchange Act Release No. 32893 (September 
14, 1993), 58 FR 49070 (September 21, 1993) (SR-CBOE-93-12) (order 
approving listing of XSP options).
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    Current Rule 29.11(c)(1) provides that strike prices are permitted 
only in intervals of at least $5. SPX options may be listed in 
intervals of at least $5.\17\ If the S&P 500 Index value was 2700, then 
the Mini-S&P 500 value would be 270. SPX options would be permitted to 
be listed with strikes of 2710, 2720, and 2730. Corresponding XSP 
options strikes would be 271, 272, and 273; however, under the current 
rule, the Exchange could only list strikes of 270 and 275 for XSP 
options. The proposed $1 strike interval for XSP options will permit 
the listing of series with strikes that correspond to SPX option 
strikes.
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    \17\ See Cboe Options Rule 24.9, Interpretation and Policy 
.01(a).
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    Additionally, current Rule 29.11(c)(3) requires the exercise price 
of each series of index options to be reasonably related to the current 
index value of the underlying index to which the series relates at or 
about the time the series of options is first opened for trading on the 
Exchange. Pursuant to Rule 29.11(c)(4), the term ``reasonably related 
to the current index value of the underlying index'' means the exercise 
price must be within 30% of the current index value. The Exchange may 
also open for trading additional series of index options that are more 
than 30% away from the current index value, provided that demonstrated 
customer interest exists for the series. The Options Listing Procedures 
Plan sets forth exercise price range limitations for equity and ETF 
options (which are the same as those

[[Page 42347]]

being proposed for XSP options). Those limitations differ from the 
limitations set forth in the current Rule. For example, if the 
underlying price of an equity or ETF option is $200, the Exchange would 
be permitted to list strikes ranging from $100 through $300 (50% above 
and below the current value). However, if the value of the Mini-SPX 
Index was $200, the Exchange would only be permitted to list strikes 
ranging from $140 to $260. To put XSP options on equal standing with 
equity and ETF options with respect to exercise price range 
limitations, the Exchange proposes to impose exercise price range 
limitations on XSP options that are equal to those applicable to equity 
and ETF exercise price range limitations.\18\
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    \18\ See proposed Rule 29.11(c)(5).
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    The Exchange believes these permitted strike prices will permit the 
Exchange to list XSP options with strikes that more closely reflect the 
current values of the S&P 500 Index, as they provide more flexibility 
and allow the Exchange to better respond to customer demand for XSP 
option strike prices that relate to current S&P 500 Index values. In 
addition, the Exchange believes that because the number of strikes that 
may be listed would be contained by the percentages above and below the 
current XSP Index value, there is no need to restrict the use of $1 
strike price intervals based on the amount of the strike price.
    The Exchange recognizes the proposed approach does not achieve full 
harmonization between strikes in XSP options and SPX options. For 
example, if there is a 2715 strike in SPX options, the Exchange is not 
seeking the ability to list a 271.5 strike in XSP options. The Exchange 
believes being able to list the 271 and 272 strikes in XSP options 
would provide the marketplace with a sufficient number of strike prices 
over a range of XSP values.\19\ The Exchange believes this proposed 
rule change would allow retail investors to better use XSP options to 
gain exposure to the SPX options market and hedge S&P 500 cash 
positions in the event that the S&P 500 Index value continues to 
increase.
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    \19\ Nothing in this rule filing precludes the Exchange from 
submitting a future rule filing requesting even finer strike price 
increments for XSP options.
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    The S&P 500 Index is widely used to gauge large cap U.S. equities, 
and as a result, investors often use S&P 500 Index-related products to 
diversify their portfolios and benefit from market trends. Full-size 
SPX options offer these benefits to investors, but may be expensive 
given its large notional value. Those options are primarily used by 
institutional market participants. By contrast, XSP options offer 
individual investors a lower cost options to obtain the potential 
benefits of options on the S&P 500 Index.
DJX Options
    Proposed Rule 29.11(c)(6) provides the interval between strike 
prices may be no less than $0.50 for options based on 1/100th of the 
value of the Dow Jones Industrial Average, including for series listed 
under the Short Term Options Program.\20\ As noted above, current Rule 
29.11(c)(1) provides that strike prices are permitted only in intervals 
of at least $5. As noted above, DJX options are based on 1/100th the 
value of the Dow Jones Industrial Average. For example, if the value of 
the Dow Jones Industrial Average was 25100, series of an option based 
on the full value of that average could be listed with strike prices of 
25105, 25110, and 25115. One-one hundredth of the value of the Dow 
Jones Industrial Average would be 251.05, 251.10, and 251.15, but the 
Exchange would only be able to list series with strike prices of $250 
and $255. Pursuant to the proposed rule change, the Exchange could list 
series with strike prices of 251.50, 252, 252.50, and 253. The Exchange 
recognizes the proposed approach does not achieve full harmonization 
between strikes in DJX options and the full value of the Dow Jones 
Industrial Average. However, the Exchange believes being able to list 
the DJX options at strike intervals of $0.50 would provide the 
marketplace with a sufficient number of strike prices over a range of 
DJX values.\21\ The Exchange believes this proposed rule change would 
allow retail investors to better use DJX options to gain exposure to 
the market and hedge Dow Jones Industrial Average cash positions in the 
event that the value continues to increase. The proposed strike price 
interval for DJX options is the same as those on another options 
exchange.\22\
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    \20\ See Rule 29.11, Interpretation and Policy .05 [sic] for a 
description of the Short Term Options Program.
    \21\ Nothing in this rule filing precludes the Exchange from 
submitting a future rule filing requesting even finer strike price 
increments for DJX options.
    \22\ See Cboe Options Rule 24.9, Interpretation and Policy 
.01(b).
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Opening Process
    The proposed rule change adds paragraph (c) to Rule 21.7 to 
describe the opening process for index options. Current Rule 21.7(b) 
states the System will open index options for trading at 9:30 a.m. 
Eastern time. Pursuant to the current opening process, following 9:30 
a.m., the System will determine a price at which a particular series 
will be opened (the ``Opening Price'') within 30 seconds of that time. 
Where there are no contracts in a particular series that would execute 
at any price, the System will open such options for trading without 
determining an Opening Price. The Opening Price of a series must be a 
Valid Price, as determined by current subparagraph (a)(2), and will be:
     The midpoint of the NBBO (the ``NBBO Midpoint'');
     Where there is no NBBO Midpoint at a Valid Price, the last 
regular way print disseminated pursuant to the OPRA Plan after 9:30 
a.m. Eastern Time (the ``Print'');
     Where there is both no NBBO Midpoint and no Print at a 
Valid Price, the last regular way transaction from the previous trading 
day as disseminated pursuant to the OPRA Plan (the ``Previous Close''); 
or
     Where there is no NBBO Midpoint, no Print, and no Previous 
Close at a Valid Price, the Order Entry Period may be extended by 30 
seconds or less or the series may be opened for trading at the 
discretion of the Exchange.
    A NBBO Midpoint, a Print, and a Previous Close will be at a Valid 
Price:
     Where there is no NBB and no NBO;
     Where there is either a NBB and no NBO or a NBO and no NBB 
and the price is equal to or greater than the NBB or equal to or less 
than the NBO; or
     Where there is both a NBB and NBO, the price is equal to 
or within the NBBO, and the price is less than a specified minimum 
amount away from the NBB or NBO for the series.
    Under this Opening Process, if a series has not opened yet on 
another exchange on a trading (and thus there is no NBBO and no Last 
Print), if there is a Previous Close Price, it will be a valid price 
and will be the Opening Price. Additionally, if there are no crossed 
contracts in a series, the series opens immediately following the time 
period referenced above.
    The Exchange proposes to modify this process with respect to index 
options. Pursuant to the proposed rule change, for index options, the 
System will determine the Opening Price within 30 seconds of an away 
options exchange(s) disseminating a quote in a series. Following an 
away options exchange's dissemination of a quote in a series, if there 
are no contracts in a series that would execute at any price, the 
System opens the series for trading without determining an Opening 
Price. The Opening Price, if valid, of a series will be the NBBO 
Midpoint. Pursuant to

[[Page 42348]]

proposed subparagraph (c)(2), for index options, the NBBO Midpoint is a 
valid price if it is less than a specified minimum amount away from the 
NBB or NBO for the series.\23\ If the NBBO Midpoint is not valid, the 
Exchange in its discretion may extend the order entry period by up to 
30 seconds or open the series for trading. In other words, the proposed 
rule change provides that an index option series will not open (with or 
without a trade) until after the series is open on another exchange. To 
the extent the Exchange receives a quote from another Exchange within 
the time period referenced above, and there are contracts that may 
trade, the Opening Process will essentially be the same, and a series 
will open with the NBBO Midpoint as an Opening Price (if valid). 
Additionally, the Exchange will continue to have the ability to use a 
contingent opening to open a series for trading if there is no valid 
Opening Price. The proposed rule change delays opening of a series on 
the Exchange in an index option series if there are no crossed 
contracts, and eliminates the possibility to open using the Last Print 
or Previous Close (as those will generally not be necessary if the 
Exchange waits for another exchange to open).
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    \23\ There are currently three criteria for an opening price to 
be valid. See current Rule 21.7(a)(2) (proposed Rule 21.7(b)(2)). 
Since the proposed rule change provides that an index option series 
will only open once it receives an NBBO from another exchange, in 
which case there will always be an NBB and NBO and thus an NBBO 
midpoint, the only criteria for an opening price to be valid that 
would apply to index options is the criteria regarding how far away 
the NBBO midpoint is from the NBB or NBO.
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    Currently, RUT options trade on Cboe Options and C2 Exchange, Inc. 
(``C2''), and XSP options trade on Cboe Options, which are affiliated 
exchanges of the Exchange. Under current Rule 21.7, if a RUT series was 
open on Cboe Options, and if there are crossed orders on the Exchange, 
the RUT series on the Exchange would open with an Opening Price equal 
to the NBBO Midpoint (if valid). If a RUT series was not yet open on 
another Exchange after 9:30 a.m. (eastern), and there was a Previous 
Close for the series, the series would open on the Exchange with the 
Previous Close as the Opening Price. If there are no crossing orders on 
the Exchange, a RUT series would open without an opening price, 
possibly before the RUT series was open on Cboe Options.
    RUT options on Cboe Options generally open within 30 seconds after 
9:30 a.m., and thus the Exchange expects RUT options to open for 
trading within 30 seconds (as set forth in the rule) at an Opening 
Price equal to the NBBO Midpoint if there are orders that can be 
crossed. However, it will be possible for a RUT series to open prior to 
the opening of that series on Cboe Options. This is significant 
because, on certain dates, Cboe Options uses prices of RUT options 
trading on Cboe Options to determine settlement values for volatility 
index derivatives.\24\ While trading in these options on volatility 
index derivative settlement days also generally opens within a few 
seconds after 9:30 a.m., there have been times when series being used 
to determine the settlement value took longer to open. Under the 
proposed rule, series on the Exchange would open without an Opening 
Price (if there are no crossed orders) or with an Opening Price equal 
to the Previous Close (if there are crossed orders) prior to the 
settlement value determination being completed on Cboe Options. If this 
were to occur, trading on the Exchange may then be occurring at very 
different prices than what is ultimately the opening trade price on 
Cboe Options. Trading on another Exchange while Cboe Options is not yet 
open may impact the volatility settlement value determination and 
disrupt trading of volatility index derivatives. The proposed rule 
change eliminates the possibility of RUT options on the Exchange 
automatically opening for trading prior to those options being open on 
Cboe Options and thus interfering with the calculation of volatility 
index derivative settlement values.
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    \24\ See Cboe Options Rule 6.2, Interpretation and Policy .01.
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    The proposed rule change is the same as the opening process for 
index options on C2.\25\ Additionally, the opening process on Nasdaq 
BX, LLC (``BX'') is similar to the proposed rule change. Pursuant to BX 
Chapter VI, Section 8(b), if there is a possible trade on BX, a series 
will open with a valid width NBBO.\26\ This is similar to the proposed 
rule change, in that a valid NBBO Midpoint must be present for an index 
option series to open with a trade (which on the Exchange would only 
occur if another exchange was open for trading, because on the 
Exchange, the NBBO that is used to determine the Opening Price is based 
on disseminated quotes of other exchanges and does not include orders 
and quotes on the Exchange prior to the opening of trading \27\). 
Additionally, if no trade is possible on BX, then BX will depend on one 
of the following to open: (1) A valid width NBBO, (2) a certain number 
of other options exchanges (as determined by BX) having disseminated a 
firm quote on OPRA, or (3) a certain period of time (as determined by 
the Exchange) has elapsed. As proposed, if no trade is possible, the 
Exchange will open an index option series after another exchange as 
disseminated a quote, which is consistent with number (2) above (for 
example, under BX's rule, it could determine to open if one other 
options exchange was open). While the proposed rule change does not 
explicitly provide for additional alternatives in the event no trade is 
possible, pursuant to Rule 21.7(f), the Exchange may adjust the timing 
of the Opening Process in a class if it believes it is necessary in the 
interests of a fair and orderly market.\28\ Therefore, like BX, the 
Exchange could open a series after a certain amount of time has passed 
if the series does not open on another exchange.
---------------------------------------------------------------------------

    \25\ See C2 Rule 6.11(a)(2)(B).
    \26\ On BX, a valid width NBBO means a combination of all away 
market quotes and any combination of BX Options-registered Market-
Maker orders and quotes received over a BX-provided system component 
through which Market-Makers communicate their quotes within a 
specified bid/ask differential established by BX. See BX Chapter VI, 
Section 8(a)(6).
    \27\ See Rule 16.1(a)(29) (definition of NBBO).
    \28\ Number (1) above would not apply because, as noted above, 
the NBBO on the Exchange prior to the opening of trading does not 
include orders and quotes on the Exchange.
---------------------------------------------------------------------------

    Once the System determines an opening price for an index option, it 
will open a series with an opening trade in the same manner as it does 
for equity options. The proposed rule change moves the description of 
this process from current Rule 21.7(a)(3) to proposed Rule 21.7(d). The 
proposed rule change also adds to proposed paragraph (d) that the 
System cancels any OPG (also called at the open orders) (or unexecuted 
portions) that do not execute during the opening process. This is 
consistent with the behavior of orders with the OPG time-in-force 
instruction.\29\ Additionally, the proposed rule change moves the 
description of a contingent open, which will also apply to index and 
equity options, from current Rule 21.7(a)(4) to proposed Rule 
21.7(e).\30\ The proposed rule change makes other nonsubstantive 
changes (e.g., adding headings and updating paragraph lettering and 
numbering). Additionally, the proposed rule change clarifies in Rule 
21.7(a) that re-opening after regulatory halts applies only to equity 
options, as regulatory halts only occur in equity options.
---------------------------------------------------------------------------

    \29\ See Rule 21.1(f)(6).
    \30\ The proposed rule change makes nonsubstantive changes to 
this provision, including to make the rule plain English and 
eliminate passive voice.

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

[[Page 42349]]

Trading Halts
    Current Rule 29.10(b) describes when the Exchange may halt trading 
in an index option. It permits the Exchange to halt trading in an index 
option when, in its \31\ judgment, such action is appropriate in the 
interests of a fair and orderly market and to protect investors. The 
Exchange may consider the following factors, among others:
---------------------------------------------------------------------------

    \31\ The proposed rule change modifies the rule to say ``its'' 
(as the sentence refers to the Exchange) rather than ``his or her.''
---------------------------------------------------------------------------

     Whether all trading has been halted or suspended in the 
market that is the primary market for a plurality of the underlying 
stocks;
     Whether the current calculation of the index derived from 
the current market prices of the stocks is not available;
     The extent to which the opening has been completed or 
other factors regarding the status of the opening; and
     Other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present, including, 
but not limited to, the activation of price limits on futures 
exchanges.
    The proposed rule change amends the first factor to state the 
Exchange may consider the extent to which trading is not occurring in 
the stocks or options underlying the index. This provides the Exchange 
with additional flexibility to consider trading on all markets on which 
the underlying components trade when determining whether to halt 
trading in an index option. The Exchange believes flexibility is 
appropriate when determining whether to halt trading in an index option 
so it can make such a determination based on then-current circumstances 
to determine what will contribute to a fair and orderly market. For 
example, less than a ``plurality'' of underlying components may trade 
on one market, but if trading on that market is halted, the Exchange 
may determine halting trading in the index option is in the interests 
of a fair and orderly market because of the specific components that 
are not trading. This proposed change is consistent with the rules of 
another options exchange.\32\
---------------------------------------------------------------------------

    \32\ See, e.g., Cboe Options Rule 24.7(a).
---------------------------------------------------------------------------

    Rule 29.10 also states trading on the Exchange will be halted or 
suspended whenever trading in underlying securities whose weighted 
value represents more than 20%, in the case of a broad-based index, and 
10% for all other indices, of the index value is halted or suspended. 
The proposed rule change deletes this provision. The first factor, as 
amended by this proposed rule change, permits the Exchange to determine 
to halt trading in an index option in this specific circumstance. This 
provision provides the Exchange with no flexibility to determine what 
is in the interests of a fair and orderly market. The rules of other 
exchanges do not have this provision.\33\
---------------------------------------------------------------------------

    \33\ See, e.g., Cboe Options Rule 24.7(a); Phlx Rule 1047A(c).
---------------------------------------------------------------------------

Expirations Listed on Other Exchanges
    Proposed Rule 29.11(j) permits the Exchange to list additional 
expiration months on option classes opened for trading on the Exchange 
if such expiration months are opened for trading on at least one other 
registered national securities exchange. As noted above, Rule 
29.11(a)(3) permits the Exchange to list up to six expiration months at 
any one time for an index option class. Other options exchange have 
rules that permit them to list additional expiration months if they are 
opened for trading on at least one other options exchange.\34\ This 
proposed rule change will allow the Exchange to compete with other 
exchanges by matching the expiration months that other exchanges list.
---------------------------------------------------------------------------

    \34\ See, e.g., Cboe Options Rule 24.9, Interpretation and 
Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material 
.04.
---------------------------------------------------------------------------

    The Exchange notes that the proposed rule change affords additional 
flexibility in that it will permit the exchange to list those 
additional expiration months that have an actual demand from market 
participants thereby potentially reducing the proliferation of classes 
and series. The Exchange believes the proposed rule change is proper, 
and indeed necessary, in light of the need to have rules that permit 
the listing of identical expiration months across exchanges for 
products that multiply-listed and fungible with one another. The 
Exchange believes that the proposed rule change should encourage 
competition and be beneficial to traders and market participants by 
providing them with a means to trade on the Exchange securities that 
are listed and traded on other exchanges.
Obvious Error
    The proposed rule change adds to Rule 20.6(g) and (h) language to 
clarify that, for purposes of determining whether a trade resulted from 
an erroneous print or quote in the underlying, the underlying may 
include index values (as well as Fund Shares and HOLDRs, which may also 
underlie options trading on the Exchange pursuant to Rule 19.3(g) and 
(i), respectively).\35\ This is consistent with the rules of another 
options exchange.\36\
---------------------------------------------------------------------------

    \35\ While adding language in this rule provision regarding Fund 
Shares and HOLDRs is unrelated to the purpose of this filing, which 
is to permit the listing and trading of certain index options on the 
Exchange, the Exchange believes it is appropriate to include this 
language in the proposed rule text to ensure continued harmonization 
of obvious error rules across all exchanges.
    \36\ See, e.g., Cboe Options Rule 6.25(g) and (h).
---------------------------------------------------------------------------

Restrictions on Contracts
    The proposed rule change adds Rule 29.15, which states contracts 
provided for in Chapter 29 of the Rules will not be subject to the 
restriction in Rule 18.12(b). Rule 18.12(b) states whenever the issue 
of a security underlying a call option traded on the Exchange is 
engaged or proposes to engage in a public underwritten distribution 
(``public distribution'') of such underlying security or securities 
exchangeable for or convertible into such underlying security, the 
underwriters may request that the exchange impose restrictions upon all 
opening writing transactions in such options at a discount where the 
resulting short position will be uncovered. The rule includes 
additional conditions that are necessary to impose these restrictions.
    Rule 18.12(b) applies to equity options, and to restrictions the 
issuer of the security underlying the equity option may request. As 
there is no issuer of an ``index,'' and thus there is no possibility of 
a public distribution of an index, the Rule does not apply to index 
options. Rule 29.15 merely states this explicitly in the Rules. This 
will also ensure it is clear in the Rules that an issuer of a security 
that is a component of an index may not request restrictions on the 
index options, as the Exchange does not believe it would be appropriate 
for an issuer of a single underlying component to have the ability to 
restrict trading in the index option. The proposed rule change is 
consistent with the rules of at least one other options exchange.\37\
---------------------------------------------------------------------------

    \37\ See Cboe Options Rule 24.10.
---------------------------------------------------------------------------

Capacity and Surveillance
    The Exchange represents it has an adequate surveillance program in 
place for index options. The Exchange is a member of the Intermarket 
Surveillance Group (``ISG''), which is comprised of an international 
group of exchanges, market centers, and market regulators. The purpose 
of 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

[[Page 42350]]

manipulations and trading abuses. ISG plays a crucial role in 
information sharing among markets that trade securities, options on 
securities, security futures products, and futures and options on 
broad-based security indexes. A list of identifying current ISG members 
is available at https://www.isgportal.org/isgPortal/public/members.htm.
    The Exchange 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 XSP, RUT, 
and DJX options up to the proposed number of possible expirations and 
strike prices. The Exchange believes any additional traffic that would 
be generated from the introduction of XSP, RUT, and DJX options will be 
manageable. The Exchange believes its Members will not have a capacity 
issue as a result of this proposed rule change. The Exchange also 
represents that it does not believe this expansion will cause 
fragmentation of liquidity. The Exchange will monitor the trading 
volume associated with the additional options series listed as a result 
of this proposed rule change and the effect (if any) of these 
additional series on market fragmentation and on the capacity of the 
Exchange's automated systems.
Position Limits and Margin
    XSP, RUT, and DJX options will be subject to the margin 
requirements set forth in Chapter 28 and the position limits set forth 
in Rule 29.5. Chapter 28 imposes the margin requirements of either Cboe 
Options or the New York Stock Exchange on Exchange Options Members. 
Similarly, Rule 29.5 imposes position (and exercise) limits for broad-
based index options of Cboe Options on Exchange Options Members. XSP, 
RUT, and DJX options are currently listed and traded on Cboe 
Options,\38\ and thus the same margin requirements and position and 
exercise limits that apply to these products as traded on Cboe Options 
will apply to these products when listed and traded on the Exchange.
---------------------------------------------------------------------------

    \38\ Similarly, pursuant to Cboe Options Chapter 12, Cboe 
Options Trading Permit Holders may request to have New York Stock 
Exchange margin requirements apply to their trading.
---------------------------------------------------------------------------

    The Exchange Rules and Cboe Options rules regarding position and 
exercise limits and margin requirements are substantially the same as 
each other, as the Exchange rules currently refer to the corresponding 
Cboe Options rules. Therefore, Options Members must comply with these 
Cboe Options rules pursuant to the Exchange Rules. Pursuant to the 
proposed rule change, the Exchange will be trading index options also 
authorized for trading on Cboe Options, so the position and exercise 
limits and margin requirements currently applicable to these index 
options that trade on Cboe Options will apply to these index options 
that may be listed for trading on the Exchange. The proposed rule 
regarding the listing and trading of XSP, RUT, and DJX are 
substantially the same as Cboe Options rules regarding the listing and 
trading of XSP, RUT, and DJX, which rules were previously approved by 
the Commission and thus they are consistent with the Act. Additionally, 
the rules regarding position and exercise limits and margin 
requirements that will apply to XSP, RUT, and DJX options listed for 
trading on the Exchange were previously approved by the Commission, and 
thus they are consistent with the Act. The proposed rule change will 
also result in similar regulatory treatment for similar option 
products.
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.\39\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \40\ 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) \41\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b).
    \40\ 15 U.S.C. 78f(b)(5).
    \41\ Id.
---------------------------------------------------------------------------

    The index underlying each of XSP, RUT, and DJX options satisfies 
the initial listing criteria of a broad-based index in the Exchange's 
Rules. The proposed rule change adds these indexes to the table 
regarding reporting authorities for indexes, to the list of European-
style exercise index options, and to the list of A.M.-settled index 
options. These changes are consistent with the Exchange's existing 
Rules.\42\
---------------------------------------------------------------------------

    \42\ See also Cboe Options Rules 24.1, Interpretation and Policy 
.01 and 24.9(a)(3) and (4).
---------------------------------------------------------------------------

    The proposed rule change related to the minimum increment for XSP 
and DJX options will permit consistency between pricing of SPY options 
and XSP options, which are both based, in some manner, on the value of 
the S&P 500 Index, and between DIA options and DJX options, which are 
both based, in some manner, on the value of the Dow Jones Industrial 
Average. As a result, the Exchange believes it is important that these 
products have the same minimum increments for competitive reasons. The 
proposed rule change is also the same as another options exchange.\43\
---------------------------------------------------------------------------

    \43\ See Cboe Options Rule 6.42, Interpretation and Policy .03.
---------------------------------------------------------------------------

    The proposed rule change to permit listing of long-term index 
options contracts with terms up to 180 months is designed to promote 
just and equitable principles of trade in that the availability of 
long-term index options contracts with longer dated expirations will 
give market participants an alternative to trading similar products in 
the OTC market. By trading a product in an exchange-traded environment 
(that is currently being used in the OTC market), the Exchange will be 
able to compete more effectively with the OTC market. The Exchange 
believes the proposed rule change is designed to prevent fraudulent and 
manipulative acts and practices in that it will hopefully lead to the 
migration of options currently trading in the OTC market to trading to 
the Exchange. Also, any migration to the Exchange from the OTC market 
will result in increased market transparency. Additionally, the 
Exchange believes the proposed rule change is designed 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 in that it should create greater trading and 
hedging opportunities and flexibility. The proposed rule change should 
also result in enhanced efficiency in initiating and closing out 
positions and heightened contra-party creditworthiness due to the role 
of OCC as issuer and guarantor of long-term index option series. 
Further, the proposed rule change will result in increased competition 
by permitting the Exchange to offer products that are currently used in 
the OTC market and on other exchanges. Additionally, the proposed rule 
change is consistent with

[[Page 42351]]

the series listing rules of other exchanges.\44\
---------------------------------------------------------------------------

    \44\ See, e.g., Cboe Options Rule 24.9(b)(1).
---------------------------------------------------------------------------

    The proposed rule change to eliminate the rule provision regarding 
the applicability of strike price intervals, bid/ask differentials and 
quote continuity requirements to long-term index option contracts will 
protect investors by eliminating potential confusion that may result 
from inclusion of duplicative rules. As discussed above, other rules 
address requirements related to strike price intervals and quote 
continuity requirements and supersede the language regarding these 
topics, and the Exchange has no rules imposing bid/ask differential 
requirements (and thus no such requirements apply to long-term equity 
option contracts), thus rendering this language unnecessary. The 
Exchange will continue to impose these requirements in the manner it 
does today, consistent with the provisions in other existing rules, and 
thus this proposed rule change has no impact on how the Exchange 
imposes these requirements. The rules of other options exchanges do not 
include this provision.\45\
---------------------------------------------------------------------------

    \45\ See, e.g., Cboe Options Rule 24.9.
---------------------------------------------------------------------------

    The proposed minimum strike interval for RUT options (if the strike 
price is less than $200) and reduced-value long-term option series is 
the same as that on another options exchanges.\46\
---------------------------------------------------------------------------

    \46\ See, e.g., Cboe Options Rule 24.9, Interpretation and 
Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a).
---------------------------------------------------------------------------

    With respect to the proposed strike prices for XSP options, the 
proposed rule change would more closely align XSP option strike prices 
with those of SPX option strike prices, and would more closely align 
strike price range limitations on XSP options with those of equity and 
ETF options. This would provide more flexibility and allow the Exchange 
to better respond to customer demand for XSP option strike prices that 
relate to current S&P 500 Index values. The Exchange believes this 
proposed rule change would allow retail investors to better use XSP 
options to gain exposure to the SPX options market and hedge S&P 500 
cash positions in the event that the S&P 500 Index value continues to 
increase. The Exchange does not believe the proposed rule change will 
create additional capacity issues. In addition, the Exchange believes 
that because the number of strikes that may be listed would be 
contained by the percentages above and below the current XSP Index 
value, the number of XSP strikes that may be listed will not be 
unbounded. The proposed XSP strike prices and restrictions are the same 
as those on another options exchange.\47\
---------------------------------------------------------------------------

    \47\ See Cboe Options Rule 24.9, Interpretation and Policy .11.
---------------------------------------------------------------------------

    With respect to the proposed strike prices for DJX options, the 
proposed rule change would more closely align DJX option strike prices 
with 1/100th the value of the Dow Jones Industrial Average. This would 
provide more flexibility and allow the Exchange to better respond to 
customer demand for DJX option strike prices that relate to current Dow 
Jones Industrial Average values. The Exchange believes this proposed 
rule change would allow retail investors to better use DJX options to 
gain exposure to the market and hedge Dow Jones Industrial Average cash 
positions in the event that the Dow Jones Industrial Average value 
continues to increase. The Exchange does not believe the proposed rule 
change will create additional capacity issues. The proposed DJX strike 
prices are the same as those on another options exchange.\48\
---------------------------------------------------------------------------

    \48\ See Cboe Options Rule 24.9, Interpretation and Policy 
.01(b).
---------------------------------------------------------------------------

    The proposed rule change that permits the Exchange to list 
additional expiration months if they are listed on another options 
exchange will permit the Exchange to accommodate requests made by its 
Trading Permit Holders and other market participants to list the 
additional expiration months and thus encourage competition without 
harming investors or the public interest.
    The proposed rule change with respect to the opening process for 
index options eliminates the possibility of RUT options on the Exchange 
automatically opening for trading prior to those options being open on 
Cboe Options and thus interfering with the calculation of volatility 
index derivative settlement values, which promotes just and equitable 
principles of trade and perfects the mechanism of a free and open 
market and national market system. As discussed above, under certain 
circumstances, the proposed rule change is expected to have a de 
minimis impact on the opening of index option series on the Exchange 
because, to the extent the Exchange receives a quote from another 
Exchange within the time period following 9:30 a.m., and there are 
contracts that may trade, the Opening Process will essentially be the 
same, and a series will open with the NBBO Midpoint as an Opening Price 
(if valid). Additionally, the Exchange will continue to have the 
ability to use a contingent opening to open a series for trading if 
there is no valid Opening Price. Therefore, if an index option series 
is not yet open on another exchange, the Exchange will still have the 
ability to open the series for trading. As discussed above, the 
proposed rule change is the same as the opening process for index 
options on C2,\49\ and similar to the opening process of another 
options exchange, which also provides that opening for trading may be 
dependent on whether another options exchange is open.\50\
---------------------------------------------------------------------------

    \49\ See C2 Rule 6.11(a)(2)(B).
    \50\ See BX Rule [sic] Section 8(b).
---------------------------------------------------------------------------

    The proposed rule change to permit the Exchange to list additional 
expiration months on option classes opened for trading on the Exchange 
if such expiration months are opened for trading on at least one other 
registered national securities exchange is the same as rules of other 
options exchanges.\51\ The proposed rule change will remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system by allowing the Exchange to match the expiration months 
that other exchanges list. This will promote competition among 
exchanges, which benefits investors.
---------------------------------------------------------------------------

    \51\ See, e.g., Cboe Options Rule 24.9, Interpretation and 
Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material 
.04.
---------------------------------------------------------------------------

    The proposed rule change regarding when the Exchange may halt 
trading in index options promotes just and equitable principles of 
trade and protects the public interest by providing the Exchange with 
additional flexibility when determine whether to halt trading in an 
index option, so it can make such a determination based on then-current 
circumstances to determine what it will contribute to a fair and 
orderly market. The proposed change is consistent with the rules of 
another options exchange.\52\
---------------------------------------------------------------------------

    \52\ See, e.g., Cboe Options Rule 24.7(a); see also Phlx Rule 
1047A(c).
---------------------------------------------------------------------------

    The proposed rule change to clarify that, for purposes of 
determining whether a trade resulted from an erroneous print or quote 
in the underlying, the underlying may include index values (as well as 
Fund Shares and HOLDRs, which may also underlie options trading on the 
Exchange pursuant to Rule 19.3(g) and (i), respectively) further 
harmonizes the Exchange's rule related to the adjustment and 
nullification of erroneous options transactions with those of other 
options exchanges. The proposed rule change is based on the rules of 
another options exchange.\53\
---------------------------------------------------------------------------

    \53\ Cboe Options Rule 6.25(g) and (h).
---------------------------------------------------------------------------

    Proposed Rule 29.15 is merely stating explicitly in the Rules that 
Rule 18.12(b)

[[Page 42352]]

does not apply to index options, which is consistent with the current 
rule. The proposed rule change is based on the rules of another options 
exchange.\54\
---------------------------------------------------------------------------

    \54\ Cboe Options Rule 24.10.
---------------------------------------------------------------------------

    The Exchange Rules and Cboe Options rules regarding position and 
exercise limits and margin requirements are substantially the same as 
each other, as the Exchange rules currently refer to the corresponding 
Cboe Options rules. Therefore, Options Members must comply with these 
Cboe Options rules pursuant to the Exchange Rules. Pursuant to the 
proposed rule change the Exchange will be trading index options also 
authorized for trading on Cboe Options, the Cboe Options position and 
exercise limits and margin requirements applicable to these index 
options will apply to these index options that may be listed for 
trading on the Exchange. Additionally, the previously approved Cboe 
Options rules regarding listing of XSP, RUT, and DJX index options on 
the Exchange pursuant to this proposed rule change are subject to these 
also previously approved Cboe Options rules regarding position and 
exercise limits and margin requirements, and thus they are consistent 
with the Act. The proposed rule change will also result in similar 
regulatory treatment for similar option products.
    The Exchange represents it has an adequate surveillance program in 
place for index options. The Exchange is a member of the Intermarket 
Surveillance Group (``ISG''), which is comprised of an international 
group of exchanges, market centers, and market regulators. The purpose 
of 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. ISG plays a crucial role in information sharing among 
markets that trade securities, options on securities, security futures 
products, and futures and options on broad-based security indexes. A 
list of identifying current ISG members is available at https://www.isgportal.org/isgPortal/public/members.htm.
    The Exchange 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 XSP, RUT, 
and DJX options up to the proposed number of possible expirations and 
strike prices. The Exchange believes any additional traffic that would 
be generated from the introduction of XSP, RUT, and DJX options will be 
manageable. The Exchange believes its Members will not have a capacity 
issue as a result of this proposed rule change. The Exchange also 
represents that it does not believe this expansion will cause 
fragmentation of liquidity. The Exchange will monitor the trading 
volume associated with the additional options series listed as a result 
of this proposed rule change and the effect (if any) of these 
additional series on market fragmentation and on the capacity of the 
Exchange's automated systems.

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.
    The index underlying each of XSP, RUT, and DJX options satisfies 
the initial listing criteria of a broad-based index in the Exchange's 
Rules. The proposed rule change adds these indexes to the table 
regarding reporting authorities for indexes, to the list of European-
style exercise index options, and to the list of A.M.-settled index 
options. These changes are consistent with the Exchange's existing 
Rules,\55\ as well as Cboe Options' rules.\56\
---------------------------------------------------------------------------

    \55\ See Rules 29.2, Interpretation and Policy .01 and 
29.11(a)(4) and (5).
    \56\ See Cboe Options Rules 24.1, Interpretation and Policy .01 
and 24.9(a)(3) and (4).
---------------------------------------------------------------------------

    The proposed rule change related to the minimum increment for XSP 
and DJX options will permit consistency between pricing of SPY options 
and XSP options, which are both based, in some manner, on the value of 
the S&P 500 Index, and between pricing of DIA options and DJX options, 
which are both based, in some manner, on the value of the Dow Jones 
Industrial Average. As a result, the Exchange believes it is important 
that these products have the same minimum increments for competitive 
reasons. The proposed rule change is also the same as another options 
exchange.\57\
---------------------------------------------------------------------------

    \57\ See Cboe Options Rule 6.42, Interpretation and Policy .03.
---------------------------------------------------------------------------

    The proposed rule change to permit listing of long-term index 
options contracts with terms up to 180 months will give market 
participants an alternative to trading similar products in the OTC 
market. By trading a product in an exchange-traded environment (that is 
currently being used in the OTC market), the Exchange will be able to 
compete more effectively with the OTC market. Additionally, the 
Exchange believes that the proposed rule change will create greater 
trading and hedging opportunities and flexibility. The proposed rule 
change should also result in enhanced efficiency in initiating and 
closing out positions and heightened contra-party creditworthiness due 
to the role of OCC as issuer and guarantor of long-term index options 
contracts. Further, the proposal will result in increased competition 
by permitting the Exchange to offer products that are currently used in 
the OTC market. Additionally, the proposed rule change is consistent 
with the series listing rules of other exchanges.\58\
---------------------------------------------------------------------------

    \58\ See Cboe Options Rule 24.9(b)(1).
---------------------------------------------------------------------------

    The proposed rule change to eliminate the rule provision regarding 
the applicability of strike price intervals, bid/ask differentials and 
quote continuity requirements to long-term index option contracts will 
have no impact on Members, as this merely eliminates potential 
confusion that may result from inclusion of duplicative rules that have 
been superseded by other rules. The Exchange will continue to impose 
these requirements in the manner it does today, consistent with the 
provisions in other existing rules, and thus this proposed rule change 
has no impact on how the Exchange imposes these requirements. The rules 
of other options exchanges do not include this provision.\59\
---------------------------------------------------------------------------

    \59\ See Cboe Options Rule 24.9.
---------------------------------------------------------------------------

    The proposed minimum strike interval for RUT options (if the strike 
price is less than $200) and reduced-value long-term option series is 
the same as that on another options exchanges.\60\
---------------------------------------------------------------------------

    \60\ See, e.g., Cboe Options Rule 24.9, Interpretation and 
Policy .01(a); and Nasdaq PHLX LLC (``Phlx'') Rule 1101A(a).
---------------------------------------------------------------------------

    The proposed strike prices for XSP options will be available to all 
market participants that choose to trade XSP options on the Exchange. 
Additionally, the proposed XSP strike prices and restrictions are the 
same as those on another options exchange.\61\ The proposed strike 
prices for DJX options will be available to all market participants 
that choose to trade DJX options on the Exchange. Additionally, the 
proposed DJX strike prices and restrictions are the same as those on 
another options exchange.\62\
---------------------------------------------------------------------------

    \61\ See Cboe Options Rule 24.9, Interpretation and Policy .11.
    \62\ See Cboe Options Rule 24.9, Interpretation and Policy 
.01(b).
---------------------------------------------------------------------------

    With respect to the proposed rule change related to the opening 
process, the amended opening process will apply in the same manner to 
all market participants that participate in the Exchange's Opening 
Process for index

[[Page 42353]]

options. The Exchange believes it is appropriate to limit the proposed 
change to index options, because some, such as RUT, are used to 
determine the settlement value for volatility index derivatives. A 
similar process does not occur for equity options, and thus, the risk 
of opening trading in an equity option interfering with a settlement 
process on another exchange is not present. As discussed above, the 
proposed rule change is the same as the opening process for index 
options on C2,\63\ and similar to the opening process of another 
options exchange, which also provides that opening for trading may be 
dependent on whether another options exchange is open.\64\
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    \63\ See C2 Rule 6.11(a)(2)(B).
    \64\ See BX Rule [sic] Section 8(b).
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    The proposed rule change regarding when the Exchange may halt 
trading in index options will apply to all market participants in the 
same manner to the extent the Exchange halts trading pursuant to the 
proposed rule. The rule provides the Exchange with additional 
flexibility when determine whether to halt trading in an index option, 
so it can make such a determination based on then-current circumstances 
to determine what it will contribute to a fair and orderly market. The 
proposed change is consistent with the rules of another options 
exchange.\65\
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    \65\ See, e.g., Cboe Options Rule 24.7(a); see also Phlx Rule 
1047A(c).
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    The proposed rule change to permit the Exchange to list additional 
expiration months on option classes opened for trading on the Exchange 
if such expiration months are opened for trading on at least one other 
registered national securities exchange is the same as rules of other 
options exchanges.\66\ This proposed rule change will allow the 
Exchange to compete with other exchanges by matching the expiration 
months that other exchanges list.
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    \66\ See, e.g., Cboe Options Rule 24.9, Interpretation and 
Policy .13; and NASDAQ ISE, LLC Rule 2009, Supplementary Material 
.04.
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    The proposed rule change to clarify that, for purposes of 
determining whether a trade resulted from an erroneous print or quote 
in the underlying, the underlying may include index values (as well as 
Fund Shares and HOLDRs, which may also underlie options trading on the 
Exchange pursuant to Rule 19.3(g) and (i), respectively) further 
harmonizes the Exchange's rule related to the adjustment and 
nullification of erroneous options transactions with those of other 
options exchanges. The proposed rule change is based on the rules of 
another options exchange.\67\
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    \67\ Cboe Options Rule 6.25(g) and (h).
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    Proposed Rule 29.15 is merely stating explicitly in the Rules that 
Rule 18.12(b) does not apply to index options, which is consistent with 
the current rule. The proposed rule change is based on the rules of 
another options exchange.\68\
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    \68\ Cboe Options Rule 24.10.
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    The Exchange Rules and Cboe Options rules regarding position and 
exercise limits and margin requirements are substantially the same as 
each other, as the Exchange rules currently refer to the corresponding 
Cboe Options rules. Therefore, Options Members must comply with these 
Cboe Options rules pursuant to the Exchange Rules. Pursuant to the 
proposed rule change, the Exchange will be trading index options also 
authorized for trading on Cboe Options, so the position and exercise 
limits and margin requirements currently applicable to these index 
options that trade on Cboe Options will apply to these index options 
that may be listed for trading on the Exchange. The proposed rule 
regarding the listing and trading of XSP, RUT, and DJX are 
substantially the same as Cboe Options rules regarding the listing and 
trading of XSP, RUT, and DJX, which rules were previously approved by 
the Commission and thus they are consistent with the Act. Additionally, 
the rules regarding position and exercise limits and margin 
requirements that will apply to XSP, RUT, and DJX options listed for 
trading on the Exchange were previously approved by the Commission, and 
thus they are consistent with the Act. The proposed rule change will 
also result in similar regulatory treatment for similar option 
products.
    The Exchange believes that the proposed rule change will relieve 
any burden on, or otherwise promote, competition, as the rules are 
substantially the same as those of other options exchanges, as noted 
above.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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 [email protected]. Please include 
File Number SR-CboeEDGX-2018-035 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-CboeEDGX-2018-035. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeEDGX-2018-035, and

[[Page 42354]]

should be submitted on or before September 11, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-17959 Filed 8-20-18; 8:45 am]
 BILLING CODE 8011-01-P