
[Federal Register Volume 81, Number 49 (Monday, March 14, 2016)]
[Notices]
[Pages 13429-13433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05587]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77319; File No. SR-CBOE-2016-016]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Related to Options That Overlie the MSCI EAFE 
Index and the MSCI Emerging Markets Index

March 8, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on February 29, 2016, Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (the ``Commission'') the proposed rule change 
as described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and, for 
the

[[Page 13430]]

reasons discussed below, is approving the proposal on an accelerated 
basis.
---------------------------------------------------------------------------

    \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

    The Exchange seeks to amend the listing criteria for options that 
overlie the MSCI EAFE Index and the MSCI Emerging Markets Index (``EAFE 
options'' and ``EM options''). 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'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 III below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    On April 8, 2015, the Commission approved CBOE's proposal to list 
and trade options on the MSCI EAFE Index (``EAFE Index'') and the MSCI 
Emerging Markets Index (``EM Index'').\3\ Rule 24.2.01(a) sets forth 
the initial listing standards for EAFE and EM options. Rule 24.2.01(b) 
sets forth the maintenance listing standards for EAFE and EM options. 
All of the maintenance listing requirements set forth in Rule 
24.2.01(b) are met except for the requirement that the initial listing 
standard of Rule 24.2.01(a)(7) continues to be met. Rule 24.2.01(a)(7) 
currently states that Non-U.S. component securities (stocks or ADRs) 
that are not subject to comprehensive surveillance agreements 
(``CSAs'') 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. Due to unforeseen 
circumstances, as described below, the EAFE and EM Indexes no longer 
meet this requirement; thus, the Exchange is seeking to amend Rule 
24.2.01(a)(7) (criteria ``No. 7'') to raise the CSA percentage for the 
EAFE and EM Indexes by five percent (5%).
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 74681 (April 8, 
2015), 80 FR 20032 (April 14, 2015) (approving SR-CBOE-2015-023).
---------------------------------------------------------------------------

EAFE Index
    The 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 EAFE Index consists of large and midcap 
components, has 928 constituents and ``covers approximately 85% of the 
free float-adjusted market capitalization in each country.'' \4\
---------------------------------------------------------------------------

    \4\ See EAFE Index fact sheet (dated January 29, 2016) located 
at: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-eafe-index-usd-price.pdf.
---------------------------------------------------------------------------

    In order for EAFE options to meet listing criteria No. 7, the 
Exchange relied on Intermarket Surveillance Group (``ISG'') \5\ 
membership \6\ as well as several CSAs \7\ that the Exchange has 
entered into with relevant stock exchanges. One of the CSAs that the 
Exchange relied upon was the CSA with the Association of Swiss 
Exchanges (the ``Association''), which is the predecessor to SIX Swiss 
Exchange (``SIX Swiss''). However, CBOE was recently informed by SIX 
Swiss that the Association's activities have ceased and that SIX Swiss 
was unable to find evidence of a transfer of the CSA to SIX Swiss. The 
Exchange has been in contact with SIX Swiss in an attempt to enter into 
a new CSA, but the Exchange has thus far been unable to execute a new 
CSA with SIX Swiss. The component securities of the EAFE Index that 
trade on SIX Swiss represent approximately 9.5% of the weight of the 
EAFE Index. When relying on the CSA with the Association, the non-U.S. 
component securities (stocks or ADRs) that are not subject to CSAs do 
not, in the aggregate, represent more than 20% of the weight of the 
EAFE Index. Currently, without relying on the CSA with the Association, 
the non-U.S. component securities (stocks or ADRs) that are not subject 
to CSAs do not, in the aggregate, represent more than approximately 
24.5% of the weight of the EAFE Index. Thus, the Exchange is seeking to 
amend listing criteria No. 7 for EAFE options to raise the percentage 
of non-U.S. component securities that do not need to be subject to CSAs 
from twenty percent (20%) to twenty-five percent (25%).
---------------------------------------------------------------------------

    \5\ The ISG ``is comprised of an international group of 
exchanges, market centers, and market regulators.'' See Intermarket 
Surveillance Group Web site, available at https://www.isgportal.org/home.html. 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 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.
    \6\ The component securities that represent a majority of the 
weight of the EAFE and EM Indexes are traded on exchanges that are 
members of ISG.
    \7\ For the EAFE and EM Indexes, the CSAs are in the form of 
Memorandum of Understanding (``MOUs'') or information sharing 
agreements.
---------------------------------------------------------------------------

    The Exchange represents that raising the percent will not have an 
adverse impact on the Exchange's surveillance program. The Exchange 
represents that it will still have an adequate surveillance program in 
place for EAFE options and will continue to use the same surveillance 
procedures currently utilized for each of the Exchange's other index 
options to monitor trading in EAFE options.
    Furthermore, the EAFE Index is a broad-based index with 928 
constituents. The component stocks of the EAFE Index have a market 
capitalization of 11,444,154.78 (USD Millions) with an average market 
capitalization per constituent of 12,332.06 (USD Millions). 
Additionally, the component stocks have an average daily volume of over 
5 billion with an average daily volume per constituent of over 5 
million. Also, the largest constituent in the EAFE Index currently only 
accounts for 2.04% of the weight of the EAFE Index. Given the high 
number of constituents and capitalization of the EAFE Index 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.
EM Index
    The 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 EM Index consists of large and midcap 
components, has 837 constituents and ``covers approximately 85% of the 
free float-adjusted market capitalization in each country.'' \8\
---------------------------------------------------------------------------

    \8\ See EM Index fact sheet (dated January 29, 2016) located at: 
http://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-price.pdf.

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

[[Page 13431]]

    In order for EM options to meet listing criteria No. 7, the 
Exchange relied on ISG membership as well as several CSAs that have 
been entered into with relevant stock exchanges. One of the CSAs that 
the Exchange relied upon was the CSA with Bolsa de Valores de Sao Paulo 
(``BOVESPA''), which is the predecessor to Bolsa de Valores Mercadorias 
e Futuros (``BM&FBOVESPA''). However, CBOE was recently informed by 
BM&FBOVESPA that a Brazilian law prevents BM&FBOVESPA from providing 
information to CBOE under the CSA. The component securities of the EM 
Index that trade on BM&FBOVESPA represent approximately 5.5% of the 
weight of the EM Index. When relying on the CSA with BOVESPA the non-
U.S. component securities (stocks or ADRs) that are not subject to CSAs 
do not, in the aggregate, represent more than approximately 22.5% of 
the weight of the EM Index. Currently, without relying on the CSA with 
BOVESPA, the non-U.S. component securities (stocks or ADRs) that are 
not subject to CSAs do not, in the aggregate, represent more than 
approximately 24.5% of the weight of the EM Index. Thus, the Exchange 
is seeking to amend listing criteria No. 7 for EM options to raise the 
percentage of non-U.S. component securities that do not need to be 
subject to CSAs from twenty-two and a half percent (22.5%) to twenty-
seven and a half percent (27.5%).\9\
---------------------------------------------------------------------------

    \9\ The Exchange notes that the iShares MSCI Emerging Markets 
ETF (``EEM''), which is also based on the EM Index, is only required 
to have 50% of the component securities subject to CSAs. See 
Securities Exchange Act Release No. 53824 (May 17, 2006), 71 FR 
30003 (May 24, 2006) (SR-Amex-2006-43).
---------------------------------------------------------------------------

    The Exchange represents that raising the percent will not have an 
adverse impact on the Exchange's surveillance program. The Exchange 
represents that it will still have an adequate surveillance program in 
place for EM options and will continue to use the same surveillance 
procedures currently utilized for each of the Exchange's other index 
options to monitor trading in EM options.
    Furthermore, the EM Index is a broad-based index with 837 
constituents. The component stocks of the EM Index have a market 
capitalization of 3,219,779.13 (USD Millions) and average market 
capitalization per constituent of 3,846.81 (USD Millions). 
Additionally, the component stocks have an average daily volume of over 
25 billion with an average daily volume per constituent of over 30 
million. Also, the largest constituent in the EM Index currently only 
accounts for 3.29% of the weight of the EM Index. Given the high number 
of constituents and capitalization of the EM Index 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.
Conclusion
    EAFE and EM options are currently listed for trading on CBOE. The 
Exchange generally adds new series after an expiration, which allows 
trading to commence in the new series on the first trading day after 
the expiration date. The Exchange currently lists EAFE and EM options 
that expire in February, March, April, June, September, and December. 
Additional series, specifically EAFE and EM options that expire in May, 
are scheduled to be added after expiration on March 18, 2016, which 
will allow trading to commence in the additional series on the next 
trading day of March 21, 2016. Without this amendment, EAFE and EM 
options cannot meet the continuing listing criteria of Rule 24.2.01(b), 
specifically criteria No. 7, which will prevent the Exchange from 
adding the EAFE and EM options that expire in May.\10\ The inability to 
add the EAFE and EM options that expire in May would be a detriment to 
market participants seeking to hedge positions in exchange-traded funds 
(``ETFs'') based on the EAFE and EM indexes (``EFA'' and ``EEM,'' 
respectively), options on EFA and EEM, EAFE and EM futures, and 
European-traded derivatives on the EAFE and EM Indexes. Additionally, 
to the extent market participants want to roll a position in EAFE and 
EM options that expire in April to a position that expires in May, they 
will be prevented from doing so without this amendment.
---------------------------------------------------------------------------

    \10\ Rule 24.2.01(b)(2) states that ``[i]n 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.''
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\11\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that both the EAFE Index and 
the EM Index are not easily susceptible to manipulation. Both indexes 
are broad-based indexes and have high market capitalizations. The EAFE 
Index is comprised of 928 component stocks, the component stocks have a 
market capitalization of 11,444,154.78 (USD Millions) and average daily 
volume of over 5 billion, and no single component comprises more than 
3.5% [sic] of the index, making it not easily subject to market 
manipulation. Similarly, the EM Index is comprised of 837 component 
stocks, the component stocks have a market capitalization of 
3,219,779.13 (USD Millions) and average daily volume of over 25 
billion, and no single component comprises more than 3.5% of the index, 
making it not easily subject to market manipulation. The purpose of a 
CSA is to allow the Exchange to investigate manipulation if it were to 
occur on a foreign exchange at which one of the component securities 
trades. However, as described above, the EAFE and EM Indexes are 
unlikely to be susceptible to manipulation; thus, raising the CSA 
percentage for the EAFE and EM Indexes by only five percent (5%) is 
unlikely to affect the Exchange's ability to investigate 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 revised listing requirements are appropriate to trade options on 
these indexes. The Exchange also represents that it has an adequate 
surveillance program in place for EAFE and EM options.

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

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act. Specifically, CBOE believes the proposed rule change will 
allow the continued listing and trading of EAFE

[[Page 13432]]

and EM options, which enhances competition among market participants 
and provides different types of options to compete with domestic 
products such as EFA and EMM [sic], which seek to track the EAFE and EM 
Indexes, respectively, EFA and EEM options, EAFE and EM futures and 
European-traded derivatives on the EAFE Index and the EM Index to the 
benefit of investors and the marketplace. For all the reasons stated 
above, the Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, and believes the proposed 
change will enhance competition among similar products.

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. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2016-016 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2016-016. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2016-016, and should be 
submitted on or before April 4, 2016.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ which 
requires, among other things, that the rules of a national securities 
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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In order to list options on the EAFE and EM indexes, CBOE Rule 
24.2.01(a)(7) requires that any non-U.S. component securities that are 
not subject to CSAs must 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. 
The Exchange proposes to raise the percentage of non-U.S. component 
securities that do not need to be subject to CSAs to twenty-five 
percent (25%) for the EAFE Index and twenty-seven and a half percent 
(27.5%) for the EM Index. The Exchange stated that both indexes are 
broad-based indexes, have high market capitalizations, and have 
components with high trading volume. Given the high number of 
constituents and the overall high capitalization of the EAFE and EM 
Indexes and the deep and liquid markets for the securities underlying 
these indexes, the Exchange believes that the concerns for market 
manipulation or disruption in the underlying markets are greatly 
reduced. Therefore, the Exchange believes that a five percent increase 
would not likely impact its ability to investigate manipulation in 
these products. Additionally, in its filing, the Exchange represented 
that it will maintain an adequate surveillance program for EAFE and EM 
options and will continue to use the same surveillance procedures 
currently utilized for each of the Exchange's other index options to 
monitor trading in these products. Based on these representations, the 
Commission believes the modest increase in the applicable percentages 
of non-U.S. component securities that do not need to be subject to CSA 
requirements is not likely to have a material effect on CBOE's ability 
to surveil for potential manipulation in EAFE and EM options. 
Therefore, the Commission believes that approval of this proposal is 
appropriate.
    The Exchange has requested that the Commission find good cause for 
approving the proposed rule change prior to the 30th day after 
publication of the notice thereof in the Federal Register. The Exchange 
stated that accelerated approval of its proposal will allow CBOE to add 
new series of EAFE and EM options that expire in May (which would be 
listed after the March expiration). The Exchange believes that the 
inability to add additional series in EAFE and EM options would be a 
detriment to market participants seeking to hedge positions in EFA and 
EEM, options on EFA and EEM, EAFE and EM futures, and European-traded 
derivatives on the EAFE and EM Indexes. Additionally, the Exchange 
stated that, without accelerated approval of its proposal, market 
participants would be unable to roll a position in EAFE and EM options 
that expires in April to a position that expires in May. The Commission 
believes that good cause exists for accelerated approval of the 
proposed rule change because it raises no novel issues and the modest 
increase in the applicable percentages of non-U.S. component securities 
that do not need to be subject to CSA requirements is not likely to 
impose a material change in

[[Page 13433]]

CBOE's ability to surveil for potential manipulation in EAFE and EM 
options or adversely affect market participants. The Commission further 
believes that approval of this proposal on an accelerated basis should 
benefit investors by creating, without undue delay, additional 
competition in the market for these and similar products. Accordingly, 
the Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\15\ to approve the proposed rule change prior to the 30th day 
after the date of publication of the notice of filing thereof in the 
Federal Register.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-CBOE-2016-016) be, and 
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05587 Filed 3-11-16; 8:45 am]
 BILLING CODE 8011-01-P


