
[Federal Register Volume 82, Number 69 (Wednesday, April 12, 2017)]
[Notices]
[Pages 17708-17710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07305]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80385; File No. SR-CBOE-2017-014]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change Related to Rule 
24.9(e)

April 6, 2017.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ Chicago Board Options 
Exchange, Incorporated (the ``Exchange'' or ``CBOE'') filed with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend the operation of its nonstandard expirations pilot 
program on February 13, 2017. The proposed rule change was published 
for comment in the Federal Register on February 21, 2017.\3\ No comment 
letters were received in response to this proposal. This order approves 
the proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80037 (Feb. 14, 
2017), 82 FR 11290 (SR-CBOE-2017-014) (``Notice'').
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II. Description of the Proposed Rule Change

    The proposed rule change amended the nonstandard expirations pilot

[[Page 17709]]

program set forth in CBOE Rule 24.9(e) (the ``Pilot Program'') to 
permit the Exchange to list weekly and monthly expirations non-
consecutively.
    In its filing, the Exchange explained that the Pilot Program 
initially permitted CBOE to list P.M.-settled ``end-of-week'' options 
on broad-based indexes that expire on any Friday of the month, other 
than the third Friday of the month (``EOWs''), and ``end of month'' 
options that expire on the last trading day of the month (``EOMs'').\4\ 
The Pilot Program was later expanded to allow CBOE to list P.M.-settled 
options on broad-based indexes that expire on any Wednesday of the 
month (``WEDs'') and any Monday of the month (``MONs'').\5\ The Pilot 
Program permits the Exchange to list, for any given class, the maximum 
number of expirations permitted by CBOE Rule 24.9(a)(2) for standard 
options on the same broad-based index.\6\ For example, the Exchange 
stated that MONs, WEDs, EOWs and EOMS in the S&P 500 Index options 
class (``SPX'') may each have up to twelve expirations under the Pilot 
Program (i.e., a total of 48 expirations),\7\ although the Exchange 
represented that it does not currently choose to list all such 
expirations.\8\ Rather, the Exchange explained that it introduces 
expirations as customer demand dictates and typically lists four MONs, 
six WEDs, and seven EOWs in SPX options at a time.\9\
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    \4\ See Notice, supra note 3, at 11290; see also Securities 
Exchange Act Release No. 62911 (Sept. 14, 2010), 75 FR 57539 (Sept. 
21, 2010) (SR-CBOE-2009-075) (order approving the establishment of 
the nonstandard expirations pilot program).
    \5\ See Notice, supra note 3, at 11290-91. See also Securities 
Exchange Act Release No. 76909 (Jan. 14, 2016), 81 FR 3512 (Jan. 21, 
2016) (SR-CBOE-2015-106) (order approving the inclusion of WEDs in 
the Pilot Program); Securities Exchange Act Release No. 78531 (Aug. 
10, 2016), 81 FR 54643 (Aug. 16, 2016) (SR-CBOE-2016-046) (order 
approving the inclusion of MONs in the Pilot Program).
    \6\ See Notice, supra note 3, at 11291; CBOE Rule 24.9(e)(1)-
(2).
    \7\ See Notice, supra note 3, at 11291; see also CBOE Rule 
24.9(a)(2) (specifying that the Exchange may list up to twelve 
standard monthly expirations at any one time for any class--like 
SPX--that the Exchange uses to calculate a volatility index).
    \8\ See Notice, supra note 3, at 11291.
    \9\ See id.
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    The Exchange noted, however, that MONs, WEDs, and EOWs 
(collectively, ``Weekly Expirations'') currently must be listed for 
consecutive Monday, Wednesday, or Friday expirations, as 
applicable.\10\ Similarly, EOM expirations currently must be listed for 
consecutive month-end dates.\11\ The Exchange indicated that it had 
received repeated customer interest to list Weekly Expirations and EOMs 
that expire in the mid-term--as opposed to the short-term expirations 
set forth in the Exchange's current listing schedule \12\--in order to 
provide a potential financial hedge for impactful economic events.\13\ 
The Exchange therefore proposed to amend its Pilot Program to eliminate 
the consecutive expiration restriction for the listing of Weekly 
Expirations and EOMs.\14\
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    \10\ See id.; see also CBOE Rule 24.9(e)(1).
    \11\ See Notice, supra note 3, at 11291; see also CBOE Rule 
24.9(e)(2).
    \12\ See supra note 9 and accompanying text. The Exchange 
pointed out that it separately provides long-term expirations 
through its Long-Term Index Option Series program (``LEAPS''). See 
Notice, supra note 3, at 11291; CBOE Rule 24.9(b)(1) (providing that 
LEAPS may expire twelve to 180 months from the date of issuance).
    \13\ See Notice, supra note 3, at 11291.
    \14\ See id.
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    While CBOE could currently add more consecutive expirations to its 
listing schedule in order to provide some amount of mid-term coverage, 
the Exchange represented that customer demand is for expirations near a 
certain future economically impactful event (e.g., a national 
election)--not for every expiration between the current date and that 
particular event.\15\ For that reason, the Exchange believed the 
marketplace would be better served by allowing CBOE to list Weekly 
Expirations or EOMs non-consecutively, instead of listing all Weekly 
Expirations or EOMs consecutively in order to reach a certain date.\16\ 
The Exchange indicated that this approach would allow CBOE to list 
fewer expirations because it could exclude those with less customer 
demand, which it believed would limit potential burdens on liquidity 
providers to quote in the relevant option classes.\17\ The Exchange 
also asserted that non-consecutive expirations would expand the hedging 
tools available to market participants, allowing them to tailor their 
investment or hedging needs more effectively.\18\
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    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ Id.
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    The Exchange highlighted the limited scope of the proposed rule 
change. It pointed out that CBOE currently only lists nonstandard 
expirations in three classes: S&P 500 Index options under symbol SPXW, 
CBOE Mini S&P 500 Index options under symbol XSP, and Russell 2000 
Index options under symbol RUTW.\19\ Furthermore, the Exchange noted 
that CBOE only lists MONs and WEDs in SPXW; EOWs in SPXW, RUTW, and 
XSP; and EOMs in SPXW and RUTW.\20\ The Exchange therefore believed the 
proposed rule change would not affect most options classes.\21\ 
Moreover, the Exchange anticipated that the proposed rule change would 
have a limited effect on the three classes that are listed under the 
Pilot Program. The Exchange expressed its belief that the vast majority 
of expirations would continue to be listed consecutively because the 
majority of trading interest is in the short-term weeks.\22\ The 
Exchange also explained that even non-consecutively listed expirations 
would eventually fall in line with CBOE's regular listing schedule as 
consecutive weekly or monthly expirations are added.\23\
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    \19\ Id.
    \20\ Id.
    \21\ Id.
    \22\ Id.
    \23\ Id.
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    The Exchange further noted that the proposed rule change would not 
affect the number of expirations permitted under the Pilot Program, as 
it would still limit the maximum number of expirations that may be 
listed for each Weekly Expiration and EOMs in a given class to the 
maximum number of expirations permitted by CBOE Rule 24.9(a)(2) for 
standard options on the same broad-based index.\24\ Similarly, the 
Exchange clarified that the proposed rule change would not affect the 
maximum duration (i.e., the maximum time from listing to expiration) of 
Weekly Expirations or EOMs, and it proposed to specify in CBOE Rule 
24.9(e)(1) and (2) that the expiration date of a non-consecutive 
expiration may not be beyond what would be considered the last 
expiration date if the maximum number of expirations were listed 
consecutively.\25\ By way of example, the Exchange explained that 
listing all twelve WEDs consecutively in SPXW would result in the 
twelfth WED expiration occurring 11 weeks from the nearest-term 
expiration.\26\ Assuming that the nearest-term WED expiration occurred 
on February 8, 2017, the Exchange stated that the twelfth expiration 
would occur on April 26, 2017.\27\ It then explained that, under the 
proposed rule, a non-consecutively listed WED could not have an 
expiration date later than April 26, 2017 in that example.\28\ Thus, 
the only difference identified by the Exchange between the current rule 
and the proposed rule is that the current rule would require CBOE to 
list all twelve expirations in order to list the April 26, 2017 
expiration; under the proposed rule,

[[Page 17710]]

CBOE could list the April 26, 2017 expiration without listing any or 
only some of the other WEDs expirations.\29\
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    \24\ Id.; see CBOE Rule 24.9(e)(1)-(2).
    \25\ See Notice, supra note 3, at 11291-92.
    \26\ The Exchange noted that its example assumes that there are 
no EOMs that coincide with the WEDs in SPXW, in which case CBOE 
would list an EOM instead of a WED. See id.
    \27\ See Notice, supra note 3, at 11292.
    \28\ Id.
    \29\ Id.
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    Finally, the Exchange assured the Commission that its annual Pilot 
Program report will include any Weekly Expirations and EOMs, regardless 
of whether the expirations are listed consecutively or non-
consecutively.\30\
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    \30\ Id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \31\ 
and rules and regulations thereunder applicable to a national 
securities exchange.\32\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act, which requires, among other things, that a national 
securities exchange have rules 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 mechanisms of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.\33\
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    \31\ 15 U.S.C. 78f(b).
    \32\ 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).
    \33\ 15 U.S.C. 78f(b)(5).
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    As an initial matter, the Commission notes that the proposed rule 
change does not expand the scope of P.M. settlement under the Pilot 
Program; the Exchange has confirmed that the maximum number of 
expirations permitted and the maximum duration of Weekly Expirations 
and EOMs under the Pilot Program would remain the same. The Exchange 
further explained that its proposal to eliminate the requirement to 
list Weekly Expirations and EOMs consecutively is consistent with 
Section 6(b)(5) of the Act for a number of reasons. First, the proposal 
helps protect investors and the public interest because it will expand 
the ability of investors to hedge risks against market movements that 
may arise from future economic events.\34\ Similarly, the Exchange 
noted the proposal will create greater trading and hedging 
opportunities and flexibility and will provide customers with the 
ability to more closely tailor their investment objectives.\35\ 
Finally, the Exchange noted that this proposal will allow the Exchange 
to provide these enhanced hedging opportunities in manner that also 
limits the potential burden on liquidity providers quoting the affected 
classes, which helps remove impediments to and perfect the mechanism of 
a free and open market and a national market system.\36\
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    \34\ See Notice, supra note 3, at 11292.
    \35\ Id.
    \36\ Id.
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    The Commission notes that CBOE will continue to provide the 
Commission with the Annual Report analyzing volume and open interest of 
EOMs and Weekly Expirations (including any non-consecutively listed 
expirations), which will also contain information and analysis of EOMs 
and Weekly Expiration trading patterns and index price volatility and 
share trading activity for series that exceed minimum parameters. This 
information should be useful to the Commission as it evaluates whether 
allowing P.M. settlement for EOMs and Weekly Expirations has resulted 
in increased market and price volatility in the underlying component 
stocks, particularly at expiration. This information should help the 
Commission and CBOE assess the impact on the markets and determine 
whether changes to the Pilot Program are necessary or appropriate. 
Furthermore, the Exchange's ongoing analysis of the Pilot Program 
should help it monitor any potential risks from large P.M.-settled 
positions and take appropriate action if warranted.
    For the foregoing reasons, the Commission finds that the proposed 
rule changes are consistent with the requirements of Section 6 of the 
Act including Section 6(b)(5) and rules and regulations thereunder 
applicable to a national securities exchange.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-CBOE-2017-014) be, and 
hereby is,  approved.
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    \37\ 15 U.S.C. 78s(b)(2).
    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07305 Filed 4-11-17; 8:45 am]
 BILLING CODE 8011-01-P


