[Federal Register Volume 83, Number 131 (Monday, July 9, 2018)]
[Notices]
[Pages 31802-31804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14548]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83583; File No. SR-CBOE-2018-048]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 24.6, Days and Hours of Business Concerning Expiring MSCI 
EAFE Index Options and MSCI Emerging Markets Index Options

July 2, 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 June 25, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).

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[[Page 31803]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 24.6.
(additions are italicized; deletions are [bracketed])
* * * * *

Cboe Exchange, Inc. Rules

* * * * *

Rule 24.6. Days and Hours of Business

    (a)-(b) (No change).
    . . . Interpretations and Policies:
    .01-.04 (No change).
    .05 On their last trading day, [transactions in expiring MSCI 
EAFE Index options may be effected on the Exchange between the hours 
of 8:30 a.m. (Chicago time) and 3:00 p.m. (Chicago time), and] 
transactions in expiring FTSE Developed Europe Index options may be 
effected on the Exchange between the hours of 8:30 a.m. (Chicago 
time) and the close of the London Stock Exchange (usually 10:30 a.m. 
Chicago time). The last day of trading for expiring MSCI EAFE Index 
options series and MSCI Emerging Markets Index options series will 
be the business day prior to the expiration date of the specific 
series.
    .06 (No change).
* * * * *
    The text of the proposed rule change is available on the Exchange's 
website (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 IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The proposed rule change modifies the last trading day for options 
that overlie the MSCI EAFE Index and the MSCI Emerging Markets Index 
(``EAFE options'' and ``EM options,'' respectively). Pursuant to Rule 
24.6(a), the trading hours for EM options are from 8:30 a.m. to 3:15 
p.m. Chicago time, including on their expiration date. Pursuant to Rule 
24.6(a) and Interpretation and Policy .05, the trading hours for EAFE 
options are from 8:30 a.m. to 3:15 p.m. Chicago time, except trading in 
expiring EAFE options will end at 3:00 p.m. on their expiration date. 
The proposed rule change states the last trading day for expiring EAFE 
options series and EM options series will be the business day prior to 
the expiration date of the specific series.
    EAFE and EM options are p.m.-settled, which means the exercise 
settlement value of an expiring option is derived from the closing 
prices of the underlying components on the series expiration date. The 
MSCI EAFE Index consists of components from 21 countries, and the MSCI 
Emerging Markets Index consists of components from 24 countries. 
Because the components of each of these indexes encompass multiple 
markets around the world, the components are subject to varying trading 
hours. For the MSCI EAFE Index, the first components open trading at 
approximately 5:00 p.m. Chicago time on the prior trading day, and the 
last components end trading at approximately 11:30 a.m. Chicago time. 
Similarly, for the MSCI Emerging Markets Index, the first components 
open trading at approximately 6:00 p.m. Chicago time (on the prior 
trading day), and the last components end trading at approximately 3:30 
p.m. Chicago time.
    Expiring EAFE options and EM options currently trade on their 
expiration dates through 3:00 p.m. and 3:15 p.m. Chicago time, 
respectively. However, trading in various components ends prior to the 
beginning of EAFE options and EM options regular trading hours (i.e., 
8:30 a.m. Chicago time).\5\ As a result, the closing prices of those 
components, which are used to determine the exercise settlement value, 
were determined prior to the time when the expiring options may begin 
trading on the expiration date. This increases the risk of providing 
liquidity in these products on that date. Generally, the prices of 
futures on the MSCI EAFE and EM indexes can be a proxy for the current 
level of the applicable index when options on those indexes are trading 
on the Exchange while the index level is not being disseminated. 
However, that is not the case on options' expiration dates, as the 
prices that will be used to determine the exercise settlement value are 
fixed once trading in the components ends, and thus futures trading 
prices after trading in those components end have no bearing on the 
exercise settlement value. Therefore, the Exchange believes it is 
appropriate to stop trading in expiring EAFE and EM options on the 
business day prior to the expiration date. Pursuant to Rule 24.6(a), on 
their last day of trading (the trading day prior to the expiration 
date, as proposed), EAFE and EM options will trade from 8:30 a.m. 
through 3:15 p.m. Chicago time.
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    \5\ Trading in the other components ends at various times 
throughout the trading day in Chicago.
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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.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ 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) \8\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    The Exchange has observed reduced liquidity on expiration dates of 
expiring EAFE and EM series due to the pricing risk associated with 
providing liquidity after the components whose closing prices will be 
used to determine the exercise settlement value of expiring options 
have stopped trading. Market-Makers and other liquidity providers 
generally price EAFE and EM options using the disseminated index values 
and data from the markets on which the components trade. As noted 
above, when these markets are not trading during U.S. trading hours, 
these liquidity providers price the options using prices of futures 
trading on the MSCI EAFE and EM indexes. While those futures prices can 
serve as a proxy for the index value, they cannot serve as a proxy for 
the settlement value on the expiration date for the options. This is 
because the futures pricing is intended

[[Page 31804]]

to represent the then-current index value, but does not incorporate the 
closing prices of the components that will be used to determine the 
settlement value. This creates risk for Market-Makers and other 
liquidity providers, as they have no data they can use to price the 
expiring options based on the ultimate settlement value. This may 
result in trades at prices inconsistent with the settlement value of 
those options. The proposed rule change removes impediments to and 
perfects the mechanism of a free and open market by eliminating this 
pricing risk for liquidity providers on the last trading day of 
expiring series in these products. The Exchange believes this may 
encourage additional liquidity providers to participate on the last 
trading of expiring series, which may provide more competitive pricing 
and additional trading opportunities for expiring series, and 
ultimately benefits investors.
    Other options stop trading on the business day preceding 
expiration. For example, the last day of trading for non-volatility 
a.m.-settled index options is the business day preceding the expiration 
date.\9\
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    \9\ Cboe Options Rule 24.9(a)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Cboe Options 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 proposed rule change 
will apply to all market participants that trade EAFE and EM options. 
As discussed above, the proposed rule change may eliminate a pricing 
risk for Market-Makers and other liquidity providers, which may provide 
more competitive pricing and additional trading opportunities for 
expiring series and ultimately benefit investors. The proposed rule 
change applies to EAFE and EM options, which only trade on Cboe 
Options. Other options stop trading on the business day preceding 
expiration.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \10\ and 
Rule 19b-4(f)(6) \11\ thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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-CBOE-2018-048 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2018-048. 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-CBOE-2018-048 and should be submitted on 
or before July 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14548 Filed 7-6-18; 8:45 am]
 BILLING CODE P


