[Federal Register Volume 84, Number 87 (Monday, May 6, 2019)]
[Notices]
[Pages 19823-19824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09148]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85754; File No. SR-CBOE-2019-015]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Approving a Proposed Rule Change To Allow $1 Strike Price Intervals 
Above $200 on Options on the QQQ and IWM Exchange-Traded Funds

April 30, 2019.
    On March 6, 2019, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
allow Cboe to list QQQ and IWM options with $1 strike price intervals 
instead of $5 strike price intervals when the strike price of the 
option is greater than $200. The proposed rule change was published for 
comment in the Federal Register on March 18, 2019.\4\ No comments on 
the proposed rule change have been received. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 85295 (Mar. 12, 
2019), 84 FR 9851 (``Notice'').
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I. Description of the Proposed Rule Change

    The Exchange's current rules provide that the interval between 
strike prices of series of options on exchange-traded funds may be 
$5.00 or greater where the strike price is greater than $200,\5\ except 
that the interval between strike prices of series of options on SPY, 
IVV, and DIA may be $1 or greater where the strike price is greater 
than $200.\6\ The Exchange proposes to expand that exception, also 
allowing $1 strike price intervals where the strike price is above $200 
for options on IWM\7\ and QQQ.\8\
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    \5\ See Interpretation and Policy .08(a) to Rule 5.5.
    \6\ See id.
    \7\ According to the Exchange, IWM is an index-based ETF 
designed to track the price and performance of the Russell 2000 
Index (``RUT''), which represents the small capitalization sector of 
the U.S. equity market, and the value of IWM is designed to 
approximate \1/10\ the value of the underlying RUT. See id. Cboe 
states that IWM is among the most actively traded ETFs on the 
market. See id.
    \8\ According to the Exchange, the QQQ is designed to closely 
track the price and performance of a the Nasdaq-100 Index (``NDX''), 
which represents the largest and most active non-financial domestic 
and international issues listed on The Nasdaq Stock Market based on 
market capitalization, and the value of QQQ is designed to 
approximate \1/40\ the value of the underlying NDX. See Notice, 
supra note 4, 84 FR at 9852. The Exchange states that QQQ is among 
the most actively traded ETFs on the market. See id.
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    The Exchange notes that ``$1 intervals already exist below the $200 
price point'' for options on both ETFs, and further notes ``in the 
midst of current price trends,'' that ``both QQQ and IWM have 
consistently inclined in price toward the $200 level.'' \9\ In light of 
this, the Exchange ``believes that continuing to maintain the current 
$200 level (above which intervals increase 500% to $5), may have a 
negative effect on investing, trading and hedging opportunities, and 
volume'' particularly to the extent it impacts the ability of market 
participants to roll their positions once strike prices pass $200.\10\
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    \9\ Id.
    \10\ Id. For example, the Exchange notes that ``to move a 
position from a $200 strike to a $205 strike under the current rule, 
an investor would need for the underlying product to move 2.5%'' 
whereas rolling an open position from a $200 to a $201 strike 
represents ``only a 0.5% move for the underlying.'' Id.
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    Accordingly, in light of the ``slower movements of broad-based 
indices,'' the Exchange proposes to allow $1 strike intervals above 
$200 so that options on these two ETFs may be ``more precisely aligned 
with the smaller, longer-term incremental increases in respective 
underlying ETFs.'' \11\ In turn, the exchange believes that its 
proposal will ``permit strikes to be set to more closely reflect the 
increasing values in the

[[Page 19824]]

underlying indices and allow investors and traders to roll open 
positions from a lower strike to a higher strike in conjunction with 
the price movements of the underlying ETFs.'' \12\
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    \11\ Id.
    \12\ Id.
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    Cboe acknowledges that allowing series of QQQ and IWM options to be 
listed in $1 intervals between strike prices over $200 likely would 
increase the total number of options series available on the Exchange, 
but represents that: (1) It and the Options Price Reporting Authority 
(``OPRA'') have the necessary systems capacity to handle any potential 
additional traffic associated with this proposed rule change; (2) 
Trading Permit Holders would not have a capacity issue; and (3) the 
proposed expansion would not cause fragmentation of liquidity but, by 
providing more trading opportunities to market participants, instead 
would increase both available liquidity as well as price 
efficiency.\13\
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    \13\ See id. at 9852-3
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II. Discussion and Commission Findings

    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.\14\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\15\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to prevent fraudulent and manipulative acts, 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. The Commission believes that the proposed change accommodates 
the current levels of the respective indexes tracked by QQQ and IWM. In 
particular, permitting $1 strikes above $200 in such ETFs may provide 
the investing public and other market participants with more 
flexibility in their investment and hedging decisions in QQQ and IWM 
options and is consistent with past precedent for other similar ETFs 
that track broad-based indexes.\16\
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    \14\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See, e.g., Securities Exchange Act Release Nos. 72949 (Aug. 
29, 2014), 79 FR 53089 (Sept. 5, 2014) (SR-Phlx-2014-46) (Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment 
No. 1, Relating to SPY and DIA Options); and 72664 (Jul. 24, 2014), 
79 FR 44231 (Jul. 30, 2014) (Notice of Filing of Proposed Rule 
Change, as Modified by Amendment No. 1, Relating to SPY and DIA 
Options).
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    In approving this proposal, the Commission notes that the Exchange 
has represented that it and OPRA have the necessary systems capacity to 
handle the potential additional traffic associated with this proposed 
rule change.\17\ The Exchange further stated that it believes its 
members will not have a capacity issue as a result of the proposal and 
that it does not believe this expansion will cause fragmentation of 
liquidity.\18\
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    \17\ See note 13 supra, and accompanying text.
    \18\ See id.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\19\ that the proposed rule change (SR-CBOE-2019-015) be, and hereby 
is, approved.
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    \19\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09148 Filed 5-3-19; 8:45 am]
 BILLING CODE 8011-01-P


