[Federal Register Volume 86, Number 65 (Wednesday, April 7, 2021)]
[Notices]
[Pages 18099-18105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07116]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91455; File No. SR-CboeBZX-2021-022]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 19.6 (Series of Options Contracts Open for Trading) in Connection 
With Limiting the Number of Strikes Listed for Short Term Option Series 
Which Are Available for Quoting and Trading on the Exchange

April 1, 2021.
    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 March 19, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to amend Rule 19.6 (Series of Options Contracts Open for 
Trading) in connection with limiting the number of strikes listed for 
Short Term Option Series which are available for quoting and trading on 
the Exchange. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary,

[[Page 18100]]

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 Exchange proposes to amend Rule 19.6 (Series of Options 
Contracts Open for Trading). Specifically, this proposal seeks to widen 
the intervals between strikes in order to limit the number of strikes 
listed for multiply listed equity options classes (excluding options on 
Exchange-Traded Funds (``ETFs'') and Exchange-Traded Notes (``ETNs'')) 
within the Short Term Option Series program that have an expiration 
date more than 21 days from the listing date.
Background
    Current Rule 19.6 permits the Exchange, after a particular class of 
options has been approved for listing and trading on the Exchange, to 
open for trading series of options therein. The Exchange may list 
series of options for trading on a weekly,\5\ monthly \6\ or quarterly 
\7\ basis. Rule 19.6.01 sets forth the intervals between strike prices 
of series of options on individual stocks generally,\8\ and Rule 
19.6.05(e) specifically sets forth intervals between strike prices on 
Short Term Option Series. Additionally, the Exchange may list series of 
options pursuant to the $1 Strike Price Interval Program,\9\ the $0.50 
Strike Program,\10\ the $2.50 Strike Price Program,\11\ and the $5 
Strike Program.\12\
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    \5\ The weekly listing program is known as the Short Term Option 
Series Program and is described within Rule 19.6.05.
    \6\ The Exchange will open at least one expiration month for 
each class of options open for trading on the Exchange. See Rule 
19.6(e). The monthly expirations are subject to certain listing 
criteria for underlying securities described within Rule 19.3. 
Monthly listings expire the third Friday of the month. The term 
``expiration date'' when used in respect of a series of binary 
options other than event options means the last day on which the 
options may be automatically exercised. In the case of a series of 
event options (other than credit default options or credit default 
basket options) that are be automatically exercised prior to their 
expiration date upon receipt by the Corporation of an event 
confirmation, the expiration date is the date specified by the 
listing Exchange; provided, however, that when an event confirmation 
is deemed to have been received by the Corporation with respect to 
such series of options, the expiration date will be accelerated to 
the date on which such event confirmation is deemed to have been 
received by the Corporation or such later date as the Corporation 
may specify. In the case of a series of credit default options or 
credit default basket options, the expiration date is the fourth 
business day after the last trading day for such series as such 
trading day is specified by the Exchange on which the series of 
options is listed; provided, however, that when an event 
confirmation is deemed to have been received by the Corporation with 
respect to a series of credit default options or single payout 
credit default basket options prior to the last trading day for such 
series, the expiration date for options of that series will be 
accelerated to the second business day following the day on which 
such event confirmation is deemed to have been received by the 
Corporation. ``Expiration date'' means, in respect of a series of 
range options expiring prior to February 1, 2015, the Saturday 
immediately following the third Friday of the expiration month of 
such series, and, in respect of a series of range options expiring 
on or after February 1, 2015 means the third Friday of the 
expiration month of such series, or if such Friday is a day on which 
the Exchange on which such series is listed is not open for 
business, the preceding day on which such Exchange is open for 
business. See The Options Clearing Corporation (``OCC'') By-Laws at 
Section 1.
    \7\ The quarterly listing program is known as the Quarterly 
Options Series Program and is described within Rule 19.6.04.
    \8\ The interval between strike prices of series of options on 
individual stocks may be $2.50 or greater where the strike price is 
$25 or less, provided however, that BZX Options may not list $2.50 
intervals below $50 (e.g. $12.50, $17.50) for any class included 
within the $1 Strike Price Program, as detailed below in 
Interpretations and Policy .02, if the addition of $2.50 intervals 
would cause the class to have strike price intervals that are $0.50 
apart. For series of options on 283 Exchange-Traded Fund Shares that 
satisfy the criteria set forth in Rule 19.3(i), the interval of 
strike prices may be $1 or greater where the strike price is $200 or 
less or $5 or greater where the strike price is over $200. 
Exceptions to the strike price intervals above are set forth in 
Interpretations and Policies .02 and .03. See Rule 19.6.01.
    \9\ The $1 Strike Interval Program is described within Rule 
19.6.02.
    \10\ The $0.50 Strike Program is described within Rule 19.6.06.
    \11\ The $2.50 Strike Price Program is described within Rule 
19.6.03.
    \12\ The $5 Strike Program is described within Rule 19.6(d)(5).
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    The Exchange's proposal seeks to amend the listing of weekly series 
of options (i.e. Short Term Option Series) by adopting new Rule 
19.6.05(f),\13\ which widens the permissible intervals between strikes, 
thereby limiting the number of strikes listed, for multiply listed 
equity options (excluding options on ETFs \14\ and ETNs \15\) that have 
an

[[Page 18101]]

expiration date more than 21 days from the listing date. This proposal 
does not amend the monthly or quarterly listing rules, nor does it 
amend the $1 Strike Price Interval Program, the $0.50 Strike Program, 
the $2.50 Strike Price Program, or the $5 Strike Program.
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    \13\ As a result, the proposed rule change subsequently updates 
current Rule 19.6.05(f) and (g) to (g) and (h), respectively.
    \14\ The term ``ETF'' (Exchange-Traded Fund) (or ``Fund 
Shares'') has the same meaning as the term ``exchange-traded fund'' 
as defined in Rule 6c-11 under the Investment Company Act of 1940. 
See Rule 14.211(1)(3); see also Rule 19.3(i). Securities deemed 
appropriate for options trading shall include shares or other 
securities (``Fund Shares''), including but not limited to 
Partnership Units as defined in this Rule, that are principally 
traded on a national securities exchange and are defined as an ``NMS 
stock'' under Rule 600 of Regulation NMS, and that (1) represent 
interests in registered investment companies (or series thereof) 
organized as open-end management investment companies, unit 
investment trusts or similar entities, and that hold portfolios of 
securities comprising or otherwise based on or representing 
investments in indexes or portfolios of securities (or that hold 
securities in one or more other registered investment companies that 
themselves hold such portfolios of securities) (``Funds '') and/or 
financial instruments including, but not limited to, stock index 
futures contracts, options on futures, options on securities and 
indexes, equity caps, collars and floors, swap agreements, forward 
contracts, repurchase agreements and reverse repurchase agreements 
(the ``Financial Instruments''), and money market instruments, 
including, but not limited to, U.S. government securities and 
repurchase agreements (the ``Money Market Instruments'') 
constituting or otherwise based on or representing an investment in 
an index or portfolio of securities and/or Financial Instruments and 
Money Market Instruments, or (2) represent commodity pool interests 
principally engaged, directly or indirectly, in holding and/or 
managing portfolios or baskets of securities, commodity futures 
contracts, options on commodity futures contracts, swaps, forward 
contracts and/or options on physical commodities and/or non-U.S. 
currency (``Commodity Pool ETFs'') or (3) represent interests in a 
trust or similar entity that holds a specified non-U.S. currency or 
currencies deposited with the trust or similar entity when 
aggregated in some specified minimum number may be surrendered to 
the trust by the beneficial owner to receive the specified non-U.S. 
currency or currencies and pays the beneficial owner interest and 
other distributions on the deposited non-U.S. currency or 
currencies, if any, declared and paid by the trust (``Currency Trust 
Shares''), or (4) represent interests in the SPDR Gold Trust or are 
issued by the iShares COMEX Gold Trust or iShares Silver Trust.
    \15\ Securities deemed appropriate for options trading shall 
include shares or other securities (``Equity Index-Linked 
Securities,'' ``Commodity-Linked Securities,'' ``Currency-Linked 
Securities,'' ``Fixed Income Index-Linked Securities,'' ``Futures-
Linked Securities,'' and ``Multifactor Index-Linked Securities,'' 
collectively known as ``Index-Linked Securities'') (or ``ETNs'') 
that are principally traded on a national securities exchange and an 
``NMS Stock'' (as defined in Rule 600 of Regulation NMS under the 
Securities Exchange Act of 1934), and represent ownership of a 
security that provides for the payment at maturity. Equity Index-
Linked Securities are securities that provide for the payment at 
maturity of a cash amount based on the performance of an underlying 
index or indexes of equity securities (``Equity Reference Asset''); 
Commodity-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one 
or more physical commodities or commodity futures, options on 
commodities, or other commodity derivatives or Commodity-Based Trust 
Shares or a basket or index of any of the foregoing (``Commodity 
Reference Asset''); Currency-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more currencies, or options on currencies or 
currency futures or other currency derivatives or Currency Trust 
Shares (as defined in this Rule), or a basket or index of any of the 
foregoing (``Currency Reference Asset''); Fixed Income Index-Linked 
Securities are securities that provide for the payment at maturity 
of a cash amount based on the performance of one or more notes, 
bonds, debentures or evidence of indebtedness that include, but are 
not limited to, U.S. Department of Treasury securities (``Treasury 
Securities''), government-sponsored entity securities (``GSE 
Securities''), municipal securities, trust preferred securities, 
supranational debt and debt of a foreign country or a subdivision 
thereof or a basket or index of any of the foregoing (``Fixed Income 
Reference Asset''); Futures-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of an index of (i) futures on Treasury Securities, GSE 
Securities, supranational debt and debt of a foreign country or a 
subdivision thereof, or options or other derivatives on any of the 
foregoing; or (ii) interest rate futures or options or derivatives 
on the foregoing in this subparagraph (ii) (``Futures Reference 
Asset''); and Multifactor Index-Linked Securities are securities 
that provide for the payment at maturity of a cash amount based on 
the performance of any combination of two or more Equity Reference 
Assets, Commodity Reference Assets, Currency Reference Assets, Fixed 
Income Reference Assets, or Futures Reference Assets (``Multifactor 
Reference Asset''). See 19.3(l).
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Short Term Option Series Program
    After an option class has been approved for listing and trading on 
the Exchange,\16\ Rule 19.6.05 permits the Exchange to open for trading 
on any Thursday or Friday that is a business day (``Short Term Option 
Opening Date'') series of options on that class that expire at the 
close of business on each of the next five Fridays that are business 
days and are not Fridays on which monthly options series or Quarterly 
Options Series expire (``Short Term Option Expiration Dates''). The 
Exchange may select up to fifty currently listed option classes on 
which Short Term Option Series may be opened on any Short Term Option 
Opening Date. In addition to the fifty option class restriction, the 
Exchange may also list Short Term Option Series on any option classes 
that are selected by other securities exchanges that employ a similar 
program under their respective rules. For each option class eligible 
for participation in the Short Term Option Series Program, the Exchange 
may open up to 30 Short Term Option Series for each expiration date in 
that class. The Exchange may also open Short Term Option Series that 
are opened by other securities exchanges in option classes selected by 
such exchanges under their respective short term option rules.\17\ 
Pursuant to Rule 19.6.05(c), the Exchange may open up to 30 initial 
series for each option class that participates in the Short Term Option 
Series Program and, pursuant to Rule 19.6.05(d), if the Exchange opens 
less than 30 Short Term Option Series for a Short Term Option 
Expiration Date, additional series may be opened for trading on the 
Exchange when the Exchange deems it necessary to maintain an orderly 
market, to meet customer demand, or when the market price of the 
underlying security moves substantially from the exercise price or 
prices of the series already opened. Rule 19.6(e) provides that, if the 
class does not trade in $1 strike price intervals, the strike price 
interval for Short Term Option Series may be: (i) $0.50 or greater 
where the strike price is less than $75; (ii) $1.00 or greater where 
the strike price is between $75 and $150; or (iii) $2.50 or greater for 
strike prices greater than $150.\18\
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    \16\ The Exchange may have no more than a total of five Short 
Term Option Expiration Dates, not including any Monday or Wednesday 
SPY Expirations as provided in paragraph (g). If BZX Options is not 
open for business on the respective Thursday or Friday, the Short 
Term Option Opening Date will be the first business day immediately 
prior to that respective Thursday or Friday. Similarly, if BZX 
Options is not open for business on the Friday that the options are 
set to expire, the Short Term Option Expiration Date will be the 
first business day immediately prior to that Friday. See Rule 
19.6.05. The Exchange may open for trading on any Friday or Monday 
that is a business day series of options on the SPDR S&P 500 ETF 
Trust (``SPY'') to expire on any Monday of the month that is a 
business day and is not a Monday on which Quarterly Options Series 
expire (``Monday SPY Expirations''), provided that any Friday on 
which the Exchange opens for trading a Monday SPY Expiration is one 
business week and one business day prior to expiration. The Exchange 
may also open for trading on any Tuesday or Wednesday that is a 
business day series of SPY options to expire on any Wednesday of the 
month that is a business day and is not a Wednesday on which 
Quarterly Options Series expire (``Wednesday SPY Expirations''). The 
Exchange may list up to five consecutive Monday SPY Expirations and 
up to five consecutive Wednesday SPY Expirations at one time; the 
Exchange may have no more than a total of five Monday SPY 
Expirations and no more than a total of five Wednesday SPY 
Expirations. Monday and Wednesday SPY Expirations will be subject to 
the provisions of this Rule. See Rule 19.6.05(g). With the exception 
of Monday and Wednesday SPY Expirations, no Short Term Option Series 
may expire in the same week in which monthly option series on the 
same class expire or, in the case of Quarterly Options Series, on an 
expiration that coincides with an expiration of Quarterly Options 
Series on the same class. See Rule 19.6.05(b).
    \17\ See Rule 19.6.05(a).
    \18\ Additionally, Rule 19.6.05(e) provides that the interval 
between strike prices on Short Term Option Series shall be the same 
as the strike prices for series in that same option class that 
expire in accordance with the normal monthly expiration cycle. 
During the expiration week of an option class that is selected for 
the Short Term Option Series Program pursuant to this rule (``Short 
Term Option''), the strike price intervals for the related non-Short 
Term Option (``Related non-Short Term Option'') shall be the same as 
the strike price intervals for the Short Term Option.
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    The Exchange notes that listings in the weekly program comprise a 
significant part of the standard listing in options markets and that 
the industry has observed a notable increase over approximately the 
last five years in compound annual growth rate (``CAGR'') of weekly 
strikes as compared to CAGR for standard third-Friday expirations.\19\
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    \19\ See Securities Exchange Act Release No. 91125 (February 12, 
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (``BX Strike 
Interval Approval Order''); and SR-2020-BX-032 as amended by 
Amendment No. 1 (February 10, 2021) available at: https://www.sec.gov/comments/sr-bx-2020-032/srbx2020032-8359799-229182.pdf 
(``BX proposal''); see also BX Options Strike Proliferation Proposal 
(February 25, 2021) available at: https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal).
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Proposal
    The Exchange proposes to widen the intervals between strikes in 
order to limit the number of strikes listed for equity options 
(excluding options on ETFs and ETNs) listed as part of the Short Term 
Option Series Program that have an expiration date more than 21 days 
from the listing date, by adopting proposed Rule 19.6.05(f). The 
Exchange notes that this proposal is substantively identical to the 
strike interval proposal recently submitted by Nasdaq BX, Inc. (``BX'') 
and approved by the Securities and Exchange Commission 
(``Commission'').\20\
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    \20\ See BX Strike Interval Approval Order, id.
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    The proposal widens intervals between strikes for expiration dates 
of equity option series (excluding options on ETFs and ETNs) beyond 21 
days utilizing the three-tiered table in proposed Rule 19.6.05(f) 
(presented below) which considers both the Share Price and Average 
Daily Volume for the option series. The table indicates the applicable 
strike intervals and supersedes Rule 19.6.05(d), which currently 
permits 10 additional series to be opened for trading on the Exchange 
when the Exchange deems it necessary to maintain an orderly market, to 
meet customer demand or when the market price of the underlying 
security moves substantially from the exercise price or prices of the 
series already opened. As a result of the proposal, 19.6.05(d) would 
not permit an additional series of an equity option to have an 
expiration date more than 21 days from the listing date to be opened 
for trading on the Exchange despite the noted circumstances in 
paragraph (d) when such additional series may otherwise be added.

[[Page 18102]]



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                                                                    Share price
                  Average daily  -------------------------------------------------------------------------------
     Tier            volume                         $25 to less     $75 to less    $150 to less       $500 or
                                   Less than $25     than $75        than $150       than $500        greater
----------------------------------------------------------------------------------------------------------------
1.............  Greater than               $0.50           $1.00           $1.00           $5.00           $5.00
                 5,000.
2.............  Greater than                1.00            1.00            1.00            5.00           10.00
                 1,000 to 5,000
                 \21\.
3.............  0 to 1,000......            2.50            5.00            5.00            5.00           10.00
----------------------------------------------------------------------------------------------------------------

    Proposed Rule 19.6.05(f)(1) provides that the Share Price is the 
closing price on the primary market on the last day of the calendar 
quarter. This value is used to derive the column from which to apply 
strike intervals throughout the next calendar quarter. Also, proposed 
Rule 19.6.05(f)(1) provides that in the event of a corporate action, 
the Share Price of the surviving company is utilized.\22\ Proposed 
Rule19.6.05(f)(2) provides that the Average Daily Volume is the total 
number of option contracts traded in a given security for the 
applicable calendar quarter divided by the number of trading days in 
the applicable calendar quarter. Beginning on the second trading day in 
the first month of each calendar quarter, the Average Daily Volume is 
calculated by utilizing data from the prior calendar quarter based on 
Customer-cleared volume at OCC. For options listed on the first trading 
day of a given calendar quarter, the Average Daily Volume is calculated 
using the calendar quarter prior to the last trading calendar 
quarter.\23\ Pursuant to current Rule 19.6.05, if the Exchange is not 
open for business on the respective Thursday or Friday, the Short Term 
Option Opening Date will be the first business day immediately prior to 
that respective Thursday or Friday.
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    \21\ The Exchange notes that while the term ``greater than'' is 
not present in this cell in the corresponding BX rule, the Exchange 
has inserted it for clarity, otherwise an Average Daily Volume of 
1,000 contracts could be read to fall into two categories.
    \22\ The Exchange notes that corporate actions resulting in 
change ownership would result in a surviving company, such as a 
merger of two publicly listed companies, and the Share Price of the 
surviving company would be used to determine strike intervals 
pursuant to the proposed table. Corporate actions that do not result 
in a change of ownership, such as stock-splits or distribution of 
special cash dividends, would not result in a ``surviving company'', 
therefore would not impact which Share Price to apply pursuant to 
the proposed Rule.
    \23\ For example, options listed as of April 1, 2021 would be 
calculated on April 2, 2021 using the Average Daily Volume from 
October 1, 2020 to December 31, 2020.
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    By way of example, if the Share Price for a symbol was $142 at the 
end of a calendar quarter, with an Average Daily Volume greater than 
5,000, thereby, requiring strike intervals to be listed $1.00 apart, 
that strike interval would apply for the calendar quarter, regardless 
of whether the Share Price changed to $150 or greater during that 
calendar quarter.\24\ The proposed table within Rule 19.6.05(f) takes 
into account the notional value of a security, as well as Average Daily 
Volume in the underlying stock, in order to widen the intervals between 
strikes and thereby limit the number of strikes listed for equity 
options (excluding options on ETFs and ETNs) in the Short Term Option 
Series listing program. The Exchange will utilize OCC Customer-cleared 
volume, as customer volume is an appropriate proxy for demand. The OCC 
Customer-cleared volume represents the majority of options volume 
executed on the Exchange, which, in turn, reflects the demand in the 
marketplace. The options series listed on the Exchange are intended to 
meet customer demand by offering an appropriate number of strikes. Non-
Customer cleared OCC volume generally represents the supply side.
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    \24\ The Exchange notes that any strike intervals imposed by the 
Exchange's Rules will continue to apply. In this example, the 
strikes would be in $1 intervals up to (but not including) $150, 
which is the upper limit imposed by Rule 19.6.05(e).
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    The proposal is intended to remove repetitive and unnecessary 
strike listings across the weekly expiries. Specifically, the proposal 
seeks to reduce the number of strikes listed in the furthest weeklies, 
which generally have wider markets and therefore lower market 
quality.\25\ The proposed strike intervals are intended to widen 
permissible strike intervals in multiply listed equity options 
(excluding options on ETFs and ETNs) where there is less volume as 
measured by the Average Daily Volume tiers. Therefore, the lower the 
Average Daily Volume, the greater the proposed spread between strike 
intervals. Options classes with higher volume contain the most liquid 
symbols and strikes, which the Exchange believes makes the finer 
proposed spread between strike intervals for those symbols appropriate. 
Additionally, lower-priced shares have finer strike intervals than 
higher-priced shares when comparing the proposed spread between strike 
intervals. Today, weeklies are available on 16% of underlying products. 
The proposal limits the density of strikes listed in series of options, 
without reducing the classes of options available for trading on the 
Exchange. Short Term Option Series with an expiration date greater than 
21 days from the listing date currently equate to 7.5% of the total 
number of strikes in the options market, which equals 81,000 
strikes.\26\ The Exchange expects this proposal to result in the 
limitation of approximately 20,000 strikes within the Short Term Option 
Series, which is approximately 2% of the total strikes in the options 
markets.\27\ The Exchange understands there has been an inconsistency 
of demand for series of options beyond 21 calendar days.\28\ The 
proposal takes into account customer demand for certain options 
classes, by considering both the Share Price and the Average Daily 
Volume, in order to remove certain strike intervals where there exist 
clusters of strikes whose characteristics closely resemble one another 
and, therefore, do not serve different trading needs,\29\ rendering 
these strikes less useful. The Exchange also notes that the proposal 
focuses on strikes in multiply listed equity options, and excludes ETFs 
and ETNs, as the majority of strikes reside within equity options.
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    \25\ See BX proposal, supra note 19, which presents tables that 
focus on data for 10 of the most and least actively traded symbols 
and demonstrate average spreads in weekly options during the month 
of August 2020.
    \26\ The Exchange notes that this proposal is an initial attempt 
at reducing strikes and anticipates filing additional proposals to 
continue reducing strikes. The percentage of underlying products and 
percentage of and total number of strikes, are approximations and 
may vary slightly at the time of this filing. The Exchange intends 
to decrease the overall number of strikes listed on the Cboe Cboe-
affiliated options exchanges in a methodical fashion, so that it may 
monitor progress and feedback from its Members. The Exchange also 
notes that its affiliated options exchanges, Cboe Exchange, Inc. 
(``Cboe Options''), Cboe C2 Exchange, Inc. (``C2'') [sic], and Cboe 
EDGX Exchange, Inc. (``EDGX Options'') plan to submit identical 
proposals.
    \27\ From information drawn from time period between January 
2020 and May 2020. See BX proposal, supra note 19.
    \28\ See BX proposal, supra note 19.
    \29\ For example, two strikes that are densely clustered may 
have the same risk properties and may also be the same percentage 
out-of-the money.
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    Additionally, proposed Rule 19.6.05(f)(3) provides that options 
that are newly eligible for listing pursuant to

[[Page 18103]]

Rule 19.3 and designated to participate in the Short Term Option Series 
program pursuant to Rule 19.6.05(f) will not be subject to subparagraph 
(f) (as proposed) until after the end of the first full calendar 
quarter following the date the option class was first listed for 
trading on any options market.\30\ As proposed, the Exchange is 
permitted to list options on newly eligible listings, without having to 
apply the wider strike intervals, until the end of the first full 
calendar quarter after such options were listed. The proposal thereby 
permits the Exchange to add strikes to meet customer demand in a newly 
listed options class. A newly eligible option class may fluctuate in 
price after its initial listing; such volatility reflects a natural 
uncertainty about the security. By deferring the application of the 
proposed wider strike intervals until after the end of the first full 
calendar quarter, additional information on the underlying security 
will be available to market participants and public investors, as the 
price of the underlying has an opportunity to settle based on the price 
discovery that has occurred in the primary market during this deferment 
period. Also, the Exchange has the ability to list as many strikes as 
are permissible for the Short Term Option Series once the expiry is no 
more than 21 days. Short Term Option Series that have an expiration 
date no more than 21 days from the listing date are not subject to the 
proposed strike intervals, which allows the Exchange to list 
additional, and potentially narrower, strikes in the event of market 
volatility or other market events. These metrics are intended to align 
expectations for determining which strike intervals will be utilized. 
Finally, proposed Rule 19.6.05(f)(4) provides that, notwithstanding the 
strike intervals imposed in proposed subparagraph (f), the proposal 
does not amend the range of strikes that may be listed pursuant to 
subparagraph (e).
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    \30\ For example, if an options class became newly eligible for 
listing pursuant to Rule 19.3 on March 1, 2021 (and was actually 
listed for trading that day), the first full quarterly lookback 
would be available on July 1, 2021. This option would become subject 
to the proposed strike intervals on July 2, 2021.
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    While the current listing rules permit the Exchange to list a 
number of weekly strikes on its market, in an effort to encourage 
Market Makers to deploy capital more efficiently, as well as improve 
displayed market quality, the proposal aims to reduce the density of 
strikes listed in later weeks by widening the intervals between strikes 
listed for equity options (excluding options on ETFs and ETNs) which 
have an expiration date more than 21 days from the listing date. The 
Exchange requires Market Makers to quote during a certain amount of 
time in the trading day and in a certain percentage of series in their 
assigned options classes to maintain liquidity in the market.\31\ With 
an increasing number of strikes being listed across options exchanges, 
Market Makers must expend their capital to ensure that they have the 
appropriate infrastructure to meet their quoting obligations on all 
options markets in which they are assigned in option classes. The 
Exchange believes that by widening the intervals between strikes listed 
for equity options (excluding options on ETFs and ETNs), thus reducing 
the number of strikes listed on the Exchange, the proposal will 
likewise reduce the number of weekly strikes in which Market Makers are 
required to quote and, as a result, allow Market Makers to expend their 
capital in the options market in a more efficient manner. Due to this 
increased efficiency, the Exchange believes that the proposal may 
improve overall market quality on the Exchange by widening the 
intervals between strikes in multiply listed equity options (excluding 
options on ETFs and ETNs) that have an expiration date more than 21 
days from the listing date. The proposal is intended to balance the 
goal of limiting the number of listed strikes with the needs of market 
participants. The Exchange believes that the various permissible strike 
intervals will continue to offer market participants the ability to 
select the appropriate strikes to meet their investment objectives.
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    \31\ See Rule 22.6(d).
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Implementation
    The Exchange, along with BX and other options exchanges that intend 
to submit the same strike interval proposal, intends to begin 
implementation of the proposed rule change prior to June 30, 2021. The 
Exchange will issue a notice of the planned implementation date to it 
Members in advance. Once implemented, the Exchange will provide notice 
\32\ to its Members of the Short Term Option Series eligible in a new 
quarter to be listed pursuant to Rule 19.6.05(f).
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    \32\ In its notices disseminated to Members regarding the Short 
Term Option Series eligible in a new quarter to be listed pursuant 
to Rule 19.6.05(f), the Exchange will include for each eligible 
option class: The closing price of the underlying; the Average Daily 
Volume of the option class; and the eligible strike category (per 
the proposed table) in which the eligible option class falls under 
as a result of the closing price and Average Daily Volume.
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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.\33\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \34\ 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) \35\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ Id.
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    The proposal seeks to widen the permissible intervals between 
strikes listed for equity options (excluding options on ETFs and ETNs) 
in order to limit the number of strikes listed in the Short Term Option 
Series program that have an expiration date more than 21 days. The 
proposal removes impediments to and perfects the mechanism of a free 
and open market and a national market system by encouraging Market 
Makers to deploy capital more efficiently, which may improve market 
quality overall on the Exchange, by widening the intervals between 
strikes when applying the strike interval table to multiply listed 
equity options (excluding options on ETFs and ETPs) that have an 
expiration date more than 21 days from the listing date. As described 
above, the Exchange requires Market Makers to quote during a certain 
amount of time in the trading day and in a certain percentage of series 
in their assigned options classes to maintain liquidity in the 
market.\36\ With an increasing number of strikes due, in part, to 
tighter intervals being listed across options exchanges, Market Makers 
must currently expend their capital to ensure that they have the 
appropriate infrastructure to meet their quoting obligations on all 
options markets in which they are assigned in

[[Page 18104]]

options classes. The Exchange believes that this proposal will widen 
the intervals between strikes listed on the Exchange, thereby reducing 
the number of weekly options listed on its market in later weeks in 
which Market Makers are required to quote and, in turn, allowing Market 
Makers to expend their capital in the options market in a more 
efficient manner.
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    \36\ See supra note 31.
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    The Exchange believes that limiting the permissible strikes for 
multiply listed equity options (excluding options on ETFs and ETNs) 
that have an expiration date more than 21 days from the listing date 
will not significantly disrupt the market, as the majority of the 
volume traded in weekly options exists in options series which have an 
expiration date of 21 days or less. The proposal will limit the number 
of strikes listed in series of options without reducing the number of 
classes of options available for trading on the Exchange. The proposal 
allows the Exchange to determine the weekly strike intervals for 
multiply listed equity Short Term Option Series listed in the later 
weeks by taking into account customer demand for certain options 
classes by considering both the Share Price and the Average Daily 
Volume in the underlying security. The Exchange utilizes OCC Customer-
cleared volume, as customer volume is an appropriate proxy for demand. 
Whereas non-Customer cleared OCC volume generally represents the supply 
side, the Exchange believes OCC Customer-cleared volume represents the 
majority of options volume executed on the Exchange, which, in turn, 
reflects the demands in the marketplace and is therefore intended to 
assist the Exchange in meeting customer demand by offering an 
appropriate number of strikes.
    The proposal is intended to remove certain strikes where there 
exist clusters of strikes whose characteristics closely resemble one 
another and, therefore, do not serve different trading needs, which 
currently results in less useful strikes. As such, the proposal 
protects investors and the general public by removing unnecessary 
choices for an options series, which the Exchange believes may improve 
market quality. The proposal seeks to reduce the number of strikes in 
the furthest weeklies, which generally have wider markets, and, 
therefore, lower market quality. The implementation of the Strike 
Interval table is intended to allow for greater spreads between strike 
intervals in multiply listed equity options where there is less volume 
as measured by the Average Daily Volume tiers. Therefore, the lower the 
Average Daily Volume, the wider the proposed spread between strike 
intervals, and the higher the Average Daily Volume (i.e., the options 
classes that contain the most liquid symbols and strikes), the narrower 
the proposed spread between strike intervals. Additionally, the 
proposed strike intervals are finer for lower-priced shares than 
higher-priced shares.\37\ As a result, the Exchange believes that, by 
limiting the permissible strikes for multiply listed equity options 
(excluding options on ETFs and ETNs) that have an expiration date more 
than 21 days from the listing date pursuant to the proposed Strike 
Interval table, the proposal may improve overall market quality on the 
Exchange, which serves to protect investors and the general public.
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    \37\ The Exchange notes that is has discussed the proposed 
strike intervals with various Members.
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    Further, utilizing the second trading day of a calendar quarter 
allows the Exchange to accumulate data regarding OCC Customer-cleared 
volume from the entire prior calendar quarter and allows the 
calculation of Average Daily Volume to account for trades executed on 
the last day of the previous calendar quarter, which will have settled 
by the second trading day.\38\ The Exchange believes that applying the 
previous calendar quarter for the calculation is appropriate to reduce 
the impact of unusual trading activity as a result of unique market 
events, such as a corporate action (i.e., it may result in a more 
reliable measure of Average Daily Volume than a shorter period).
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    \38\ Options contracts settle one business day after trade date. 
Strike listing determinations are made the day prior to the start of 
trading in each series.
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    As stated, the proposal is substantively identical to the strike 
interval proposal recently submitted by BX and approved by the 
Commission.\39\ The Exchange believes that varied strike intervals will 
continue to offer market participants the ability to select the 
appropriate strike interval to meet that market participants' 
investment objectives.
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    \39\ See BX Strike Interval Approval Order, supra note 19.
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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 Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as the proposed rule change 
limits the number of Short Term Option Series strikes available for 
quoting and trading on the Exchange for all market participants. 
Therefore, all market participants will equally be able to transact in 
options series in the strikes listed for trading on the Exchange. The 
proposal is intended to reduce the number of strikes for weekly options 
listed in later weeks without reducing the number of classes of options 
available for trading on the Exchange while also continuing to offer an 
appropriate number of strikes the Exchange believes will meet market 
participants' investment objectives.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act as it only 
impacts the permissible strike intervals for certain options series 
listed on the Exchange. Additionally, another options exchange has 
recently implemented a substantively identical rule for listing Short 
Term Option Series strike intervals on its exchange, approved by the 
Commission.\40\ The proposal is a competitive response that will permit 
the Exchange to list the same series in multiply listed options as 
another options exchange.
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    \40\ See BX Strike Interval Approval Order, supra note 19.
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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: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
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 \41\ and Rule 19b-
4(f)(6) thereunder.\42\
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    \41\ 15 U.S.C. 78s(b)(3)(A).
    \42\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and 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

[[Page 18105]]

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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2021-022 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-CboeBZX-2021-022. 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 
20549-1090 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-CboeBZX-2021-022 and 
should be submitted on or before April 28, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07116 Filed 4-6-21; 8:45 am]
BILLING CODE 8011-01-P


