[Federal Register Volume 86, Number 65 (Wednesday, April 7, 2021)]
[Notices]
[Pages 18090-18095]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07117]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91456; File No. SR-CBOE-2021-019]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 4.5 (Series of Option 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 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 19, 2021, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 4.5 (Series of Option 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://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 Exchange proposes to amend Rule 4.5 (Series of Option 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 4.5 permits the Exchange, after a particular class of 
options (call option contracts or put option contracts relating to a 
specific underlying stock, which includes ETFs \5\ and ETNs \6\ or 
calculated index) 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

[[Page 18091]]

weekly,\7\ monthly \8\ or quarterly \9\ basis. Interpretation and 
Policy .01 to Rule 4.5 sets forth the intervals between strike prices 
of series of options on individual stocks generally,\10\ and Rule 
4.5(d)(5) 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,\11\ the $0.50 
Strike Program,\12\ the $2.50 Strike Price Program,\13\ and the $5 
Strike Program.\14\
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    \5\ The term ``ETF'' (Exchange-Traded Fund) (and the term 
``Unit'') means a share or other security traded on a national 
securities exchange and defined as an NMS stock as set forth in Rule 
4.3. See Rule 1.1; see also Rule 4.3.06(a). Securities deemed 
appropriate for options trading include Units that: (1) Represent 
interests in registered investment companies (or series thereof) 
organized as open-end management investment companies, unit 
investment trusts or similar entities that hold portfolios of 
securities 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 
purchase agreements (the ``Financial Instruments''), and money 
market instruments, including, but no limited to, U.S. government 
securities and repurchase agreements (the ``Money Market 
Instruments'') comprising or otherwise based on or representing 
investments in indexes or portfolios of securities and/or Financial 
Instruments and Money Market Instruments (or that hold securities in 
one or more other registered investment companies that themselves 
hold such portfolios of securities and/or Financial Instruments and 
Money Market Instruments); or (2) represent interests in a trust or 
similar entity that holds a specified non-U.S. currency 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 and pays the 
beneficial owner interest and other distributions on deposited non-
U.S. currency, if any, declared and paid by the trust (``Currency 
Trust Shares''); or (3) 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 Units''); or (4) represent interests in 
the SPDR Gold Trust or the iShares COMEX Gold Trust or the iShares 
Silver Trust or the ETFS Silver Trust or the ETFS Gold Trust or the 
ETFS Palladium Trust or the ETFS Platinum Trust or the Sprott 
Physical Gold Trust; or (5) represents an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's 
investment objectives and policies, which is issued in a specified 
aggregate minimum number in return for a deposit of a specified 
portfolio of securities and/or a cash amount with a value equal to 
the next determined net asset value (``NAV''), and when aggregated 
in the same specified minimum number, may be redeemed at a holder's 
request, which holder will be paid a specified portfolio of 
securities and/or cash with a value equal to the next determined NAV 
(``Managed Fund Share'').
    \6\ The term ``ETN'' (Exchange-Traded Note) (and the term 
``Index-Linked Security'') means a share traded on a national 
securities exchange that is an NMS stock and represents ownership of 
a security that provides for payment at maturity as set forth in 
Rule 4.3. See Rule 1.1; see also Rule 4.3.13(a). 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, and represent 
ownership of a security that provides for the payment at maturity.
    \7\ The weekly listing program is known as the Short Term Option 
Series Program and is described within Rule 4.5(d).
    \8\ The Exchange will open at least one expiration month for 
each class of options open for trading on the Exchange. See Rule 
4.5(b). The monthly expirations are subject to certain listing 
criteria for underlying securities described within Rule 4.3. 
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.
    \9\ The quarterly listing program is known as the Quarterly 
Options Series Program and is described within Rule 4.5(e).
    \10\ The interval between strike prices of series of options on 
individual stocks may be $2.50 or greater where the strike price is 
$25.00 or less; provided, however, that the Exchange may not list 
$2.50 intervals (e.g., $12.50, $17.50) for any class included within 
the $1 Strike Program if the addition of $2.50 intervals would cause 
the class to have strike price intervals that are $0.50 apart. See 
Rule 4.5.01(c). The interval between strike prices of series of 
options in individual stocks may be $5.00 or greater where the 
strike price is greater than $25.00. See Rule 4.5.01(d). The 
interval between strike prices of series of options in individual 
stocks may be $10.00 or greater where the strike price is greater 
than $200, except as provided in paragraph (f). See Rule 4.5.01(d). 
See also Rule 4.5.07, which provides for the permissible strike 
price intervals for options in Units (i.e., ETFs) generally, and for 
options on options on Units of the Standard & Poor's Depository 
Receipts Trust (``SPY''), iShares S&P 500 Index ETF (``IVV''), 
PowerShares QQQ Trust (``QQQ''), iShares Russell 2000 Index Fund 
(``IWM''), and The DIAMONDS Trust (``DIA'').
    \11\ The $1 Strike Interval Program is described within Rule 
4.5.01(a).
    \12\ The $0.50 Strike Program is described within Rule 
4.5.01(b).
    \13\ The $2.50 Strike Price Program is described within Rule 
4.5.04.
    \14\ The $5 Strike Program is described within Rule 4.5.01(f).
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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 
4.5(d)(6),\15\ which widens the permissible intervals between strikes, 
thereby limiting the number of strikes listed, for multiply listed 
equity options (excluding options on ETFs and ETNs) that have an 
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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    \15\ As a result, the proposed rule change subsequently updates 
current Rule 4.5(d)(6) (Delisting) to Rule 4.5.(d)(7).
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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 4.5(d) 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 4.5(d)(3), the Exchange may open up to 20 initial 
series for each option class that participates in the Short Term Option 
Series Program and, pursuant to Rule 4.5(d)(4), may open up to 10 
additional series for each option class that participates in the Short 
Term Option Series Program 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 4.5(d)(5) provides 
that the interval between strike prices on Short Term Option Series may 
be: (i) $0.50 or greater where the strike price is less than $100, and 
$1 or greater where the strike price is between $100 and $150 for all 
classes that participate in the Short Term Option Series Program; (ii) 
$0.50 or greater for classes that trade in one dollar increments in 
non-Short

[[Page 18092]]

Term Options and that participate in the Short Term Option Series 
Program; or (iii) $2.50 or greater where the strike price is above 
$150.\18\
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    \16\ The Exchange may have no more than a total of five Short 
Term Option Expiration Dates. Monday and Wednesday SPY Expirations 
(described in the paragraph below) are not included as part of this 
count. 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. Similarly, if the Exchange is not open for business on a 
Friday, the Short Term Option Expiration Date will be the first 
business day immediately prior to that Friday. The Exchange may open 
for trading on any Friday or Monday that is a business day (``Monday 
SPY Expiration Opening Date'') series of options on the SPDR S&P 500 
ETF Trust (``SPY'') that expire at the close of business each of the 
next five Mondays that are business days and are no Mondays on which 
Quarterly Options Series expire (``Monday SPY Expirations''), 
provided that any Monday SPY Expiration Opening Date that is a 
Friday 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 (``Wednesday SPY Expiration Opening 
Date'') series of SPY options that expire at the close of business 
on each of the next five Wednesdays that are business days and are 
not Wednesdays on which Quarterly Options Series expire (``Wednesday 
SPY Expirations''). 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. Non-Monday and non-Wednesday SPY 
Expirations (described in the paragraph above) are not included as 
part of this count. If the Exchange is not open for business on the 
respective Friday or Monday, the Monday SPY Expiration Opening Date 
will be the first business day immediately prior to that respective 
Friday or Monday. If the Exchange is not open for business on a 
Monday, the expiration date for a Monday SPY Expiration will be the 
first business day immediately following that Monday. If the 
Exchange is not open for business on the respective Tuesday or 
Wednesday, the Wednesday SPY Expiration Opening Date will be the 
first business day immediately prior to that respective Tuesday or 
Wednesday. Similarly, if the Exchange is not open for business on a 
Wednesday, the expiration date for a Wednesday SPY Expiration will 
be the first business day immediately prior to that Wednesday. See 
Rule 4.5(d).
    \17\ See Rule 4.5(d)(1).
    \18\ Additionally, Rule 4.5(d)(5) provides that a non-Short Term 
Option that is on a class that has been selected to participate in 
the Short Term Option Series Program is referred to as a ``Related 
non-Short Term Option.'' Rule 4.5(d) generally provides that related 
non-Short Term Option series shall be opened during the month prior 
to expiration in the same manner as permitted in Rule 4.5(d) and in 
the same strike price intervals that are permitted for Short Term 
Option Series in Rule 4.5(d)(5).
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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 4.5(d)(6). 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 4.5(d)(6) 
(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 4.5(d)(4), 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, Rule 4.5(d)(4) 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 subparagraph (d)(4) 
when such additional series may otherwise be added.
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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.

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                                                                                                            Share price
                                                                         -------------------------------------------------------------------------------
                 Tier                         Average daily volume                          $25 to less     $75 to less    $150 to less       $500 or
                                                                           Less than $25     than $75        than $150       than $500        greater
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1.....................................  Greater than 5,000..............           $0.50           $1.00           $1.00           $5.00           $5.00
2.....................................  Greater than 1,000 to 5,000 \21\            1.00            1.00            1.00            5.00           10.00
3.....................................  0 to 1,000......................            2.50            5.00            5.00            5.00           10.00
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    Proposed Rule 4.5(d)(6)(A) 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 4.5(d)(6)(A) provides that in the event of a corporate action, the 
Share Price of the surviving company is utilized.\22\ Proposed Rule 
4.5(d)(6)(B) 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 4.5(d), 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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    \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 4.5(d)(6) 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 4.5(d)(5).
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    The proposal is intended to remove repetitive and unnecessary 
strike listings across the weekly expiries.

[[Page 18093]]

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 Trading Permit Holders 
(``TPHs''). The Exchange also notes that its affiliated options 
exchanges, Cboe EDGX Exchange, Inc. (``EDGX Options'') and Cboe BZX 
Exchange, Inc. (``BZX Options'') plan to submit identical proposals 
(Cboe C2 Exchange, Inc. incorporates Rule 4.5 by reference).
    \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 4.5(d)(6)(C) provides that options that 
are newly eligible for listing pursuant to Rule 4.3 and designated to 
participate in the Short Term Option Series program pursuant to Rule 
4.5(d) will not be subject to subparagraph (d)(6) (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 4.5(d)(6)(D) 
provides that, notwithstanding the strike intervals imposed in proposed 
subparagraph (d)(6), the proposal does not amend the range of strikes 
that may be listed pursuant to subparagraph (d)(5).
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    \30\ For example, if an options class became newly eligible for 
listing pursuant to Rule 4.3 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 Designated Primary Market-Makers (``DPMs''), Lead 
Market-Makers (``LMMs'') and 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 
DPMs, LMMs and Market-Makers are required to quote and, as a result, 
allow DPMs, LMMs and 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 5.52(d), Rule 5.54(a), and Rule 5.55(a).
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Implementation
    The Exchange, along with BX and other options exchanges that intend 
to submit the same strike interval

[[Page 18094]]

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 TPHs in advance. Once implemented, the 
Exchange will provide notice \32\ to its TPHs of the Short Term Option 
Series eligible in a new quarter to be listed pursuant to Rule 
4.5(d)(6).
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    \32\ See Rule 1.5, which provides that the Exchange announces to 
Trading Permit Holders all determinations it makes pursuant to the 
Rules via: (1) Specifications, Notices, or Regulatory Circulars with 
appropriate advanced notice, which are posted on the Exchange's 
website, or as otherwise provided in the Rules; (2) electronic 
message; or (3) other communication method as provided in the Rules. 
In its Notices disseminated to TPHs regarding the Short Term Option 
Series eligible in a new quarter to be listed pursuant to Rule 
4.5(d)(6), 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 DPMs, LMMs and 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 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 DPMs, LMMs and 
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 multiple 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 multiple 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 it has discussed the proposed 
strike intervals with various TPHs.
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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

[[Page 18095]]

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 multiple 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 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-CBOE-2021-019 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-2021-019. 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-CBOE-2021-019, 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. 2021-07117 Filed 4-6-21; 8:45 am]
BILLING CODE 8011-01-P


