[Federal Register Volume 87, Number 39 (Monday, February 28, 2022)]
[Notices]
[Pages 11102-11105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04082]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94292; File No. SR-CBOE-2022-005]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Permit P.M.-Settled S&P 500 Index 
Options That Expire on Tuesday or Thursday Under Its Nonstandard 
Expirations Pilot Program

February 22, 2022.
    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 February 8, 2022, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the Exchange. The 
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.
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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 permit P.M.-settled S&P 500 Index (``SPX'') options that expire on 
Tuesday or Thursday under its Nonstandard Expirations Pilot Program. 
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 4.13(e), which governs its 
Nonstandard Expirations Pilot Program (``Pilot Program''), to permit 
P.M.-settled SPX options that expire on Tuesday or Thursday. Under the 
existing Pilot Program, the Exchange is permitted to list P.M.-settled 
options on broad-based indexes that expire on: (1) Any Monday, 
Wednesday, or Friday (``Weekly Expirations'' or ``EOWs'') and (2) the 
last trading day of the month (``End of Month Expirations'' or 
``EOMs'').\3\
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    \3\ See Rule 4.13(e).
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    Specifically, the proposed rule change amends Rule 4.13(e)(1) to 
add P.M.-settled SPX Weekly (``SPXW'') options that expire on Tuesday 
or Thursday as permissible Weekly Expirations under the Pilot Program 
(currently set to expire on May 2, 2022). The Exchange notes that 
permitting SPXW options with Tuesday and Thursday expirations, as 
proposed, is in addition to the SPXW options with Monday, Wednesday and 
Friday expirations that the Exchange may (and does) already list, as 
they are permissible Weekly Expirations for options on a broad-based 
index (e.g., SPX) pursuant to Rule 4.13(e)(1). The Pilot Program for 
Weekly Expirations will apply to SPXW options with Tuesday and Thursday 
expirations in the same manner as it currently applies to P.M.-settled 
broad-based index options with Monday, Wednesday and Friday 
expirations. That is, as proposed, Rule 4.13(e)(1) provides that the 
Exchange may open for trading Weekly Expirations on any broad-based 
index eligible for standard options trading to expire on any Monday, 
Wednesday, or Friday (other than the third Friday-of-the-month or days 
that coincide with an EOM expiration). In addition, the Exchange may 
also open for trading Weekly Expirations on S&P 500 Index options to 
expire on any Tuesday or Thursday (other than days that coincide with 
an EOM expiration). Weekly Expirations shall be subject to all 
provisions of this Rule and treated the same as options on the same 
underlying index that expire on the third Friday of the expiration 
month; provided, however, that Weekly Expirations shall be P.M.-settled 
and new series in Weekly Expirations may be added up to and including 
on the expiration date for an expiring Weekly Expiration. The maximum 
number of expirations that may be listed for each Weekly Expiration 
(i.e., a Monday expiration, Tuesday expiration, Wednesday expiration, 
Thursday expiration, or Friday expiration, as applicable) in a given 
class is the same as the maximum number of expirations permitted in 
Rule 4.13(a)(2) for standard options on the same broad-based index 
(which is 12 for SPX options). Weekly Expirations need not be for 
consecutive Monday, Tuesday, Wednesday, Thursday, or Friday expirations 
as applicable; however, the expiration date of a non-consecutive 
expiration may not be beyond what would be considered the last 
expiration date if the maximum number of expirations were listed 
consecutively. Weekly Expirations that are first listed in a given 
class may expire up to four weeks from the actual listing date. If the 
Exchange lists EOMs and Weekly Expirations as applicable in a given 
class, the Exchange will list an EOM instead of a Weekly Expiration 
that expires on the same day in the

[[Page 11103]]

given class.\4\ Other expirations in the same class are not counted as 
part of the maximum number of Weekly Expirations for an applicable \5\ 
broad-based index class. If the Exchange is not open for business on a 
respective Monday, the normally Monday expiring Weekly Expirations will 
expire on the following business day. If the Exchange is not open for 
business on a respective Tuesday, Wednesday, Thursday, or Friday, the 
normally Tuesday, Wednesday, Thursday, or Friday expiring Weekly 
Expirations will expire on the previous business day. The proposed rule 
change also adds that, if two different Weekly Expirations on S&P 500 
Index options would expire on the same day because the Exchange is not 
open for business on a certain weekday, the Exchange will list only one 
of such Weekly Expirations. The Exchange believes it is appropriate to 
clarify in the rule text that the Exchange will list just one Weekly 
Expiration in such a case, as the two Weekly Expirations would 
essentially be the same options contract. For example, if the Exchange 
listed SPXW options with proposed Thursday expirations and Friday 
expirations and the Exchange was closed for business on a Friday then, 
pursuant to current Rule 4.13(e)(1), the normally expiring Friday 
expiration would expire on the previous business day--essentially 
making it an SPXW option with a Thursday expiration. Thus, expiring 
SPXW options in this case will always have the same weekday expiration 
(per the example, it is an SPXW option with a Thursday expiration, 
whether it was listed as an SPXW with a Thursday expiration or a Friday 
expiration). As such, for the sake of clarity in the rules and to 
mitigate any confusion regarding the listing of SPXW options when the 
Exchange is closed for business, the proposed rule change provides that 
the Exchange will list just one Weekly Expiration if two Weekly 
Expirations would expire on the same day due to the Exchange being 
closed for business. Also, like all Weekly Expirations listed pursuant 
to Rule 4.13(e)(4) of the Pilot Program, transactions in expiring SPXW 
options with Tuesday and Thursday expirations may be effected on the 
Exchange between the hours of 9:30 a.m. and 4:00 p.m. on their last 
trading day (Eastern Time). The Exchange makes a nonsubstantive 
clarifying change to Rule 4.13(e)(4) to provide that on the last 
trading day, Regular Trading Hours for expiring Weekly Expirations and 
EOMs are from 9:30 a.m. and 4:00 p.m. As SPXW options are also 
available for trading during Global Trading Hours, the proposed update 
merely clarifies that Rule 4.13(e)(4) refers to the close of Regular 
Trading Hours.\6\ The proposed rule text is substantively identical to 
Rule 5.1, which governs trading hours on the Exchange generally, and 
provides that, on their last trading day, Regular Trading Hours for 
index options with nonstandard expirations are from 9:30 a.m. to 4:00 
p.m.\7\
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    \4\ Given that each trading day of the week, as proposed, could 
be the last trading day of the month and the day in which a Weekly 
Expiration expires, the Exchange updates this rule text to 
streamline the language.
    \5\ The Exchange updates the rule text for additional clarity.
    \6\ The Exchange notes that the Exchange's GTH trading session 
was adopted after the Nonstandard Expirations Pilot Program. See 
Securities Exchange Release Nos. 62911 (September 14, 2010), 75 FR 
57539 (September 21, 2010) (SR-CBOE-2009-075) (``Nonstandard 
Expirations Pilot Approval Order''); and 34-73704 (November 28, 
2014), 79 FR 72044 (December 4, 2014) (SR-CBOE-2014-062) (order 
granting approval of proposed rule change to adopt Extended Trading 
Hours).
    \7\ See Rule 5.1.(b)(2)(C).
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    The Exchange believes that that [sic] the introduction of SPXW 
options with Tuesday and Thursday expirations will expand hedging tools 
available to market participants while also providing greater trading 
opportunities. By offering SPXW options with Tuesday and Thursday 
expirations along with the current Monday, Wednesday and Friday 
expirations, the proposed rule change will allow market participants to 
purchase SPXW options in a manner more aligned with specific timing 
needs and more effectively tailor their investment and hedging 
strategies and manage their portfolios. In particular, the proposed 
rule change will allow market participants to roll their positions on 
more trading days, thus with more precision, spread risk across more 
trading days and incorporate daily changes in the markets, which may 
reduce the premium cost of buying protection.
    The Exchange proposes to abide by the same reporting requirements 
for the trading of SPXW options that expire on any Tuesday or Thursday 
that it does for the trading of P.M.-settled options on broad-based 
indexes that expire on any Monday, Wednesday, or Friday pursuant to the 
Pilot Program. The Exchange proposes to include data regarding SPXW 
options that expire on Tuesdays or Thursdays as it does for current 
Weekly Expirations on any broad-based index option in the Pilot Program 
annual report that it submits to the Securities and Exchange Commission 
(``Commission'') at least two months prior to the expiration date of 
the Pilot Program.\8\ The Exchange is required to submit an annual 
report at least yearly. The annual report to the Commission addresses 
the following areas: Analysis of Volume & Open Interest, Monthly 
Analysis of Weekly Expirations & EOM Trading Patterns and Provisional 
Analysis of Index Price Volatility. Going forward, the Exchange will 
include the same areas of analysis for SPXW options with Tuesday and 
Thursday expirations in the annual reports. Additionally, the Exchange 
will provide the Commission with any additional data or analyses the 
Commission requests because it deems such data or analyses necessary to 
determine whether the Pilot Program, including SPXW options with 
Tuesday and Thursday expirations as proposed, is consistent with the 
Exchange Act. As it does for current Pilot Program products, the 
Exchange will make public on its website all data and analyses in 
connection with SPXW options with Tuesday and Thursday expirations it 
submits to the Commission under the Pilot Program.
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    \8\ See Nonstandard Expirations Pilot Approval Order.
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    The Exchange believes there is sufficient investor interest and 
demand in SPXW options with Tuesday and Thursday expirations to warrant 
inclusion in the Pilot Program and that the Pilot Program, as amended, 
will continue to provide investors with additional means of managing 
their risk exposures and carrying out their investment objectives.\9\ 
The Exchange notes that during the Pilot Program's nearly 12-year 
tenure, the Exchange has not observed any significant adverse market 
effects or identified any regulatory concerns as a result of the Pilot 
Program, nor does it believe that additional expirations listed under 
the Pilot Program would result in any such impact or regulatory 
concerns. Based on a study conducted by Commission staff on the pilot 
data (including quarterly, weekly, EOM and third Friday expirations for 
P.M.-settled SPX options),\10\ there is no evidence of any

[[Page 11104]]

significant adverse economic impact to the futures, index, or 
underlying index component securities markets as a result of the 
quantity of P.M.-settled SPX options that settle at the close or the 
amount of expiring open interest in P.M.-settled SPX options.\11\
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    \9\ The Exchange additionally notes that it already allows SPXW 
options to expire on Tuesdays for normally Monday or Wednesday 
expiring SPXW options when the Exchange is not open for business on 
a respective Monday or Wednesday (as applicable), and already allows 
SPXW options to expire on Thursdays for normally Friday expiring 
SPXW options when the Exchange is not open for business on a 
respective Friday. Also, EOM options may currently be listed to 
expire on a Tuesday or Thursday.
    \10\ See Securities and Exchange Commission, Division of 
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM 
Cash-Settled Index Option Pilots (February 2, 2021) (``SEC PM Pilot 
Memo'').at 13, available at: https://www.sec.gov/files/Analysis_of_PM_Cash_Settled_Index_Option_Pilots.pdf (``Option 
settlement quantity data for A.M.- and P.M.-settled options were 
obtained from the Cboe, including the number of contracts that 
settled in-the-money for each exchange-traded option series on the 
S&P 500 index . . . on expiration days from January 20, 2006 through 
December 31, 2018. Daily open interest and volume data for [SPX] 
option series were also obtained from Cboe, including open interest 
data from January 3, 2006 through December 31, 2018 and trading 
volume data from January 3, 2006 through December 31, 2018.'')
    \11\ See id. at 3. For example, the largest settlement event 
that occurred during the time period of the study (a settlement of 
$100.4 billion of notional on December 29, 2017) had an estimated 
impact on the futures price of only approximately 0.02% (a predicted 
impact of $0.54 relative to a closing futures price of $2,677).
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    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it believes that 
the Exchange and OPRA have the necessary systems capacity to handle any 
potential additional traffic associated with trading of SPXW options 
with Tuesday and Thursday expirations. The Exchange does not believe 
that its Trading Permit Holders (``TPHs'') will experience any capacity 
issues as a result of this proposal and represents that it will monitor 
the trading volume associated with any possible additional options 
series listed as a result of this proposal and the effect (if any) of 
these additional series on market fragmentation and on the capacity of 
the Exchange's automated systems. Additionally, the Exchange notes that 
it recently implemented a strike mitigation initiative to reduce the 
number of strikes listed for SPXW options, effectively reducing the 
number of SPXW options series listed on the Exchange by approximately 
10%; such that, upon adding SPXW options with Tuesday and Thursday 
expirations, the number of SPXW options series listed on the Exchange 
will be less than the number of such series that were listed prior to 
the implementation of the SPXW options strike reduction.
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.\12\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \13\ 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 facilitation 
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) \14\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Id.
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    In particular, the Exchange does not believe that the addition of 
SPXW options with Tuesday and Thursday expirations to the Pilot Program 
will raise any prohibitive regulatory concerns, nor adversely impact 
fair and orderly markets on expiration days. The Exchange has not 
experienced any meaningful regulatory concerns, nor adverse impact on 
fair and orderly markets, in connection with the Pilot Program that has 
permitted the listing and trading of SPXW options with Monday, 
Wednesday and Friday expirations since 2010. Particularly, and as 
described above, the Exchange does not believe increases in the number 
P.M.-settled SPX options series will have any significant adverse 
economic impact on the futures, index, or underlying index component 
securities markets. The Exchange believes that the proposed rule change 
will provide investors with greater trading and hedging opportunities 
and flexibility, allowing them to transact in SPXW options in a manner 
more aligned with specific timing needs and more effectively tailor 
their investment and hedging objectives by listing SPXW options that 
expire each trading day of the week.
    The Exchange notes also that it will include analysis in connection 
with SPXW options that expire on Tuesdays and Thursdays, in the same 
manner that it currently does for other Pilot Program products, in the 
annual reports it submits to the Commission, and will provide the 
Commission with any additional data or analyses the it may request if 
it deems such data or analyses necessary to determine whether the Pilot 
Program, including SPXW options with Tuesday and Thursday expirations 
as proposed, is consistent with the Exchange Act. The Exchange 
represents that it believes that it has the necessary systems capacity 
to support any additional traffic associated with trading of SPXW 
options with Tuesday and Thursday expirations and does not believe that 
its TPHs will experience any capacity issues as a result of this 
proposal. The Exchange will monitor the trading volume associated with 
any possible additional options series listed and the effect (if any) 
of these additional series on market fragmentation and on the capacity 
of the Exchange's automated systems. The Exchange again notes that, as 
a result of an SPXW options strike mitigation initiative recently 
implemented by the Exchange, the number of SPXW options series listed 
on the Exchange once Tuesday and Thursday expirations become available 
will be less than the number of such series that were listed prior to 
the implementation of the strike mitigation initiative.
    The Exchange also notes that the nonsubstantive proposed rule 
change clarifying the trading session to which Rule 4.13(e)(4) refers 
will protect investors and the public interest by adding a 
clarification to rules governing the Pilot Program, as well as 
conforming such provision to Rule 5.1, which governs trading hours on 
the Exchange generally and has a substantively identical provision to 
that of the proposed rule change.\15\
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    \15\ See supra note 7.
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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 because SPXW options with 
Tuesday and Thursday expirations will be available to all market 
participants. By listing SPXW options that expire Tuesdays and 
Thursdays, the proposed rule change will provide all investors that 
participate in the SPX options market greater trading and hedging 
opportunities and flexibility to meet their investment and hedging 
needs. Additionally, Tuesday and Thursday expiring SPXW options will 
trade in the same manner as Weekly Expirations currently trade.
    The Exchange does not believe that the proposal to list SPXW 
options with

[[Page 11105]]

Tuesday and Thursday expirations will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act because SPX options (including SPXW options) are 
proprietary Exchange products. Other exchanges offer nonstandard 
expiration programs for index options and are welcome to similarly 
propose to list Tuesday and Thursday options on those indexes. To the 
extent that the addition of SPXW options that expire on Tuesdays and 
Thursdays available for trading on the Exchange makes the Exchange a 
more attractive marketplace to market participants at other exchanges, 
such market participants are free to elect to become market 
participants on the Exchange.
    The proposed rule change to clarify the trading session referred to 
in Rule 4.13(e)(4) will not burden intramarket or intermarket 
competition because it is not intended to be a competitive rule change 
but instead is intended to add clarity to the Rules and conform the 
provision to the Rule that governs Exchange trading hours generally.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2022-005 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-2022-005. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CBOE-2022-005, and should be submitted 
on or before March 21, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-04082 Filed 2-25-22; 8:45 am]
BILLING CODE 8011-01-P


