
[Federal Register Volume 88, Number 147 (Wednesday, August 2, 2023)]
[Notices]
[Pages 50921-50923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16388]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98008; File No. SR-CBOE-2023-020]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
Proposed Rule Change To Make the Nonstandard Expirations Pilot Program 
Permanent

July 27, 2023.

I. Introduction

    On April 11, 2023, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to make permanent the operation of its pilot 
program (``Program'') that permits the Exchange to list broad-based 
index options with nonstandard expirations. The proposed rule change 
was published for comment in the Federal Register on May 1, 2023.\3\ On 
June 9, 2023, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ The Commission did not receive any comment letters on the 
proposed rule change. The Commission is instituting proceedings 
pursuant to Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 97371 (April 25, 
2023), 88 FR 26621 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 97679, 88 FR 3931 
(June 15, 2023). The Commission designated July 30, 2023, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

    The Exchange proposes to make permanent a pilot program that 
permits the Exchange to list p.m.-settled options on broad-based 
indexes that expire (1) on the last day of the trading month (``EOM''), 
and (2) any Monday, Wednesday, or Friday (other than the third Friday-
of-the-month or days that coincide with an EOM expiration) and, with 
respect to S&P 500 index options (``SPX'') and mini-S&P 500 index 
options (``XSP''), on any Tuesday or Thursday (other than days that 
coincide with an EOM expiration) (``Weekly'').
    In September 2010, the Commission approved a rule change that 
established the Program under which the Exchange was permitted to list 
p.m-settled options on broad-based indexes to expire on any Friday of 
the month, other than the third Friday-of-the-month, and the last 
trading day of the month.\7\ The Commission subsequently approved 
proposed rule changes to amend the Program to allow the Exchange to 
also list: (1) p.m.-settled Monday \8\ and Wednesday \9\ expirations on 
broad-based indexes, and (2) p.m.-settled Tuesday and Thursday 
expirations on SPX \10\ and XSP.\11\ In approving the Program, the 
Commission noted its concern about the potential impact on the market 
at expiration for the underlying component stocks for a p.m.-settled, 
cash-settled index options.\12\ However, the Commission has also 
recognized the potential impact was unclear.\13\ The Commission 
approved the Program on a pilot basis to allow the Exchange and the 
Commission to monitor for and assess any potential for adverse market 
effects.\14\ In order to facilitate this assessment, the Exchange 
committed to provide the Commission with data and analysis in 
connection with the Program.\15\ The Exchange has filed to extend the 
operation of the Program on multiple occasions \16\ and it is currently 
set to expire on the earlier of November 6, 2023, or the date on which 
the Program is approved on a permanent basis.\17\
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    \7\ See Securities Exchange Act Release No. 62911 (September 14, 
2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-2009-075) 
(``Nonstandards Approval Order'').
    \8\ See Securities Exchange Act Release No. 78531 (August 10, 
2016), 81 FR 54643 (August 16, 2016) (SR-CBOE-2016-046).
    \9\ See Securities Exchange Act Release No. 76909 (January 14, 
2016), 81 FR 3512 (January 21, 2016) (SR-CBOE-2015-106).
    \10\ See Securities Exchange Act Release No. 94682 (April 12, 
2022), 87 FR 22993 (SR-CBOE-2022-005).
    \11\ See Securities Exchange Act Release No. 95795 (September 
21, 2022) (order approving SR-CBOE-2022-039).
    \12\ See Nonstandards Approval Order, 75 FR at 57540. See also 
Securities Exchange Act Release Nos. 64599 (June 3, 2011), 76 FR 
33798, 33801-02 (June 9, 2011) (order instituting proceedings to 
determine whether to approve or disapprove a proposed rule change to 
allow the listing and trading of SPXPM options); 65256 (September 2, 
2011), 76 FR 55969, 55970-76 (September 9, 2011) (order approving 
proposed rule change to establish a pilot program to list and trade 
SPXPM options); and 68888 (February 8, 2013), 78 FR 10668, 10669 
(February 14, 2013) (order approving the listing and trading of 
SPXPM on CBOE) (``SPXPM Approval Order'').
    \13\ See e.g., SPXPM Approval Order, 78 FR at 10669.
    \14\ See e.g., Nonstandards Approval Order, 75 FR at 57549; and 
Securities Exchange Act Release No. 94682 (April 12, 2022), 87 FR 
22993 at 22995 (SR-CBOE-2022-005).
    \15\ Id.
    \16\ See, e.g., Securities Exchange Act Release Nos. 65741 
(November 14, 2011), 76 FR 72016 (November 21, 2011); and 96223 
(November 3, 2022), 87 FR 67728 (November 9, 2022).
    \17\ See Securities Exchange Act Release No. 97445 (May 5, 
2023), 88 FR 30368(May 11, 2023).
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    Since the Program's inception in 2010, the Exchange has submitted 
reports to the Commission regarding the Program that detail the 
Exchange's experience with the Program, pursuant to the various 
approval orders.\18\ Specifically, the Exchange states it has submitted 
annual pilot reports to the Commission that contain an analysis of 
volume, open interest, and trading patterns.\19\ Additionally, for 
series that exceed certain minimum open interest parameters, the annual 
reports provide analysis of index price volatility and, if needed, 
share trading activity. The Exchange states it has also submitted 
periodic interim reports that contain some, but not all, of the 
information contained in the annual reports (together with the annual 
reports, the ``pilot reports'').\20\ The Exchange states that, during 
the course of the Program, it has provided the Commission with any 
additional data or analyses the Commission requested if it deemed such 
data or analyses necessary to determine whether the Program was 
consistent with the Exchange Act.\21\ The Exchange states it has made 
public on its website data and analyses previously submitted to the 
Commission under the Program, and will continue to make public any data 
and analyses it submits to the Commission while the Program is still in 
effect.\22\
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    \18\ See supra notes 7-11.
    \19\ See Notice, 88 FR at 26623.
    \20\ See id.
    \21\ See Notice, 88 FR at 26624.
    \22\ See id. Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
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    As set forth more fully in the Notice, the Exchange concludes that 
the Program does not negatively impact market quality or raise any 
unique or prohibitive regulatory concerns.\23\ The Exchange states it 
has not identified any evidence from the pilot data indicating that the 
trading of Weekly and EOM options has any adverse impact on fair and 
orderly markets on the third Friday-of-the-month for the underlying 
indexes or the underlying securities comprising the underlying indexes, 
nor have there been any observations of abnormal market movements 
attributable to Weekly and EOM options from any market participants 
that have come to

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the attention of the Exchange.\24\ In order to support its overall 
assessment of the Program, the Exchange includes both an assessment of 
an analysis conducted at the direction of the staff of the Commission's 
Division of Economic and Risk Analysis and the Exchange's review and 
analysis of pilot data.\25\ Among other things, the Notice includes the 
Exchange's analysis of end of day volatility as well as a comparison of 
the impact of quarterly index rebalancing versus p.m.-settled 
expirations.\26\
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    \23\ See Notice, 88 FR at 26624.
    \24\ See id.
    \25\ See Notice, 88 FR at 26624-26.
    \26\ See Notice, 88 FR at 26625-26. The Exchange states that 
although this analysis specifically evaluated SPX options, the 
Exchange believes it is appropriate to extrapolate the data to apply 
to the Weekly and EOM options (which include SPX options) because 
Weekly and EOM options may only overly broad-based index options. 
See Notice, 88 FR at 26627.
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    The Exchange also completed an analysis intended to evaluate 
whether the Program impacted the quality of the a.m.-settled options 
market.\27\ Specifically, the Exchange compared values of key market 
quality indicators (specifically, the bid-ask spread \28\ and effective 
spread \29\) in p.m.-settled SPX options (``SPXW'') both before and 
after the introduction of Tuesday expirations and Thursday expirations 
for SPXW options on April 18 and May 11, 2022, respectively.\30\ The 
Exchange believes analyzing the impact of new SPXW options on then-
existing SPXW options provides a reasonable substitute to evaluate 
whether the introduction of Weekly and EOM options impacted the market 
quality of any corresponding a.m.-settled options when the Program 
began.\31\
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    \27\ See Notice, 88 FR at 26364.
    \28\ The Exchange calculated for each of SPXW options (with 
Monday, Wednesday, and Friday expirations) and weekly options on the 
Standard & Poor's Depositary Receipts S&P 500 ETF (``SPY'') (with 
Monday, Wednesday, and Friday expirations) the daily time-weighted 
bid-ask spread on the Exchange during its regular trading hours 
session, adjusted for the difference in size between SPXW options 
and SPY options (SPXW options are approximately ten times the value 
of SPY options).
    \29\ The Exchange calculated the volume-weighted average daily 
effective spread for simple trades for each of SPXW options (with 
Monday, Wednesday, and Friday expirations) and SPY weekly options 
(with Monday, Wednesday, and Friday expirations) as twice the amount 
of the absolute value of the difference between an order execution 
price and the midpoint of the national best bid and offer at the 
time of execution, adjusted for the difference in size between SPXW 
options and SPY options.
    \30\ For purposes of comparison, the Exchange paired SPXW 
options and SPY options with the same moneyness and same days to 
expiration.
    \31\ See Notice, 88 FR at 26626.
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    Finally, the Exchange states that the significant changes in the 
closing procedures of the primary markets in recent decades, including 
considerable advances in trading systems and technology, have 
significantly minimized risks of any potential impact of Weekly or EOM 
options on the underlying cash markets.\32\
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    \32\ See Notice, 88 FR at 26628.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2023-020, and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \33\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \33\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\34\ the Commission is 
providing notice of the grounds for disapproval under consideration. As 
described above, the Exchange has proposed to make permanent a pilot 
program that permits the listing and trading of p.m.-settled Weekly and 
EOM expirations. The Commission is instituting proceedings to allow for 
additional analysis of, and input from commenters with respect to, the 
proposed rule change's consistency with the Act, and in particular, 
Section 6(b)(5) of the Act, which requires, among other things, that 
the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, 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.\35\
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    \34\ Id.
    \35\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, is consistent with Sections 6(b)(5) or any other provision of 
the Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of data, views, and arguments, 
the Commission will consider, pursuant to Rule 19b-4 under the Act,\36\ 
any request for an opportunity to make an oral presentation.\37\
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    \36\ 17 CFR 240.19b-4.
    \37\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (Jun. 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by August 23, 2023. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
September 6, 2023. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2023-020 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-2023-020. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule

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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 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to file number 
SR-CBOE-2023-020 and should be submitted by August 23, 2023. Rebuttal 
comments should be submitted by September 6, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16388 Filed 8-1-23; 8:45 am]
BILLING CODE 8011-01-P


