
[Federal Register Volume 88, Number 147 (Wednesday, August 2, 2023)]
[Notices]
[Pages 50943-50945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16387]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98005; File No. SR-CBOE-2023-019]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
Proposed Rule Change To Make Permanent the Operation of its Pilot 
Program That Allows the Exchange to List P.M.-Settled Third Friday-of-
the-Month Mini-SPX Index Options and Mini-Russell 2000 Index Options 
Series

July 27, 2023.

I. Introduction

    On April 19, 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 p.m.-settled 
third Friday-of-the-month Mini-SPX Index (``XSP'') options and Mini-
Russell 2000 Index (``MRUT''). The proposed rule change was published 
for comment in the Federal Register on April 28, 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. 97366 (April 24, 
2023), 88 FR 26359 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 97678, 88 FR 39285 
(June 15, 2023). The Commission designated July 27, 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 and trade cash-settled XSP and MRUT 
options with third Friday-of-the-month expiration dates (``Expiration 
Friday'') whose exercise settlement value is derived from closing 
prices on the last trading day prior to expiration (``p.m.-settled 
XSP'' and ``p.m.-settled MRUT,'' respectively, and collectively, the 
``Pilot Products'').
    In July 2013, the Commission approved the Program to list and trade 
p.m.-settled XSP options on a pilot basis.\7\ In February 2021, the 
Commission approved a rule change that amended the Program to allow the 
exchange to list and trade p.m.-settled MRUT options.\8\ 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.\9\ However, the 
Commission also recognized the potential impact was unclear.\10\ 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.\11\ In order to facilitate this assessment, the 
Exchange committed to provide the Commission with data and analysis in 
connection with the Program.\12\ The Exchange has filed to extend the 
operation of the Program on multiple occasions \13\ 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.\14\
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    \7\ See Securities Exchange Act Release No. 70087 (July 31, 
2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055) (``XSP 
Approval Order'').
    \8\ See Securities Exchange Act Release No. 91067 (February 5, 
2021) 86 FR 9108 (February 11, 2021) (SR-CBOE-2020-116) (``MRUT 
Approval Order'').
    \9\ See XSP Approval Order, 78 FR at 47811; and MRUT Approval 
Order, 86 FR at 9109. 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).
    \10\ See XSP Approval Order, 78 FR at 47811; and MRUT Approval 
Order, 86 FR at 9109.
    \11\ See XSP Approval Order, 78 FR at 47811; and MRUT Approval 
Order, 86 FR at 9109.
    \12\ Id.
    \13\ See, e.g., Securities Exchange Act Release Nos. 71424 
(January 28, 2014), 79 FR 6249 (February 3, 2014) (SR-CBOE-2014-
004); and 96222 (November 3, 2022), 87 FR 67736 (November 9, 2022) 
(SR-CBOE-2022-054).
    \14\ See Securities Exchange Act Release No. 97446 (May 5, 
2023), 88 FR 30365 (May 11, 2023).
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    Since the Program's inception in 2013 for XSP and 2021 for MRUT, 
the Exchange has submitted reports to the Commission regarding the 
Program that detail the Exchange's experience with the Program, 
pursuant to the XSP and MRUT Approval Orders.\15\ Specifically, the 
Exchange states it has submitted annual pilot reports to the Commission 
that contain an analysis of volume, open interest, and trading 
patterns.\16\ The analysis examines trading in the Pilot Products, as 
well as trading in the securities that comprise the underlying indexes. 
Additionally, for series that exceed certain minimum open interest 
parameters, the annual reports provide analysis of index price 
volatility and 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'').\17\ The Exchange states that, 
during the course of the Program, it has provided

[[Page 50944]]

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.\18\ The 
Exchange states it has made public on its website data and analyses 
previously submitted to the Commission under the Program,\19\ and will 
continue to make public any data and analyses it submits to the 
Commission while the Program is still in effect.\20\
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    \15\ See supra note 12.
    \16\ See Notice, 88 FR at 26361.
    \17\ See id.
    \18\ See Notice, 88 FR at 26361-62.
    \19\ See Notice, 88 FR at 26362. Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
    \20\ See Notice, 88 FR at 26362.
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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.\21\ The Exchange states it 
has not identified any evidence from the pilot data indicating that the 
trading of p.m.-settled XSP or MRUT options has any adverse impact on 
fair and orderly markets on Expiration Fridays for the Mini-SPX Index, 
the Mini-RUT Index or the underlying securities comprising the 
underlying indexes, nor have there been any observations of abnormal 
market movements attributable to p.m.-settled XSP or MRUT options from 
any market participants that have come to the attention of the 
Exchange.\22\ 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.\23\ 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.\24\
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    \21\ See id.
    \22\ See id.
    \23\ See Notice, 88 FR at 26362-65.
    \24\ See Notice, 88 FR at 26363-64. The Exchange states that 
although its study specifically evaluated options on the S&P 500 
index (``SPX options''), because XSP options overly the same index 
comprised of the same securities (just one tenth the size) and MRUT 
is also a broad-based index, the Exchange believes it is appropriate 
to extrapolate the data to apply the Pilot Products. See Notice, 88 
FR at 26365.
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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.\25\ Specifically, the Exchange compared values of key market 
quality indicators (specifically, the bid-ask spread \26\ and effective 
spread \27\) 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.\28\ The 
Exchange believes analyzing the impact of new SPXW options on then-
existing SPXW options permit the Exchange to extrapolate that it is 
unlikely the introduction of the Pilot Products significantly impacted 
the market quality of a.m.-settled options, such as a.m.-settled SPX or 
Russell 2000 index options, respectively, when the Program began.\29\
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    \25\ See Notice, 88 FR at 26364.
    \26\ 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).
    \27\ 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.
    \28\ For purposes of comparison, the Exchange paired SPXW 
options and SPY options with the same moneyness and same days to 
expiration.
    \29\ See Notice, 88 FR at 26365.
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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 p.m.-, cash-
settled XSP or MRUT options on the underlying cash markets.\30\
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    \30\ See Notice, 88 FR at 26364.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2023-019, and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \31\ 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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    \31\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\32\ 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 XSP and 
MRUT options with third Friday-of-the-month-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.\33\
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    \32\ Id.
    \33\ 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,\34\ 
any request for an opportunity to make an oral presentation.\35\
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    \34\ 17 CFR 240.19b-4.
    \35\ 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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[[Page 50945]]

    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-2023-019 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-2023-019. 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 (https://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 
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-2023-019 and should be 
submitted on or before 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.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16387 Filed 8-1-23; 8:45 am]
BILLING CODE 8011-01-P


