[Federal Register Volume 81, Number 169 (Wednesday, August 31, 2016)]
[Notices]
[Pages 60089-60091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20887]



[[Page 60089]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78686; File No. SR-CBOE-2016-062]


 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Expand the Short Term Option Series Program To Allow 
Wednesday Expirations for SPY Options

August 25, 2016.
    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 August 24, 2016, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') 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 proposes to expand the Short Term Option Series Program to 
allow Wednesday expirations for SPDR S&P 500 ETF Trust (``SPY'') 
options. The text of the proposed rule change is available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission.

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 expand the Short Term Option Series 
Program outlined in Rule 5.5(d) to allow the listing and trading of SPY 
options with Wednesday expirations. This is a competitive filing based 
on a filing submitted by the BOX Options Exchange, LLC (``BOX''), which 
the Commission recently approved.\5\
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    \5\ See Securities Exchange Act Release No. 78668 (August 24, 
2016) (order approving SR-BOX-2016-028).
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    Currently, under the Short Term Option Series Program, which was 
made permanent in 2009,\6\ the Exchange may open for trading on any 
Thursday or Friday that is a business day series of options on that 
class that expire on each of the next five Fridays, provided that such 
Friday is not a Friday in which monthly options series or Quarterly 
Options Series expire (``Short Term Option Series''). The Exchange is 
now proposing to amend Rule 5.5(d) to permit the listing of SPY options 
expiring on Wednesdays. Specifically, CBOE is proposing that it may 
open for trading on any Tuesday or Wednesday that is a business day, 
series of SPY options that expire on any Wednesday of the month that is 
a business day and is not a Wednesday on which Quarterly Options Series 
expire (``Wednesday SPY Expirations'').\7\ The proposed Wednesday SPY 
Expiration series would be similar to the current Short Term Option 
Series, with certain exceptions, as explained in greater detailed 
below. The Exchange notes that Wednesday expirations are not a novel 
proposal. Specifically, the U.S. Securities and Exchange Commission 
(``Commission'') approved a CBOE proposal to list Wednesday expirations 
for broad-based indexes.\8\ Additionally, BOX recently received 
approval to list Wednesday SPY Expirations.\9\
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    \6\ See Securities Exchange Act Release No. 59824 (April 27, 
2009), 74 FR 20518 (May 4, 2009) (SR-CBOE-2009-018).
    \7\ See proposed amendment to Rule 5.5(d).
    \8\ See Securities Exchange Act Release No. 76909 (January 14, 
2016), 81 FR 3512 (January 21, 2016) (Order approving SR-CBOE-2015-
106).
    \9\ See supra note 5.
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    In regards to Wednesday SPY Expirations, the Exchange is proposing 
to remove the current restriction preventing CBOE from listing Short 
Term Option Series that expire in the same week in which monthly option 
series in the same class expire. Specifically, the Exchange would be 
allowed to list Wednesday SPY Expirations in the same week in which 
monthly option series in SPY expire. The current restriction to 
prohibit the expiration of monthly and Short Term Option Series from 
expiring on the same trading day is reasonable to avoid investor 
confusion. This confusion would not apply with Wednesday SPY 
Expirations and standard monthly options because they would not expire 
on the same trading day, as standard monthly options do not expire on 
Wednesdays. Additionally, it would lead to investor confusion if 
Wednesday SPY Expirations were not listed for one week every month 
because there was a monthly SPY expiration on the Friday of that week. 
The existing restriction that a Short Term Option Series may not expire 
on the same day that a Quarterly Option Series expires would apply to 
Wednesday SPY Expirations.
    Under the proposal, CBOE may open for trading on any Tuesday or 
Wednesday that is a business day, 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. The Exchange may have no more than a total of five Wednesday 
SPY Expirations listed. This is similar to the listing procedures for 
Short Term Option Series that expire on Fridays. 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. This is also similar to the 
procedures for Short Term Option Series that expire on Fridays.
    The Exchange is also proposing to clarify that the five expirations 
limit in the current Short Term Option Series Program Rule would not 
include any Wednesday SPY Expirations and vice versa.\10\ This means, 
under the proposal, the Exchange would be allowed to list five Short 
Term Option Series expirations for SPY expiring on Friday under the 
current rule and five Wednesday SPY Expirations. The

[[Page 60090]]

interval between strike prices for the proposed Wednesday SPY 
Expirations would be the same as those for the current Short Term 
Option Series. Specifically, the Wednesday SPY Expirations would have 
$0.50 strike intervals.\11\
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    \10\ Specifically, the Exchange proposes to add the following 
new text to Rule 5.5(d) in relevant places, ``Wednesday SPY 
Expirations (described in the paragraph below) are not included as 
part of this count [ ]'' and ``Non-Wednesday SPY Expirations 
(described in the paragraph above) are not included as part of this 
count.''
    \11\ This is because SPY options have $1 strike price intervals 
for non-Short Term Option series. See Rule 5.5.08(b). Pursuant to 
Rule 5.5(d)(5)(ii), strike price intervals for Short Term Option 
Series may be $0.50 or greater for classes that trade in $1 strike 
price intervals for non-Short Term Option series. The Exchange is 
taking this opportunity to harmonize Rule 5.5(d)(5)(ii) with Rule 
5.5(d)(5)(i) and (iii) by adding the phrase ``or greater.'' This 
proposed change is non-substantive.
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    Currently, for each Short Term Option Expiration Date,\12\ the 
Exchange is limited to opening thirty (30) series for each expiration 
date for the specific class. The thirty (30) series restriction does 
not include series that are opened by other securities exchanges under 
their respective short term option rules; CBOE may list these 
additional series that are listed by other exchanges.\13\ The thirty 
(30) series restriction would apply to Wednesday SPY Expiration series 
as well. In addition, the Exchange would be able to list series that 
are listed by other exchanges, assuming they file similar rules with 
the Commission to list SPY options expiring on Wednesdays.
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    \12\ CBOE may open for trading on any Thursday or Friday that is 
a business day 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 in which monthly options series or 
Quarterly Options Series expire (``Short Term Option Expiration 
Dates''). See Rule 5.5(d).
    \13\ See Rule 5.5(d)(1).
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    As is the case with current Short Term Option Series, the Wednesday 
SPY Expiration series would be P.M.-settled. The Exchange does not 
believe that any market disruptions would be encountered with the 
introduction of P.M.-settled Wednesday SPY Expirations. The Exchange 
currently trades P.M.-settled Short Term Option Series that expire 
almost every Friday, which provide market participants a tool to hedge 
special events and to reduce the premium cost of buying protection. The 
Exchange seeks to introduce Wednesday SPY Expirations to, among other 
things, expand hedging tools available to market participants and to 
continue the reduction of the premium cost of buying protection. The 
Exchange believes that Wednesday expirations, similar to Friday 
expirations, would allow market participants to purchase an option 
based on their timing as needed and allow them to tailor their 
investment and hedging needs more effectively.
    The Exchange is also proposing to amend Rule 1.1(bbb), which sets 
forth the definition of Short Term Option Series. The definition set 
forth in Rule 1.1(bbb) is redundant to the terms for Short Term Option 
Series set forth in Rule 5.5. As a result, the Exchange believes that 
amending Rule 1.1(bbb) by including an internal cross reference to Rule 
5.5(d) and by deleting redundant language would result in a less bulky 
definition and would make the Rulebook more user friendly.
    The Exchange is taking this opportunity to amend Rule 5.5(d) with 
respect to Exchange closures on Fridays that would otherwise be 
eligible as Short Term Option Expiration Dates. Specifically, the 
Exchange is cleaning up outdated language that previously tied listings 
to Fridays in the following business week, i.e., ``if the Exchange is 
not open for business on the Friday of the following business week . . 
. .'' Since Short Term Option Series may be listed out over five 
consecutive Fridays, the existing language is unnecessarily 
restrictive. Also, this proposed change harmonizes the Exchange's rule 
text with existing BOX rule text, i.e., ``if the [Exchange] is not open 
for business on a Friday . . .''
    The Exchange proposes to add the new rule text language regarding 
Wednesday SPY Expirations at the beginning of Rule 5.5(d), before the 
provisions governing classes, expiration, initial series, additional 
series, strike interval and delisting. The Exchange believes that 
placement of Wednesday SPY Expirations at the start of Rule 5.5(d) 
would make it apparent that the rest of Rule 5.5(d) applies to 
Wednesday SPY Expirations. To make this point clear, the Exchange 
proposes to add the sentence, ``References to `Short Term Option 
Series' below shall be read to include `Wednesday SPY Expirations,' 
except where indicated otherwise[ ]'' before the Arabic numbered 
paragraphs set forth in Rule 5.5(d).
    The Exchange believes that the introduction of Wednesday SPY 
Expirations would provide investors with a flexible and valuable tool 
to manage risk exposure, minimize capital outlays, and be more 
responsive to the timing of events affecting the industry.

2. Statutory Basis

    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\14\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \15\ 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.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes the Short Term Option Series 
Program has been successful to date and that Wednesday SPY Expirations 
simply expand the ability of investors to hedge risk against market 
movements stemming from economic releases or market events that occur 
throughout the month in the same way that the Short Term Option Series 
Program has expanded the landscape of hedging. Similarly, the Exchange 
believes Wednesday SPY Expirations should create greater trading and 
hedging opportunities and flexibility, and provide customers with the 
ability to more closely tailor their investment objectives. The 
Exchange believes that allowing Wednesday SPY Expirations and monthly 
SPY expirations in the same week would benefit investors and minimize 
investor confusion by providing Wednesday SPY Expirations in a 
continuous and uniform manner.
    In addition to the substantive proposal to permit Wednesday SPY 
Expirations, the Exchange is proposing to make two technical changes to 
the text of Rule 5.5(d). One proposed change is grammatical and the 
other is a cleanup change that would benefit investors because CBOE's 
Rulebook would have parallel structure and would be more user friendly.
    The Exchange represents that it has an adequate surveillance 
program in place to detect manipulative trading in Wednesday SPY 
Expirations in the same way it monitors trading in the current Short 
Term Option Series. Finally, the Exchange also represents that it has 
the necessary systems capacity to support the new options series.

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change would impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that it 
currently trades Wednesday expirations for certain

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broad-based index options. As a result, having Wednesday expirations is 
not a novel proposal. Additionally, the current rule change is being 
proposed as a competitive response to a recently approved BOX filing. 
CBOE believes this proposed rule change is necessary to ensure fair 
competition among the options exchanges. Also, the Exchange does not 
believe the proposal would impose any burden on intramarket 
competition, as all market participants would be treated in the same 
manner as they are with respect to existing Short Term Option Series. 
Additionally, the Exchange does not believe the proposal would impose 
any burden on intermarket competition, as nothing prevents the other 
options exchanges from proposing similar rules to those that the 
Exchange is currently proposing.

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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intention to file 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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days from the date of filing. However, Rule 
19b-4(f)(6)(iii) \18\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that the proposal may become operative 
immediately upon filing. The Commission notes that it recently approved 
BOX's substantially similar proposal to list and trade Wednesday SPY 
Expirations.\19\ The Exchange has stated that waiver of the operative 
delay will allow the Exchange to list and trade Wednesday SPY 
Expirations as soon as possible, and therefore, promote competition 
among the option exchanges. For these reasons, the Commission believes 
that the proposed rule change presents no novel issues and that waiver 
of the 30-day operative delay is consistent with the protection of 
investors and the public interest, and will allow the Exchange to 
remain competitive with other exchanges. Therefore, the Commission 
hereby waives the 30-day operative delay and designates the proposal 
effective upon filing.\20\ 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 should be 
approved or disapproved.
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    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ See supra note 5.
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-2016-062 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-2016-062. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2016-062 and should be 
submitted on or before September 21, 2016.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-20887 Filed 8-30-16; 8:45 am]
 BILLING CODE 8011-01-P