[Federal Register Volume 87, Number 74 (Monday, April 18, 2022)]
[Notices]
[Pages 22993-22995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08162]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94682; File No. SR-CBOE-2022-005]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Expand the 
Nonstandard Expirations Pilot Program To Include P.M.-Settled S&P 500 
Index Options That Expire on Tuesday or Thursday

April 12, 2022.

I. Introduction

    On February 8, 2022, 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 expand its Nonstandard Expirations Pilot 
Program to permit P.M.-settled S&P 500 Index (``SPX'') options that 
expire on Tuesday or Thursday. The proposed rule change was published 
for comment in the Federal Register on February 28, 2022.\3\ On April 
6, 2022, the Exchange filed Amendment No. 1 to the proposed rule 
change.\4\ The Commission is publishing this notice to solicit comment 
on Amendment No. 1 and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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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. 94292 (February 22, 
2022), 87 FR 11102 (``Notice''). Comments received regarding the 
proposal are available on the Commission's website at: https://www.sec.gov/comments/sr-cboe-2022-005/srcboe2022005.htm.
    \4\ In Amendment No. 1, the Exchange also proposes to include 
the following market quality data for SPXW (as defined below) and 
standard SPX options, over sample periods determined by the Exchange 
and the Commission, as part of its Annual Report (as defined below) 
going forward: Time-weighted relative quoted spreads; relative 
effective spreads; and time-weighted bid and offer sizes. Amendment 
No. 1 is available on the Commission's website at: https://www.sec.gov/comments/sr-cboe-2022-005/srcboe2022005.htm.
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II. Description of the Proposal, as Modified by Amendment No. 1

    Cboe Options proposes to expand its existing Nonstandard 
Expirations Pilot (``Pilot'').\5\ Under the terms of the current Pilot, 
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'').\6\ Under the proposal, the 
Exchange will expand the Pilot to permit P.M.-settled SPX Weekly 
(``SPXW'') options that expire on Tuesday or Thursday (``Tuesday and 
Thursday SPXW Expirations'') as permissible Weekly Expirations under 
the Pilot, in addition to the SPXW options with Monday, Wednesday, and 
Friday expirations that the Exchange may currently list pursuant to 
Rule 4.13(e)(1). The Exchange states that the Pilot for Weekly 
Expirations will apply to Tuesday and Thursday SPXW Expirations in the 
same manner as it currently applies to P.M.-settled broad-based index 
options with Monday, Wednesday, and Friday expirations.\7\
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    \5\ See Securities Exchange Act Release No. 62911 (September 14, 
2010), 75 FR 57539 (September 21, 2010) (``Pilot Approval Order''). 
See also Securities Exchange Act Release No. 76909 (January 14, 
2016), 81 FR 3512 (January 21, 2016) (permitting P.M.-settled 
options on broad-based indexes that expire on any Wednesday); and 
Securities Exchange Act Release No. 78531 (August 10, 2016), 81 FR 
54643 (August 16, 2016) (permitting P.M.-settled options on broad-
based indexes that expire on any Monday). The Pilot is currently set 
to expire on May 2, 2022. See Securities Exchange Act Release No. 
93459 (October 28, 2021), 86 FR 60663 (November 3, 2021).
    \6\ Cboe Options Rule 4.13(e).
    \7\ See Notice, supra note 3, 87 FR 11102.
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A. Tuesday and Thursday SPXW Expirations

    The Exchange's proposed rule change will allow it to open for 
trading SPXW options with Tuesday and Thursday expirations to expire on 
any Tuesday or Thursday of the month, other than days that coincide 
with an EOM expiration.\8\ The maximum number of expirations that may 
be listed for each type of Weekly Expiration (including the proposed 
Tuesday and Thursday SPXW Expirations) 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 (12 for SPX options).\9\ 
Further, under current Cboe Options Rule 4.13(e)(1),

[[Page 22994]]

other expirations in the same class will not be counted as part of the 
maximum number of Weekly Expirations for an applicable broad-based 
index class.\10\
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    \8\ 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 given 
class. See Cboe Options Rule 4.13(e)(1).
    \9\ See Notice, supra note 3, 87 FR 11102.
    \10\ See Cboe Options Rule 4.13(e)(1).
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    Weekly Expirations need not be for consecutive Monday, Tuesday, 
Wednesday, Thursday, or Friday expirations as applicable; \11\ 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.\12\ Weekly Expirations that 
are first listed in a given class may expire up to four weeks from the 
actual listing date.\13\ Tuesday and Thursday SPXW Expirations will be 
treated the same as options on the same underlying index that expire on 
the third Friday of the expiration month, except that they will 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.\14\
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    \11\ See proposed Cboe Options Rule 4.13(e)(1).
    \12\ See Cboe Options Rule 4.13(e)(1).
    \13\ Id.
    \14\ See Notice, supra note 3, 87 FR 11102. The proposed rule 
change also clarifies that on the last trading day, Regular Trading 
Hours for expiring Weekly Expirations and EOMs are from 9:30 a.m. to 
4:00 p.m. See proposed Cboe Options Rule 4.13(e)(4).
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    Finally, if the Exchange is not open for business on a Tuesday or 
Thursday, the normally Tuesday- or Thursday-expiring SPXW will expire 
on the previous business day.\15\ If two different SPXW options will 
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 SPXW 
options.\16\
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    \15\ Id.
    \16\ Id.
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B. Annual Pilot Program Report

    The Exchange has previously undertaken to submit a Pilot report to 
the Commission at least two months prior to the expiration date of the 
Pilot (``Annual Report'').\17\ The Exchange represents that it will 
abide by the same reporting requirements for the trading of Tuesday and 
Thursday SPXW Expirations 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.\18\ The Exchange states that it will 
include data regarding Tuesday and Thursday SPXW Expirations in the 
Annual Report that it submits to the Commission at least two months 
prior to the expiration date of the Pilot.\19\ Additionally, the 
Exchange represents that it will provide certain additional market 
quality data for SPX options \20\ and will also 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, 
including the proposed Tuesday and Thursday SPXW Expirations, is 
consistent with the Act.\21\ As it does for current Pilot program 
products, the Exchange states it 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.\22\
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    \17\ See Pilot Approval Order, supra note 5.
    \18\ See Notice, supra note 3, 87 FR at 11103. See also Pilot 
Approval Order, supra note 5, 75 FR 57540 (stating, ``[i]n 
particular, the Commission notes that [the Exchange] will provide 
the Commission with the annual report analyzing volume and open 
interest of EOWs and EOMs, will also contain information and 
analysis of EOW and EOM trading patterns, and index price volatility 
and share trading activity for series that exceed minimum 
parameters.'').
    \19\ See Notice, supra note 3, 87 FR 11103.
    \20\ See Amendment No. 1, supra note 4. In particular, the 
Exchange proposes to include the following market quality data, over 
sample periods determined by the Exchange and the Commission, for 
SPX options (SPXW and standard SPX options) as part of the annual 
reports going forward: Time-weighted relative quoted spreads; 
relative effective spreads; and time-weighted bid and offer sizes. 
See id.
    \21\ See Notice, supra note 3, 87 FR 11103.
    \22\ Id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, with 
Section 6(b) of the Act.\23\ In particular, the Commission finds that 
the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\24\ which requires, among other things, that a national securities 
exchange have rules 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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    \23\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Commission received a comment letter in support of the 
Exchange's proposal.\25\ The commenter states that the addition of 
Tuesday and Thursday SPXW Expirations would allow investors to closely 
tailor their hedging strategies around specific dates \26\ and 
potentially reduce hedging costs,\27\ as well as allow investors to 
spread risk across more trading days and account for daily changes in 
the markets.\28\ The commenter also asserts that there is demand for 
the proposed Tuesday and Thursday SPXW Expirations, and that the 
proposal ``will enhance the total liquidity and risk management 
opportunities that the US options market offers, and will further 
enhance the overall health of the US listed options market.'' \29\ The 
commenter states that it has not observed any negative impact on the 
market or regulatory concerns arising from SPXW options.\30\
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    \25\ See Letter from John Zhu, Head of Trading, Optiver US LLC, 
to Vanessa Countryman, Secretary, Commission, dated March 18, 2022.
    \26\ See id. at 1.
    \27\ Id.
    \28\ Id.
    \29\ Id. at 2.
    \30\ Id.
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    As the Commission noted in its orders approving the listing and 
trading of P.M.-settled options on the S&P 500 Index, the Commission 
has had concerns about the potential adverse effects and impact of P.M. 
settlement upon market volatility and the operation of fair and orderly 
markets on the underlying cash markets at or near the close of trading, 
including for cash-settled derivatives contracts based on a broad-based 
index.\31\ The potential impact today remains unclear, given the 
significant changes in the closing procedures of the primary markets in 
recent decades. The Commission is mindful of the historical experience 
with the impact of P.M. settlement of cash-settled index derivatives on 
the underlying cash markets, but recognizes that these risks may be 
mitigated today by the enhanced closing procedures that are now in use 
at the primary equity markets.
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    \31\ See Securities Exchange Act Release No. 68888 (February 8, 
2013), 78 FR 10668, 10669 (February 14, 2013) (order approving the 
listing and trading of SPXPM on Cboe Options). 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 on the C2 Options Exchange, 
Incorporated); and 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 on the C2 
Options Exchange, Incorporated).

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[[Page 22995]]

    The Exchange's proposal to add Tuesday and Thursday SPXW 
Expirations to the existing Pilot would offer additional investment 
options to investors and may be useful for their investment or hedging 
objectives while providing the Commission with data to monitor the 
effects of Tuesday and Thursday SPXW Expirations and the impact of P.M. 
settlement on the markets. To assist the Commission in assessing any 
potential impact of Tuesday and Thursday SPXW options on the options 
markets as well as the underlying cash equities markets, the Exchange 
will be required to submit data to the Commission in connection with 
the Pilot.\32\ Further, including the proposed Tuesday and Thursday 
SPXW Expirations in the Pilot, together with the data and analysis that 
the Exchange will provide to the Commission, will allow Cboe Options 
and the Commission to monitor for and assess any potential for adverse 
market effects of allowing Tuesday and Thursday SPXW Expirations, 
including on the underlying component stocks. In particular, the data 
collected from the Pilot will help inform the Commission's 
consideration of whether the Pilot, as amended to include Tuesday and 
Thursday SPXW Expirations, should be modified, discontinued, extended, 
or permanently approved. Furthermore, the Exchange's ongoing analysis 
of the Pilot should help it monitor any potential risks from large 
P.M.-settled positions and take appropriate action if warranted.
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    \32\ See Notice, supra note 3, 87 FR 11103; Pilot Approval 
Order, supra note 5, 75 FR 57540; and Amendment No. 1, supra note 4. 
See also supra notes 18 and 20.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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 May 9, 2022.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange represents 
that it will provide certain additional data in the Pilot Program 
annual reports regarding SPXW options.\33\ The Exchange states that 
such data will assist in monitoring for any adverse market effects or 
regulatory concerns. Amendment No. 1 raises no novel regulatory issues 
and will provide additional data that will assist the Commission in 
evaluating the Pilot. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\34\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \33\ See Amendment No. 1, supra note 4.
    \34\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\35\ that the proposed rule change (SR-CBOE-2022-005), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \35\ 15 U.S.C. 78s(b)(2).

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08162 Filed 4-15-22; 8:45 am]
BILLING CODE 8011-01-P