[Federal Register Volume 87, Number 118 (Tuesday, June 21, 2022)]
[Notices]
[Pages 36898-36902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13150]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95102; File No. SR-CBOE-2022-027]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to Amend 
Rule 5.4

June 14, 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 June 3, 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 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 5.4. The text of the proposed rule change is provided 
below.

(additions are underlined; deletions are [bracketed])
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[GRAPHIC] [TIFF OMITTED] TN21JN22.064

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    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 5.4(a) to change the minimum 
increment for all series of options on the Cboe Volatility Index (``VIX 
options'') (if the Exchange does not list VIX options on a group basis) 
and series of VIX options not listed under the Nonstandard Expirations 
Pilot Program (if the Exchange lists VIX options on a group basis) to 
$0.01 for series trading lower than $3.00 and $0.05 for series trading 
at $3.00 or higher. Currently, the Exchange lists VIX options on a 
group basis, so series of VIX options listed under the Nonstandard 
Expirations Pilot Program (``VIXW options'') currently trade with a 
minimum increment of $0.01 for all series trading prices. The proposed 
rule change will permit the other group of VIX option series (those not 
listed under the Nonstandard Expirations Pilot Program, which are 
comprised of VIX options series that expire on the third Friday of the 
month) to trade in smaller increments.\5\
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    \5\ As proposed, if the Exchange were to stop listing VIX series 
on a group basis, then the proposed increments of $0.01 for series 
trading below $3.00 and $0.05 for series trade at or above $3.00 
would apply to all VIX options series.
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    The Exchange believes market demand (including by retail investors, 
who generally prefer lower trading increments) supports a lower trading 
increment for these series. The Exchange expects this more granular 
pricing to lead to narrowing of the bid-ask spread for these options 
and increase the possible number of price points available to investors 
for these series. The Exchange believes tighter spreads will increase 
order flow in VIX options, which additional liquidity ultimately 
benefits all investors. Finer increments also permit more precise 
pricing in line with the theoretical value of these options. 
Additionally, penny pricing is available in weekly options on 
competitor products such as the iPath S&P 500 VIX Short-Term Futures 
exchange-traded note (``VXX''). As a result, the Exchange believes 
penny pricing for VIX options is necessary for competitive reasons to 
allow the Exchange to price these weekly options at the same level of 
granularity as permitted for competitor products.\6\
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    \6\ The Exchange notes that other options that trade on the 
Exchange are currently permitted to trade in penny increments 
because competitive products are able to trade in penny increments, 
including VIXW options. See Rule 5.4 (the minimum for XSP options is 
$0.01 because that is the minimum increment for SPY options, and the 
minimum increment for DJX options is $0.01 for series below $3 and 
$0.05 for series $3 and above because that is the minimum increment 
for DIA options).
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    The Exchange also notes that, while the Penny Interval Program 
relates to multiply listed classes only, VIX options would be eligible 
for that program, and thus for the same minimum trading increments as 
being proposed in this rule filing. Specifically, pursuant to the Penny 
Interval Program, option classes among the 300 most actively traded 
multiply listed option classes overlying securities priced below $200, 
or any index at any index level below $200, may be added to the Penny 
Interval Program each year.\7\ Currently, the class with the lowest 
cleared volume over the six-month period ending May 3, 2022 has a total 
volume of 988,078 contracts. During that same six-month period, VIX 
volume was 113,617,404 contracts, which would put it among the top five 
classes currently eligible for the Penny Interval Program. 
Additionally, the value of the VIX Index as of the close of regular 
trading hours on May 3, 2022, was under 30 (and thus well under 200). 
Therefore, VIX options have similar trading properties as other option 
classes that are otherwise eligible for penny and nickel pricing.
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    \7\ See Rule 5.4(d).
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    Further, the Exchange notes that a majority of VIX options already 
execute in penny increments. Specifically, in the first four months of 
2022, approximately 62% of VIX option contract volume executed as part 
of complex orders, which may execute in penny increments.\8\ In 
addition, during that same time period, nearly 5% of VIX option 
contract volume executed through an automated improvement mechanism 
(``AIM'') auction for simple orders, which also permits penny 
executions.\9\ Therefore, the proposed rule change will impact the 
trading increment of approximately one-third of VIX options.
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    \8\ See Rule 5.4(b).
    \9\ See Rule 5.37(a)(4).
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    With regard to the impact of this proposed rule change on system 
capacity, the Exchange has analyzed its capacity and represents that it 
and the Options Price Reporting Authority have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposal. The Exchange does not believe any potential increased 
traffic will become unmanageable since this proposed rule change with 
respect to minimum trading increments is limited to a single class of 
options. The proposed rule change does not impact the number of 
expirations for VIX options the Exchange may list pursuant to Rule 
4.13.
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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the proposed rule change will permit more granular 
pricing in VIX options, which may lead to narrowing of the bid-ask 
spread for these options and increase the possible number of price 
points available to investors for these series, which ultimately 
increases liquidity to the

[[Page 36901]]

benefit of all investors. Additionally, as discussed above, at least 
one competitive product participates in the Penny Interval Program and 
thus may currently trade in penny and nickel increments. Therefore, the 
proposed will and promote just and equitable principles of trade and 
remove impediments to and perfect the mechanism of a free and open 
market by allowing VIX options to trade at the same level of 
granularity as permitted for competitor products.\13\ The Exchange 
notes that VIX options have a volume and an underlying index price 
consistent with option classes eligible for the Penny Interval Program 
(and thus are able to trade in penny and nickel increments). 
Additionally, as noted above, VIXW options and the majority of VIX 
options already execute in penny increments.
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    \13\ The Exchange notes that other options that trade on the 
Exchange are currently permitted to trade in penny increments 
because competitive products are able to trade in penny increments. 
See 5.4 (the minimum for XSP options is $0.01 because that is the 
minimum increment for SPY options, and the minimum increment for DJX 
options is $0.01 for series below $3 and $0.05 for series $3 and 
above because that is the minimum increment for DIA options).
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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 proposed rule change 
will not impose any burden on intramarket competition that is not 
necessary or appropriate, because all Trading Permit Holders will be 
able to trade VIX options in the proposed minimum trading increments. 
Additionally, all VIXW options may currently trade in penny increments, 
and approximately two-thirds of VIX options volume execute in penny 
increments as part of simple AIM or complex trading. The proposed rule 
change will not impose any burden on intermarket competition that is 
not necessary or appropriate, because it will permit VIX options to 
have pricing consistent with the pricing of a competitive product that 
is part of the Penny Interval Program and may currently trade in 
increments of $0.01 or $0.05. The Exchange reiterates that VIX options 
have a volume and an underlying index price consistent with option 
classes eligible for the Penny Interval Program (and thus are able to 
trade in penny and nickel increments).
    Additionally, the proposed rule change to permit VIX options to be 
listed in penny and nickel increments may relieve any burden on, or 
otherwise promote, competition, as it will allow market participants to 
trade these options at the same level of granularity as permitted for 
competitor products. The Exchange notes that other options that trade 
on the Exchange are currently permitted to trade in penny increments 
because competitive products are able to trade in penny increments.\14\ 
The Exchange also expects the more granular pricing to lead to 
narrowing of the bid-ask spread for these options, which the Exchange 
believes will increase order flow and price competition in VIX options.
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    \14\ See Rule 5.4(a) (the minimum for XSP options is $0.01 
because that is the minimum increment for SPY options, and the 
minimum increment for DJX options is $0.01 for series below $3 and 
$0.05 for series $3 and above because that is the minimum increment 
for DIA options).
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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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) \16\ thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may 
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 filing 
may become operative immediately upon filing. As discussed above, the 
proposal will permit pricing of VIX options in an increment at the same 
level of granularity as currently is permitted for at least one 
competitor product and other products with similar volumes and 
underlying prices that are eligible for the Penny Interval Program. The 
Commission finds that waiving the operative delay is consistent with 
the protection of investors and the public interest because it will 
allow the Exchange to make this pricing option available to investors 
without delay. Therefore, the Commission waives the 30-day operative 
delay and designates the proposed rule change as operative upon 
filing.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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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    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 will institute proceedings to 
determine whether the proposed rule change should be approved or 
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-2022-027 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-2022-027. 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

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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; 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-2022-027 and should be submitted on or before July 
12, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13150 Filed 6-17-22; 8:45 am]
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