[Federal Register Volume 88, Number 82 (Friday, April 28, 2023)]
[Notices]
[Pages 26366-26369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97367; File No. SR-CBOE-2023-005]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change, as 
Modified by Amendment No. 1, To Make Permanent the Operation of the 
Program That Allows the Exchange to List P.M.-Settled Third Friday-of-
the-Month S&P 500 Stock Index (``S&P 500'') Options (``SPX'') Series

April 24, 2023.

I. Introduction

    On January 6, 2023, Cboe Exchange, Inc. (``Exchange'') 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 that permits the Exchange to list 
P.M.-settled third Friday-of-the-month SPX options (the ``Program''). 
The proposed rule change was published for comment in the Federal

[[Page 26367]]

Register on January 24, 2023.\3\ On March 7, 2023, pursuant to section 
19(b)(2) of the Exchange 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\ On March 17, 2023, the Exchange 
submitted Amendment No. 1 to the proposed rule change (``Amendment No. 
1'').\6\ The Commission has received no comment letters on the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on Amendment No. 1 from interested persons, and is instituting 
proceedings pursuant to section 19(b)(2)(B) of the Act \7\ to determine 
whether to approve or disapprove the proposed rule change, as modified 
by Amendment No. 1.
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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. 96703 (January 18, 
2023), 88 FR 4265 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 97063, 88 FR 15476 
(March 13, 2023). The Commission designated April 24, 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\ In Amendment No. 1, the Exchange submitted Exhibit 3, which 
provides additional detail regarding the Exchange's analysis of the 
market quality impact of P.M.-settled index options. Amendment No. 1 
is available at: https://www.sec.gov/comments/sr-cboe-2023-005/srcboe2023005.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Exchange proposes to make permanent a pilot program that 
permits the Exchange to list and trade cash-settled SPX 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 (``SPXPM'').
    In February 2013, the Commission approved the Program on a pilot 
basis.\8\ At the time, 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 option such as 
SPXPM.\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\ Although the pilot 
period was originally scheduled to end on February 8, 2014, the 
Exchange filed to extend the operation of the pilot on multiple 
occasions, which, pursuant to current Rule 4.13.13,\13\ is currently 
set to expire on the earlier of May 8, 2023 or the date on which the 
Program is approved on a permanent basis.\14\
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    \8\ See Securities Exchange Act Release No. 68888 (February 8, 
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (the 
``SPXPM Approval Order''). Pursuant to Securities Exchange Act 
Release No. 80060 (February 17, 2017), 82 FR 11673 (February 24, 
2017) (SR-CBOE-2016-091), the Exchange moved third-Friday P.M.-
settled options into the S&P 500 Index options class, and as a 
result, the trading symbol for P.M.-settled S&P 500 Index options 
that have standard third Friday-of-the-month expirations changed 
from ``SPXPM'' to ``SPXW.'' This change went into effect on May 1, 
2017, pursuant to Cboe Options Regulatory Circular RG17-054.
    \9\ See SPXPM Approval Order, 78 FR at 10669. 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).
    \10\ See SPXPM Approval Order, 78 FR at 10669.
    \11\ See SPXPM Approval Order, 78 FR at 10669.
    \12\ See SPXPM Approval Order, 78 FR at 10670.
    \13\ In 2019, the Exchange relocated prior Rule 24.9, containing 
the provision which governs the Pilot Program, to current Rule 4.13. 
See SR-CBOE-2019-092 (October 4, 2019), which did not make any 
substantive changes to prior Rule 24.9 and merely relocated it to 
Rule 4.13.
    \14\ See Securities Exchange Act Release Nos. 71424 (January 28, 
2014), 79 FR 6249 (February 3, 2014) (SR-CBOE-2014-004); 73338 
(October 10, 2014), 79 FR 62502 (October 17, 2014) (SR-CBOE-2014-
076); 77573 (April 8, 2016), 81 FR 22148 (April 14, 2016) (SR-CBOE-
2016-036); 80386 (April 6, 2017), 82 FR 17704 (April 12, 2017) (SR-
CBOE-2017-025); 83166 (May 3, 2018), 83 FR 21324 (May 9, 2018) (SR-
CBOE-2018-036); 84535 (November 5, 2018), 83 FR 56129 (November 9, 
2018) (SR-CBOE-2018-069); 85688 (April 18, 2019), 84 FR 17214 (April 
24, 2019) (SR-CBOE-2019-023); 87464 (November 5, 2019), 84 FR 61099 
(November 12, 2019) (SR-CBOE-2019-107); 88674 (April 16, 2020), 85 
FR 22479 (April 22, 2020) (SR-CBOE-2020-036); 90263 (October 23, 
2020), 85 FR 68611 (October 29, 2020) (SR-CBOE-2020-100); 91698 
(April 28, 2021) 86 FR 23761 (May 4, 2021) (SR-CBOE-2021-027); 93455 
(October 28, 2021), 86 FR 60660 (November 3, 2021) (SR-CBOE-2021-
062); 94799 (April 27, 2022), 87 FR 26244 (May 3, 2022) (SR-CBOE-
2022-019); and 96222 (November 3, 2022), 87 FR 67736 (November 9, 
2022) (SR-CBOE-2022-054).
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    Since the Program's inception in 2013, the Exchange has submitted 
reports to the Commission regarding the Program that detail the 
Exchange's experience with the Program, pursuant to the SPXPM Approval 
Order.\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 SPX options, as well as trading in the securities that comprise the 
S&P 500 Index. 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 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''). 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 Pilot Program 
was consistent with the Exchange Act.\17\ The Exchange states it has 
made public on its website all data and analyses previously submitted 
to the Commission under the Program,\18\ and will continue to make 
public any data and analyses it submits to the Commission while the 
Program is still in effect.\19\
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    \15\ See supra note 8.
    \16\ See Notice, 88 FR at 4266.
    \17\ See Notice, 88 FR at 4267.
    \18\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-spxpm-data.
    \19\ See Notice, 88 FR at 4267.
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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.\20\ The Exchange states it 
has not identified any evidence from the pilot data indicating that the 
trading of P.M.-settled SPX options has any adverse impact on fair and 
orderly markets on Expiration Fridays for the S&P 500 Index or the 
underlying securities comprising the S&P 500, nor have there been any 
observations of abnormal market movements attributable to P.M.-settled 
SPX options from any market participants that have come to the 
attention of the Exchange.\21\ In order to support its overall 
assessment of the Program, the Exchange includes both an assessment of 
a study 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.\22\ 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.\23\
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    \20\ See Notice, 88 FR at 4267-70.
    \21\ See Notice, 88 FR at 4267.
    \22\ See Notice, 88 FR at 4266-70.
    \23\ See Notice, 88 FR at 4268.
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    The Exchange also completed an analysis intended to evaluate 
whether

[[Page 26368]]

the Program impacted the quality of the SPX options market. 
Specifically, the Exchange compared values of key market quality 
indicators (specifically, the bid-ask spread \24\ and effective spread 
\25\) in SPXW options both before and after the introduction of Tuesday 
expirations and Thursday expirations for SPXW options on April 18 and 
May 11, 2022, respectively.\26\ The Exchange believes analyzing whether 
the introduction of new SPXW P.M.-settled expirations (i.e., SPXW 
options with Tuesday and Thursday expirations) impacted the market 
quality of then-existing SPXW P.M.-settled expirations (i.e., SPXW 
options with Monday, Wednesday, and Friday expirations) provides a 
reasonable substitute to evaluate whether the introduction of P.M.-
settled index options impacted the market quality of the SPX market 
when the Program began.\27\ Therefore, 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 P.M.-
settled SPXW options significantly impacted the market quality of A.M.-
settled SPX options when the Program began.\28\ The full analysis is 
included in Exhibit 3.\29\
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    \24\ The Exchange calculated for each of SPXW options (with 
Monday, Wednesday, and Friday expirations) and SPY Weekly options 
(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).
    \25\ 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.
    \26\ For purposes of comparison, the Exchange paired SPXW 
options and SPY options with the same moneyness and same days to 
expiration.
    \27\ See Notice, 88 FR at 4269.
    \28\ See Notice, 88 FR at 4270.
    \29\ See Amendment No. 1, supra note 6.
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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 SPX options on the underlying cash markets.\30\
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    \30\ See Notice, 88 FR at 4269.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2023-005, as Modified by Amendment No. 1, 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, as modified by Amendment No. 1, 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 SPX 
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, as modified by Amendment No. 1, 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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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by May 19, 2023. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by June 2, 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2023-005 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-2023-005. 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

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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. 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-2023-005 and should be submitted by May 19, 2023. Rebuttal 
comments should be submitted by June 2, 2023.
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    \36\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08986 Filed 4-27-23; 8:45 am]
BILLING CODE 8011-01-P