[Federal Register Volume 88, Number 221 (Friday, November 17, 2023)]
[Notices]
[Pages 80356-80358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98915; File No. SR-CBOE-2023-049]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Adopt Monthly Options Series
November 13, 2023.
I. Introduction
On September 27, 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 amend its rules to accommodate the listing of
option series that would expire at the close of business on the last
business day of a calendar month (``Monthly Option Series''). The
proposed rule change was published for comment in the Federal Register
on October 4, 2023.\3\ The Commission did not receive any comment
letters and is approving 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. 98593 (September 28,
2023), 88 FR 68833 (``Notice'').
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II. Description of the Proposal
Cboe Options proposes to amend its rules to adopt the listing and
trading of Monthly Options Series. The proposed rule change will allow
Cboe Options to open for trading Monthly Option Series that would
expire at the close of business on the last business day of a calendar
month.\4\ The Exchange may list
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Monthly Option Series for up to five currently listed option classes
that are either index options or options on exchange-traded funds
(``ETFs'').\5\ In addition, the Exchange may also list Monthly Option
Series on any options classes that are selected by other securities
exchanges that employ a similar program under their respective rules.
The Exchange may list 12 expirations for Monthly Option Series. Monthly
Option Series need not be for consecutive months; however, the
expiration date of a nonconsecutive expiration may not be beyond what
would be considered the last expiration date if the maximum number of
expirations were listed consecutively.\6\ Other expirations in the same
class are not counted as part of the maximum numbers of Monthly Option
Series expirations for a class.\7\ Monthly Options Series will be p.m.-
settled.\8\
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\4\ The Exchange also proposes to make a nonsubstantive change
to Rules 4.5(d) and 4.13(a)(2)(A) to change current references to
``monthly options series'' to ``standard expiration options series''
(i.e., series that expire on the third Friday of a month), to
eliminate potential confusion. The current references to ``monthly
options series'' in those rules are intended to refer to those
series that expire on the third Friday of a month, which are
generally referred to in the industry as standard expirations.
\5\ The Exchange proposes to amend Rule 4.5(a) and (b) to
provide that proposed Rule 4.5(g) will describe how the Exchange
will fix a specific expiration date and exercise price for Monthly
Option Series and that proposed Rule 4.5(g) will govern the
procedures for opening Monthly Options Series, respectively.
\6\ The Exchange notes this provision considers consecutive
monthly listings. For example, if it is January 2024 and the
Exchange lists Quarterly Options Series in class ABC with
expirations in March, June, September, December, and the following
March, the Exchange could also list Monthly Options Series in class
ABC with expirations in January, February, April, May, July, August,
October, and November 2024 and January and February of 2025. See
Notice, supra note 3 at 68834.
\7\ See proposed Rules 4.5(g)(2) and 4.13(a)(2)(C)(ii).
\8\ See proposed Rule 4.5(g)(3) and 4.13(a)(2)(C)(iii).
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The strike price of each Monthly Options Series will be fixed at a
price per share, with at least two, but no more than five, strike
prices above and at least two, but no more than five, strike prices
below the value of the underlying index or price of the underlying
security at about the time that a Monthly Options Series is opened for
trading on the Exchange.\9\ The Exchange will list strike prices for
Monthly Options Series that are reasonably related to the current price
of the underlying security or current index value of the underlying
index to which such series relates at about the time such series of
options is first opened for trading on the Exchange.\10\
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\9\ See proposed Rules 4.5(g)(4) and 4.13(a)(2)(C)(iv). The
Exchange notes these proposed provisions are consistent with the
initial series provision for the Quarterly Options Series program in
Rule 4.13(a)(2)(B)(iv). While different than the initial strike
listing provision for the Quarterly Options Series program in
current Rule 4.5(e)(4), the Exchange believes the proposed provision
is appropriate, as it contemplates classes that may have strike
intervals of $5 or greater. See Notice, supra note 3 at 68834. For
consistency, the Exchange also proposes to amend Rule 4.5(e)(4) to
incorporate the same provision for initial series.
\10\ The term ``reasonably related to the current price of the
underlying security or index value of the underlying index'' means
that the exercise price is within 30% of the current underlying
security price or index value. See proposed Rules 4.5(g)(4) and
4.13(a)(2)(C)(iv).
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Monthly Option Series cannot expire in the same week as a standard
expiration series (which expire on the third Friday of a month) in the
same class expires. The same, however, is not the case with regards to
Short Term Options Series or Quarterly Options Series. In order to
account for this, the Exchange proposes to amend Rules 4.5(d) and
4.13(a)(2)(A) to provide that the Exchange will not list a Short Term
Options Series in a class on a date on which a Monthly Options Series
or Quarterly Options Series expires. Similarly, proposed Rules
4.5(g)(2) and 4.13(a)(2)(C)(ii) provide that no Monthly Options Series
may expire on a date that coincides with an expiration date of a
Quarterly Options Series in the same index or ETF class. In other
words, the Exchange will not list a Short Term Options Series on an
index or ETF if a Monthly Options Series on that index or ETF were to
expire on the same date, nor will the Exchange list a Monthly Options
Series on an ETF or index if a Quarterly Options Series on that index
or ETF were to expire on the same date to prevent the listing of series
with concurrent expirations.\11\
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\11\ The Exchange notes this would not prevent the Exchange from
listing a p.m.-settled Monthly Options Series on an index with the
same expiration date as an p.m.-settled Short Term Options Series on
the same index, both of which may expire on a Friday. In other
words, the Exchange may list a p.m.-settled Monthly Options Series
on an index concurrent with an a.m.-settled Short Term Options
Series on that index. This could not occur with respect to ETFs, as
all Short Term Options Series on ETFs are p.m.-settled. See Notice,
supra note 3 at 68834.
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With respect to Monthly Options Series added pursuant to proposed
Rules 4.5(g)(1) through (6) and 4.13(a)(2)(C)(i) through (iv), the
Exchange will, on a monthly basis, review series that are outside a
range of five strikes above and five strikes below the current price of
the underlying index or security, and delist series with no open
interest in both the put and the call series having a: (i) strike
higher than the highest strike price with open interest in the put and/
or call series for a given expiration month; and (ii) strike lower than
the lowest strike price with open interest in the put and/or call
series for a given expiration month.\12\ In connection with this
delisting policy, if the Exchange identifies series for delisting, the
Exchange will notify other options exchanges with similar delisting
policies regarding eligible series for delisting and will work with
such other exchanges to develop a uniform list of series to be
delisted, so as to ensure uniform series delisting of multiply listed
Monthly Options Series.\13\ The Exchange also proposes to amend Rules
8.30 through 8.34 to provide that positions in Monthly Options Series
will be aggregated with positions in options contracts on the same
underlying security or index.\14\
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\12\ Notwithstanding this delisting policy, customer requests to
add strikes and/or maintain strikes in Monthly Options Series in
series eligible for delisting will be granted. See Notice, supra
note 3 at 68834.
\13\ See proposed Rules 4.5(g)(7) and 4.13(a)(2)(C)(vii).
Pursuant to Rule 8.42, exercise limits for impacted index and ETF
classes would be equal to the applicable position limits.
\14\ See proposed Rules 8.30, Interpretation and Policy .09
(regarding position limits for options on stocks and ETFs), 8.31(e)
(regarding position limits for broad-based index options), 8.32(f)
(regarding position limits for industry index options), 8.33(c)
(regarding position limits for micro narrow-based indexes), and
8.34(c) (regarding position limits for individual stock or ETF based
volatility index options). The Exchange notes the proposed rule
change adds Interpretation and Policy .09 to Rule 8.30 to state that
with respect to options on stocks or ETFs, positions in Short Term
Option Series, Monthly Options Series, and Quarterly Options Series
shall be aggregated with positions in options contracts on the same
underlying security. This is currently true with respect to Short
Term Option Series and Quarterly Options Series but was
inadvertently omitted from Rule 8.30. See Notice, supra note 3 at
68835.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.\15\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\16\ which requires, among
other things, that the Exchange's rules 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.
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\15\ 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).
\16\ 15 U.S.C. 78f(b)(5).
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In support of its proposal, the Exchange states the proposed
monthly expirations will allow market
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participants to transact in the index and ETF options listed pursuant
to the proposed rule change based on their timing as needed and allow
them to tailor their investment and hedging needs more effectively.\17\
Further, the Exchange notes the proposed terms of Monthly Options
Series, including the limitation to five index and ETF option classes,
are substantively the same as the current terms of Quarterly Options
Series.\18\ The Exchange states that it currently lists Quarterly
Options Series in certain index \19\ and ETF classes, which expire at
the close of business at the end of each calendar quarter, and has not
experienced any market disruptions nor issues with capacity.\20\ The
Exchange believes limiting Monthly Options Series to five classes will
ensure the addition of these new series will have a negligible impact
on the Exchange's and Options Price Reporting Authority's quoting
capacity.\21\ The Exchange represents it has the necessary systems
capacity to support new options series that will result from the
introduction of Monthly Options Series.\22\
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\17\ See Notice, supra note 3 at 68835.
\18\ Compare proposed Rules 4.5(g) and 4.13(a)(2)(C) to Rules
4.5(e) and 4.13(a)(2)(B), respectively. See Notice, supra note 3 at
68835.
\19\ The Exchange notes it currently lists quarterly expirations
on index options pursuant to Rule 4.13(c) (regarding quarterly index
expirations).
\20\ See Notice, supra note 3 at 68835.
\21\ See id.
\22\ See id.
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The Exchange represents its current surveillance programs will
apply to Monthly Options Series and will properly monitor trading in
the proposed Monthly Options Series.\23\ The Exchange's surveillance
programs currently in place to support and properly monitor trading in
Quarterly Options Series, as well as Short Term Option Series and
standard expiration series, will apply to the proposed Monthly Options
Series.\24\ The Exchange believes its surveillances continue to be
designed to deter and detect violations of its Rules, including
position and exercise limits and possible manipulative behavior, and
these surveillances will apply to Monthly Options Series.\25\ Further,
the Exchange does not believe the proposed rule change raises any
unique regulatory concerns because existing safeguards--such as
position and exercise limits (and the aggregation of options overlying
the same index or ETF) and reporting requirements--would continue to
apply.\26\
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\23\ See id.
\24\ See id.
\25\ See id.
\26\ See id.
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As noted above, the Exchange currently has Quarterly Options Series
for up to five ETF or index classes. In addition, the Commission
recently approved a proposal by the Exchange to permanently establish a
Nonstandard Expiration Program, which permits, among other things, the
listing and trading of broad-based index options with end of month
expirations.\27\ The Commission believes that the proposed Monthly
Options Series, which the Exchange proposes to limit to a total of five
ETF or index classes, strikes a reasonable balance between the
Exchange's desire to offer a wider array of investment opportunities
and the need to avoid unnecessary proliferation of options series and
the corresponding increase in quotes. Further, the Exchange has
represented that it has an adequate surveillance program in place to
detect manipulative trading in the Monthly Options Series and has the
necessary systems capacity to support the new options series.\28\ The
Commission expects the Exchange, consistent with its Monthly Options
Series delisting policy, to continue to monitor for option series with
little or no open interest and trading activity and to act promptly to
delist such options in order to mitigate the number of options series
with no open interest.
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\27\ See Securities Exchange Act Release No. 98456 (September
20, 2023), 88 FR 66091 at 66092 (September 26, 2023) (SR-CBOE-2023-
020).
\28\ See supra notes 23-25 and accompanying text.
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Accordingly, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act \29\ and the rules and
regulations thereunder applicable to a national securities exchange.
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\29\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\30\ that the proposed rule change (SR-CBOE-2023-049) be, and
hereby is, approved.
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\30\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25384 Filed 11-16-23; 8:45 am]
BILLING CODE 8011-01-P