[Federal Register Volume 90, Number 50 (Monday, March 17, 2025)]
[Notices]
[Pages 12411-12421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04161]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102580; File No. SR-MIAX-2025-08]
Self-Regulatory Organizations: Notice of Filing of a Proposed
Rule Change by Miami International Securities Exchange, LLC To Amend
Certain MIAX Options Exchange Rules To Permit the Listing and Trading
of Cash-Settled Index Options on the Bloomberg US Large Cap Price
Return Index (the ``B500 Index'')
March 11, 2025.
Pursuant to the provisions of 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 March 10, 2025, Miami International Securities
Exchange, LLC (``MIAX'' or the ``Exchange'') filed with the Securities
and Exchange Commission (``Commission'') a proposed rule change as
described in Items I and II below, which Items have been prepared by
MIAX. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to: (1) amend certain of the Exchange's index
option rules (Chapter XVIII) to permit the listing and trading of cash-
settled equity index options on the Bloomberg US Large Cap Price Return
Index (the ``B500 Index'') that are A.M.-settled index options; (2)
establish rule text to permit the Exchange to list and trade cash-
settled B500 Index options that are P.M.-settled index options; (3)
establish rule text to allow the Exchange to list broad-based index
options with nonstandard expirations; and (4) establish the parameters
for the data and analysis that the Exchange will include in an annual
report to the Securities and Exchange Commission (``Commission'')
regarding B500 Index options that are traded on the Exchange for a
period of five years.
The text of the proposed rule change is available on MIAX's website
at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX's principal office, 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, MIAX 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. MIAX 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: (1) amend certain of the Exchange's index
option rules to permit the listing and trading of cash-settled B500
Index options that are A.M.-settled index options; (2) establish rule
text to permit the Exchange to list and trade cash-settled B500 Index
options that are P.M.-settled index options; (3) establish rule text to
allow the Exchange to list broad-based index options with nonstandard
expirations; and (4) establish the parameters for the data and analysis
that the Exchange will include in an annual report to the Commission
regarding B500 Index options that are traded on the Exchange for a
period of five years.
Background
The B500 Index is a broad-based, float \3\ market-capitalization-
weighted benchmark of the 500 most highly capitalized U.S.-listed
companies.\4\ All constituents of the B500 Index \5\ are securities
consisting of common stocks, real estate investment trusts (``REITs''),
and tracking stocks, which are primarily listed on a U.S. securities
exchange, as provided for in the Methodology Guide.\6\ The components
of the B500 Index are determined from the U.S.-listed companies that
have the largest cumulative free-float market capitalization. Each
component security of the B500 Index must also meet certain minimum
eligibility and liquidity screening requirements, as detailed in the
Methodology Guide.\7\ BISL is the administrator of the B500 Index and
monitors and maintains the B500 Index, including handling the quarterly
and semi-annual rebalances.\8\
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\3\ As part of the construction of the B500 Index, Bloomberg
Index Services Limited (``BISL''), the administrator of the B500
Index, performs a liquidity screening for each component security
that is initially eligible to be included in the B500 Index. Part of
the liquidity screening process involves removing all securities
from the B500 Index that failed the minimum free-float shares
screening. Free-float shares are used in calculation of the B500
Index. BISL calculates the free-float shares figure by subtracting
shares held by insiders and those deemed to be stagnant shareholders
from the shares outstanding. Securities should have free-float
market capitalization equal to or greater than 50% of the equity
universe minimum size requirement (total market capitalization) to
be included in the index. See Bloomberg US Domestic Equity Indices
Methodology, at page 6, dated September 2024, available at https://assets.bbhub.io/professional/sites/10/Bloomberg-US-Domestic-Equity-Indices-Methodology.pdf (the ``Methodology Guide'').
\4\ See Bloomberg US Large Cap Index Fact Sheet, dated December
31, 2024, available at https://assets.bbhub.io/professional/sites/27/Bloomberg-US-Large-Cap-Index-Fact-Sheet.pdf (the ``Fact Sheet'').
\5\ References to the ``B500 Index'' are to the ``Bloomberg US
Large Cap Price Return Index,'' as described in the Methodology
Guide. The Exchange notes that the Bloomberg US Large Cap Total
Return Index and Bloomberg US Large Cap Net Return Index have
different calculations than the Bloomberg US Large Cap Price Return
Index. For example, the Bloomberg US Large Cap Total Return Index
reflects reinvestment of gross dividends and the Bloomberg US Large
Cap Net Return Index reflects the reinvestment of net of tax
dividends. See Methodology Guide, supra note 3, at pages 14-15.
\6\ See Methodology Guide, supra note 3. Each component security
of the B500 Index must be primarily listed on one of the following
U.S. securities exchanges: NYSE, NYSE American, NYSE ARCA, IEX,
NASDAQ CM, NASDAQ GS, NASDAQ GM and CBOE BZX. See id., at page 4.
\7\ See Methodology Guide, supra note 3, at pages 4-7.
\8\ See Methodology Guide, supra note 3, at page 18.
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Proposal To Amend Certain Exchange Rules To List A.M.-Settled B500
Index Options
The Exchange proposes to amend certain Exchange rules to permit the
listing and trading of B500 Index options that are A.M.-settled index
options, as described further below.\9\
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\9\ The term ``A.M.-settled index option'' means an index
options contract for which the current index value at expiration
shall be determined as provided in Exchange Rule 1809(a)(5). See
Exchange Rule 1801(c). The Exchange uses the phrase ``A.M., cash-
settled options'' (or substantively similar wording) when referring
to ``A.M.-settled index options'' in this filing. The term ``P.M.-
settled index option'' is defined in proposed new subparagraph (6)
to Exchange Rule 1809, as described below.
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[[Page 12412]]
Initial and Maintenance Listing Criteria
The Exchange believes that the B500 Index meets the definition of a
broad-based index as set forth in Exchange Rule 1802(d) (i.e., an index
designed to be representative of a stock market as a whole or of a
range of companies in unrelated industries). Additionally, the proposed
A.M.-settled B500 Index options with third Friday-of-the-month
expirations satisfy the initial listing criteria for options on a
broad-based index, as set forth in Exchange Rule 1802(d):
(1) the index is broad-based, as defined in Rule 1801(l); \10\
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\10\ The term ``market index'' and ``broad-based index'' mean an
index designed to be representative of a stock market as a whole or
of a range of companies in unrelated industries. See Exchange Rule
1801(l).
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(2) options on the index are designated as A.M.-settled;
(3) the index is capitalization-weighted, modified capitalization-
weighted, price-weighted, or equal dollar-weighted; \11\
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\11\ As noted above, the B500 Index is a float market-
capitalization-weighted index, which satisfies the requirement in
Exchange Rule 1802(d)(3). See supra note 3.
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(4) the index consists of 50 or more component securities;
(5) component securities that account for at least ninety-five
percent (95%) of the weight of the index have a market capitalization
of at least $75 million, except that component securities that account
for at least sixty-five percent (65%) of the weight of the index have a
market capitalization of at least $100 million;
(6) component securities that account for at least eighty percent
(80%) of the weight of the index satisfy the requirements of Rule 402
applicable to individual underlying securities;
(7) each component security that accounts for at least one percent
(1%) of the weight of the index has an average daily trading volume of
at least 90,000 shares during the last six month period;
(8) no single component security accounts for more than ten percent
(10%) of the weight of the index, and the five highest weighted
component securities in the index do not, in the aggregate, account for
more than thirty-three percent (33%) of the weight of the index;
(9) each component security must be an ``NMS stock'' as defined in
Rule 600 of Regulation NMS under the Exchange Act;
(10) non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than twenty percent (20%) of the weight of
the index;
(11) the current index value is widely disseminated at least once
every fifteen (15) seconds by OPRA, CTA/CQ, NIDS or one or more major
market data vendors during the time options on the index are traded on
the Exchange; \12\
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\12\ The B500 Index will be disseminated more frequently at 1-
second intervals.
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(12) the Exchange reasonably believes it has adequate system
capacity to support the trading of options on the index, based on a
calculation of the Exchange's current ISCA allocation and the number of
new messages per second expected to be generated by options on such
index;
(13) an equal dollar-weighted index is rebalanced at least once
every calendar quarter;
(14) if an index is maintained by a broker-dealer, the index is
calculated by a third-party who is not a broker-dealer, and the broker-
dealer has erected an informational barrier around its personnel who
have access to information concerning changes in, and adjustments to,
the index; and
(15) the Exchange has written surveillance procedures in place with
respect to surveillance of trading of options on the index.
The proposed A.M.-settled B500 Index options will be subject to the
maintenance and listing standards set forth in Exchange Rule 1802(e):
(1) the requirements set forth in subparagraphs (d)(1)-(d)(3) and
(d)(9)-(d)(15) must continue to be satisfied. The requirements set
forth in subparagraphs (d)(5)-(d)(8) must be satisfied only as of the
first day of January and July in each year; and
(2) the total number of component securities in the index may not
increase or decrease by more than ten percent (10%) from the number of
component securities in the index at the time of its initial
listing.\13\
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\13\ In the event the B500 Index fails to satisfy the
maintenance listing standards, the Exchange will not open for
trading any additional series of options of that class unless the
continued listing of that class of index options has been approved
by the Commission under Section 19(b)(2) of the Exchange Act. See
Exchange Rule 1802(e).
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Reporting Authority
The Exchange proposes to amend Interpretation and Policy .01 to
Exchange Rule 1801 to add the B500 Index to the table showing each
underlying index and its reporting authority designated by the
Exchange. Specifically, the Exchange proposes to add a new row to the
table in Interpretation and Policy .01 to Exchange Rule 1801 to state
that the underlying index is the B500 Index and the reporting authority
is BISL. BISL monitors and maintains the B500 Index and rebalances the
B500 Index quarterly and on a semi-annual basis, as described in the
Methodology Guide.\14\ The shares of the B500 Index (referred to in the
Methodology Guide as ``Index Shares'' \15\) are updated on a quarterly
basis on the second Wednesday of March, June, September and December,
using data as of one day in the last week of January, April, July and
October.\16\ BISL will announce any changes to the shares of the B500
Index at least ten business days in advance of such changes.\17\ In
addition, the composition of the B500 Index is determined in a
reconstitution on a semi-annual basis on the second Wednesday of March
and September, using data as of one day in the last week of January and
July.\18\ BISL will announce any changes to the composition of the B500
Index at least ten business days in advance of such changes.\19\
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\14\ See supra note 3.
\15\ The term ``Index Shares'' refers to shares of a component
security within the B500 Index. The number of Index Shares are
updated at each quarterly rebalance and adjusted intra-quarter for
corporate actions. The term ``rebalance'' refers to the selection
and weighting of securities in the B500 Index based upon the rules
set forth in the Methodology Guide and the process of applying a
selection and re-weighting of securities to the B500 Index. See
Methodology Guide, supra note 3, at page 26, Appendix 6, Glossary of
Terms.
\16\ See Methodology Guide, supra note 3, at page 18.
\17\ See id.
\18\ See id.
\19\ See id.
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Expiration Months, Exercise Style, and Settlement
For A.M.-settled B500 Index options, the Exchange plans to only
list third Friday-of-the-month expirations. The Exchange proposes to
amend Exchange Rule 1809(a)(3) to provide that the Exchange may list up
to twelve (12) standard expiration months for options on the B500
Index. The Exchange proposes to amend Exchange Rule 1809(a)(4),
``European-Style Exercise,'' to establish subparagraph (ii) to provide
that the proposed B500 Index options will be European-style exercise,
i.e., options on the B500 Index may exercise only at expiration. The
Exchange also proposes to amend Exchange Rule 1809(a)(5), A.M.-Settled
Index Options, to establish subparagraph (ii)(B) to specify that the
B500 Index options will
[[Page 12413]]
be A.M., cash-settled contracts.\20\ The proposed rule text for
expirations months, exercise style and settlement method for A.M.-
settled B500 Index options is consistent with index options rules in
place at other exchanges that list options on broad-based equity
indexes.\21\
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\20\ A.M.-settlement is consistent with the generic listing
criteria for broad-based indexes, and thus it is common for index
options to be A.M.-settled. See Exchange Rule 1802(d)(2).
\21\ See e.g., Cboe Exchange, Inc. (``Cboe'') Rulebook, Chapter
4. Options Listing, Section B. Index Options, Rule 4.13(a)(2)-(4)
and Nasdaq ISE, LLC (``ISE'') Rulebook, Options 4A: Options Index
Rules, Section 12. Terms of Index Options Contracts, Rule 12(a)(3)-
(5).
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The notional value of each A.M.-settled B500 Index option contract
would be calculated using a $100 multiplier, and the minimum trading
increment would be $0.05 for options trading below $3.00 and $0.10 for
all other series.\22\ Strike price intervals would be set at no less
than $5.00.\23\
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\22\ See Exchange Rule 510(a).
\23\ See Exchange Rule 1809(c)(1).
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The proposed A.M.-settled B500 Index options would be similar to
other broad-based equity index options that are listed on other
exchanges in terms of expirations listed, exercise style and
settlement. For example, Cboe lists S&P[supreg] 500 Index options
(``SPX'').\24\ Cboe may list up to twelve (12) standard third Friday-
of-the-month SPX expirations, which are European-style exercise, and
A.M.-settled using the opening sales price in the primary market of
each component security on the expiration date.\25\ Further, each SPX
option has a $100 multiplier; strike price intervals no less than
$5.00; and the minimum tick increments for SPX options trading below
$3.00 is 0.05 ($5.00), and for all other series, 0.10 ($10.00). All of
the contract specifications described above for SPX are similar to the
proposed specifications for A.M.-settled B500 Index options.\26\
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\24\ Cboe also lists P.M.-settled standard third Friday
expirations on the S&P 500[supreg] Index, as well as nonstandard
expirations that expire weekly on Monday, Tuesday, Wednesday,
Thursday, and Friday (collectively, ``SPX Weeklies''), and on the
last trading day of each month (``SPX EOMs''). The ticker for SPX
Weeklies and SPX EOMs is ``SPXW.'' References to ``SPX'' in this
filing are to the A.M.-settled S&P 500[supreg] Index options. SPXW
options also third Friday P.M.-settled options on the S&P
500[supreg] Index.
\25\ See SPX Options Product Specification, available at https://www.cboe.com/tradable_products/sp_500/spx_options/specifications/?_gl=1*1hegxc2*_up*MQ..*_ga*MjY1Njg1OTIzLjE3Mzk5MDE4ODI.*_ga_5Q99WB9X71*MTczOTkxMjUzMi4yLjAuMTczOTkxMjUzMi4wLjAuMA (last visited February
18, 2025).
\26\ See id.
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Proposal To Establish Exchange Rules To List P.M.-Settled B500 Index
Options
The Exchange proposes to establish new rules to permit the listing
and trading of P.M. cash-settled options on the B500 Index, whose
exercise settlement value will be based on the closing index value of
the B500 Index on the expiration day.
In particular, the Exchange proposes to add subparagraphs (a)(6)
and (a)(6)(i) to Exchange Rule 1809, Terms of Index Options Contracts.
Proposed subparagraph (a)(6) would be titled ``P.M.-Settled Index
Options,'' and provide as follows:
The last day of trading for P.M.-settled index options shall be
the business day of expiration, or, in the case of an option
contract expiring on a day that is not a business day, on the last
business day before its expiration date. The current index value at
expiration of the index is determined by the last reported sale
price of each component security. In the event that the primary
market for an underlying security does not open for trading on the
expiration date, the price of that security shall be the last
reported sale price prior to the expiration date. The following
P.M.-settled index options are approved for trading on the Exchange:
. . .
Proposed subparagraph (a)(6)(i) would provide that ``[i]n addition
to A.M.-settled B500 Index options approved for trading on the Exchange
pursuant to Rule 1809(a)(5), the Exchange may also list options on the
B500 Index whose exercise settlement value is the closing value of the
B500 Index on the expiration day (P.M.-settled third Friday-of-the-
month B500 options series).''
Reporting Authority
As described above, the Exchange proposes to amend Interpretation
and Policy .01 to Exchange Rule 1801 to provide that BISL will be the
designated reporting authority for the B500 Index for all expirations.
BISL monitors and maintains the B500 Index, including the quarterly and
semi-annual rebalances, and would be listed as the reporting authority
for all series of options \27\ and classes of options \28\ that the
Exchange lists on the B500 Index (i.e., B500 Index options with A.M.
and P.M.-settlement).
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\27\ The term ``series of options'' means all option contracts
of the same class having the same exercise price and expiration
date. See Exchange Rule 100.
\28\ The terms ``class of options'' or ``option class'' mean all
option contracts covering the same underlying security. See Exchange
Rule 100.
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Expiration Months, Exercise Style, and Settlement
As described above, the Exchange proposes to amend Exchange Rule
1809(a)(3) to provide that the Exchange may list up to twelve (12)
standard expiration months for A.M. and P.M.-settled series of B500
Index options with third Friday-of-the-month expirations. This is
consistent with index options rules in place at other exchanges that
list options on broad-based equity indexes with third Friday-of-the-
month expirations with both A.M. and P.M.-settlement.\29\ Further, the
Exchange proposes to amend Exchange 1809(a)(4) to provide that B500
Index options will be European-style exercise, which would include B500
Index options with third Friday-of-the-month expirations with both A.M.
and P.M.-settlement. This is also consistent with index options rules
in place at other exchanges that list options on broad-based equity
indexes with third Friday-of-the-month expirations with both A.M. and
P.M.-settlement.\30\ Proposed subparagraph (a)(6)(i) to Exchange Rule
1809 would provide for the Exchange to be able to list B500 Index
options that are P.M.-settled index options. This is also in line with
other exchanges' rules.\31\ The proposed contract would use a $100
multiplier, and the minimum trading increment would be $0.05 for
options trading below $3.00 and $0.10 for all other series.\32\ Strike
price intervals would be set at no less than $5.00.\33\
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\29\ See supra note 21.
\30\ See Cboe Rulebook, Chapter 4. Options Listing, Section B.
Index Options, Rule 4.13(a)(2)-(4) and ISE Rulebook, Options 4A:
Options Index Rules, Section 12. Terms of Index Options Contracts,
Rule 12(a)(3)-(5).
\31\ See ISE Rulebook, Options 4A: Options Index Rules, Section
12. Terms of Index Options Contracts, Rule 12(a)(6) and Nasdaq PHLX
LLC (``PHLX'') Rulebook, Options 4A, Options Index Rules, Section
12. Terms of Index Options Contracts, Rule 12(a)(6).
\32\ See Exchange Rule 510(a).
\33\ See Exchange Rule 1809(c)(1).
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The proposed P.M.-settled B500 Index options would be similar to
other broad-based equity index options that are listed on other
exchanges in terms of expirations listed, exercise style and
settlement. For example, Cboe lists SPXW options, with one of the
listed series \34\ being P.M.-settled contracts with third Friday-of-
the-month expirations. For SPXW, Cboe may list up to twelve (12)
standard third Friday-of-the-month SPX expirations, which are European-
style exercise, and P.M.-settled using the closing sales price in
[[Page 12414]]
the primary market of each component security on the expiration
date.\35\ Each SPXW option has a $100 multiplier, strike price
intervals no less than $5.00, and the minimum tick increment for SPXW
options trading below $3.00 is 0.05 ($5.00), and for all other series,
0.10 ($10.00), similar to the proposed P.M.-settled B500 Index
options.\36\ All of the contract specifications described above for
SPXW options with third Friday-of-the-month expirations are similar to
the proposed specifications for P.M.-settled B500 Index options with
third Friday-of-the-month expirations.\37\
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\34\ The terms ``series'' and ``series of options'' mean all
option contracts of the same class that are the same type of option
and have the same exercise price and expiration date. See Cboe
Rulebook, Chapter 1. General Provision, Rule 1.1. Definitions. The
term ``class'' means all option contracts with the same unit of
trading covering the same underlying security or index. Id.
\35\ See supra note 25.
\36\ See id.
\37\ See id.
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Trading Hours
Pursuant to Exchange Rule 1808(a), transactions in index options
may be effected on the Exchange between the hours of 9:30 a.m. and 4:15
p.m. Eastern Time, unless the Exchange provides otherwise in this rule
text. The Exchange proposes to amend Exchange Rule 1808(a) to establish
new subparagraph (a)(1), which will provide rule text for trading hours
for P.M.-settled B500 Index options. In particular, the Exchange
proposes that transactions in P.M.-settled B500 Index options may be
effected on the Exchange between the hours of 9:30 a.m. and 4:15 p.m.
Eastern Time, except on the last trading day, in which the trading
hours will be between 9:30 a.m. and 4:00 p.m. Eastern Time. This
proposed rule is substantively similar to the rule for trading hours
for SPXW options with third Friday-of-the-month expirations.\38\
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\38\ See Cboe Rulebook, Chapter 5. Options Trading, Section A.
General Provisions, Rule 5.1(b)(2)(C).
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The Exchange notes that it proposes to establish rule text for
nonstandard expirations, described below, which includes trading hours
for nonstandard expirations. For purposes of proposed Exchange Rule
1808(a)(1), the trading hours would apply only to P.M.-settled B500
Index options with third Friday-of-the-month expirations, and any other
index options that the Exchange may propose to add in the future with
P.M.-settlement and third Friday-of-the-month expirations that do not
fit in the nonstandard expirations program.
Proposal To Establish Exchange Rules To Provide That the Exchange May
List Nonstandard Expirations on Certain Index Options
Next, the Exchange proposes to establish rules to permit the
listing and trading of P.M.-settled index options on broad-based
indexes with nonstandard expiration dates. In particular, the Exchange
proposes to establish rules to permit both weekly expirations (``Weekly
Expirations'') and end of month expirations (``EOM Expirations'').
Contract terms for the Weekly Expirations and EOM Expirations will be
similar to those of the A.M.-settled index options, except that the
exercise settlement value will be based on the index value derived from
the closing prices of component stocks on the expiration date, i.e.,
for the B500 Index, the closing prices of the component securities
comprising the B500 Index. At the time of this filing, the only options
the Exchange proposes to list with nonstandard expirations are B500
Index options.
Weekly Expirations
The Exchange proposes to establish new Interpretation and Policy
.06 to Exchange Rule 1809, Terms of Index Options Contracts, which will
be titled ``Nonstandard Expirations.'' The Exchange proposes to
establish subparagraph (a) to new Interpretation and Policy .06, which
would permit the Exchange to open for trading Weekly Expirations on any
broad-based index eligible for standard options trading to expire on
any Monday, Tuesday, Wednesday, Thursday or Friday (other than the
third Friday-of-the-month or days that coincide with an EOM
Expiration). Weekly Expirations would be subject to all provisions of
Exchange Rule 1809 and would be treated the same as options on the same
underlying index that expire on the third Friday of the expiration
month. Unlike the standard third Friday-of-the-month A.M.-settled index
options, however, Weekly Expirations would be P.M.-settled index
options. New series in Weekly Expirations could be added up to and
including on the expiration date for an expiring Weekly Expiration.
Pursuant to proposed Interpretation and Policy .06(a) to Exchange
Rule 1809, the maximum number of expirations that may be listed for
each Weekly Expiration (i.e., a Monday expiration, Tuesday expiration,
Wednesday expiration, Thursday expiration or Friday expiration, as
applicable) in a given class would be the same as the maximum number of
expirations permitted in Exchange Rule 1809(a)(3) for options with
third Friday-of-the-month expirations on the same broad-based
index.\39\ Pursuant to Exchange Rule 1809(a)(3), as proposed to be
amended herein, the Exchange may list up to twelve standard monthly
expirations for A.M.-settled and P.M.-settled B500 Index options.
Accordingly, pursuant to the above, the Exchange would be able to list
up to twelve Monday Weekly Expirations, plus twelve Tuesday Weekly
Expirations, plus twelve Wednesday Weekly Expirations, plus twelve
Thursday Weekly Expirations plus twelve Friday Weekly Expirations.
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\39\ As described above, for the B500 Index, the Exchange
proposes to be able to list up to twelve (12) standard monthly
expirations. Accordingly, if approved, the Exchange would be able,
but not required, to list up to twelve (12) Weekly Expirations in
each class.
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The Exchange proposes that Weekly Expirations need not be for
consecutive Monday, Tuesday, Wednesday, Thursday or Friday expirations
as applicable; 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. Weekly Expirations that are first listed in a given
class may expire up to four weeks from the actual listing date. If the
Exchange lists EOM Expirations (defined below) and Weekly Expirations,
as applicable, in a given class, the Exchange will list an EOM
Expiration instead of a Weekly Expiration that expires on the same day
in the given class. Other expirations in the same class are not counted
as part of the maximum number of Weekly Expirations for an applicable
broad-based index class. If the Exchange is not open for business on a
respective Monday, the normally Monday expiring Weekly Expirations will
expire on the following business day. If the Exchange is not open for
business on a respective Tuesday, Wednesday, Thursday, or Friday, the
normally Tuesday, Wednesday, Thursday, or Friday expiring Weekly
Expirations will expire on the previous business day. If two different
Weekly Expirations would 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 Weekly Expirations.
The proposed rule text described above for Weekly Expirations is
substantively similar to the rule text that was approved by the
Commission for weekly expirations in the nonstandard expiration
programs in place at competing exchanges.\40\
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\40\ See e.g., Cboe Rulebook, Chapter 4. Options Listing,
Section B. Index Options, Rule 4.13(e)(1) and ISE Rulebook, Options
4A: Options Index Rules, Section 12. Terms of Index Options
Contracts, Supplementary Material .07(a).
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EOM Expirations
Next, the Exchange proposes to add new Interpretation and Policy
.06(b) to Exchange Rule 1809, titled ``End of Month (``EOM'')
Expirations'', pursuant
[[Page 12415]]
to which the Exchange would be able to open for trading EOM Expirations
on any broad-based index eligible for standard third Friday-of-the-
month options trading to expire on the last trading day of the month.
Broad-based, P.M.-settled B500 Index options with EOM Expirations would
be subject to all provisions of Exchange Rule 1809(a) and treated the
same as options on the same underlying index that expire on the third
Friday of the expiration month. However, the EOM Expirations would be
P.M.-settled and new series in EOM Expirations could be added up to and
including on the expiration date for an expiring EOM contract.
The maximum number of EOM Expirations that could be listed in a
given class would be the same as the maximum number of expirations
permitted for standard options on the same broad-based index.\41\ EOM
Expirations would not need to be for consecutive end of month
expirations. 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. EOM Expirations that are first listed in a given class
could expire up to four weeks from the actual listing date. Other
expirations in the same class would not be counted as part of the
maximum numbers of EOM Expirations for a broad-based index class.
---------------------------------------------------------------------------
\41\ As described above, for the B500 Index, the Exchange
proposes to be able to list up to twelve (12) standard monthly
expirations that expire on the third Friday of each month (unless
the Friday is an Exchange holiday). Accordingly, if approved, the
Exchange would be able, but not required, to list up to twelve (12)
EOM Expirations.
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The proposed rule text for EOM Expirations is substantively similar
to the rule text that was approved by the Commission for EOM
Expirations in the nonstandard expiration programs in place at
competing exchanges.\42\
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\42\ See e.g., Cboe Rulebook, Chapter 4. Options Listing,
Section B. Index Options, Rule 4.13(e)(2) and ISE Rulebook, Options
4A: Options Index Rules, Section 12. Terms of Index Options
Contracts, Supplementary Material .07(b).
---------------------------------------------------------------------------
Contract Terms and Trading Hours for Weekly and EOM Expirations
Weekly Expirations and EOM Expirations would be subject to the same
rules that govern the trading of standard monthly broad-based index
options, including sales practice rules and margin requirements.
Contract terms for Weekly Expirations and EOM Expirations would be the
same as those for standard monthly broad-based index options.
Option positions on a broad-based index with nonstandard
expirations shall be aggregated for any applicable reporting and other
requirements. For instance, the reporting requirements described under
Exchange Rule 310(a) would apply to a Member's \43\ aggregated position
in B500 Index options, which would include all positions held in A.M.-
settled B500 Index options, P.M.-settled B500 Index options, B500 Index
options with Weekly Expirations and EOM Expirations, and any other B500
Index option expirations the Exchange may list pursuant to its rules
(e.g. Quarterly Options Series \44\). The Exchange proposes to add
nonstandard expirations to Exchange Rule 1804(d) to reflect the
Exchange's default aggregation requirement for broad-based index option
position holders.\45\ The Exchange notes that the proposed aggregation
requirement is consistent with the aggregation requirements for other
types of option series (e.g. quarterly expiring options) that are
listed on the Exchange and which do not expire on the customary ``third
Friday''. This proposed change also tracks substantively similar rule
text for nonstandard expirations for broad-based index options listed
and traded on at least one competing options exchange.\46\
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\43\ The term ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
\44\ The term ``Quarterly Options Series'' means a series in an
options class that is approved for listing and trading on the
Exchange in which the series is opened for trading on any business
day and that expires at the close of business on the last business
day of a calendar quarter. See Exchange Rule 100. Pursuant to
Interpretation and Policy .03 to Exchange Rule 404, once B500 Index
options are initially listed, the Exchange may list and trade
options series that expire at the close of business on the last
business day of a calendar quarter (``Quarterly Options Series'').
\45\ The Exchange does not propose to establish position limits
or exercise limits for all series of B500 Index options.
Accordingly, the proposed rule text regarding aggregating positions
in nonstandard expirations in Exchange Rule 1804(d) would not apply
to B500 Index options, if approved by the Commission.
\46\ See, e.g., ISE Rulebook, Options 4A: Options Index Rules,
Section 6(d).
---------------------------------------------------------------------------
Pursuant to proposed Interpretation and Policy .06(c) to Exchange
Rule 1809, transactions in Weekly Expirations and EOM Expirations could
be effected on the Exchange between the hours of 9:30 a.m. (Eastern
Time) and 4:15 p.m. (Eastern Time), except that on the last trading
day, transactions in expiring P.M.-settled index options may be
effected on the Exchange between the hours of 9:30 a.m. (Eastern time)
and 4:00 p.m. (Eastern time). This is also in line with the
substantively similar rule text for transaction times for index option
expirations in place on at least one competing exchange.\47\
---------------------------------------------------------------------------
\47\ See ISE Rulebook, Options 4A: Options Index Rules, Section
12. Terms of Index Options Contracts, Supplementary Material .07(c).
---------------------------------------------------------------------------
The proposed contracts would use a $100 multiplier, and the minimum
trading increment would be $0.05 for options trading below $3.00 and
$0.10 for all other series.\48\ Strike price intervals would be set at
no less than $5.00.\49\
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\48\ See Exchange Rule 510(a).
\49\ See Exchange Rule 1809(c)(1).
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Proposal To Establish the Parameters for the Data and Analysis To Be
Included in the B500 Index Options Annual Report 50
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\50\ The proposed Annual Report will provide data covering all
expirations and series of B500 Index options.
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The Exchange commits to providing certain data items listed below
(along with analysis of the data) on an annual basis for five (5) years
and as discussed further below conducting an in-depth analysis at the
Exchange's determination or upon the Commission's request. The Exchange
believes the data items listed below and the analysis of the data (the
``Annual Report'') will help track the development of the B500 Index
options market over time. Furthermore, the Exchange believes that an
in-depth analysis will help examine the concerns that trading activity
associated with the expiration of P.M.-settled index options may
contribute to excess volatility and the reversal around the market
close.
The Exchange believes that the introduction of P.M.-settled options
on the B500 Index (e.g., Weekly and EOM Expirations), in addition to
the proposed A.M.-settled options on the B500 Index, will expand
hedging tools available to market participants while also providing
greater trading opportunities. By offering an expanded suite of
expirations along with third Friday-of-the-month A.M.-settled
expirations, the proposal will allow market participants to purchase
B500 Index options in a manner more aligned with specific timing needs
and more effectively tailor their investment and hedging strategies and
manage their portfolios. The Exchange believes this will allow market
participants to incorporate daily changes in the markets in their
investment and hedging strategies, which may reduce the premium cost of
buying protection.
In addition, because P.M.-settlement permits trading throughout the
day on the day the contract expires, the Exchange believes this feature
will permit market participants to more
[[Page 12416]]
effectively manage overnight risk on A.M.-settled products and trade
out of their positions up until the time the contract settles. For
example, listing Weekly Expirations and EOM Expirations on the B500
Index may help open interest spread out across many expiration dates
which, in turn, mitigates the concern that option expiration may have a
disruptive effect on the market to some extent. The Exchange believes
that the proposed suite of B500 Index options are similar to at least
one suite of index option products that currently exists that allows
investors to trade, for example, weekly and end of month expirations,
all with P.M.-settlement, on a different broad-based equity index
comprised of large cap U.S.-listed securities, which utilizes a
different methodology and has different component securities.\51\
---------------------------------------------------------------------------
\51\ See, e.g., Cboe SPX[supreg] Index Options Fact Sheet,
version 4.1, available at https://cdn.cboe.com/resources/spx/spx-fact-sheet.pdf?_gl=1*7uh2bf*_up*MQ..*_ga*NDU2NTczNTEyLjE3MzQ5NzY1NDA.*_ga_5Q99WB9X71*MTczNDk3NjUzOS4xLjEuMTczNDk3NjU0MS4wLjAuMA (last visited
December 23, 2024) (``SPX Fact Sheet''). As noted in the Cboe Fact
Sheet for SPX[supreg] Index Options, Cboe offers third Friday-of-
the-month expirations; Monday through Friday daily expirations; and
end of month expirations for SPX Index options. Id.
---------------------------------------------------------------------------
In the options market currently, market participants regularly
trade similar or related products in conjunction with each other, which
contributes to overall market liquidity. Currently, market participants
have relatively little choice in hedging the broader U.S. equity market
other than with SPX \52\ or SPY \53\ options. Since SPX is a singly-
listed product on Cboe, there is a single point of failure. In the
event that there is a disruption in the underlying index, this single
point of failure may cause market participants to move positions and
trading into SPY, which is an adequate hedge, but comes with its own
set of differences, such as tax treatment.\54\ The B500 Index would
provide investors another instrument to hedge the broader U.S. equity
market in the event that there is a disruption to the S&P 500 Index and
the derivative products based on S&P 500 Index (and vice versa).
---------------------------------------------------------------------------
\52\ Id.
\53\ The SPDR[supreg] S&P 500[supreg] ETF Trust (``SPY'') seeks
to provide investment results that, before expenses, correspond
generally to the price and yield performance of the S&P 500[supreg]
Index. SPY seeks to achieve its investment objective by holding a
portfolio of the common stocks that are included in the S&P
500[supreg] Index, with the weight of each stock in the portfolio
substantially corresponding to the weight of such stock in the S&P
500[supreg] Index. See SPDR[supreg] S&P 500[supreg] ETF Trust
Prospectus, dated January 26, 2024, available at https://www.ssga.com/us/en/intermediary/resources/doc-viewer#spy&prospectus
(last visited January 10, 2025). Options on SPY are multi-listed on
every U.S. registered securities exchange.
\54\ Under section 1256 of the Tax Code, profit and loss on
transactions in certain exchange-traded options, including SPX
Options, are entitled to be taxed at a rate equal to 60% long-term
and 40% short-term capital gain or loss, provided that the investor
involved and the strategy employed satisfy the criteria of the Tax
Code. See supra note 51. Unlike index options such as SPX, ETF
options (such as SPY) do not receive the tax benefits of Section
1256 and gains or losses receive short-term capital gains tax rates.
---------------------------------------------------------------------------
Data and Analysis To Be Included in the Annual Report
If approved, the Exchange commits to provide the data and analysis
described below on an annual basis for a period of five years from the
launch of B500 Index options following the Commission's approval of
this proposed rule change. The purpose of the Annual Report is to
study, among other things, the impact, if any, of B500 Index options
with P.M.-settlement on the underlying securities that comprise the
B500 Index, as well as other linked-markets (e.g. hedging instruments
for B500 Index options), such as B500 Index futures and B500 Index
ETFs, to the extent possible. For example, the Exchange seeks to
analyze whether listing and offering P.M.-settled B500 Index options
for trading will increase volatility around the market close in linked-
markets, as well as its underlying component securities.
As described herein, the Exchange proposes to list and trade P.M.-
settled B500 Index options, such as with Weekly and EOM Expirations,
similar to the current suite of index options available to investors to
hedge the broader U.S. equity market.\55\ The Exchange believes there
could be certain challenges in designing a study that analyzes the
impact of P.M.-settled B500 Index options. One such challenge, for
example, may be in trying to distinguish whether the impact, if any, on
underlying component securities contained in the B500 Index is due to
trading in B500 Index options, or the result of trading in other equity
index options that contain those same components in their indices and
trade on competing exchanges.\56\
---------------------------------------------------------------------------
\55\ See supra note 51.
\56\ The Exchange discusses one approach to address this
challenge further below. Mainly, the Exchange may examine the impact
of P.M.-settlement on two groups of component securities of the B500
Index: (1) component securities that are in both the B500 Index and
S&P[supreg] 500 Index (or other comparable equity index); and (2)
component securities that are included in the B500 Index but not in
the S&P[supreg] 500 Index (or other comparable equity index).
---------------------------------------------------------------------------
In general, the Annual Report would contain an analysis of volume,
end-of-day open interest, exercised contracts, and trading patterns, to
the extent possible, in B500 Index options and B500 Index futures. The
analysis would examine the size and trading activity which may be
measured by open interest, exercised contracts, and trading volume, of
B500 Index options and futures over time. Furthermore, as determined by
the Exchange in light of the growth of the B500 Index option market
after launch,\57\ or upon request by the Commission, the Exchange would
provide an additional in-depth analysis of volatility and trading
activity around B500 Index options P.M.-settlement (e.g. within 15
minutes of the market close with respect to the B500 Index, component
securities of the B500 Index, and other linked-markets (e.g., B500
Index futures and B500 Index ETFs)). The Exchange would make all
underlying data of data items included in the Annual Report and in-
depth analysis publicly available in machine-readable format.\58\
---------------------------------------------------------------------------
\57\ For example, the Exchange may look to see if open interest
in B500 Index options met or exceeded a certain percentage of open
interest in SPX options with similar expirations. This is but one
example of the type of data regarding open interest that the
Exchange would look at when determining whether to perform an
analysis of index price volatility around the close.
\58\ Another options exchange group provided underlying data for
their proprietary index option products as part of their reports to
the Commission in ``txt.'' format. See, generally, monthly data
files for NQX index options from Nasdaq, available at https://www.nasdaqtrader.com/Trader.aspx?id=currentregulatory (last visited
February 19, 2025).
---------------------------------------------------------------------------
Volume and Open Interest Data for Options on the B500 Index--All
Expirations
At a minimum, the Annual Report would contain the following volume
and open interest data for A.M.-settled and P.M.-settled B500 Index
option expirations:
(1) number of exercised contracts for all expirations (i.e. Monday,
Tuesday, Wednesday, Thursday, Friday Weekly Expirations, EOM
Expirations, A.M.-settled and P.M.-settled third Friday-of-the-month
expirations, and quarterly expirations for A.M.-settled and P.M.-
settled B500 Index options);
(2) monthly volume aggregated for A.M.-settled and P.M.-settled
B500 Index options;
(3) monthly volume aggregated by expiration type (i.e. Monday,
Tuesday, Wednesday, Thursday, and Friday Weekly Expirations, EOM
Expirations, A.M.-settled and P.M.-settled third Friday-of-the-month
expirations, and quarterly expirations for A.M.-settled and P.M.-
settled B500 Index options);
(4) month-end open interest aggregated for A.M.-settled and P.M.-
settled B500 Index options; and
[[Page 12417]]
(5) month-end open interest for A.M.-settled and P.M.-settled B500
index options aggregated by expiration date.\59\
---------------------------------------------------------------------------
\59\ These were the primary data points provided by ISE in the
NDXP Annual Report to the Commission for options on the Nasdaq-
100[supreg] Index with P.M.-settlement (``NDXP''), which index
options were originally approved on a pilot basis as part of ISE's
non-standard expirations pilot program. See NDXP Annual Report
(2022), available at https://www.nasdaqtrader.com/content/files/NDXP-ISE-pilot-report-2022.pdf (the ``NDXP Annual Report'').
---------------------------------------------------------------------------
The volume and open interest data described above would be
aggregated by calendar month, similar to how at least one other
exchange provided its data and analysis for proprietary index option
products.\60\
---------------------------------------------------------------------------
\60\ See id. See also, e.g., Nasdaq Reduced Value Index Options
(NQX) Report, P.M. Settled Pilot Data in Aggregate file, available
at https://www.nasdaqtrader.com/Trader.aspx?id=currentregulatory
(last visited December 23, 2024).
---------------------------------------------------------------------------
Volume and Open Interest Data for Futures on the B500 Index
The Annual Report would also contain the following volume and open
interest data for futures contracts on the B500 Index, to extent that
such data is available and the futures are actually listed and traded:
\61\ (1) monthly volume aggregated for all trades; and (2) month-end
open interest aggregated for all expirations of B500 Index futures.
---------------------------------------------------------------------------
\61\ The Exchange anticipates that MIAX Futures Exchange, LLC
(``MIAX Futures''), a wholly-owned subsidiary of the Exchange's
parent company, Miami International Holdings, Inc. (``MIH''), will
have (or already has) self-certified with the Commodity Futures
Trading Commission (``CFTC'') to list and trade futures on the B500
Index pursuant to Section 5c(c) of the Commodity Exchange Act
(``CEA'') and CFTC Regulation 40.2(a).
---------------------------------------------------------------------------
Time Series Analysis of Open Interest Data for Options on the B500
Index
In addition, the Annual Report would contain an analysis of trading
in B500 Index option series, including a time series analysis of open
interest by calendar month throughout the year.\62\
---------------------------------------------------------------------------
\62\ As noted above, the Exchange is able to provide day-over-
day open interest data; however, the Exchange is not privy to OCC
data regarding intra-day open interest and does not believe that
such data is made available. This is in line with the open interest
data provided by other exchanges for their proprietary index option
products. See, e.g., supra note 59; see also Nasdaq Reduced Value
Index Options (NQX) Report, P.M. Settled Pilot Data in Aggregate
file, available at https://www.nasdaqtrader.com/Trader.aspx?id=currentregulatory (last visited December 23, 2024).
---------------------------------------------------------------------------
In-Depth Analysis
Also, as determined by the Exchange based on the size of the B500
Index option market or upon request by the Commission, the Exchange
will provide an analysis on trading activity and volatility that may be
associated with P.M.-settlement of B500 Index options with respect to
the B500 Index, component securities of the B500 Index, and B500 Index
futures (or, other linked-markets). The empirical design discussed
below serves as one example of methodologies that may be employed in an
in-depth analysis. The Exchange acknowledges that it may utilize, in
its own discretion, or pursuant to Commission request, different
designs and methodologies from such examples as discussed below,
depending on how the B500 Index options market and linked-markets
develop overtime. One example of empirical methods for studying trading
activity and volatility around the market close may include a
``difference-in-differences'' analysis with control sample, similar to
those employed in a study conducted on behalf of the Commission's
Division of Economic and Risk Analysis.\63\ Comparing volatility of
treatment group and control group around the market close may help
analyze the impact associated with P.M.-settlement of B500 Index
options on the B500 Index, component securities, and B500 Index
futures. In the below, the Exchange discusses examples of control
sample construction.
---------------------------------------------------------------------------
\63\ See Securities and Exchange Commission, Division of
Economic Risk and Analysis, Memorandum, Cornerstone Analysis of PM
Cash-Settled Index Option Pilots (February 2, 2021) (``DERA Staff PM
Pilot Memo''), available at: https://www.sec.gov/files/analysis_of_pm_cash_settled_index_option_pilots.pdf.
---------------------------------------------------------------------------
One purpose of the control sample is to compare how the underlying
components of the B500 Index trade pre- and post-launch of options on
the B500 Index. First, the Exchange will take a control sample using
select components of the B500 Index from one year prior to the launch
of options on the B500 Index. The Exchange will then review trade data
for those same underlying components, on a sample basis,\64\ following
the launch of B500 Index options, and compare those underlying
components' trading activity to the control sample components' trading
activity. The Exchange will evaluate the post-launch underlying
components' trading behavior with the pre-launch underlying components'
trading behavior to see whether there is any material impact (to the
extent possible) on the underlying components due to the launch of B500
Index options.
---------------------------------------------------------------------------
\64\ The sample basis could be once a month, or more or less
frequently, as the Exchange determines based on how the market for
options on the B500 Index develops.
---------------------------------------------------------------------------
For example, the Exchange may select symbol ``IBM'' and look at
IBM's trading activity in each month for one year prior to the launch
of B500 Index options, and then the corresponding months following the
launch of B500 Index options. The Exchange would look to see if there
was a spike in volatility of IBM in a certain month following the
launch of B500 Index options compared to the same month in the year
prior to the launch of B500 Index options. The Exchange would then
complete this analysis for a sampling of components, including for (1)
components that are in both the B500 Index and S&P 500 Index (or other
comparable equity index), and (2) for components that are included in
the B500 Index but not in the S&P[supreg] 500 Index (or other
comparable equity index).\65\ In so doing, the Exchange would analyze
whether there was any variance between the same components in both
indices that may be the result of the launch of B500 Index options.
---------------------------------------------------------------------------
\65\ As of January 7, 2025, the Exchange believes that, based on
publicly available information, there were 67 components in the B500
Index that are not also components in the S&P 500 Index. This is
due, in part, to the methodology used to compute the B500 Index. For
example, the B500 Index methodology utilizes a rules-based approach
to add or delete a component security while the S&P500[supreg] Index
utilizes a committee-based approach. Further, the B500 Index may
include securities immediately after their initial public offering
and does not have a profitability requirement. Compare S&P U.S.
Indices Methodology (dated February 2025), available at https://www.spglobal.com/spdji/tc/documents/methodologies/methodology-sp-us-indices.pdf (last visited January 14, 2025) with Methodology Guide,
supra note 3. Even with the differences in index construction, the
Exchange believes that both indexes are approximately 99%
correlated. This is likely due to the lowest weighted securities
being the main different components for each index.
---------------------------------------------------------------------------
Position and Exercise Limits
The Exchange proposes to amend the table in Exchange Rule 1804(a)
to provide that B500 Index options (all expirations) will not be
subject to position limits. As noted above, the B500 Index will settle
using published prices from the 500 most highly capitalized U.S.-listed
companies. Because the market for each of the underlying component
securities of the B500 Index is so large, the Exchange believes that
there is minimal risk of manipulation by virtue of position size in
B500 Index options. Further, the Exchange believes its reporting and
other requirements will guard against the potential for manipulation.
Pursuant to Exchange Rule 310(a), Members would be required to file a
report with the Exchange that includes data related to the option
positions held in the aggregate in B500 Index options and, in the case
of short positions, whether such positions were covered or uncovered.
The Exchange also has the ability to impose additional margin
requirements for under hedged positions in B500 Index options
[[Page 12418]]
pursuant to Exchange Rule 1504(b). As described further below, the
Exchange believes it has sufficient surveillance in place to detect
potential market manipulation by virtue of position size in B500 Index
options. The Exchange also proposes to not impose exercise limits for
B500 Index options in order to provide market participants the ability
to fully unwind positions in light of the Exchange's proposal to not
impose position limits. The Exchange notes that SPX and SPXW options
are also not subject to any position or exercise limits, as well as
several other broad-based indexes.\66\ Accordingly, the Exchange
proposes to amend Exchange Rule 1804(a) to specify that there will be
no position limits for options on the B500 Index and, as a result, no
exercise limits would apply pursuant to Exchange Rule 1807.
---------------------------------------------------------------------------
\66\ See Cboe Rulebook, Chapter 8. Business Conduct, Section B.
Position Limits, Exercise Limits, Liquidation and Reporting, Rules
8.31(a) and 8.41(b). See also, e.g., ISE Rulebook, Options 4A:
Options Index Rules, Sections 6 and 10 (providing for no position or
exercise limits for certain broad-based index options listed on ISE
with A.M. and P.M.-settlement).
---------------------------------------------------------------------------
Capacity To Handle Message Traffic Associated With B500 Index Options
The Exchange has analyzed its capacity and represents that it has
the necessary systems capacity to handle any additional messages
associated with the listing of the maximum number expirations permitted
for B500 Index options. The proposed rule change will allow the
Exchange to list the same, or fewer, number of expirations for B500
Index options as at least one other exchange currently is able to list
for its own broad-based equity index option suite of products.\67\
Further, the Exchange is a participant of the Listing Options Market
Structure Working Group (``LOMSWG'') and, in its work with the Options
Price Reporting Authority (``OPRA''), believes that OPRA also has the
necessary capacity to handle additional messages associated with
listing all B500 Index option expirations.
---------------------------------------------------------------------------
\67\ See SPX Fact Sheet, supra note 51.
---------------------------------------------------------------------------
Surveillance
The Exchange represents that it has in place adequate surveillance
procedures to monitor trading in B500 Index options in order to ensure
the maintenance of fair and orderly markets. The surveillance program
includes real-time patterns for price and volume movements and post-
trade surveillance patterns (e.g., spoofing, marking the close,
pinging, and phishing). The Exchange will apply those same program
procedures to trading in B500 Index options, including nonstandard
expirations. The Exchange will review activity in the underlying
components of the B500 Index when conducting surveillances for market
abuse or manipulation in the options on the B500 Index. Additionally,
the Exchange is a member of the Intermarket Surveillance Group
(``ISG'') under the Intermarket Surveillance Group Agreement. ISG
members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. In
addition to obtaining surveillance data from the Exchange's affiliates,
MIAX PEARL, LLC (``MIAX Pearl''), MIAX Emerald, LLC (``MIAX Emerald''),
and MIAX Sapphire, LLC (``MIAX Sapphire''), the Exchange will be able
to obtain information from Cboe, NYSE American, and other markets
through ISG. The Exchange also has a Regulatory Services Agreement with
FINRA. Pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities to FINRA to conduct
certain options-related market surveillance that are common to rules of
all options exchanges.
Precedent for P.M.-Settled Index Options and Nonstandard Expirations
The Exchange believes that ample precedent exists for P.M.-settled
broad-based index options.\68\ More recently, ISE received approval
from the Commission to make permanent its proposed rules to list and
trade options on the Nasdaq 100 Reduced Value Index (``NQX'') with
P.M.-settlement.\69\ The Exchange will monitor for any potential market
disruptions or the development of any factors that could cause such
disruptions to the underlying components of the B500 Index.
---------------------------------------------------------------------------
\68\ See supra note 51.
\69\ See Securities Exchange Act Release No. 98450 (September
20, 2023), 88 FR 66111 (September 26, 2023) (SR-ISE-2023-08) (Order
Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent Certain P.M.-Settled Pilots).
---------------------------------------------------------------------------
The Exchange believes all of the proposed changes do not present
any new or novel issues for the Commission to consider. Several
competing options exchanges currently have rule text that allow those
exchanges to list and trade P.M., cash-settled index options.\70\ The
Exchange proposes to establish substantively similar rule text in this
proposal to be able to list and trade P.M., cash-settled index options
on the B500 Index, similar to Cboe, ISE and PHLX.
---------------------------------------------------------------------------
\70\ See e.g., Cboe Rulebook, Chapter 4: Options Listing,
Section B. Index Options, Rule 4.13(e); ISE Rulebook, Options 4A,
Section 12(a)(6), P.M.-Settled Index Options and Nasdaq PHLX LLC
(``PHLX'') Options Rules, Options 4A, Section 12(a)(6). See also
Securities Exchange Act Release Nos. 82911 (March 20, 2018), 83 FR
12966 (March 26, 2018) (SR-ISE-2017-106) (Order Granting Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, To Permit
the Listing and Trading of NQX Index Options on a Pilot Basis) and
81293 (August 2, 2017), 82 FR 37138 (August 8, 2017) (SR-PHLX-2017-
04) (Order Granting Approval of a Proposed Rule Change, as Modified
by Amendment Nos. 1 and 2, To Permit the Listing and Trading of
P.M.-Settled NASDAQ-100 Index[supreg] Options on a Pilot Basis).
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Further, competing exchanges previously established rule text to
list and trade nonstandard expirations for broad-based index options,
substantively similar to the Exchange's proposal herein, including for
weekly expirations and end of month expirations. For example, starting
2006, the Commission approved a number of proposals permitting the Cboe
to introduce options with P.M.-settlement, including P.M.-settled index
options expiring weekly (other than the third Friday of the month) and
at the end of each month,\71\ as well as P.M.-settled S&P[supreg] 500
Index options and Mini-S&P[supreg] 500 Index options expiring on the
third Friday of the month.\72\ Likewise, ISE sought to permit the
listing and trading of nonstandard expirations for certain broad-based
index options, and in February 2018, the Commission approved ISE's
nonstandard expirations pilot program.\73\ The Commission subsequently
approved a proposed rule change by ISE to allow ISE to also list P.M.-
settled Tuesday and Thursday expirations on the Nasdaq-100 Index.\74\
Thereafter, in March 2018, the Commission approved ISE's proposal to
permit the listing and trading of options based on the Nasdaq 100
Reduced Value Index.\75\ Nasdaq, ISE and PHLX currently list options
with all weekly expirations on the Nasdaq-100[supreg] Micro Index
(``XND'') and Nasdaq-100[supreg] PM-Settled Index (``NDXP'').\76\
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\71\ See Securities Exchange Act Release Nos. 62911 (September
14, 2010), 75 FR 57539 (September 21, 2010) (SR-CBOE-2009-075);
76909 (January 14, 2016), 81 FR 3512 (January 21, 2016) (SR-CBOE-
2015-106); and 78531 (August 10, 2016), 81 FR 54643 (August 16,
2016) (SR-CBOE-2016-046).
\72\ See Securities Exchange Act Release Nos. 68888 (February 8,
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120); and 70087
(July 31, 2013), 78 FR 47809 (August 6, 2013) (SR-CBOE-2013-055).
\73\ See Securities Exchange Act Release No. 92612 (February 1,
2018), 83 FR 5470 (February 7, 2018) (SR-ISE-2017-111).
\74\ See Securities Exchange Act Release No. 95393 (July 29,
2022), 87 FR 47807 (August 4, 2022) (SR-ISE-2022-13).
\75\ See Securities Exchange Act Release No. 82911 (March 20,
2018), 83 FR 12966 (March 26, 2018) (SR-ISE-2017-106).
\76\ See XND Fact Sheet, available at https://www.nasdaq.com/XNDindexoptions and NDXP Fact Sheet, available at https://www.nasdaq.com/NDXP-factsheet (both last visited February 20, 2025).
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[[Page 12419]]
The Exchange provides the above history in order to show that the
proposal to add rule text to establish the Nonstandard Expirations
Program, as well as third Friday-of-the-month broad-based index options
with P.M.-settlement, is not new or novel. Like Cboe's rules and ISE's
rules, the Exchange's proposal seeks to establish (i) rule text that
will allow the Exchange to list and trade A.M. and P.M., cash-settled
options on the B500 Index, and (ii) a nonstandard expirations program
for all Weekly Expirations (Monday through Friday) and EOM Expirations
on the same index. As discussed above, the proposed rule text for the
Exchange to be able to list and trade A.M. and P.M., cash-settled index
options on the B500 Index is substantively similar to rule text
approved by the Commission for other options exchanges to list and
trade similar types of equity index options. The proposed rule text to
establish a nonstandard expirations program is also substantively
similar to the nonstandard expiration programs and rule text that were
previously approved by the Commission and currently in place at
competing options exchanges for broad-based index options.\77\ The
Exchange believes this proposal may further competition in the
marketplace for broad-based equity index options, which will benefit
investors looking to hedge exposure to the broader U.S. equity market.
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\77\ See ISE Rulebook, Options 4A, Section 12, Supplementary
Material to Options 4A, Section 12, .07 Nonstandard Expirations
Program; see also Securities Exchange Act Release Nos. 98450
(September 20, 2023), 88 FR 66111 (September 26, 2023) (SR-ISE-2023-
08) (Order Granting Approval of a Proposed Rule Change, as Modified
by Amendment No. 1, To Make Permanent Certain P.M.-Settled Pilots)
and 99104 (December 7, 2023), 88 FR 86404 (December 13, 2023) (SR-
ISE-2023-32) (expanding the nonstandard expiration program to allow
ISE to list nonstandard expirations on Tuesdays and Thursdays, in
addition to Mondays, Wednesdays and Fridays); Cboe Rulebook, Chapter
4, Section B, Rule 4.13(e), Nonstandard Expirations Program.
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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.\78\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \79\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest. The
Exchange believes the proposed changes are consistent with Section
6(b)(8) of the Act \80\ in that they do not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. The Exchange believes that the introduction of B500 Index
options will enhance competition by providing investors with an
alternative product to hedge against the risk associated with the
broader U.S. equity market.
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\78\ 15 U.S.C. 78f(b).
\79\ 15 U.S.C. 78f(b)(5).
\80\ 15 U.S.C. 78f(b)(8).
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The Exchange believes that the proposal to list and trade options
on the B500 Index will remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, protect investors and the public interest, because the
Exchange believes that the proposed rule change will further the
Exchange's goal of introducing new and innovative products to the
marketplace.
The Exchange believes that the proposed rule change will not impose
any burden on competition pursuant to Section 6(b)(8) of the Act and,
instead, enhance competition because the Exchange believes there is
unmet market demand for exchange-listed options on the B500 Index,
which is a representation of the 500 most highly capitalized U.S.-
listed companies. As a result, the Exchange believes that the B500
Index options are designed to provide new and additional opportunities
for investors to hedge the market risk associated with the B500 Index
and gain directional exposure to the broader U.S. equity market. The
Exchange also believes that introducing a competing equity index
option, such as B500 Index options with various expiration times and
dates, will benefit investors by providing more choice for market
participants to hedge exposure to the broader U.S. equity market.
The Exchange believes that the proposal to establish P.M.-settled
index option rules and nonstandard expiration rules, which will allow
the Exchange to list B500 Index options with Weekly and EOM Expirations
(all P.M.-settled), will benefit investors and remove impediments to a
free and open market because this suite of products will expand hedging
tools available to market participants while also providing greater
trading opportunities. By offering an expanded suite of expirations
along with the proposed third Friday-of-the-month A.M.-settled
expirations, the proposed suite of B500 Index options will allow market
participants to purchase B500 Index options in a manner more aligned
with specific timing needs and more effectively tailor their investment
and hedging strategies and manage their portfolios, thereby
facilitating transactions in such options. In particular, the proposed
rule change will benefit investors and remove impediments to a free and
open market by allowing market participants to roll their positions on
more trading days, thus with more precision, spread risk across more
trading days and incorporate daily changes in the markets, which may
reduce the premium cost of buying protection.
The Exchange also believes that the proposal to establish rule text
for nonstandard expirations in certain broad-based index options, such
as B500 Index options, protects investors because nonstandard
expirations with P.M.-settlement permits trading throughout the day on
the day the contract expires, which the Exchange believes will permit
market participants to more effectively manage overnight risk and trade
out of their positions up until the time the contract settles. The
increased number of expirations on the same underlying index may also
lead to smaller market disruption. The Exchange notes that a similar
suite of index option products currently exists that allow investors to
trade weekly and end of month expirations, all with P.M.-settlement, on
a different U.S. broad-based equity index that, although has a
different composition and methodology, closely tracks the performance
of the B500 Index.\81\ The Exchange also believes that the introduction
of nonstandard expiration options, such as B500 Index options, will
attract order flow to the Exchange, increase the variety of listed
options to investors, and provide a valuable hedge tool to investors.
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\81\ See supra notes 4 and 51.
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The Exchange believes that the proposed rule change to establish
nonstandard expirations removes impediments to a free and open market
because the additional expirations for broad-based index options that
the Exchange may list (including B500 Index options) may attract
additional participation from more types of market participants. The
Exchange believes this may help remove impediments to and
[[Page 12420]]
perfect the mechanism of a free and open market and a national market
system by catering to more market participants, which may, in turn,
attract more order flow in broad-based equity index options, including
B500 Index options. Greater order flow may benefit all investors by
providing more trading opportunities and tighter spreads for broad-
based equity index options. Further, the proposed rule text for
nonstandard expirations is substantively similar to the rule text that
competing exchanges established for their proprietary index option
products, particularly with respect to products that offer exposure to
large-cap U.S.-listed equity stocks and the broader U.S. equity market
as a whole. Accordingly, the Exchange believes that the proposed rule
change will allow the Exchange to offer alternative equity index
options for investors of the broader U.S. equity market, which also
removes impediments to and perfects the mechanism of a free and open
market and a national market system.
The Exchange also believes that P.M.-settlement will be attractive
to more types of market participants that want to use these options to
hedge an entire week of risk without leaving residual risk on the day
of expiration, and without having to actively manage these positions,
for example, by rolling their hedge into the next expiration. For this
reason, other popular index option products transitioned to P.M.-
settlement.\82\ The Exchange believes that market participants may
similarly want P.M.-settlement for broad-based index options with
nonstandard expirations, such as options on the B500 Index, and
proposes to establish such rule text so that it can compete effectively
with similar broad-based index options offered by other options
exchanges.
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\82\ See supra notes 71 and 72.
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All B500 Index options will be subject to the same rules that
presently govern the trading of index options, including sales practice
rules, margin requirements, and trading rules. The Exchange therefore
believes that the rules applicable to trading in B500 Index options are
consistent with the protection of investors and the public interest.
The Exchange also represents that it has sufficient systems capacity
and adequate surveillance procedures to handle trading in B500 Index
options.
The Exchange believes its proposal to not impose position or
exercise limits on B500 Index options is designed to prevent fraudulent
and manipulative practices and promote just and equitable principles of
trade because the B500 Index will settle using published prices from
the 500 most highly capitalized U.S.-listed companies. Because the
market for each of the underlying component securities of the B500
Index is so large, the Exchange believes that there is minimal risk of
manipulation by virtue of market participants' position size in B500
Index options. Further, the Exchange believes its reporting and other
requirements will guard against the potential for manipulation.
Pursuant to Exchange Rule 310(a), Members would be required to file a
report with the Exchange that includes data related to the option
positions held in the aggregate in B500 Index options and, in the case
of short positions, whether covered or uncovered. The Exchange also has
the ability to impose additional margin requirements for under hedged
positions in B500 Index options pursuant to Exchange Rule 1504(b).
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to B500 Index options, including nonstandard expirations,
which the Exchange applies to its other options products. In
particular, the surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns (e.g.,
spoofing, marking the close, pinging, and phishing). The Exchange
believes this surveillance program is designed to prevent fraudulent
and manipulative practices and promote just and equitable principles of
trade. The Exchange will review activity in the underlying components
of the B500 Index when conducting surveillances for market abuse or
manipulation in the options on the B500 Index. Additionally, the
Exchange is a member of the ISG under the Intermarket Surveillance
Group Agreement. ISG members work together to coordinate surveillance
and investigative information sharing in the stock, options, and
futures markets. In addition to obtaining surveillance data from the
Exchange's affiliates, MIAX Pearl, MIAX Emerald, and MIAX Sapphire, the
Exchange will be able to obtain information from Cboe, NYSE American,
and other markets through ISG. In addition, the Exchange has a
Regulatory Services Agreement with FINRA.\83\ Pursuant to a multi-party
17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillance that are common to rules of all options exchanges.\84\
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\83\ The Exchange notes that it handles all real-time market
surveillance and will refer to FINRA when it detects potential fraud
or manipulation.
\84\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. Section 17(d)(1) of
the Act allows the Commission to relieve an SRO of certain
responsibilities with respect to members of the SRO who are also
members of another SRO (``common members''). Specifically, Section
17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with specified
provisions of the Act and the rules and regulations thereunder, and
the rules of the SRO; or (iii) carry out other specified regulatory
responsibilities with respect to such members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2.
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The Exchange believes that existing surveillance procedures are
designed to deter and detect possible manipulative behavior which might
potentially arise from listing and trading the proposed B500 Index
options. Further, the Exchange represents that it will implement any
new surveillance procedures it deems necessary to effectively monitor
the trading of B500 Index options.
The Exchange believes that the Annual Report, as described above,
is designed to mitigate any potential concerns regarding P.M.-
settlement of B500 Index options, including Weekly Expirations and EOM
Expirations. Specifically, the Exchange believes that the Annual Report
will provide the Commission with data and analysis to monitor for and
assess any potential adverse market effects after the introduction of
B500 Index options to the market. The Exchange also believes the Annual
Report will allow the Commission to assess whether the underlying
component securities and the third Friday-of-the-month expirations on
the B500 Index experience any potential adverse market effects or
volatility around the close.
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.
Inter-Market Competition
The A.M.-settled options on the B500 Index with third Friday-of-
the-month expirations satisfy the initial listing standards set forth
in the Exchange's Rules, and the proposed number of expirations,
settlement, and exercise style are consistent with current rules
applicable to broad-based index options
[[Page 12421]]
with A.M.-settlement.\85\ Options on the B500 Index will provide
investors with additional opportunities to hedge the market risk
associated with the broader U.S. equities market. Further, options on
the B500 Index would be available for trading to all market
participants.
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\85\ The Exchange did not file pursuant to Rule 19b-4(e) of the
Exchange Act to list A.M.-settled B500 Index options with standard
third Friday-of-the-month expirations because the Exchange proposes
to list such options with no position or exercise limits.
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The proposed rule change will facilitate the listing and trading of
novel options products that may enhance competition among market
participants, to the benefit of investors and the marketplace. The
listing of options on the B500 Index may enhance competition by
providing investors with an additional investment vehicle, in a fully-
electronic trading environment, through which investors can gain and
hedge exposure to the broader U.S.-listed equities market. To the
extent that investors consider options on the B500 Index to be
substitutes for existing investment products traded on other exchanges,
this product may offer a competitive alternative to other investment
products that seek to allow investors to gain broad market exposure to
the U.S. equities market.
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 nonstandard
expirations rule text will allow the Exchange to offer B500 Index
options to all market participants. Furthermore, it is possible for
other exchanges to develop or license the use of a substantially
similar index to compete with the B500 Index and seek Commission
approval to list and trade options on such an index.
Intra-Market Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on intra-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act because B500
Index options will be available to all market participants. By listing
B500 Index options with A.M. and P.M.-settlement, as well as Weekly and
EOM Expirations, the proposed rule change will provide all investors
that participate in the B500 Index options market greater trading and
hedging opportunities and flexibility to meet their investment and
hedging needs. The Exchange also believes the proposed rule change to
establish rules for nonstandard expirations for broad-based index
options will not impose any burden on intra-market competition that is
not necessary or appropriate in furtherance of the purposes of the Act
because any options that the Exchange does list pursuant to such rules
will also be available to all Exchange participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-MIAX-2025-08 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-MIAX-2025-08. 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 (https://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
a.m. and 3 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-MIAX-2025-08 and should be
submitted on or before April 7, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\86\
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\86\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-04161 Filed 3-14-25; 8:45 am]
BILLING CODE 8011-01-P