[Federal Register Volume 90, Number 102 (Thursday, May 29, 2025)]
[Notices]
[Pages 22787-22794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-09622]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103104; File No. SR-CBOE-2025-022]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Permit the
Exchange To List and Trade Options With P.M.-Settlement That Overlie
the S&P 500 Equal Weight Index
May 22, 2025.
I. Introduction
On March 20, 2020, Cboe Exchange, Inc. (the ``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 list and trade p.m.-settled S&P 500 Equal
Weight Index options that have standard third Friday-of-the-month,
nonstandard, and quarterly expirations. The proposed rule change was
published for comment in the Federal Register on April 8, 2025.\3\ On
April 29, 2025, the Exchange filed Amendment No. 1 to the proposed rule
change, which amended and superseded the proposed rule change as
originally filed.\4\ The Commission received no comments on the
proposed rule change. The Commission is publishing this Notice and
Order to solicit comment on Amendment No. 1 in Sections II and III
below, which sections are being published verbatim as filed by the
Exchange, and to approve the proposed rule change, as modified and
superseded by Amendment No. 1, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102752 (April 2,
2025), 90 FR 15189.
\4\ See Amendment No. 1, available at https://www.sec.gov/comments/sr-cboe-2025-022/srcboe2025022.htm.
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II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend certain rules to permit the Exchange to list and trade options
with p.m.-settlement that overlie the S&P 500 Equal Weight Index (based
on both the full value and one-tenth the value of the index) (``SPEQF
options'' and ``SPEQX options,'' respectively). The text of the
proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
III. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend certain rules
to permit the Exchange to list and trade SPEQF and SPEQX options that
are p.m.-settled. Specifically, the Exchange proposes to (1) amend Rule
4.13, Interpretation and Policy .13 to permit the listing of P.M.-
settled \5\ SPEQF and SPEQX options that expire on the standard third
Friday-of-the-month (``Expiration Friday''); \6\ (2) amend Rule 4.13(c)
to permit the Exchange to open for trading Quarterly Index Expirations
(``QIXs'') on SPEQF and SPEQX options; \7\ and (3) permit the Exchange
[[Page 22788]]
to list SPEQF and SPEQX options with Nonstandard Expirations pursuant
to Rule 4.13(e).\8\
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\5\ An option with P.M.-settlement has its exercise settlement
value derived from the closing prices on the expiration date.
\6\ Rule 4.13, Interpretation and Policy .13 currently permits
the Exchange to list P.M.-settled SPX and XSP options, as well as
options on the Russell 2000 Index (``RUT options'') and the Mini-
Russell 2000 Index (``MRUT'' options), that expire on Expiration
Fridays. Amendment No. 1 also amends Rule 4.13, Interpretation and
Policy .13 to clarify that provision relates specific to p.m.-
settled index options that expire on the third Friday-of-the-month.
This rule provision previously included such language, which was
inadvertently deleted by SR-CBOE-2024-034. This rule provision has
always related specifically to classes for which the Exchange may
list p.m.-settled series that expire on the third Friday-of-the-
month; therefore, this proposed rule change has no impact on the
application of the rule and merely provides clarity and
transparency.
\7\ QIXs are index option contracts that expire on the last
business day of a calendar quarter. Rule 4.13(c) currently permits
the Exchange to list QIXs for SPX and XSP options, as well as RUT
options, MRUT options, and options on the S&P 100 Index. Amendment
No. 1 also deletes an extra space from the rule text in Rule
4.13(c).
\8\ Rule 4.13(e) permits the Exchange to open for trading Weekly
Expirations on any broad-based index eligible for standard options
trading on any Monday, Tuesday, Wednesday, Thursday, or Friday
(other than Expiration Fridays or days that coincide with an end-of-
month (``EOM'') expiration) or EOM expirations on any broad-based
index eligible for standard options trading. While the Exchange
believes it has the authority under this rule to list SPEQF and
SPEQX options with Nonstandard Expirations, Commission staff
informed the Exchange that it must submit a rule filing pursuant to
Section 19(b)(2) under the Act before it may list Nonstandard
Expirations for these classes.
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The S&P 500 Equal Weight Index is the equal-dollar weighted version
of the S&P 500 Index (which is capitalization-weighted). The S&P 500
Index measures the performance of approximately 500 of the largest
capitalization stocks in the United States. The constituents of the S&P
500 Equal Weight Index are the same as those of the S&P 500 Index; the
difference between the two indexes is that each constituent is
allocated a fixed weight with respect to the S&P 500 Equal Weight Index
rather than a capitalization weight as is the case for the S&P 500
Index. Therefore, the index that underlies options on the S&P 500 Index
(``SPX options''), as well as the Mini-S&P 500 Index (``XSP options''),
for which the Exchange may currently list p.m.-settled options on
Expiration Fridays, with Nonstandard Expirations, and as QIXs, is
comprised of the same constituents as the underlying index for SPEQF
and SPEQX options.
The Exchange currently is permitted to list p.m.-settled series
that expire on Expiration Friday, with Nonstandard Expirations, and
QIXs for several different broad-based index options, including SPX and
XSP options. This proposed rule change would permit the Exchange to
list p.m.-settled SPEQF and SPEQX options that expire on Expiration
Fridays, with Nonstandard Expirations, and QIXs. The availability of
p.m.-settled SPEQF and SPEQX options with these various expirations
will provide market participants with opportunities to trade those
options in a manner more aligned with specific timing needs and more
effectively tailor their investment and hedging strategies related to
the S&P 500 Equal Weight Index and manage their portfolios. In
particular, the proposed rule change will allow market participants to
roll their positions in SPEQF and SPEQX options with regularity and
more precision, to spread risk across more trading days, and
incorporate daily, weekly, monthly, and quarterly changes in the
markets, which may reduce the premium cost of hedging.
In connection with the proposed change to Rule 4.13, Interpretation
.13, Exchange also proposes to amend Rule 5.1, which governs trading
days and hours, in conjunction with the proposed addition of SPEQF and
SPEQX p.m.-settled options that expire on Expiration Friday. Rule
5.1(b)(2)(C) currently provides that on their last trading day, Regular
Trading Hours for expiring p.m.-settled SPX, XSP, RUT, MRUT options, as
well as Index Options with Nonstandard Expirations and QIXs, may be
effected on the Exchange between 9:30 a.m. and 4:00 p.m. Eastern Time
\9\ (as opposed to the 9:30 a.m. to 4:15 p.m. Regular Trading Hours for
options with those expirations that are non-expiring). The proposed
rule change amends Rule 5.1(b)(2)(C) to include SPEQF and SPEQX P.M.-
settled options that expire on Expiration Friday.\10\ The primary
listing markets for the component securities that comprise the S&P 500
Equal Weight Index close trading in those securities at 4:00 p.m., just
as the primary listing markets for the component securities that
comprise the S&P 500 and Russell 2000 Indexes close trading at 4:00
p.m. (as noted above, the components of the S&P 500 Index are identical
to the components of the S&P 500 Equal Weight Index). The primary
listing exchanges for the component securities disseminate closing
prices for the component securities, which are used to calculate the
exercise settlement value of broad-based indexes on which the Exchange
lists options. The Exchange believes that, under normal trading
circumstances, the primary listing markets have sufficient bandwidth to
prevent any data queuing that may cause any trades that are executed
prior to the closing time from being reported after 4:00 p.m. If
trading in expiring SPEQF and SPEQX p.m.-settled options that expire on
Expiration Fridays continued an additional fifteen minutes until 4:15
p.m. on their last trading day, these expiring options would be trading
after the settlement index value for those expiring options was
calculated.\11\ Therefore, in order to mitigate potential investor
confusion and the potential for increased costs to investors as a
result of potential pricing divergence at the end of the trading day,
the Exchange believes that it is appropriate to cease trading in the
expiring SPEQF and SPEQX p.m.-settled options that expire on Expiration
Fridays at 4:00 p.m., as it already does for expiring p.m.-settled SPX
and XSP options (as well as RUT and MRUT options) that expire on
Expiration Fridays and for expiring broad-based indexes with
Nonstandard Expirations (which are p.m.-settled) for the same
aforementioned reasons.\12\ The Exchange does not believe that the
proposed rule change will impact volatility on the underlying cash
markets comprising broad-based indexes at the close on Expiration
Fridays, as it already closes trading on the last trading day for
expiring p.m.-settled options at 4:00 p.m. (including SPX and XSP
options, which have the same underlying cash markets as those of SPEQF
and SPEQX options), which the Exchange does not believe has had an
adverse impact on fair and orderly markets on Expiration Fridays for
the underlying stocks comprising the
[[Page 22789]]
corresponding indexes (as further discussed below).\13\
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\9\ See Rule 1.6, which states that unless otherwise specified,
all times in the Rules are Eastern Time.
\10\ As noted above, Rule 5.1(b)(2)(C) already applies to p.m.-
settled series of SPEQF and SPEQX options with Nonstandard
Expirations and QIXs. Therefore, while the proposed rule change
amends this Rule only with respect to p.m.-settled SPEQF and SPEQX
options that expire on Expiration Friday, on their last trading day,
Regular Trading Hours for all expiring p.m.-settled SPEQF and SPEQX
options with all permissible expirations (including Nonstandard
Weekly and End-of-Month Expirations and QIXs) will end at 4:00 p.m.
\11\ Further, the Exchange expects that SPEQF and SPEQX p.m.-
settled options (as the Exchange understands is the case for P.M.-
settled SPX, XSP, RUT, and MRUT options that expire on Expiration
Friday and all broad-based index options with Nonstandard
Expirations, QIXs, and other p.m.-settled options) will typically be
priced in the market based on corresponding futures values. If
trading in expiring SPEQF and SPEQX p.m.-settled options that expire
on Expiration Friday continued until 4:15 p.m. on their last trading
day, these expiring options could not be priced on corresponding
futures values but rather would have to be priced on the known cash
value. At the same time, the prices of non-expiring SPEQF and SPEQX
p.m.-settled options series that expire on a future Expiration
Friday would continue to move and likely be priced in response to
changes in corresponding futures prices. As a result, a potential
pricing divergence could occur between 4:00 p.m. and 4:15 p.m. on
the final trading day in expiring SPEQF and SPEQX p.m.-settled
options that expire on Expiration Friday (e.g., a switch from
pricing off of futures to cash). The Exchange understands that the
switch from pricing off of futures to cash can be a difficult and
risky crossover for liquidity providers. As a result, if expiring
p.m.-settled contracts closed at 4:15 p.m., Market-Makers may react
by widening spreads in order to compensate for the additional risk.
\12\ See Securities Exchange Act Release Nos. 68888 (February 8,
2013), 78 FR 10668 (February 14, 2013) (SR-CBOE-2012-120) (``SPXPM
Pilot Approval Order''); 70087 (July 31, 2013), 78 FR 47809 (August
6, 2013) (SR-CBOE-2013-055) (``XSPPM Pilot Approval Order''); 91067
(February 5, 2021), 86 FR 9108 (February 11, 2021) (SR-CBOE-2020-
116) (``MRUTPM Pilot Approval Order''); and 101197 (September 26,
2024), 89 FR 20291 (October 2, 2024) (SR-CBOE-2024-034) (``RUT Pilot
Approval Order'').
\13\ See Securities Exchange Act Release Nos. 98454 (September
20, 2023), 88 FR 66103 (September 26, 2023) (SR-CBOE-2023-005)
(``SPXPM Permanent Approval Order''); and 98455 (September 20,
2023), 88 FR 66073 (September 26, 2023) (SR-CBOE-2023-019) (``XSPPM
and MRUTPM Permanent Approval Order'').
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The Exchange notes, as is the case for other p.m.-settled options,
that SPEQF and SPEQX options will be aggregated with all other option
contracts for those options for purposes of determining compliance with
the applicable position (and exercise) limit, as well as determining
position limit reporting requirements.\14\
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\14\ See Rules 8.31(b), 8.35(b) and (d), and 8.42(b) and (g).
Pursuant to current Rules, the position and exercise limits for
SPEQF and SPEQX options are 25,000 contracts. The Exchange has a
separate rule filing pending to eliminate position limits for SPEQF
and SPEQX options (other broad-based index options, including SPX
and XSP options, currently have no position limits). See Securities
Exchange Act Release No. 102720 (March 25, 2025), 90 FR 14297 (March
31, 2025) (SR-CBOE-2025-020). If the Commission separately approves
that filing, then SPEQF and SPEQX options (including those proposed
in this rule filing) would have no position limits. Other rules
regarding position and exercise limits would continue to apply. For
example, Rule 8.35(b) requires Trading Permit Holders to report
certain information regarding FLEX positions in FLEX index options
that are subject to no position limits if they maintain in excess of
100,000 contracts in those options. Additionally, Rule 8.43 imposes
various reporting obligations with respect to options (including
index options), even for index options subject to no position
limits.
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SPEQF and SPEQX p.m.-settled options will trade in the same manner
as other p.m.-settled index options that trade on the Exchange. The
Exchange Rules that currently apply to the listing and trading of p.m.-
settled index options on the Exchange, including, for example, Rules
that govern listing criteria, expirations, exercise prices, minimum
increments, position and exercise limits, margin requirements, customer
accounts, and trading halt procedures, will apply to the listing and
trading of p.m.-settled SPEQF and SPEQX options on the Exchange in the
same manner as they apply to other p.m.-settled index options that are
listed and traded on the Exchange.
The Exchange has analyzed its capacity and represents that it
believes the Exchange has the necessary systems capacity to handle the
additional message traffic associated with the listing of new series
that would result from the introduction of the SPEQF and SPEQX options
up to the proposed number of possible p.m.-settled expirations. The
Options Price Reporting Authority (``OPRA'') also informed the Exchange
it believes it has the necessary systems capacity to handle the
additional traffic associated with the listing of new series that would
result from this proposed rule change. The Exchange believes the equal
weighting of the components of the index underlying SPEQF and SPEQX
options presents a value proposition to the market that has generated
investor demand for p.m.-settled SPEQF and SPEQX options, including
Weekly Expirations. As further discussed below, equal-weighted index
options can provide market participants with the ability to gain broad
exposure to the stocks comprising the underlying index in a manner less
impacted by a shift in concentration and market momentum than options
overlying capitalization-weighted index that are more impacted by the
stocks with largest capitalization. However, as the proposal is limited
to two classes, the Exchange believes any additional traffic that would
be generated from the introduction of p.m.-settled SPEQF and SPEQX
options with the permissible expirations will be manageable.
The S&P 500 Equal Weight Index consists of the same components as
the S&P 500 Index, as noted above. Because of the relationship between
the S&P 500 Equal Weight Index and the S&P 500 Index, both of which
market participants may use as hedging vehicles to meet their
investment needs in connection with S&P 500 Index-related products and
cash positions, the Exchange believes it is appropriate to permit the
same expirations and settlement for SPEQF and SPEQX options as SPX and
XSP options. The Exchange understands that investors often use S&P 500
Index-related products to diversify their portfolios and benefit from
market trends. The Exchange believes that investors will benefit from
the availability of p.m.-settled SPEQF and SPEQX options, as it will
expand investing tools offering exposure to the U.S. equities market.
If the Commission approves the proposed rule change, the Exchange
will provide the Commission with the following data on an annual basis
for a period of five years following the initial listings of p.m.-
settled SPEQF and SPEQX options series. This data will permit
evaluation of any impact of these options on the component securities
that comprise the underlying index, as well as other linked markets
(e.g., hedging instruments for SPEQF and SPEQX options), such as the E-
mini S&P 500 Equal Weight Index futures, to the extent possible: \15\
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\15\ As discussed below, the Exchange and Commission analyzed
various data to study, among other things, the impact, if any, of
p.m.-settlement on the underlying securities that comprise the S&P
500 Index (which are the same securities that comprise the S&P 500
Equal Weight Index) and whether listing and trading p.m.-settled SPX
options would increase volatility around the market close in linked-
markets, as well as its underlying component securities.
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(1) number of exercised contracts for all expirations (i.e.,
Monday, Tuesday, Wednesday, Thursday, and Friday Weekly Expirations;
EOM Expirations; a.m.- and p.m.-settled Expiration Fridays; and QIXs);
(2) monthly trading volume aggregated for E-mini S&P 500 Equal
Weight Index futures that trade on the Chicago Mercantile Exchange (to
the extent such data is available); and
(3) month-end open interest aggregated for all expirations of the
E-mini S&P 500 Equal Weight Index futures.
The Exchange will also include analysis of this data. Further, the
Exchange will provide the Commission with any additional data and
analysis the Commission requests during this five-year period if the
Commission [sic] such data necessary for purposes of its evaluation of
any potential impact the listing of the proposed options has on the
market. The Exchange would make all of this data analysis available in
machine-readable format and publicly on its website.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\16\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \17\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \18\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ Id.
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[[Page 22790]]
In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and a national market system and protect investors, because it
will provide investors with additional means to manage their risk
exposures and carry out their investment objectives with more
flexibility. By offering SPEQF and SPEQX p.m.-settled options that
expire on Expiration Fridays, with Nonstandard Expirations, and QIXs,
the proposed rule change will allow market participants to purchase
options on additional indexes available for trading on the Exchange in
a manner more aligned with specific timing needs and more effectively
tailor their investment and hedging strategies related to the S&P 500
Equal Weight Index and manage their portfolios. In particular, the
proposed rule change will allow market participants to roll their
positions in SPEQF and SPEQX options with more regularity and
precision, to spread risk across more trading days, and to incorporate
daily, weekly, monthly, and quarterly changes in the markets, which may
reduce the premium cost of hedging.
The Exchange further believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it will permit the Exchange to make
available to investors series with the same expirations and settlement
in SPEQF and SPEQX options as are available for SPX and XSP options. As
noted above, the constituent stocks of the S&P 500 Index are exactly
the same as the constituent stocks of the S&P 500 Equal Weight Index.
However, the Exchange believes that SPEQF and SPEQX options are
designed to provide different, additional opportunities for investors
to hedge the market risk associated with this index and to gain
directional exposure to the index by listing options directly on this
index. The U.S. equity markets have experienced increased levels of
concentration in recent years. SPEQF and SPEQX options provide market
participants with alternative tools to manage their risk and diversify
their exposure to the stocks comprising the S&P 500 Index.
Specifically, these options permit market participants to gain broad
exposure to these stocks using options that would be less impacted by a
shift in concentration and market momentum. Because capitalization-
weighted indexes such as the S&P 500 Index are more impacted by larger
capitalized stocks, options overlying an equal-weighted index (such as
the S&P 500 Equal Weight Index) would permit investors to hedge against
potential swings in the largest stocks comprising the S&P 500 Index
while maintaining the ability to hedge across the entire span of S&P
500 constituent securities. The Exchange believes the significant
liquidity of the components of the S&P 500 Equal Weight Index can
withstand any additional trading as a result of listing options on an
index comprised of components that also comprise other indexes
underlying listed options (including unwinding of options positions
into underlying stock positions). The proposed rule change will provide
market participants looking to gain broad exposure to the stocks
underlying the S&P 500 Index in a manner less impacted by a shift in
concentration and market momentum with hedging tools with the same
level of precision currently available to market participants that look
to gain broad exposure to these stocks more impacted by the stocks with
largest capitalization. As a result, market participants will have
greater trading opportunities, regardless of in which index option
market they participate.
The Exchange initially listed certain options that were p.m.-
settled, including SPX and XSP options, that expire on Expiration
Fridays and with Nonstandard Expirations pursuant to pilot
programs,\19\ so the Commission could monitor the impact of p.m.-
settlement of cash-settled index derivatives on the underlying cash
markets. When permanently approving these programs, the Commission
recognized that listing p.m.-settled SPX and XSP options that expire on
Expiration Fridays and with Nonstandard Expirations were consistent
with the Act.\20\ The Commission noted that these p.m.-settled index
options had ``benefitted investors and other market participants by
providing more flexible trading and hedging opportunities while also
having no disruptive impact on the market.'' \21\ The Exchange believes
p.m.-settled SPEQF and SPEQX options will provide the same benefits to
investors and other market participants with respect to these products.
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\19\ While QIXs were not part of these pilot programs, we
believe any conclusions applicable to Nonstandard Expirations, which
include EOMs, would apply to QIXs, as the last calendar days of
quarters represent a subset of the last calendar days of months.
\20\ See SPXPM and XSPPM Pilot Approval Orders (the Commission
also recognized that these risks may have been mitigated given
enhanced closing procedures in use in the primary equity markets);
SPXPM and XSPPM and MRUTPM Permanent Approval Orders; and Securities
Exchange Act Release No. 98456 (September 20, 2023), 88 FR 66091
(September 26, 2023) (SR-CBOE-2023-020) (``Nonstandard Permanent
Approval Order'').
\21\ See SPXPM Permanent Approval Order at 66106; XSPPM and
MRUTPM Permanent Approval Order at 66076; and Nonstandard Approval
Order at 66094 (citing data the Commission reviewed in connection
with the pilot programs).
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As noted above, the S&P 500 Equal Weight Index is comprised of the
same underlying components as the S&P 500 Index (which underlies SPX
and XSP options). While the Commission's prior determination was based
on data specific to SPX options, the Exchange believes it is
appropriate to extrapolate the data to apply to p.m.-settled SPEQF and
SPEQX options with the same expirations.\22\ Therefore, the Exchange
believes extrapolating the data results (in combination with ongoing
review of the data the Exchange will provide to the Commission, as
discussed above) to an index comprised of the same components is more
than appropriate, as the Commission has already considered the impact
of p.m.-settled options on futures overlying an index with the same
components, another index with the same components, and the exact index
components, concluding p.m.-settled options had minimal economic impact
on that future, index, and constituents.\23\ Overall, the Commission
concluded that the ``analysis of pilot data did not identify any
significant economic impact on the underlying component securities
surrounding the close as a result of expiring p.m.-settled options, nor
did it indicate a deterioration in market quality . . . for an existing
product when a new p.m.-settled expiration was introduced. Further
significant changes in closing procedures in the decades since index
options moved to a.m. settlement may also serve to mitigate the
potential impact of p.m.-settled index options on the underlying cash
markets.'' \24\
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\22\ See XSPPM and MRUTPM Permanent Approval at n. 31; and
Nonstandard Permanent Approval Order at n. 37 (at the time of that
approval order, the Exchange had listed Nonstandard Expirations for
RUT and MRUT options) (``The Commission agrees it is appropriate to
extrapolate the data to [p.m.-settled third Friday-of-the-month XSP
and MRUT options], as the Exchange's analysis examines liquidity and
volatility dynamics around the market close, which may be associated
with typical hedging activities tied to expiring p.m.-settled index
options.'') Ultimately, the Commission found that the Exchange's
filing, pilot data, and analysis demonstrated these p.m.-settled
products had no significant economic impact on the respective
underlying indexes or other products. See id.
\23\ See XSPPM and MRUTPM Permanent Approval at 66075; and
Nonstandard Permanent Approval Order at 66093-66094.
\24\ See XSPPM and MRUTPM Permanent Approval at 66076; and
Nonstandard Permanent Approval Order at 66094.
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[[Page 22791]]
With respect to markets linked to these options, such as
instruments investors may use to hedge SPEQF and SPEQX options (e.g.,
securities underlying the index, futures overlying the same index, and
ETFs designed to track the same index), the Exchange believes these
markets can withstand any additional pressure on [sic] derivatives
products may place on these markets. The securities underlying SPEQF
and SPEQX options must be significantly liquid to satisfy the
Exchange's listing and maintenance criteria in Rule 4.10(f) and
(g).\25\ The Exchange believes these requirements demonstrate the
constituents would not be materially impacted by any additional
pressure resulting from the listing of these options given their
significant market capitalization and liquidity. The Exchange
understands that investors may use other instruments (such as futures
overlying the same index and ETFs designed to track the same index) to
hedge their positions in options overlying this index given potential
investment challenges and risk, as well as cost, of hedging with the
underlying constituents (which would entail obtaining positions in each
of the over 500 individual stocks that comprise the index). The
corresponding futures trade on the same market as the futures often
used to hedge SPX options.\26\ As there are currently no options
overlying the S&P 500 Equal Weight Index,\27\ the Exchange believes the
established futures market trading on the same market in the same
manner as the futures overlying the S&P 500 Equal Weight Index can
withstand any additional pressure the listing of SPEQF and SPEQX
options may have. Similarly, RSP has significant assets under
management (approximately $70 billion as of April 15) and trading
volume (average daily trading volume of over 13 million shares in the
previous 30 days). The Exchange believes this market is more than
sufficient to withstand any additional pressure that may result from
the listing of these options. The Exchange has identified no reason why
the difference in weighting of the S&P 500 Index and the S&P 500 Equal
Weight Index would cause p.m.-settled options overlying the S&P 500
Equal Weight Index to have a measurable impact on the same underlying
cash markets or linked markets when p.m.-settled options overlying the
S&P 500 Index did not. Therefore, the Exchange believes permitting
p.m.-settled series of SPEQF and SPEQX options will offer investors the
same opportunities as those offered by p.m.-settled SPX and XSP options
with the same lack of material impact on the market and the component
securities.
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\25\ These listing and maintenance criteria include: (1)
component securities that account for at least 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 65% of
the weight of the index have a market capitalization of at least
$100 million; and (2) each component security that accounts for at
least 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.
\26\ CME launched the futures over a year ago, making it an
established product on that market.
\27\ The Exchange understands it is possible investors may use
the futures for hedging other products, such as options overlying
ETFs designed to track the same index (e.g., the Invesco S&P 500
Equal Weight ETF (``RSP'')).
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The Exchange further believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and protect investors, because it will
provide investors with additional means for additional index options to
manage their risk exposures and carry out their investment objectives.
By offering SPEQF and SPEQX p.m.-settled options that expire on
Expiration Fridays, with Nonstandard Expirations, and QIXs, the
proposed rule change will allow market participants to purchase options
on an additional index option [sic] available for trading on the
Exchange in a manner more aligned with specific timing needs and more
effectively tailor their investment and hedging strategies related to
the S&P 500 Equal Weight Index and manage their portfolios. In
particular, the proposed rule change will allow market participants to
roll their positions in SPEQF and SPEQX options with regularity, thus
with more precision, to spread risk across trading days, and to
incorporate daily, weekly, monthly, and quarterly changes in the
markets, which may reduce the premium cost of hedging.
In addition, the Exchange believes that the proposal to end trading
at 4:00 p.m. on the last trading day for transactions in expiring SPEQF
and SPEQX P.M.-settled options that expire on Expiration Fridays will
prevent continued trading in a product after the exercise settlement
value has been fixed, thereby mitigating potential investor confusion
and the potential for increased costs to investors as a result of
potential pricing divergence at the end of the trading day. This is
consistent with the trading hours on the last trading day for
transactions in other p.m.-settled options, including SPX and XSP
options.\28\
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\28\ As noted above, while the proposed rule change amends this
Rule only with respect to p.m.-settled SPEQF and SPEQF options that
expire on Expiration Friday, on their last trading [sic], Regular
Trading Hours for all expiring p.m.-settled SPEQF and SPEQX options
with all permissible expirations (including Nonstandard Weekly and
End-of-Month Expirations and QIXs) will end at 4:00 p.m.
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The Exchange represents that it has the necessary systems capacity
to support the proposed new option series given [sic]. The Exchange
believes that its existing surveillance and reporting safeguards
(including with respect to p.m.-settled index option series) in place
are adequate to deter and detect possible manipulative behavior which
might arise from listing and trading p.m.-settled SPEQF and SPEQX
options (as the Exchange currently applies to other p.m.-settled broad-
based index options, including SPX and XSP options with the same
expirations) and will support the protection of investors and the
public interest.\29\ 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 information from
its affiliated markets, the Exchange would be able to obtain
information from other markets through ISG. In addition, Cboe has a
Regulatory Services Agreement with the Financial Industry Regulatory
Authority (``FINRA'') for certain market surveillance, investigation
and examinations functions. Pursuant to a multi-party 17d-2 joint plan,
all options exchanges allocate amongst themselves and FINRA
responsibilities to conduct certain options-related market surveillance
that are common to rules of all options exchanges.\30\ The Exchange
further notes that current Exchange Rules that apply to the trading of
other p.m.-settled index options traded on the Exchange,
[[Page 22792]]
such as SPX and XSP options, would also apply to the trading of p.m.-
settled SPEQF and SPEQX options, such as, for example, Exchange Rules
governing customer accounts, margin requirements, position and exercise
limits,\31\ and trading halt procedures, which are designed to prevent
fraudulent and manipulative acts.
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\29\ The surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close).
\30\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``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. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. 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 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.
\31\ As noted above, pursuant to current Rules, the position and
exercise limits for SPEQF and SPEQX options are 25,000 contracts.
The Exchange has a separate rule filing pending to eliminate
position limits for SPEQF and SPEQX options (other broad-based index
options, including SPX and XSP options, currently have no position
limits). See Securities Exchange Act Release No. 102720 (March 25,
2025), 90 FR 14297 (March 31, 2025) (SR-CBOE-2025-020). If the
Commission separately approves that filing, then SPEQF and SPEQX
options (including those proposed in this rule filing) would have no
position limits. Other rules regarding position and exercise limits
would continue to apply. For example, Rule 8.35(b) requires Trading
Permit Holders to report certain information regarding FLEX
positions in FLEX index options that are subject to no position
limits if they maintain in excess of 100,000 contracts in those
options. Additionally, Rule 8.43 imposes various reporting
obligations with respect to options (including index options), even
for index options subject to no position limits.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because p.m.-settled SPEQF and SPEQX options that
expire on Expiration Fridays, with Nonstandard Expirations, and QIXs
will be equally available to all market participants via Cboe Trading
Permit Holders who wish to trade such options. Additionally, the
proposed trading hours for expiring options on their expiration dates
will be the same for all market participants. The Exchange does not
believe the proposed rule change will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act, because p.m.-settlement with these expirations
(and the trading hours for expiring options on their expiration dates)
are consistent with those of similar index products, such as SPX and
XSP options (which overlie an index comprised of the same components)
and competitive products.\32\ Additionally, options on equities,
including options on certain ETFs that track the S&P 500 Index and the
S&P 500 Equal Weight Index, are p.m.-settled. To the extent that the
advent of p.m.-settled SPEQF and SPEQX options trading on the Exchange
makes the Exchange a more attractive marketplace to market participants
at other exchanges, such market participants are free to elect to
become market participants on the Exchange.
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\32\ See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12(a)(6)
(permitting p.m. settlement for options on the Nasdaq-100 and
Nasdaq-100 Micro Indexes that expire on Expiration Fridays).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written comments on the
proposed rule change.
IV. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal, as modified and superseded by Amendment No. 1 (``Amended
Proposal''), is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\33\ In particular, the Commission finds that the Amended
Proposal is consistent with Section 6(b)(1) of the Act,\34\ which
requires, among other things, that the Exchange be so organized and
have the capacity to be able to carry out the purposes of the Act and
to enforce compliance by its members and persons associated with its
members with the provisions of the Act, Commission rules and
regulations thereunder, and its own rules; and Section 6(b)(5) of the
Act,\35\ which requires that the proposal 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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\33\ 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).
\34\ 15 U.S.C. 78f(b)(1).
\35\ 15 U.S.C. 78f(b)(5).
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The Amended Proposal does not raise unique regulatory concerns.
Options on broad-based indexes with p.m. settlement and third Friday-
of-the-month, nonstandard, and quarterly expirations are not novel. The
Exchange's rules already permit, for certain broad-based index options,
including SPX and XSP options, the listing of p.m.-settled series with
third Friday-of-the-month, nonstandard, and quarterly expirations, as
well as trading days and hours that are the same as would apply to
p.m.-settled SPEQF and SPEQX options.\36\ P.M.-settled SPEQF and SPEQX
options with third Friday-of-the-month, nonstandard, and quarterly
expirations also would be subject to the same rules that presently
govern the trading of all index options on the Exchange, including,
among others, rules governing customer accounts, sales practices,
margin requirements, and trading practices, which are designed to
protect investors and prevent fraudulent and manipulative acts.\37\ In
addition, the constituents of the S&P 500 Index and S&P 500 Equal
Weight Index are the same.\38\ As such, the Amended Proposal would not
expose any index constituents to options trading with p.m. settlement
and third Friday-of-the-month, nonstandard, and quarterly expirations
that are not already exposed to such settlement and expirations in the
SPX and XSP classes. Moreover, other options exchanges permit the
listing and trading of certain broad-based index options with p.m.
settlement and third Friday-of-the-month, nonstandard, and quarterly
expirations.\39\ Further, already available in the marketplace are
futures contracts overlying the S&P 500 Equal Weight Index and an ETF
(RSP) that is designed to track the S&P 500 Equal Weight Index, which
could be important hedging instruments for market makers and other
market participants that establish positions in p.m.-settled SPEQF and
SPEQX options.\40\
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\36\ See supra Section III. The generic listing standards for
broad-based index options require a.m. settlement. See, e.g.,
Exchange Rule 4.10(f). Accordingly, the listing of a class of broad-
based index options with nonstandard expirations and p.m. settlement
pursuant to Exchange Rule 4.13(e) requires the filing of a proposed
rule change to that effect for the specific broad-based index
option, which proposed rule change must be approved by the
Commission under Section 19(b) of the Act. See supra note 8.
\37\ Id.
\38\ Id.
\39\ See, e.g., Nasdaq ISE, LLC Options 4A, Section 12 and
Supplementary Material (Nasdaq-100 Index options); MIAX Rule 1809
and Interpretation and Policies (Bloomberg 500 Index options).
\40\ See supra Section III. According to the Exchange, the
Chicago Mercantile Exchange launched the S&P 500 Equal Weight Index
futures product over a year ago, and it is an established product on
that exchange. The Exchange also points out that the futures product
often used to hedge SPX options trades on that same market. Id.
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Permitting the trading of options on an index of securities enables
investors to participate in the price movements of the index's
underlying securities and allows investors holding positions in some or
all such securities to hedge the risks associated with their
portfolios. The Exchange's proposal to permit the listing and trading
of SPEQF and
[[Page 22793]]
SPEQX options with p.m. settlement and third Friday-of-the-month,
nonstandard, and quarterly expirations could benefit investors by
providing them with additional investment and hedging alternatives on a
broad-based index that offers exposure to the U.S. equities market.
Specifically, each constituent in the S&P 500 Equal Weight Index is
allocated a fixed weight rather than, as is the case for S&P 500 Index
constituents, a capitalization weight.\41\ In light of this difference,
the Amended Proposal could provide market participants with alternative
tools to manage their risk and diversify their exposure to the stocks
comprising the S&P 500 Index. P.M.-settled SPEQF and SPEQX options with
the expirations set forth in the Amended Proposal could permit market
participants to gain broad exposure to S&P 500 Index component stocks
using options that would be less impacted by a shift in concentration
and market momentum. Because capitalization-weighted indexes such as
the S&P 500 Index are more impacted by larger capitalized stocks,
options overlying an equal-weighted index, such as SPEQX and SPEQF
options, could enable investors to hedge against potential price swings
in the largest stocks comprising the S&P 500 Index while maintaining
the ability to hedge across the entire span of S&P 500 constituent
securities.
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\41\ Id.
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Furthermore, the availability of p.m.-settled SPEQF and SPEQX
options with third Friday-of-the-month, nonstandard, and quarterly
expirations could benefit investors and remove impediments to a free
and open market by allowing market participants to establish option
positions in a manner more aligned with each individual participant's
specific timing needs and to roll a participant's positions on more
trading days, which may enable the market participant to more precisely
spread risk across more trading days and incorporate daily changes in
the markets. Because the proposed p.m. settlement feature would permit
trading in SPEQF and SPEQX options throughout the expiration day,
market participants should be able to trade out of their positions up
until the time the contract settles, which could permit market
participants to more effectively manage overnight risk and reduce
residual risk on the day of expiration.
The Commission has considered the potential for adverse market
impact presented by the Amended Proposal in the underlying cash markets
as well as the markets for linked products, including in light of the
fact that the constituent securities of the S&P 500 Equal Weight Index
and S&P 500 Index are the same. The Commission believes that the
significant liquidity of these constituent securities should help
mitigate against such potential for adverse market impact. The
constituent securities underlying SPEQF and SPEQX options (as well as
SPX and XSP options) must be significantly liquid to satisfy the
Exchange's listing and maintenance criteria in Exchange Rule 4.10(f)
and (g).\42\ The Commission believes that the satisfaction of these
requirements helps demonstrate that the constituent securities and
linked products, such as E-mini S&P 500 Equal Weight Index futures and
RSP, would not be materially impacted by additional derivative pressure
resulting from the listing of SPEQF and SPEQX options as proposed in
the Amended Proposal.\43\
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\42\ Id.
\43\ Id.
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Relatedly, and importantly, the Exchange has committed to providing
specific data on an annual basis for five years following the initial
listing of p.m.-settled SPEQF and SPEQX options series.\44\ This data
will be coupled with analysis by the Exchange, and the Exchange
represents that it will provide the Commission with any additional data
and analysis that the Commission requests during this five-year period
if the Commission deems such data to be necessary for purposes of its
evaluation of any potential impact the listing of the proposed options
has on the market.\45\ The Exchange also has committed to make all of
this data analysis available in machine-readable format and publicly on
its website.\46\ These Exchange commitments are designed to protect
investors and the public interest, as they should provide the
Commission with data and analysis that sheds light on the development
of the market for p.m.-settled SPEQF and SPEQX options and enables the
Commission to monitor for and assess any potential adverse market
effects arising from the trading of such options.
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\44\ Id.
\45\ Id.
\46\ Id.
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The Commission also believes that the potential risks of trading
p.m.-settled SPEQF and SPEQX options with third Friday-of-the-month,
nonstandard, and quarterly expirations are mitigated by the Exchange's
surveillances mechanisms, consistent with Sections 6(b)(1) and 6(b)(5)
of the Act.\47\ The Exchange represents that its existing surveillance
and reporting safeguards (including with respect to p.m.-settled index
option series) in place are adequate to deter and detect possible
manipulative behavior which might arise from listing and trading p.m.-
settled SPEQF and SPEQX options and will support the protection of
investors and the public interest.\48\ Additionally, the Exchange is a
member of ISG, whose members work together to coordinate surveillance
and investigative information sharing in the stock, options, and
futures markets.\49\ Further, the Exchange has a Regulatory Services
Agreement with FINRA for certain market surveillance, investigation and
examinations functions.\50\ And pursuant to a multi-party Rule 17d-2
joint plan, all options exchanges allocate amongst themselves and FINRA
responsibilities to conduct certain options-related market surveillance
that are common to rules of all options exchanges.\51\
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\47\ 15 U.S.C. 78f(b)(1), 78f(b)(5).
\48\ Id.
\49\ Id.
\50\ Id.
\51\ Id.
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In light of the foregoing, the Commission believes that the Amended
Proposal is consistent with Sections 6(b)(1) and 6(b)(5) of the
Act.\52\
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\52\ 15 U.S.C. 78f(b)(1), 78f(b)(5).
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V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2025-022 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CBOE-2025-022 on the
subject line. 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
[[Page 22794]]
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-CBOE-2025-022 on the subject line, and should be submitted on or
before June 20, 2025.
VI. Accelerated Approval of Proposed Rule Change, as Modified and
Superseded by Amendment No. 1
The Commission finds good cause to approve the Amended Proposal
prior to the 30th day after the date of publication of Amendment No. 1
in the Federal Register. Amendment No. 1 does not change the original
purpose of the proposal, which was, and remains under Amendment No. 1,
to permit the Exchange to list and trade p.m.-settled SPEQF and SPEQX
options with third Friday-of-the-month, nonstandard and quarterly
expirations. In addition, the original proposal has been subject to
public comment and no comments have been received.
Amendment No. 1 sets forth additional support for and detail
regarding the original filing, and clarifies certain rule text
provisions.\53\ Among other things, Amendment No. 1 clarifies that
p.m.-settled SPEQF and SPEQX options will trade in the same manner as
and be subject to the same Exchange Rules that apply to other p.m.-
settled index options that trade on the Exchange. In addition,
Amendment No. 1 includes the Exchange's commitment to provide data and
accompanying analysis of such data, annually or upon Commission
request, for a period of five years following the initial listing of
p.m.-settled SPEQF and SPEQX options series to permit evaluation of any
impact of these options on the component securities that comprise the
underlying index, as well as other linked markets. The Commission
believes that Amendment No. 1, without altering the purpose of the
original proposal, strengthens the original proposal by providing
additional clarity, support, and data commitments, as explained above
and set forth fully in Sections II and III above.
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\53\ Amendment No. 1 corrects a prior, inadvertent deletion of
language from Exchange Rule 4.13, Interpretation and Policy .13, by
clarifying that that provision applies specifically to p.m.-settled
index options that expire on the third Friday-of-the-month. See
supra note 6.
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The Commission therefore finds that Amendment No. 1 raises no novel
regulatory issues that have not previously been subject to comment and
is reasonably designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. Accordingly,
pursuant to Section 19(b)(2) of the Act,\54\ the Commission finds good
cause to approve the Amended Proposal on an accelerated basis prior to
the 30th day after publication of notice of the filing of Amendment No.
1 in the Federal Register.
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\54\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\55\ that the proposed rule change (SR-CBOE-2025-022), as modified
and superseded by Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
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\55\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-09622 Filed 5-28-25; 8:45 am]
BILLING CODE 8011-01-P