[Federal Register Volume 90, Number 108 (Friday, June 6, 2025)]
[Notices]
[Pages 24180-24187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-10280]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103168; File No. SR-CBOE-2025-004]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Instituting Proceedings To
Determine Whether To Approve or Disapprove a Proposed Rule Change, as
Modified by Amendment No. 1, To Add P.M.-Settled Options on the Cboe
Bitcoin U.S. ETF Index and the Mini-Cboe Bitcoin U.S. ETF Index With
Third Friday Expirations, Nonstandard Expirations, and Quarterly Index
Expirations
June 2, 2025.
I. Introduction
On February 14, 2025, Cboe Exchange, Inc. (``Exchange'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to add P.M.-
settled options on the Cboe Bitcoin U.S. ETF Index (``CBTX'') and the
Mini-Cboe Bitcoin U.S. ETF Index (``MBTX'') with third Friday
expirations, nonstandard expirations, and quarterly index expirations.
The proposed rule change was published for comment in the Federal
Register on March 5, 2025.\3\ On April 16, 2025, the Commission
designated a longer period within which to take action on the proposed
rule change.\4\ On April 22, 2025, the Exchange filed Amendment No. 1
to the proposed rule change, described in Item
[[Page 24181]]
II below, which Item has been prepared by the Exchange.\5\ Amendment
No. 1 superseded the original proposed rule change in its entirety.
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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. 102502 (Feb. 27,
2025), 90 FR 11343. The Commission has not received any comments.
\4\ See Securities Exchange Act Release No. 102870, 90 FR 16894
(Apr. 22, 2025) (designating June 3, 2025, as the date by which the
Commission shall either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
\5\ The full text of Amendment No. 1 is available on the
Commission's website at https://www.sec.gov/comments/sr-cboe-2025-004/srcboe2025004.htm.
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The Commission is publishing this notice and order to solicit
comments on the proposed rule change, as modified by Amendment No. 1,
from interested persons and to institute proceedings pursuant to
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
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\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rules 4.13, 5.1, and 8.32. First,
the Exchange proposes to amend Rule 4.13(e), which governs its
Nonstandard Expirations Program (``Program''), to permit P.M.-settled
options on the Cboe Bitcoin U.S. ETF Index (``CBTX'') and the Mini-Cboe
Bitcoin U.S. ETF Index (``MBTX'') that expire any Monday, Tuesday,
Wednesday, Thursday, or Friday (other than the third Friday-of-the-
month (``Expiration Friday'') or days that coincide with an end-of-
month expiration) (``Weekly Expirations'') and that expire on the last
trading day of the month (``EOMs''). Currently under the Program, the
Exchange is permitted to list P.M.-settled options on any broad-based
index eligible for standard trading that expire on: (1) any Monday,
Tuesday, Wednesday, Thursday, or Friday (other than the third Friday-
of-the-month or days that coincide with an EOM expiration) and (2) the
last trading day of the month.\7\ The proposal expands the availability
of Weekly and EOM expirations to CBTX and MBTX options, which are
narrow-based index options eligible for standard options trading.\8\
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\7\ See Rule 4.13(e).
\8\ The Exchange notes these options are currently eligible for
the Monthly Options Series program pursuant to Rule 4.13(a)(2)(C),
which permits p.m.-settled options that expire on the last trading
day of the month (as do options with EOM expirations). The Exchange
proposes to make these options eligible for the EOM expirations
pursuant to the Nonstandard Expiration for consistency since the
Exchange is proposing to make these options eligible for the Weekly
Expirations, which are part of the Nonstandard Expiration Program.
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The Nonstandard Expiration Program will apply to CBTX and MBTX
options in the same manner as it currently applies to broad-based index
options. Weekly and EOM Expirations are subject to all provisions of
Rule 4.13 and treated the same as options on the same underlying index
that expire on the third Friday of the expiration month; provided,
however, that Weekly and EOM Expirations are P.M.-settled, and new
series in Weekly and EOM Expirations may be added up to and including
on the expiration date for an expiring Weekly or EOM Expiration.
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) and each EOM expiration in a given class is the same as the
maximum number of expirations permitted in Rule 4.13(a)(2) for standard
options on the same index.\9\ Weekly Expirations need not be for
consecutive Monday, Tuesday, Wednesday, Thursday, or Friday expirations
as applicable; however, the expiration date of a nonconsecutive
expiration may not be beyond what would be considered the last
expiration date if the maximum number of expirations were listed
consecutively. Weekly Expirations that are first listed in a given
class may expire up to four weeks from the actual listing date.
Similarly, EOM expirations need not 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
may expire up to four weeks from the actual listing date. If the
Exchange lists EOMs and Weekly Expirations in a given class, the
Exchange will list an EOM 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 or EOM
Expirations for an applicable index class.
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\9\ The proposed rule change deletes the phrase ``broad-based''
in several places in Rule 4.13(e), as the proposal would result in
the provisions within that Rule applying to indexes that are not
broad-based. These administrative changes merely accommodate the
proposed expansion of the Nonstandard Expiration Program. The
Exchange is not proposing to expand the Nonstandard Expiration
Program to narrow-based indices generally, but rather only to MBTX
and CBTX options.
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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 on an index 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. In addition, pursuant to
Rule 4.13(e)(3), transactions in expiring index options with Weekly and
EOM Expirations may be effected on the Exchange between the hours of
9:30 a.m. and 4:00 p.m. on their last trading day (Eastern Time).
Second, the Exchange proposes to amend Rule 4.13(c), which governs
quarterly index expirations (``QIXs''), to add CBTX and MBTX options to
the list of options in Rule 4.13(c) that are eligible for quarterly
index expirations (``QIXs''), which are currently available for options
on the S&P 100 Index (``OEX options'') S&P 500 Index (``SPX options''),
Mini-S&P 500 Index (``XSP options''), the Russell 2000 Index (``RUT
options''), and Mini-Russell 2000 Index (``MRUT options'').\10\
Pursuant to Rule 4.13(c), there may be up to eight near-term quarterly
expirations open for trading in a class and these options will be P.M.-
settled. The QIX program will apply to CBTX and MBTX options in the
same manner as it currently applies to the other options currently
eligible for those expirations. QIXs are subject to all provisions of
Rule 4.13 and treated the same as options on the same underlying index
that expire on the third Friday of the expiration month, except that
QIXs, are P.M.-settled.
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\10\ The Exchange notes CBTX and MBTX options are currently
eligible for the Quarterly Options Series program pursuant to Rule
4.13(a)(2)(B), which permits P.M.-settled options that expire on the
last trading day of the quarter (as do QIXs). The Exchange proposes
to make these options eligible for QIXs for consistency, since QIXs
are currently available for certain index options available for
trading on the Exchange (which options are also eligible for the
Nonstandard Expirations Program).
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[[Page 24182]]
Third, the Exchange proposes to amend Rule 4.13, Interpretation and
Policy .13, to permit the listing of P.M.-settled CBTX and MBTX options
that expire on Expiration Fridays. Currently, pursuant to Rule 4.13,
Interpretation and Policy .13, the Exchange is permitted to list P.M.-
settled SPX options, XSP options, RUT options, and MRUT options that
expire on Expiration Fridays. Combined with the proposed rule change
above to permit the Exchange to list P.M.-settled CBTX and MBTX options
with Weekly Expirations, the Exchange would be permitted to list P.M.-
settled CBTX and MBTX options with expirations on all Fridays (in
addition to all other days of the week). CBTX and MBTX options that are
P.M.-settled and expire on Expiration Fridays are subject to all
provisions of Rule 4.13 and treated the same as A.M.-settled CBTX and
MBTX options, except that they are P.M.-settled.
Finally, the Exchange proposes to amend Rule 5.1, which governs
trading days and hours, in conjunction with the proposed addition of
CBTX and MBTX options that are P.M.-settled and expire on Expiration
Friday. Rule 5.1(b)(2)(C) currently provides that on their last trading
day, Regular Trading Hours for index options with Nonstandard
Expirations, as well as expiring P.M.-settled SPX, XSP, RUT, and MRUT
options, may be effected on the Exchange between 9:30 a.m. and 4:00
p.m. Eastern Time \11\ (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
CBTX and MBTX P.M.-settled options.\12\ The primary listing markets for
the component securities that comprise the Cboe Bitcoin U.S. ETF Index
and the Mini-Cboe Bitcoin U.S. ETF 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, Mini-S&P 500, Russell
2000, and Mini-Russell 2000 Indexes close trading at 4:00 p.m. 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 these indexes. 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 CBTX and MBTX P.M.-
settled options 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. 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 CBTX and MBTX P.M.-Settled options at 4:00 p.m., as it already
does for expiring P.M.-settled SPX, XSP, 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.\13\ The Exchange does not believe that the
proposed rule change will impact volatility on the underlying cash
market comprising the Cboe Bitcoin U.S. ETF Index and the Mini-Cboe
Bitcoin U.S. ETF Index at the close on Expiration Fridays, as it
already closes trading on the last trading day for expiring P.M.-
settled index options at 4:00 p.m., which the Exchange does not believe
has had an adverse impact on fair and orderly markets on Expiration
Fridays for the underlying securities comprising the corresponding
indexes.\14\
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\11\ See Rule 1.6, which states that unless otherwise specified,
all times in the Rules are Eastern Time.
\12\ Current Rule 5.1(b)(2)(C) would apply to CBTX and MBTX
options with Nonstandard Expirations and QIXs, as proposed;
therefore, the addition of CBTX and MBTX P.M.-settled options to the
list of options set forth in this Rule covers these options that
expire on Expiration Fridays.
\13\ 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''); and
91067 (February 5, 2021), 86 FR 9108 (February 11, 2021) (SR-CBOE-
2020-116) (``MRUTPM Pilot Approval Order'').
\14\ 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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As noted above, the Exchange may currently list P.M.-settled CBTX
and MBTX options with expirations on the last calendar of the month and
quarter.\15\ As a result, it is already possible for CBTX and MBTX
options to be P.M.-settled and to expire on any day of the week (as the
end of the month or the end of a quarter may fall on any day of the
week). The Exchange also already allows CBTX and MBTX options to expire
on Thursdays for normally Friday expiring options when the Exchange is
not open for business on a respective Friday. Further, CBTX and MBTX
options are available for FLEX trading pursuant to Rule 4.20, and thus,
users may select expiration dates for these FLEX options for any day of
the week and may select p.m.-settlement.
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\15\ See Rule 4.13(a)(2)(C) and (B), respectively.
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The Exchange believes that the introduction of Weekly Expirations
and Expiration Friday expirations that are P.M.-settled for CBTX and
MBTX will provide market participants with additional hedging tools and
greater trading opportunities, regardless of in which index option
market they participate. By offering expanded expirations along with
the current standard A.M.-settled expirations (as well as P.M.-settled
monthly and quarterly expirations), the proposed rule change will allow
market participants to purchase options on CBTX and MBTX available for
trading on the Exchange in a manner more aligned with specific timing
needs (such as to hedge special events) and more effectively tailor
their investment and hedging strategies and manage their portfolios. In
particular, the proposed rule change will allow 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.
For example, the Exchange believes that market participants may be
paying for more protection than needed if they are seeking to hedge
weekend or special event risk that occurs. Therefore, the Exchange
believes that P.M.-settled daily expirations (including on all Fridays)
would allow market participants to purchase an option based on their
needed timing and allow them to tailor their investment or hedging
needs more effectively. In addition, because P.M.-settlement permits
trading throughout the day on the day the contract expires, the
Exchange believes this will permit market participants to more
effectively manage overnight risk and trade out of their positions up
until the time the contract settles.
The Exchange believes there is sufficient investor interest and
demand in Weekly Expirations and Expiration Friday P.M.-settled
expirations for CBTX and MBTX options to warrant inclusion in the
Program and in the Rules, and that the Program and the Rules, as
amended, will continue to provide investors with additional means of
managing their risk exposures and carrying out their investment
objectives.\16\
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\16\ The Exchange currently may list Weekly and EOM Expirations
for any broad-based index option pursuant to the Program, and lists
Expiration Friday P.M.-settled expirations pursuant to the Rules,
for SPX, XSP, RUT, and MRUT.
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[[Page 24183]]
With regard to the impact of this proposal on system capacity, the
Exchange has analyzed its capacity and represents that it believes that
the Exchange and OPRA have the necessary systems capacity to handle any
potential additional traffic associated with trading of P.M.-settled
Weekly and Expiration Friday expirations for CBTX and MBTX options. The
Exchange does not believe that its Trading Permit Holders (``TPHs'')
will experience any capacity issues as a result of this proposal and
represents that it will monitor the trading volume associated with any
possible additional CBTX and MBTX options series listed as a result of
this proposal and the effect (if any) of these additional series on
market fragmentation and on the capacity of the Exchange's automated
systems.
In addition to this, the Exchange believes that its existing
surveillance and reporting safeguards in place are adequate to deter
and detect possible manipulative behavior which might arise from
listing and trading CBTX and MBTX P.M.-Settled options with Weekly
Expirations or Expiration Friday expirations (as the Exchange currently
applies these to CBTX and MBTX options that are P.M.-settled with
monthly and quarterly expirations) and will support the protection of
investors and the public interest. Furthermore, the trading of CBTX and
MBTX options with Weekly and P.M.-settled Expiration Friday expirations
will be subject to the same rules that currently govern the trading of
these options with other expirations, including governing customer
accounts, position and exercise limits,\17\ margin requirements and
trading halt procedures, among other Rules, which are designed to
prevent fraudulent and manipulative acts and practices.
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\17\ The proposed rule change amends Rule 8.32(f) to provide
that positions in Nonstandard Expiration Program series will be
aggregated with positions in options contracts in the same index
class. Therefore, CBTX and MBTX options positions that have
Nonstandard Expirations will be aggregated for purposes of position
limits with positions in CBTX and MBTX options, respectively with
other expirations (including short-term, monthly, and quarterly
expirations). This is consistent with the treatment of positions for
purposes of position limits for other classes that participate in
the Nonstandard Expiration Program. See Rule 8.31(b). Pursuant to
Rule 8.42(b), which provides that the exercise limits for index
options (including CBTX and MBTX options) are equivalent to the
position limits set forth in Rule 8.32. Pursuant to Rule 8.32(a) and
8.42(b), the current position and exercise limits for CBTX and MBTX
options are 24,000 contracts (and may not be more than 31,500
without rule changes). Therefore, investors would not be able to
maintain significant open interest in these options, which may
further prevent investors from being able to impact the value of the
index.
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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.\18\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ 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 facilitation
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) \20\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
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In particular, the Exchange believes that the proposed rule change
will 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. The Exchange believes that the
introduction of P.M.-settled Weekly and Expiration Friday expirations
for CBTX and MBTX options (rather than offering those expirations for
just broad-based indexes) will provide investors with expanded hedging
tools and greater trading opportunities and flexibility in additional
index option markets.\21\ As a result, investors will have additional
means to manage their risk exposures and carry out their investment
objectives. By offering expanded expirations for CBTX and MBTX options
(along with the currently available P.M.-settled monthly and quarterly
options and standard A.M.-settled options), the proposed rule change
will allow market participants to purchase options on two additional
index options available for trading on the Exchange in a manner more
aligned with specific timing needs and more effectively tailor their
investment and hedging strategies and manage their portfolios. For
example, the proposed rule change will allow market participants to
roll their positions in CBTX and MBTX options 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 represents that it believes
that it has the necessary systems capacity to support any additional
traffic associated with trading of CBTX and MBTX options with Weekly
and Expiration Friday (P.M.-settled) expirations and does not believe
that its TPHs will experience any capacity issues as a result of this
proposal.
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\21\ CBTX and MBTX options may already be listed with P.M.-
settlement and expirations on the last calendar day of the month or
quarter pursuant to Rule 4.13(a)(2)(C) and (B), respectively;
therefore, the additional series that this proposed rule would
permit to be listed are P.M.-settled Weeklys and Expiration Friday
expirations. The proposed rule change merely adds these options to
different programs within the Rules that permit these same
expirations for consistency within the Rules.
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The Exchange does not believe that the addition of CBTX and MBTX
options to the Nonstandard Expirations Program, to the P.M.-settled
Expiration Friday program, or the QIX program will raise any
prohibitive regulatory concerns, nor adversely impact fair and orderly
markets on expiration days. The Exchange has not experienced any
meaningful regulatory concerns, nor adverse impact on fair and orderly
markets, in connection with these programs, nor with the listing of
CBTX and MBTX options that are P.M.-settled and expire on the last
calendar day of the month and quarter (as the Exchange currently does)
and is unaware of any reason why adding P.M.-settled options with
expirations each day of the week for CBTX and MBTX options (which
overlie a narrow-based index rather than a broad-based index) would be
create such concerns or impact. Particularly, the Exchange does not
believe increases in the number of P.M.-settled options series and
expirations will have any significant adverse economic impact on the
futures, index, or underlying index component securities markets (the
Exchange notes there are currently no futures or securities futures
listed on the underlying indexes). The Exchange believes that the
proposed rule change will provide investors with greater trading and
hedging opportunities and flexibility, allowing them to transact in
CBTX and MBTX options in a manner more aligned with specific timing
needs and more effectively tailor their investment and hedging
objectives by listing these options that expire each trading day of the
week, in addition to
[[Page 24184]]
options that expire at the end of calendar month and quarter (which, as
noted above, the Exchange may already do pursuant to separate listing
programs in the Rules).
As also discussed above, the Exchange already lists P.M.-settled
CBTX and MBTX options that expire on the last calendar day of the month
and quarter; the proposed rule change merely permits these listings to
occur under different programs within the Rules for consistency within
the Exchange's Rules.\22\ Therefore, it is already possible for CBTX
and MBTX options to be P.M.-settled and to expire on any day of the
week (as the end of the month or the end of a quarter may fall on any
day of the week). The Exchange also already allows CBTX and MBTX
options to expire on Thursdays for normally Friday expiring options
when the Exchange is not open for business on a respective Friday.
Further, CBTX and MBTX options are available for FLEX trading pursuant
to Rule 4.20, and thus, users may select expiration dates for these
FLEX options for any day of the week and may select p.m.-settlement.
The Exchange has observed no significant adverse economic impact on the
futures, index, or underlying index component securities markets as a
result of these listings.
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\22\ For example, it may be confusing to list Weeklys under the
Nonstandard Expirations Program but monthlys under the Monthly
program rather than the Nonstandard Expirations Program. As
proposed, all index options the Exchange lists with expirations
other than Expiration Fridays would be eligible for those
expirations under the same programs.
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The Commission previously recognized that listing P.M.-settled
index options with Weekly Expirations and Expiration Friday expirations
(in addition to EOM Expirations (which would include expirations on the
last day of calendar quarters)) was consistent with the Act.\23\ The
Commission noted that expirations in those index options would ``offer
additional investment options to investors and may be useful for their
investment or hedging objectives. . . .'' \24\ The Exchange also notes
it previously listed P.M.-settled broad-based index options with
Weekly, EOM, and Expiration Friday expirations pursuant to pilot
programs, so the Commission could monitor the impact of P.M.-settlement
of cash-settled index derivatives on the underlying cash markets (while
recognizing that these risks may have been mitigated given enhanced
closing procedures in use in the primary equity markets); however, the
Commission approved proposed rule changes to make those pilot programs
permanent. The Commission noted that the data it reviewed in connection
with the pilot demonstrated that these options ``benefitted investors
and other market participants by providing more flexible trading and
hedging opportunities while also having no disruptive impact on the
market'' and were thus consistent with the Act.\25\ The proposed rule
change is consistent with these findings, as it will benefit investors
and other market participants that participate in the markets for
additional index options in the same manner by providing them with more
flexible trading and hedging opportunities.
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\23\ See Securities Exchange Act Release Nos. 98454 (September
20, 2023), 88 FR 66103 (September 26, 2023) (SR-CBOE-2023-005)
(``SPXPM Permanent Approval Order''); 98455 (September 20, 2023), 88
FR 66073 (September 26, 2023) (SR-CBOE-2023-019) (``XSPPM and MRUTPM
Permanent Approval Order'') (the Exchange initially listed P.M.-
Settled SPX, XSP, and MRUT options that expire on Expiration Fridays
pursuant to pilot programs, so the Commission could monitor the
impact of P.M. settlement of cash-settled index derivatives on the
underlying cash markets (while recognizing that these risks may have
been mitigated given enhanced closing procedures in use in the
primary equity markets); 94682 (April 12, 2022), 87 FR 22993, 22994
(April 18, 2022) (SR-CBOE-2022-005) (approval of proposed rule
change to list P.M.-settled SPX options that expire on Tuesdays and
Thursdays) (``Daily SPX Option Approval''); and 95795 (September 15,
2022), 87 FR 57745, 57746 (September 21, 2022) (SR-CBOE-2022-039)
(approval of proposed rule change to list P.M.-settled XSP options
that expire on Tuesdays and Thursdays) (``Daily XSP Option
Approval'').
\24\ See Daily SPX Option Approval at 22995; and Daily XSP
Option Approval at 57746.
\25\ See SPXPM Permanent Approval Order at 66106; and XSPPM and
MRUTPM Permanent Approval Order at 66076 (citing data the Commission
reviewed in connection with the pilot programs).
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Further, the Exchange believes P.M.-settlement is appropriate for
this CBTX and MBTX options because they trade within a complex where,
in addition to the underlying components, there are multiple other
highly correlated instruments that all hold Bitcoin available for
hedging (e.g., options on the components, shares of other ETFs that
hold Bitcoin, Bitcoin futures). This reduces the risk that listing
these options would strain liquidity providers. Further, the size of
the markets of the underlying components,\26\ the weighting of the
components, and the high correlation of these components makes it
unlikely the proposed rule change would materially impact the component
markets, the index value, or the broader market.
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\26\ The assets under management of the index components range
from $130 million to $48 billion as of April 15, 2025. Additionally,
the narrow-based listing criteria pursuant to which these index
options are listed impose various requirements on the component
securities related to the market capitalization and liquidity, which
further reduce the risk that the markets for the components would be
impacted by additional derivatives. For example, pursuant to Rule
4.10(b): (1) the market capitalization for the lowest-weighted
component securities in the index that in the aggregate account for
no more than 10% of the weight of the index must be at least $50
million, and the market capitalization of all other components must
be at least $75 million; (2) the trading volume in each component
must be at least 1,000,000 shares for each of the last six months
(from October 2024 through March 2025, the lowest monthly trading
volume for a component was over 1.5 million shares), except that for
each of the lowest-weighted component securities in the index that
in the aggregate account for no more than 10% of the weight the
index, the trading volume must be at least 500,000 shares for each
of the last six months); and (3) no single component security may
represent more than 25% of the weight of the index, and the five
highest-weighted component securities in the index may not in the
aggregate account for more than 50% (60% for an index consisting of
fewer than 25 component securities) of the weight of the index.
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As is the case for options on broad-based indexes, the Exchange
does not believe the listing of additional P.M.-settled CBTX and MBTX
options (which are narrow-based index options) will have any
significant economic impact (such as on market quality or volatility)
on the component securities underlying the index surrounding the close
as a result of expiring p.m.-settled options or impact market quality.
This is based on the data provided to and reviewed by the Commission
(and the Commission's own conclusions based on that review, as noted
above) and due to the significant changes in closing procedures in the
decades since index options moved to a.m.-settlement.\27\ The Exchange
believes the potential for any such impact is not only no greater for
narrow-based indexes than broad-based indexes, but is less likely for
narrow-based indexes such as CBTX and MBTX, as the indexes underlying
such options are by definition not representative of an entire market
(as is the case for options on the S&P 500 Index). Therefore, any
potential impact would be limited in scope (as noted above, the
Commission found no material impact with respect to P.M.-settled broad-
based index options), unlike for a broad-based index, which would
impact the market as a whole. Therefore, because, as noted above, the
Commission found no material impact with respect to broad-based index
options, the Exchange believes that it is reasonable that no material
impact would occur with respect to CBTX and MBTX options for the
reasons described above (including the high correlation of the
component securities and the availability of multiple highly correlated
instruments for hedging). The narrow scope of
[[Page 24185]]
narrow-based indexes aligns closer to the scope of equity options
(which are P.M.-settled, such as the options overlying certain of the
Bitcoin ETFs that comprise the index underlying CBTX and MBTX options).
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\27\ See id.
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Further, the index underlying CBTX and MBTX options satisfies the
generic listing criteria in Rule 4.10(b). Upon approval of those
listing criteria, the Commission noted that these generic standards
were reasonably designed to ensure the protection of investors and the
public interest and to ensure that the trading markets for the
components were adequately capitalized and sufficiently liquid, and
that no one component dominated the index, thus minimizing the
potential for manipulation.\28\ This listing criteria includes the
following:
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\28\ See Securities Exchange Act Release No. 34157 (June 3,
1994), 59 FR 30062 (June 10, 1994) (SR-Amex-92-35, SR-CBOE-93-59,
SR-NYSE-94-17, SR-PSE-94-07, and SR-Phlx-94-10). The Commission made
substantially similar findings with respect to generic listing
criteria for broad-based index options. See Securities Exchange Act
Release No. 53266 (February 9, 2006), 71 FR 8321 (February 16, 2006)
(SR-CBOE-2005-59) (the Commission noted that the listing criteria
were ``designed to ensure that the markets for the index's component
stocks are adequately capitalized and sufficiently liquid, and that
no one stock dominates the index'' and thus ``minimize the potential
for manipulating the underlying index'').
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each component security has a market capitalization of at
least $75 million, except that for each of the lowest weighted
component securities in the index that in the aggregate account for no
more than 10% of the weight of the index, the market capitalization is
at least $50 million;
trading volume of each component security has been at
least one million shares for each of the last six months, except that
for each of the lowest weighted component securities in the index that
in the aggregate account for no more than 10% of the weight of the
index, trading volume has been at least 500,000 shares for each of the
last six months;
in a capitalization-weighted index or a modified
capitalization-weighted index, the lesser of the five highest weighted
component securities in the index or the highest weighted component
securities in the index that in the aggregate represent at least 30% of
the total number of component securities in the index each have had an
average monthly trading volume of at least 2,000,000 shares over the
past six months;
no single component security represents more than 25% 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
50% (60% for an index consisting of fewer than 25 component securities)
of the weight of the index; and
component securities that account for at least 90% of the
weight of the index and at least 80% of the total number of component
securities in the index satisfy the requirements of Rule 4.3 applicable
to individual underlying securities.
Therefore, by satisfying the generic listing criteria for narrow-
based index options, the index underlying CBTX and MBTX options is,
like broad-based indexes, designed to minimize the potential for
manipulation, further reducing any potential concerns associated with
P.M.-settlement.
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 P.M.-
settled CBTX and MBTX options will prevent continued trading on 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.
Finally, the Exchange believes the proposed rule change that
Nonstandard Expiration Program series of CBTX and MBTX options will be
aggregated with other options within those classes for purposes of
position (and exercise) limits is designed to prevent fraudulent and
manipulative acts and practices and to promote just and equitable
principles of trade, and thus protect investors. This proposed
aggregation is consistent with the treatment of positions for purposes
of position (and exercise) limits for other classes that participate in
the Nonstandard Expiration Program.\29\ Therefore, the current position
and exercise limits that apply to CBTX and MBTX options will continue
to apply, as the proposed additional expirations for these options
would have no impact on the number of positions that may be held (or
exercised) within a single account.
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\29\ See Rule 8.31(b).
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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 that 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 CBTX and
MBTX options with Weekly and Expiration Friday expirations will be
available to all market participants. By listing CBTX And MBTX options
with these expirations (in addition to the monthly, quarterly, and
standard Expiration Friday expirations (A.M.-settled) that are
currently listed), the proposed rule change will provide all investors
that participate in the markets for these index options available for
trading on the Exchange with greater trading and hedging opportunities
and flexibility to meet their investment and hedging needs, which are
already available for broad-based index options. Further, the proposed
change to make CBTX and MBTX options that are P.M.-settled and expire
on the last business day of the month or quarter eligible for listing
under different programs under the Rules will have any burden on
competition, as this proposed rule change is intended to maintain
consistency within the Rules and will result in the same series being
listed. The proposed 4:00 p.m. closing time for expiring P.M.-settled
CBTX and MBTX options on their expiration dates will apply equally to
all market participants trading these options.
The Exchange does not believe that the proposal to list P.M.-
settled CBTX and MBTX options with Weekly and Expiration Friday
expirations will impose any burden on intermarket competition that is
not necessary or appropriate in furtherance of the purposes of the Act
because these options are proprietary Exchange products. The Exchange
may currently list the same expirations for other index options, so the
proposed rule change merely expands the availability of these
expiration programs to additional products. Other exchanges offer
similar expirations for index options as well as short-term options
programs for certain equity options that expire each day of the week,
at the end of the calendar month, at the end of the calendar quarter,
and on Expiration Fridays \30\ and are welcome to similarly propose to
list options on those index or equity products with similar
expirations. To the extent that the addition of these expirations for
CBTX and MBTX options makes the Exchange a more attractive marketplace
to market participants at other exchanges, such
[[Page 24186]]
market participants are free to elect to become market participants on
the Exchange.
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\30\ See, e.g., Nasdaq PHLX, LLC Options 4A, Section 12
(permitting nonstandard expirations, including daily expirations for
Nasdaq-100 index options and Nasdaq 100-Micro index options); and
Nasdaq ISE, LLC Options 4, Section 5, Supplementary Material .03
(permitting short-term options series with daily expirations for SPY
and QQQ options).
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Additionally, CBTX and MBTX options with these expirations will
trade in the same manner as other options with these expirations
currently do.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2025-004 as Modified by Amendment No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \31\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change, as modified by Amendment No. 1. Institution of proceedings does
not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change, as modified by Amendment No. 1.
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\31\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\32\ the Commission is
providing notice of the grounds for disapproval under consideration. As
described above, the Exchange has proposed to add P.M.-settled options
on CBTX and MBTX with third Friday expirations, Weekly and EOM
expirations, and quarterly index expirations. The Commission is
instituting proceedings to allow for additional analysis of the
proposal's consistency with Section 6(b)(5) of the Act,\33\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and protect 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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\32\ See id.
\33\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \34\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\35\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\36\ The Commission is instituting
proceedings to allow for additional consideration and comment on the
issues raised herein, including as to whether the proposal is
consistent with the Act. In particular, the Commission asks commenters
to address the potential market impacts of allowing the listing and
trading of the proposed P.M.-settled options on CBTX and MBTX.
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\34\ 17 CFR 201.700(b)(3).
\35\ See id.
\36\ See id.
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposed rule change, as modified by Amendment No. 1. In
particular, the Commission invites the written views of interested
persons concerning whether the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) or any other
provision of the Act, and the rules and regulations thereunder.
Although there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4 under the Act,\37\ any request for an opportunity to make an oral
presentation.\38\
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\37\ 17 CFR 240.19b-4.
\38\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by June 27, 2025.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by July 11, 2025.
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-2025-004 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-2025-004. 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-CBOE-2025-004 and should be
submitted on or before June 27, 2025. Rebuttal comments should be
submitted by July 11, 2025.
[[Page 24187]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(57).
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Stephanie Fouse,
Assistant Secretary.
[FR Doc. 2025-10280 Filed 6-5-25; 8:45 am]
BILLING CODE 8011-01-P