[Federal Register Volume 90, Number 124 (Tuesday, July 1, 2025)]
[Notices]
[Pages 28846-28848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-12221]
[[Page 28846]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103338; File No. SR-CBOE-2025-020]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Eliminate Position and Exercise Limits for
Options on the S&P 500 Equal Weight Index and the S&P 500 Scored and
Screened Index
June 26, 2025.
I. Introduction
On March 14, 2025, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to eliminate position and exercise limits for
options that overlie the S&P 500 Equal Weight Index (based on both the
full value (``SPEQF options'') and one-tenth the value of the index
(``SPEQX options'')) and options that overlie the S&P 500 Scored and
Screened Index (formerly known as the S&P 500 ESG Index) (``SPESG
options''). The proposed rule change was published for comment in the
Federal Register on March 31, 2025.\4\ On May 9, 2025, pursuant to
Section 19(b)(2)(A)(ii)(I) of the Act,\5\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\6\ The
Commission has not received any comments on the proposal. Pursuant to
Section 19(b)(2)(B) of the Act,\7\ the Commission is hereby instituting
proceedings to determine whether to approve or disapprove the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 102720 (March 25,
2025), 90 FR 14297 (``Notice'').
\5\ See 15 U.S.C. 78s(b)(2)(A)(ii)(I).
\6\ See Securities Exchange Act Release No. 103017, 90 FR 14297
(May 15, 2025). The Commission designated June 29, 2025, as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
The Exchange is proposing to eliminate position and exercise limits
for standardized and FLEX positions in SPEQF options, SPEQX options,
and SPESG options. The current position and exercise limit for
standardized positions in each of these three options is 25,000
contracts.\8\ The current position and exercise limit for FLEX
positions in each of each of these three options is 200,000
contracts.\9\ Under the proposal, these limits would be eliminated such
that standardized and FLEX SPEQF, SPEQX and SPESG options have no
position or exercise limits.\10\
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\8\ See Notice, supra note 4, at 14298.
\9\ Id.
\10\ Id.
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In support of its proposal, the Exchange states that currently
there are no standardized or FLEX position or exercise limits for many
other broad-based index options, including options that overlie the S&P
500 Index (SPX and XSP options) and options that overlie the S&P 500
Dividend Index.\11\ The Exchange also states that the same index
components that underlie SPX and XSP options underlie SPEQF and SPEQX
options,\12\ and that each constituent of the S&P 500 Scored and
Screened Index is a constituent of the S&P 500 Index.\13\ Furthermore,
the Exchange states that FLEX SPEQF, SPEQX, and SPESG options will be
subject to the same reporting requirements triggered for other FLEX
options traded on the Exchange.\14\
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\11\ Id.
\12\ Id. The Exchange also states that, as of January 8, 2025,
the total market capitalization of the S&P 500 Index was $49.788
trillion, and the average daily trading volume for its underlying
components for the six months preceding January 8, 2025, was 2.7
billion shares. According to the Exchange, this demonstrates that
there is substantial liquidity in the components of the S&P 500
Equal Weight Index since its components are the same as the S&P 500
Index. Id. at 14299 n. 8.
\13\ Id. at 14298.
\14\ Id.
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In addition, the Exchange states that 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
by permitting them to gain broad exposure to these stocks using options
that would be less impacted by a shift in concentration and market
momentum.\15\ 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 benefit investors, according to the Exchange, by
permitting them 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.\16\
Similarly, the Exchange states, SPESG options provide investors with an
alternative tool to manage their risk and diversify their exposure to
stocks comprising the S&P 500 Index that meet specified sustainability
criteria.\17\ According to the Exchange, given the relationship among
the S&P 500 Equal Weight Index, the S&P 500 Scored and Screened Index,
and the S&P 500 Index, market participants' investment and hedging
strategies may consist of options overlying any or all of these
options.\18\ The Exchange believes imposing lower position and exercise
position limits on SPEQF, SPEQX, and SPESG options may unnecessarily
restrict investors' abilities to use these options to achieve their
investment goals.\19\ In addition, the Exchange states that it is
appropriate for these options to be subject to the same position and
exercise limits to provide them with the ability to execute these
strategies with sufficient flexibility and in a consistent manner.\20\
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\15\ Id.
\16\ Id.
\17\ Id.
\18\ Id.
\19\ Id.
\20\ Id.
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III. Proceedings To Determine Whether To Approve or Disapprove the
Proposed Rule Change
The Commission hereby institutes proceedings pursuant to Section
19(b)(2)(B) of the Act \21\ to determine whether the Exchange's
proposed rule change should be approved or disapproved. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\21\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\22\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposed rule change with the Act and, in particular, Section
6(b)(5) of the Act,\23\ which requires that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable
[[Page 28847]]
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, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\22\ Id.
\23\ 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.'' \24\ 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,\25\ 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.\26\
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\24\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\25\ Id.
\26\ Id.
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Position and exercise limits serve as a regulatory tool designed to
address manipulative schemes and adverse market impact surrounding the
use of options.\27\ As discussed above, currently, the position and
exercise limit for standardized positions in SPEQF, SPEQX, and SPESG
options is 25,000 contracts and for FLEX positions in each of these
products is 200,000 contracts.\28\ The Exchange's proposed elimination
of these limits would permit market participants to significantly
increase the size of unidirectional, unhedged positions in these
products, and raises the potential for adverse market impacts and
manipulative schemes. Against this backdrop, the proposal does not
provide an adequate basis at this time for the Commission to conclude
that the proposed elimination of position and exercise limits for
standardized or FLEX positions in these products would be consistent
with the Act.
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\27\ See, e.g., Securities Exchange Act Release No. 68086
(October 23, 2012), 77 FR 65600 (October 29, 2012) (SR-CBOE-2012-
066).
\28\ See Notice, supra note 4, at 14298.
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Broadly, the Exchange does not adequately address how the potential
risks posed by trading in standardized and FLEX SPEQF, SPEQX or SPESG
options without position or exercise limits would be mitigated. More
specifically, the S&P 500 Index underlying SPX and XSP options is
capitalization-weighted whereas the S&P 500 Equal Weight Index
underlying SPEQF and SPEQX is equal-weighted. While the Exchange states
that the components underlying these two indexes are the same and
substantially liquid, the Exchange does not address the potential risks
of adverse market impact or manipulation that could be presented by the
equal weighting of the underlying index components for SPEQF and SPEQX
options if the Commission were to approve trading in such options
without position or exercise limits. Likewise, while each constituent
of the S&P 500 Scored and Screened Index is a constituent of the S&P
500 Index, the S&P 500 Index has additional components that are not
components of the S&P 500 Scored and Screened Index. In other words,
the S&P 500 Scored and Screened Index components are a subset of the
S&P 500 Index components. The Exchange does not address the potential
risks of adverse market impact or manipulation that could be presented
by the smaller number of underlying index components for SPESG options
if the Commission were to approve trading in such options without
position or exercise limits. The Exchange also does not demonstrate
that there is sufficient liquidity in the components of the S&P 500
Scored and Screened Index to support SPESG options trading without
position or exercise limits, or that the current limits applicable to
SPESG options inhibit market participants' ability to establish
positions in these options consistent with their trading and hedging
strategies.
Accordingly, 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.\29\
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\29\ See 15 U.S.C. 78f(b)(5) and (8).
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IV. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by July 22, 2025. Rebuttal
comments should be submitted by August 5, 2025. 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, any request for
an opportunity to make an oral presentation.\30\
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\30\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act 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 an SRO. See Securities
Acts Amendments of 1975, Report of the Senate Committee on Banking,
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the sufficiency and
merit of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2025-020 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-2025-020. 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;
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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-2025-020 and should
be submitted on or before July 22, 2025. Rebuttal comments should be
submitted by August 5, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-12221 Filed 6-30-25; 8:45 am]
BILLING CODE 8011-01-P