[Federal Register Volume 90, Number 187 (Tuesday, September 30, 2025)]
[Notices]
[Pages 47000-47001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-18967]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104076; File No. SR-CBOE-2025-069]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 5.4 To Change the
Minimum Increment for Options on the Cboe Magnificent 10 Index
September 25, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 24, 2025, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. 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 Rule 5.4. The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (https://www.sec.gov/rules/sro.shtml), the
Exchange's website (https://www.cboe.com/us/options/regulation/rule_filings/bzx/) and at the principal office of the Exchange.
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 Rule 5.4(a) to change the minimum
increment for all series of options on the Cboe Magnificent 10 Index
(``MGTN options'') \3\ to $0.01 for series trading lower than $3.00 and
$0.05 for series trading at $3.00 or higher. The Exchange believes
market demand (including by retail investors, who generally prefer
lower trading increments) supports a lower trading increment for MGTN
options. Options overlying the components of the Cboe Magnificent 10
Index are among the most actively traded options (as are the underlying
stocks), which options are eligible for a lower trading increment,
supporting the view that there will be market demand for the proposed
trading increments for MGTN options. The Exchange expects this more
granular pricing to lead to narrowing of the bid-ask spread for these
options and increase the possible number of price points available to
investors for these series. The Exchange believes tighter spreads will
increase order flow in MGTN options, which additional liquidity
ultimately benefits all investors. Finer increments also permit more
precise pricing in line with the theoretical value of these options.
---------------------------------------------------------------------------
\3\ The Exchange may list MGTN options pursuant to generic
listing criteria for narrow-based index options as set forth in Rule
4.11(b). The Exchange intends to begin listing MGTN options in the
fourth quarter of 2025.
---------------------------------------------------------------------------
With regard to the impact of this proposed rule change on system
capacity, the Exchange has analyzed its capacity and represents that it
and the Options Price Reporting Authority have the necessary systems
capacity to handle any potential additional traffic associated with
this proposal. The Exchange does not believe any potential increased
traffic will become unmanageable since this proposed rule change with
respect to minimum trading increments is limited to a single class of
options.
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.\4\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \5\ 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) \6\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
\6\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change will
protect investors and the public interest. As discussed above, the
Exchange believes market demand (including by retail investors, who
generally prefer lower trading increments) supports a lower trading
increment for MGTN options. Options overlying the components of the
Cboe Magnificent 10 Index are among the most actively traded options
(as are the underlying stocks), which options are eligible for a lower
trading increment, supporting the view that there will be market demand
for the proposed trading increments for MGTN options. The proposed rule
change will permit more granular pricing in MGTN options, which may
lead to narrower bid-ask spreads for these options and increase the
possible number of price points available to investors for these
series, which ultimately increases liquidity to the benefit of all
investors. The Exchange believes tighter spreads will also increase
order flow in MGTN options, which additional liquidity ultimately
benefits all investors. Further, finer increments also permit more
precise pricing in line with the theoretical value of these options.
Additionally, the Exchange believes the proposed rule change will
promote just and equitable principles of trade and remove impediments
to and perfect the mechanism of a free and open market and a national
market system because it will permit MGTN options to
[[Page 47001]]
trade at the same level of granularity as permitted for certain related
products.\7\ Options overlying the components of the Cboe Magnificent
10 Index are currently eligible for the Penny Interval Program, which
options are competitive with MGTN options.\8\ As a result, the Exchange
believes MGTN options should be eligible for the same pricing
increments for competitive reasons to allow the Exchange to price these
weekly options at the same level of granularity as permitted for
competitor products.\9\ Market participants may also use options
overlying each component of the Cboe Magnificent 10 Index to hedge MGTN
options or as part of other investment strategies involving MGTN
options. Therefore, having the pricing increments for MGTN options
aligned with these related products will permit investors to trade
related products at more granular prices that may be more aligned with
their investment objectives. Further, the Exchange notes that MGTN
options will be eligible for complex order trading, which permits the
legs to execute in penny increments, and the automated improvement
mechanism (``AIM'') auction for simple orders, which also permits penny
executions.\10\ Therefore, current rules will allow MGTN options to
trade in penny increments in certain situations.
---------------------------------------------------------------------------
\7\ The Exchange notes that other options that trade on the
Exchange are currently permitted to trade in penny increments
because competitive products are able to trade in penny increments.
See 5.4 (the minimum for XSP options is $0.01 because that is the
minimum increment for SPY options, and the minimum increment for DJX
options is $0.01 for series below $3 and $0.05 for series $3 and
above because that is the minimum increment for DIA options).
\8\ The index components each qualify for the Penny Interval
Program under Rule 5.4(a). The options overlying each index
component are among the 33 most actively traded equity options
(based on six-month trading volume as of September 19, 2025). Given
that the Cboe Magnificent 10 Index is designed to
\9\ The Exchange notes that other index options that trade on
the Exchange are currently permitted to trade in smaller increments
because competitive products are able to trade in those smaller
increments. See Rule 5.4 (the minimum for XSP options is $0.01
because that is the minimum increment for SPY options, and the
minimum increment for DJX options is $0.01 for series below $3 and
$0.05 for series $3 and above because that is the minimum increment
for DIA options).
\10\ See Rule 5.37(a)(4).
---------------------------------------------------------------------------
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 proposed rule change
will not impose any burden on intramarket competition that is not
necessary or appropriate, because all Trading Permit Holders will be
able to trade MGTN options in the proposed minimum trading increments.
The proposed rule change will not impose any burden on intermarket
competition that is not necessary or appropriate, because it will
permit MGTN options to have pricing consistent with the pricing of
competitive products that are part of the Penny Interval Program and
may currently trade in increments of $0.01 or $0.05. Additionally, the
proposed rule change to permit MGTN options to be listed in penny and
nickel increments may relieve any burden on, or otherwise promote,
competition, as it will allow market participants to trade these
options at the same level of granularity as permitted for competitor
products, as discussed above. The Exchange also expects the more
granular pricing to lead to narrowing of the bid-ask spread for these
options, which the Exchange believes will increase order flow and price
competition in MGTN options.
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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2025-069 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-2025-069. 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 filing 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-2025-069 and
should be submitted on or before October 21, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-18967 Filed 9-29-25; 8:45 am]
BILLING CODE 8011-01-P