[Federal Register Volume 90, Number 243 (Monday, December 22, 2025)]
[Notices]
[Pages 59897-59899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-23533]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104439; File No. SR-CBOE-2025-069]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend Rule 5.4 to Change the Minimum Increment
for Options on the Cboe Magnificent 10 Index
December 17, 2025.
I. Introduction
On September 24, 2025, Cboe Exchange, Inc. (``Exchange'' or
``Cboe'') 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 amend Cboe Rule 5.4(a) to change the minimum
increment for all series of options on the Cboe Magnificent 10 Index
(``MGTN index,'' and options thereon, ``MGTN index options'') to $0.01
for series trading lower than $3.00 and $0.05 for series trading at
$3.00 or higher. The proposed rule change was published for comment in
the Federal Register on September 30, 2025.\4\ On November 3, 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
[[Page 59898]]
the proposed rule change, or institute proceedings to determine whether
to approve or 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.
---------------------------------------------------------------------------
\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. 104076 (Sep. 25,
2025), 90 FR 47000 (``Notice'').
\5\ See 15 U.S.C. 78s(b)(2)(A)(ii)(I).
\6\ See Securities Exchange Act Release No. 104173, 90 FR 51424
(Nov. 17, 2025). The Commission designated December 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).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
Recently, the Exchange amended its rules in connection with plans
to list and trade MGTN index options.\8\ MGTN index options are cash-
settled, European-style options based on the MGTN index, an equal-
weighted benchmark composed of 10 large-cap U.S.-listed technology and
growth-oriented companies with listed options.\9\ Constituents include
companies such as Apple, Microsoft, Nvidia, and Tesla, and are fixed
unless adjusted due to corporate actions.\10\ Replacements are selected
from a reserve list based on market capitalization, trading volume, and
classification under the technology sector.\11\ The MGTN index is
reviewed quarterly for reserve list updates and rebalanced monthly.\12\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 104010 (Sep. 22,
2025), 90 FR 46297 (Sep. 25, 2025) (SR-CBOE-2025-067).
\9\ See https://cdn.cboe.com/resources/membership/Cboe-Magnificent-10-Index-Options-FS.pdf (last visited December 2025).
\10\ See id.
\11\ See id.
\12\ See id.
---------------------------------------------------------------------------
The Exchange now proposes to amend Cboe Rule 5.4(a) to change the
minimum increment for all series of MGTN index options to $0.01 for
series trading lower than $3.00 and $0.05 for series trading at $3.00
or higher.\13\ The Exchange believes market demand supports a lower
trading increment for MGTN index options.\14\ The Exchange states that
the options overlying the components of the MGTN index, as well as the
underlying stocks, are among the most actively traded options and
stocks, respectively, which, according to the Exchange, supports its
view that there will be market demand for the proposed trading
increments for MGTN index options.\15\ The Exchange states that it
expects the proposal to lead to narrowing of the bid-ask spread for
MGTN index options, which the Exchange believes will increase order
flow in MGTN index options.\16\
---------------------------------------------------------------------------
\13\ See proposed Rule 5.4(a). The Commission notes that,
currently, pursuant to Rule 5.4(a), the minimum increment for bids
and offers on simple orders for MGTN index options is $0.05 for
series trading lower than $3.00 and $0.10 for series trading at
$3.00 or higher. See Rule 5.4(a).
\14\ See Notice, supra note 4, at 47000; see also generally
Notice, supra note 4, for the entirety of the Exchange's statements
in support of its proposal.
\15\ See id.
\16\ See id.
---------------------------------------------------------------------------
The Exchange also states that options overlying the individual
component stocks of the MGTN index are competitive with MGTN index
options \17\ and that the options overlying the MGTN index components
are currently eligible for the Penny Interval Program.\18\ The Exchange
states that permitting it to price MGTN index options at that minimum
increment, as is proposed herein, would allow competitor products to be
priced with the same granularity.\19\ The Exchange further states that
market participants may use options overlying each component of the
MGTN index to hedge MGTN index options or as part of other investment
strategies involving MGTN index options.\20\ According to the Exchange,
aligning the pricing increment for MGTN index options with options
overlying MGTN index components will permit investors to trade related
products at more granular prices that may be more aligned with their
investment objectives.\21\ In addition, the Exchange represents that it
and the Options Price Reporting Authority have the necessary systems
capacity to handle any potential additional traffic associated with
this proposal.\22\
---------------------------------------------------------------------------
\17\ See id. at 47001.
\18\ See id. at 47001 n.8. The minimum increment for classes
participating in the Penny Interval Program is $0.01 for series
trading lower than $3.00 and $0.05 for series trading at $3.00 and
higher. See Cboe Rule 5.4(a).
\19\ See id. at 47001.
\20\ See id.
\21\ See id. The Exchange also states that MGTN index 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. See id.
\22\ See id. at 47000.
---------------------------------------------------------------------------
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 \23\ 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.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\24\ 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,\25\ 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 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.
---------------------------------------------------------------------------
\24\ Id.
\25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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.'' \26\ 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,\27\ 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.\28\
---------------------------------------------------------------------------
\26\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\27\ Id.
\28\ Id.
---------------------------------------------------------------------------
As discussed above, the Exchange proposes to reduce the minimum
trading increment for all series of MGTN index options to $0.01 for
series trading lower than $3.00 and $0.05 for series trading at $3.00
or higher. The Commission is concerned that the proposal does not
provide an adequate basis, at this time, for the Commission
[[Page 59899]]
to conclude that the proposed minimum trading increment for MGTN index
options would be consistent with the Act. The Exchange states that its
view that market demand supports the proposed minimum increment for
MGTN index options is supported by highly active trading in the stock
components of the MGTN index and options on those components.\29\ But
MGTN index options had not yet begun trading at the time of the filing
of the proposal, so the proposal does not (and could not) set forth
trading data demonstrating actual market demand for MGTN index options.
In addition, the Exchange states that the proposal would align the
minimum increment for MGTN index options with related, competitor
products--namely, options on the individual stock components of the
MGTN index--that also may be used to hedge MGTN index option
positions.\30\ But the Commission is concerned that the proposal does
not provide an adequate basis to conclude that MGTN index options would
be a competitive alternative to options on individual stock components
of the MGTN index. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal,
which are set forth in the Notice, in addition to any other comments
they may wish to submit about the proposed rule change.
---------------------------------------------------------------------------
\29\ See Notice, supra note 4, at 47000.
\30\ See id. at 47001.
---------------------------------------------------------------------------
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.\31\
---------------------------------------------------------------------------
\31\ See 15 U.S.C. 78f(b)(5) and (8).
---------------------------------------------------------------------------
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 January 12, 2026.
Rebuttal comments should be submitted by January 26, 2026. 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.\32\
---------------------------------------------------------------------------
\32\ 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).
---------------------------------------------------------------------------
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-2025-069 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 January 12, 2026. Rebuttal comments should be submitted by
January 26, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
---------------------------------------------------------------------------
\33\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-23533 Filed 12-19-25; 8:45 am]
BILLING CODE 8011-01-P