[Federal Register Volume 83, Number 192 (Wednesday, October 3, 2018)]
[Notices]
[Pages 49962-49964]
[FR Doc No: 2018-21485]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84298; File No. SR-CboeBZX-2018-058]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1 and
2, To Permit the Listing and Trading of Options That Overlie the Mini-
SPX Index and the Russell 2000 Index

September 27, 2018.

I. Introduction

    On August 2, 2018, Cboe BZX Exchange, Inc. (``Exchange'') filed
with the Securities and Exchange Commission (``Commission'' or
``SEC''), 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 permit the listing and trading of options that overlie the
Mini-SPX Index (``XSP options''), the Russell 2000 Index (``RUT
options''), and the Dow Jones Industrial Average (``DJX options''). The
proposed rule change was published for comment in the Federal Register
on August 21, 2018.\3\ The Commission received no comments in response
to the Notice. On September 18, 2018, the Exchange filed Amendment No.
1 to the proposal.\4\ On September 24, 2018, the Exchange filed
Amendment No. 2 to the proposal.\5\ This order approves the proposed
rule change, as modified by Amendment Nos. 1 and 2 thereto.
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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. 83852 (August 15,
2018), 83 FR 42330 (``Notice'').
    \4\ Amendment No. 1 provides that the lowest strike price
interval that may be listed for XSP option series under the Short
Term Option Series Program is $0.50. The Exchange notes that this
provision was inadvertently omitted in the initial filing. Amendment
No. 1 is available at https://www.sec.gov/comments/sr-cboebzx-2018-058/srcboebzx2018058-4387759-175584.pdf. Because Amendment No. 1
does not materially alter the substance of the proposed rule change
or raise unique or novel regulatory issues, Amendment No. 1 is not
subject to notice and comment.
    \5\ Amendment No. 2 removes all aspects of the proposal related
to the listing and trading of DJX options. Amendment No. 2 is
available at https://www.sec.gov/comments/sr-cboebzx-2018-058/srcboebzx2018058-4421264-175677.pdf. Because Amendment No. 2 removes
all references specific to the listing and trading of DJX options
from the original proposal and does not raise unique or novel
regulatory issues, Amendment No. 2 is not subject to notice and
comment.
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II. Description of the Amended Proposal 6
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    \6\ For a more complete description of the proposed rule change,
see Notice, supra note 3; Amendment No. 1, supra note 4; and
Amendment No. 2, supra note 5.
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    The Exchange proposes to amend the Exchange's index options rules
to

permit the listing and trading of XSP options and RUT options. As more
fully set forth in the Notice and Amendment Nos. 1 and 2 and further
described below, the proposed new rules and changes to existing rules
of the Exchange are based on the existing rules of other options
exchanges.\7\
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    \7\ See, e.g., Cboe Options Rules 6.42, 24.7, and 24.9; C2 Rule
6.11(a)(2).
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    XSP and RUT options will be A.M., cash-settled contracts with
European-style exercise.\8\ XSP options are options on the Mini-SPX
Index, the current value of which is 1/10th the value of the Standard &
Poor's 500 Stock Index reported by the reporting authority.\9\ RUT
options are options on the Russell 2000 Index.\10\ According to the
Exchange, the index underlying each of XSP and RUT options satisfies
the criteria of a broad-based index for the initial listing of options
on that index, as set forth in Rule 29.3(b). XSP and RUT options will
be subject to the maintenance listing standards set forth in Rule
29.3(c).\11\
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    \8\ See proposed changes to Rule 29.11(a)(4) and Rule
29.11(a)(5)(B).
    \9\ See proposed Interpretation and Policy .01 to Rule 29.11,
which states that the current index value of XSP options will be 1/
10th the value of the Standard & Poor's 500 Stock Index reported by
the reporting authority. The Exchange states that the S&P Dow Jones
Indices is the reporting authority for the Mini-SPX Index. See
proposed Interpretation and Policy .01 to Rule 29.2.
    \10\ The Exchange states that the Frank Russell Company is the
reporting authority for the Russell 2000 Index. See proposed
Interpretation and Policy .01 to Rule 29.2.
    \11\ In the event XSP or RUT options fails to satisfy the
maintenance listing standards set forth in Rule 29.3(c), the
Exchange states that it will not open for trading any additional
series of options of that class unless the continued listing of that
class of index options has been approved by the Commission under
Section 19(b)(2) of the Act. See Notice, supra note 3, at 42331, n.
4.
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    As described more fully in the Notice and Amendment Nos. 1 and 2,
the Exchange has proposed rules related to the listing and trading of
XSP and RUT, including the minimum increments applicable to XSP \12\
and strike intervals applicable to both XSP and RUT.\13\ In addition,
the Exchange has proposed changes to its long-term index options rules,
including proposing to extend the maximum term to 180 months (15
years)\14\ and adding RUT to the list of indices on which the Exchange
may list reduced-value long-term options series.\15\ The proposed rule
change also modifies the Exchange's rules to describe the opening
process for index options,\16\ which the Exchange states will be the
same as the opening process for index options on C2 Exchange, Inc.
(``C2'').\17\ The Exchange also proposed rule changes to clarify the
applicability of certain provisions of its rules.\18\ Additionally, the
Exchange has proposed changes to its rules relating to trading
halts,\19\ the obvious error process,\20\ and listing additional
expiration months \21\ that are consistent with the rules of another
options exchange.\22\
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    \12\ See proposed Rule 21.5, Interpretation and Policy .02. The
minimum increment for RUT will be as set forth in current Rule 21.5:
Five cents if the series is trading below $3.00, and ten cents if
the series is trading at or above $3.00. See Notice, supra note 3,
at 42332.
    \13\ See proposed changes to Rule 29.11(c)(1) and (c)(5).
    \14\ See proposed change to Rule 29.11(b)(1). The Exchange
represents that it has confirmed with the Options Clearing
Corporation (``OCC'') that OCC can configure its systems to support
long-term options contracts that have a maximum term of 180 months
(15 years). See Notice, supra note 3, at 42332.
    \15\ See proposed change to Rule 29.11(b)(2). The Exchange
represents that the reduced-value long-term RUT series will be
subject to the same trading rules as long-term RUT series, except
the minimum strike price interval will be $2.50 for all series
regardless of the strike price. See Notice, supra note 3, at 42332.
The Exchange also states that for reduced-value long-term RUT
series, the underlying value will be computed at 10% of the value of
the Russell 2000 Index. See id.
    \16\ See proposed changes to Rule 21.7.
    \17\ See Notice, supra note 3, at 42334.
    \18\ See proposed changes to Rules 29.11(b)(1)(A), 29.13(b);
proposed Rule 29.15.
    \19\ See proposed changes to Rule 29.10(b).
    \20\ See proposed changes to Rule 20.6(g) and (h).
    \21\ See proposed Rule 29.11(i).
    \22\ See Cboe Options Rule 6.42, Interpretation and Policy .03;
Cboe Options Rule 6.25(g) and (h); and Cboe Options Rule 24.9,
Interpretation and Policy .01(b).
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    The Exchange represents it has an adequate surveillance program in
place for index options, and that it is a member of the Intermarket
Surveillance Group (``ISG'').\23\ Additionally, the Exchange represents
that has analyzed its capacity and believes that it and the Options
Price Reporting Authority (``OPRA'') have the necessary systems
capacity to handle the additional traffic associated with the listing
of XSP and RUT options up to the proposed number of possible
expirations and strike prices.\24\ The Exchange believes that any
additional traffic that would be generated from the introduction of XSP
and RUT options will be manageable, and that its Members will not have
a capacity issue as a result of this proposed rule change.\25\ The
Exchange also represents that it does not believe this expansion will
cause fragmentation of liquidity.\26\ The Exchange states that it will
monitor the trading volume associated with the additional options
series listed as a result of this proposed rule change and the effect
(if any) of these additional series on market fragmentation and on the
capacity of the Exchange's automated systems.\27\
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    \23\ See Notice, supra note 3, at 42336.
    \24\ Id.
    \25\ Id.
    \26\ Id.
    \27\ Id.
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    The Exchange states that XSP and RUT options will be subject to the
margin requirements set forth in Chapter 28 and the position limits set
forth in Rule 29.5. Chapter 28 imposes the margin requirements of
either Cboe Options or the New York Stock Exchange on Exchange Options
Members. Similarly, Rule 29.5 imposes position (and exercise) limits
for broad-based index options of Cboe Options on Exchange Options
Members. XSP and RUT options are currently listed and traded on Cboe
Options, and the Exchange proposes that the same margin requirements
and position and exercise limits that apply to these products as traded
on Cboe Options will apply to these products when listed and traded on
the Exchange.\28\
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    \28\ Id.
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III. Discussion and Commission's Findings

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\29\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\30\ which requires, among other things,
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
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    \29\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \30\ 15 U.S.C. 78f(b).
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    The Commission believes that the Exchange's proposal gives options
investors the ability to make an additional investment choice in a
manner consistent with the requirements of Section 6(b)(5) of the
Act.\31\ The Commission notes that the Exchange represents that the
index underlying each of XSP and RUT options satisfies the criteria of
a broad-based index for the initial listing of options on that index in
Rule 29.3(b), which rule has previously been

approved by the Commission.\32\ In considering the proposed changes to
the Exchange rules related to the listing and trading of XSP and RUT,
including the rules related to minimum increments \33\ and strike price
intervals,\34\ the Commission notes that the proposed rules are
consistent with the rules of another exchange.\35\ In addition, the
Commission notes that the proposed rule changes related to long-term
options series,\36\ trading halts,\37\ the obvious error process,\38\
the opening process \39\ and listing additional expiration months \40\
are also consistent with the rules of other exchanges.\41\ The
Commission believes that the Exchange's proposal does not raise any
novel regulatory issues, as it is consistent with the rules of other
national securities exchanges previously approved by the Commission.
Finally, the Commission notes that certain of the Exchange's proposed
rule changes are intended to promote clarity about the applicability of
the Exchange's rules,\42\ thereby reducing any potential investor
confusion.
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    \31\ 15 U.S.C. 78f(b)(5).
    \32\ See Securities Exchange Act Release No. 61419 (January 26,
2010), 75 FR 5157 (February 1, 2010). Additionally, the Commission
notes that options on XSP and RUT will be subject to the maintenance
listing standards of Rule 29.3(c). The Exchange represents that in
the event XSP or RUT options fails to satisfy the maintenance
listing standards set forth herein, the Exchange will not open for
trading any additional series of options of that class unless the
continued listing of that class of index options has been approved
by the Commission under Section 19(b)(2) of the Exchange Act. See
Notice, supra note 3, at 42331, n. 4.
    \33\ See proposed Rule 21.5, Interpretation and Policy .02.
    \34\ See proposed Rule 29.11(c)(1) and (c)(5).
    \35\ See Cboe Options Rule 6.42, Interpretation and Policy .03;
Cboe Options Rule 24.9. Interpretations and Policies .01(a), .11.
    \36\ See proposed changes to Rule 29.11(b).
    \37\ See proposed changes to Rule 29.10(b).
    \38\ See proposed changes to Rule 20.6(g) and (h).
    \39\ See proposed changes to Rule 21.7.
    \40\ See proposed Rule 29.11(i).
    \41\ See, e.g., Cboe Options Rule 24.9(b)(1); Cboe Options Rule
24.9, Interpretation and Policy .13; Cboe Options Rule 24,7(a); Phlx
Rule 1047A(c); Cboe Options Rule 6.25(g) and (h); C2 Rule
6.11(a)(2).
    \42\ See, e.g., proposed changes to Rule 29.11(b)(1)(A); Rule
29.13; Rule 29.15.
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    The Commission further believes that the Exchange's proposed
position and exercise limits, margin requirements and other aspects of
the proposed rule change related to the listing and trading of XSP and
RUT options are appropriate and consistent with the Act. In particular,
the Commission notes that the Exchange rules regarding position and
exercise limits and margin requirements incorporate by reference the
corresponding Cboe Options rules which were previously approved by the
Commission. The Commission notes that the Exchange represents that it
has an adequate surveillance program in place for index options.\43\
Further, the Exchange is a member of the ISG, which provides for the
sharing of information and the coordination of regulatory efforts among
exchanges trading securities and related products to address potential
intermarket manipulations and trading abuses.
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    \43\ See Notice, supra note 3, at 42336.
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    In approving the proposed rule change, the Commission has also
relied upon the Exchange's representation that it and OPRA have the
necessary systems capacity to support the new options series that will
result from this proposal, and that the Exchange will monitor the
trading volume associated with the additional options series listed as
a result of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.\44\
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    \44\ See id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\45\ that the proposed rule change (SR-CboeBZX-2018-058), as
modified by Amendment Nos. 1 and 2, be approved.
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    \45\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21485 Filed 10-2-18; 8:45 am]
 BILLING CODE 8011-01-P