[Federal Register Volume 79, Number 59 (Thursday, March 27, 2014)]
[Notices]
[Pages 17212-17214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-06758]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71764; File No. SR-CBOE-2014-003]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of Proposed Rule Change To List
and Trade CBOE Short-Term Volatility Index Options
March 21, 2014.
I. Introduction
On January 27, 2014, the Chicago Board Options Exchange,
Incorporated (``Exchange'' or ``CBOE'') 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 list options on the CBOE
Short-Term Volatility Index (``VXST''). The proposed rule change was
published for comment in the Federal Register on February 6, 2014.\3\
The Commission received no comments on the proposed rule change. This
order grants approval of the proposed rule change.
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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. 71458 (January 31,
2014), 79 FR 7239 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade A.M. cash-settled,
European-style options on the VXST, which will expire every week.
According to the Exchange, VXST is designed to measure investors'
consensus view of future (nine day) expected stock market volatility,
and VXST options will trade alongside the existing CBOE Volatility
Index (``VIX'') options (which expire on a monthly basis and measure a
30 day period of implied volatility).\4\ The Exchange states that the
calculation of VXST is based on the VIX methodology as applied to
option series on the S&P 500 index that expire on every Friday.\5\ The
constituent S&P 500 index options that expire on a Friday (i.e., nine
days from the VXST option expiration date, which is typically a
Wednesday in the preceding week) may include the following types of
options on the S&P 500 index: Standard monthly options, End-of-Week
(``EOW'') expirations, and Quarterly Index (``QIX'') expirations.
According to the Exchange, because some of the constituent options used
to calculate VXST are A.M.-settled and some are P.M.-settled, the
amount of time covered by a specific contract will vary slightly
depending on the type of series used for any given A.M.-settled VXST
option.\6\
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\4\ According to the Exchange, the VXST index was introduced by
CBOE on October 1, 2013 and has been disseminated at least once a
day on every trading day since that time. See Notice, supra note 3,
at 7239-40.
\5\ The Exchange states that VXST is calculated in the same
manner as other volatility indexes (e.g., VIX). A more detailed
explanation of the method used to calculate the VIX may be found on
the CBOE's Web site at http://www.cboe.com/micro/vix/vixwhite.pdf.
See Notice, supra note 3, at 7240.
\6\ For a VXST option contract calculated using A.M.-settled
standard S&P 500 index options, the period of implied volatility
covered by the contract will be exactly nine days. For a VXST option
contract calculated using P.M.-settled EOW or QIX on the S&P 500
index, the period of implied volatility covered by the contract will
be nine days, plus 390 minutes. See Notice, supra note 3, at 7240.
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Similar to VIX and VIX options, the cash (spot) VXST value will be
calculated using premium quotations and the exercise settlement value
for VXST options will be calculated using the actual opening premium
prices of the constituent S&P 500 index options on the expiration day
of the VXST option.\7\ The Exchange will compute values for VXST on a
real-time basis throughout each trading day, from approximately 8:30
a.m. (Chicago time) until approximately 3:15 p.m. (Chicago time).\8\
VXST levels will be calculated by CBOE and generally disseminated at
15-second intervals to major market data vendors.\9\ The trading hours
for VXST options will be from 8:30 a.m. to 3:15 p.m. (Chicago
time).\10\
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\7\ See id.
\8\ See id.
\9\ According to the Exchange, when VIX options and VXST options
expire on the same day, as the calculator of volatility indexes,
CBOE would not begin disseminating the spot (cash) values for any
volatility index that CBOE calculates until the S&P 500 index option
series that CBOE will use to calculate the exercise settlement value
for VIX options have opened. On all other VXST option expiration
days, as the calculator of volatility indexes, CBOE would not begin
disseminating the spot (cash) values for any volatility index that
CBOE calculates until the S&P 500 index option series that CBOE will
use to calculate the exercise settlement value for VXST options have
opened. See id., at n. 8.
\10\ See id., at 7241.
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The Exchange proposes to list up to 12 near-term VXST option
expiration weeks, and that new series will be permitted to be added up
to and including on the last day of trading for an expiring VXST option
contract.\11\
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\11\ See CBOE Rules 24.9(a)(2) and 24.9.01(c).
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As proposed, the exercise settlement value for a VXST option will
be calculated on the specific date (usually a Wednesday) identified in
the option symbol for the series.\12\ If that
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Wednesday or the Friday in the business week following that Wednesday
(i.e., nine days away) is an Exchange holiday, the exercise settlement
value will be calculated on the business day immediately preceding the
Wednesday.\13\ According to the Exchange, on the day the exercise
settlement value is calculated for VXST options, modified Hybrid
Opening System (``HOSS'') opening procedures will be used to calculate
the exercise settlement value.\14\ The exercise settlement value of a
VXST option will be calculated by the Exchange as a Special Opening
Quotation (``SOQ'') of VXST using the sequence of opening prices of the
options that comprise the VXST index.\15\ The opening price for any
series in which there is no trade will be the average of that option's
bid price and ask price as determined at the opening of trading.\16\
The ``time to expiration'' used to calculate the SOQ will account for
the actual number of days and minutes until expiration for the
constituent option series.\17\
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\12\ See CBOE Rule 24.9(a)(6). According to the Exchange, option
symbols are constructed as follows: Symbol + Expiration Date (Year,
Month, Day) + Call or Put + Strike Price (in dollars to three
decimal places). See Notice, supra note 3, at n. 14.
\13\ See CBOE Rule 24.9(a)(6).
\14\ See CBOE Rules 6.2B.01 and 6.2B.08. The Exchange states
that the main feature of the modified HOSS opening procedures is the
strategy order cut-off time for the constituent option series that
will be used to calculate the exercise settlement value of a
volatility index. See Notice, supra note 3, at n. 15.
\15\ See CBOE Rule 24.9(a)(6).
\16\ See id.
\17\ See id.
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The expiration date of a VXST option will be on the same day that
the exercise settlement value of the VXST option is calculated.\18\ The
last trading day for a VXST option will be the business day immediately
preceding the expiration date of the VXST option (typically a
Tuesday).\19\ When the last trading day is moved because of an Exchange
holiday, the last trading day for an expiring VXST option contract will
be the day immediately preceding the last regularly scheduled trading
day.\20\ Exercise will result in delivery of cash on the business day
following expiration. The exercise-settlement amount will be equal to
the difference between the exercise-settlement value and the exercise
price of the option, multiplied by $100.
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\18\ See id.
\19\ See id.
\20\ See id.
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As proposed, VXST options will be quoted in index points and
fractions and one point will equal $100.\21\ The Exchange proposes that
the minimum tick size for series trading below $3 will be 0.05 ($5.00)
and above $3 will be 0.10 ($10.00).\22\ The Exchange proposes to permit
$0.50 (or greater) strike price intervals for VXST options where the
strike price is less than $75. The Exchange also proposes to permit $1
(or greater) strike price intervals for VXST options where the strike
price is $200 or less. Further, the Exchange proposes to permit $5 (or
greater) strike price intervals for VXST options where the strike price
is greater than $200.\23\
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\21\ See Notice, supra note 3, at 7240.
\22\ See id., at 7240-41.
\23\ See CBOE Rules 5.5.23 and 24.9.01(i). The Exchange also
proposes to make a technical change to CBOE Rule 24.9.12, which
permits $0.50 and $1 strike price intervals for index options used
to calculate volatility indexes. Specifically, the Exchange notes
that it proposes to add ``and $150'' to the rule text as those two
words were inadvertently omitted from the proposed rule text changes
to Rule 24.9.12 contained in original rule filing, but were
described in detail in the purpose section. See Notice, supra note
3, at 7241 and n. 13.
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The Exchange does not propose to establish any position or exercise
limits for VXST options.\24\ In addition, the Exchange proposes that
VXST options be margined as ``broad-based index'' options.\25\ The
Exchange notes that, except as modified by this proposed rule change,
Chapters I through XIX and Chapter XXIV of its rules will apply to VXST
options.\26\
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\24\ See CBOE Rules 24.4(a) and 24.5. According to the Exchange,
VXST options will be subject to the same reporting requirements
triggered for other options dealt in on the Exchange. See Notice,
supra note 3, at 7242 and CBOE Rule 24.4.03.
\25\ See CBOE Rules 12.3 and 24.4.04.
\26\ See Notice, supra note 3, at 7242.
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The Exchange states that it has analyzed its capacity and
represents that it believes the Exchange and the Options Price
Reporting Authority (``OPRA'') have the necessary systems capacity to
handle the additional traffic associated with the listing of new series
that will result from the introduction of VXST options.\27\
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\27\ See id.
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The Exchange represents that it will use the same surveillance
procedures currently utilized for its other index options to monitor
trading in VXST options, as well as enhanced surveillance procedures at
expiration, several of which would be automated.\28\ The Exchange
further represents that these surveillance procedures will be adequate
to monitor trading in VXST options.\29\ The Exchange states that, for
surveillance purposes, it will have complete access to information
regarding trading activity in the pertinent underlying securities.\30\
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\28\ See id.
\29\ See id.
\30\ See id.
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III. Discussion and Commission 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.\31\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\32\ 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 perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest. Specifically, the Commission believes that VXST options will
provide investors with an additional trading and hedging mechanism. In
addition, the Commission believes that the Exchange's proposal with
respect to position limits, margin, strike price intervals, minimum
trading increments, series openings, exercise limits, and other aspects
of the proposed rule change are appropriate and consistent with the
Act.
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\31\ 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).
\32\ 15 U.S.C. 78f(b)(5).
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As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\33\ to enforce compliance by its members
and persons associated with its members with the provisions of the Act,
Commission rules and regulations thereunder, and its own rules. In this
regard, the Commission notes that trading of VXST options will be
subject to Chapters I through XIX and Chapter XXIV of CBOE rules.\34\
Moreover, the Exchange has represented that it will use the same
surveillance procedures currently utilized for its other index options
to monitor trading in VXST options, as well as enhanced surveillance
procedures at expiration, several of which would be automated.\35\ The
Exchange has represented that these surveillance procedures will be
adequate to monitor trading in VXST options.\36\ The Exchange also
stated that it will have complete access to information regarding
trading activity in the pertinent underlying securities.\37\ In
approving the proposed listing and trading of the VXST options, the
Commission has also relied on the Exchange's representation that it and
the OPRA have the necessary systems
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capacity to handle the additional traffic associated with the listing
of new series that will result from the introduction of VXST
options.\38\
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\33\ 15 U.S.C. 78f(b)(1).
\34\ See supra note 26 and accompanying text.
\35\ See supra note 28 and accompanying text.
\36\ See supra note 29 and accompanying text.
\37\ See supra note 30 and accompanying text.
\38\ See supra note 27 and accompanying text.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\39\ that the proposed rule change (SR-CBOE-2014-003) be, and
hereby is, approved.
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\39\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06758 Filed 3-26-14; 8:45 am]
BILLING CODE 8011-01-P