[Federal Register Volume 80, Number 246 (Wednesday, December 23, 2015)]
[Notices]
[Pages 79963-79966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32190]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76676; File No. SR-CBOE-2015-099]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval of a Proposed Rule Change, as
Modified by Amendment Nos. 1 and 2, To List and Trade Options That
Overlie a Reduced Value of the FTSE China 50 Index
December 17, 2015.
I. Introduction
On October 30, 2015, 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 and trade options that
overlie a reduced value of the FTSE China 50 Index. The proposed rule
change was published for comment in the Federal Register on November
10, 2015.\3\ The Commission received no comments on the proposed rule
change. On December 14, 2015, the Exchange filed Amendment No. 1 to the
proposed rule change.\4\ On December 16, 2015, the Exchange filed
Amendment No. 2 to the proposed rule change.\5\ This order grants
approval of the proposed rule
[[Page 79964]]
change, as modified by Amendment Nos. 1 and 2.
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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. 76354 (November 4,
2015), 80 FR 69741 (``Notice'').
\4\ Amendment No. 1 makes certain technical modifications to
Exhibit 5, and the corresponding cross references in the Form 19b-4,
due to the recent approval of another proposed rule change (See SR-
CBOE-2015-100, Securities Exchange Act Release No. 76626 (December
11, 2015), 80 FR 78793 (December 17, 2015)), and to remove a
reference to ``(1/100th)'' that was inadvertently included.
Amendment No. 1 conforms a phrase in Exhibit 3 relating to when the
official closing value of the FTSE China 50 Index is reported by
FTSE International Limited (``FTSE'') to the corresponding
description in Form 19b-4. As described in Form 19b-4, the official
closing value, due to the time zone in Hong Kong and as explained in
more detail in the rest of the filing and rule text, is on the day
that the contract expires. Amendment No. 1 also revises rule text to
make an additional technical edit. As the changes made by Amendment
No. 1 are technical in nature and do not materially alter the
substance of the proposed rule change or raise any novel regulatory
issues, Amendment No. 1 is not subject to notice and comment.
\5\ Amendment No. 2 corrects a typographical error in Exhibit 4
of Amendment No. 1. As the change made by Amendment No. 2 is
technical in nature and does not materially alter the substance of
the proposed rule change or raise any novel regulatory issues,
Amendment No. 2 is not subject to notice and comment.
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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 FTSE China 50 Index.\6\ According to the
Exchange, the FTSE China 50 Index is a free float-adjusted market
capitalization index that is designed to measure the performance of 50
of the largest and most liquid Chinese stocks listed and trading on the
Stock Exchange of Hong Kong (``SEHK'').\7\ The Exchange states that the
index is monitored and maintained by FTSE International Limited
(``FTSE'').\8\ Adjustments to the index could be made on a daily basis
with respect to corporate events and dividends, and FTSE reviews the
index quarterly.
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\6\ The Exchange proposes to list up to twelve near-term
expiration months at any one time for the FTSE China 50 Index
options. The Exchange also proposes to list up to ten expirations in
Long-Term Index Option Series (LEAPS) on the reduced value of the
FTSE China 50 Index Options. The Exchange proposes that options on
the FTSE China 50 Index would be eligible for all other expirations
permitted for other broad-based indexes (e.g., End of Week/End of
Month Expirations, Short Term Option Series, and Quarterly Options
Series). In addition, the Exchange proposes to designate the FTSE
China 50 Index as eligible for trading as FLEX options.
\7\ The Exchange states that the FTSE China 50 Index meets the
definition of a broad-based index as set forth in Exchange Rule
24.1(i)(1).
\8\ The Exchange proposes to designate FTSE as the reporting
authority for the FTSE China 50 Index.
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According to the Exchange, the FTSE China 50 Index is calculated in
Hong Kong dollars on a real-time basis during Hong Kong trading hours.
The methodology used to calculate the FTSE China 50 Index is similar to
the methodology used to calculate the value of other benchmark market-
capitalization weighted indexes.\9\ Real-time data is distributed at
least every 15 seconds while the index is being calculated using FTSE's
real-time calculation engine to Bloomberg L.P. (``Bloomberg''), Thomson
Reuters (``Reuters'') and other major vendors. End of day data is
distributed daily to clients through FTSE as well as through major
quotation vendors, including Bloomberg and Reuters.
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\9\ Specifically, the FTSE China 50 Index is governed by the
FTSE Ground Rules for the FTSE China 50 Index. The level of the FTSE
China 50 Index reflects the free float-adjusted market value of the
component stocks relative to a particular base date and is computed
by dividing the total market value of the companies in the FTSE
China 50 Index by the index divisor. Further detail regarding this
methodology can be found in the Notice, supra note 3, at n.7 and
accompanying text.
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The Exchange proposes that trading hours for FTSE China 50 Index
options would be from 8:30 a.m. (Chicago time) to 3:15 p.m. (Chicago
time).
The Exchange proposes that FTSE China 50 Index options would expire
on the third Friday of the expiration month.\10\ The exercise
settlement value would be one-hundredth (1/100th) of the official
closing value of the FTSE China 50 Index as reported by FTSE on the
last trading day of the expiring contract, which occurs between
approximately 3:00 a.m. and 4:00 a.m. (Chicago time). The exercise
settlement amount would be equal to the difference between the
exercise-settlement value and the exercise price of the option,
multiplied by the contract multiplier ($100).\11\ Exercise would result
in delivery of cash on the business day following expiration.
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\10\ According to the Exchange, when the last trading day/
expiration date is moved because of an Exchange holiday or closure,
the last trading day/expiration date for expiring options would be
the immediately preceding business day.
\11\ According to the Exchange, if the exercise settlement value
is not available or the normal settlement procedure cannot be
utilized due to a trading disruption or other unusual circumstance,
the settlement value would be determined in accordance with the
rules and bylaws of The Options Clearing Corporation.
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The Exchange proposes to create specific initial and maintenance
listing criteria for options on the reduced value of the FTSE China 50
Index. Specifically, the Exchange proposes to add new Interpretation
and Policy .03(a) to Rule 24.2 to provide that the Exchange may trade
FTSE China 50 Index options if each of the following conditions is
satisfied: (1) the index is broad-based, as defined in Rule 24.1(i)(1);
(2) options on the index are designated as A.M.-settled index options;
(3) the index is capitalization-weighted, price-weighted, modified
capitalization-weighted or equal dollar-weighted; (4) the index
consists of 45 or more component securities; (5) each of the component
securities of the index will have a market capitalization of greater
than $100 million; (6) no single component security accounts for more
than fifteen percent (15%) of the weight of the index, and the five
highest weighted component securities in the index do not, in the
aggregate, account for more than fifty percent (50%) of the weight of
the index; (7) non-U.S. component securities (stocks or ADRs) that are
not subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than twenty percent (20%) of the weight of
the index; (8) the Exchange may continue to trade FTSE China 50 Index
options after trading in all component securities has closed for the
day and the index level is no longer widely disseminated at least once
every fifteen (15) seconds by one or more major market data vendors,
provided that FTSE China 50 futures contracts are trading and prices
for those contracts may be used as a proxy for the current index value;
(9) the Exchange reasonably believes it has adequate system capacity to
support the trading of options on the index, based on a calculation of
the Exchange's current Independent System Capacity Advisor allocation
and the number of new messages per second expected to be generated by
options on such index; and (10) the Exchange has written surveillance
procedures in place with respect to surveillance of trading of options
on the index.
Additionally, the Exchange proposes to add new Interpretation and
Policy .03(b) to Rule 24.2 to set forth the following maintenance
listing standards for options on the FTSE China 50 Index: (1) the
conditions set forth in subparagraphs .03(a) (1), (2), (3), (4), (7),
(8), (9) and (10) must continue to be satisfied, the conditions set
forth in subparagraphs .03(a)(5) and (6) must be satisfied only as of
the first day of January and July in each year; and (2) the total
number of component securities in the index may not increase or
decrease by more than ten percent (10%) from the number of component
securities in the index at the time of its initial listing. In the
event a class of index options listed on the Exchange pursuant to
Interpretation and Policy .03(b) fails to satisfy these maintenance
listing standards, the Exchange shall 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.
The contract multiplier for the FTSE China 50 Index options would
be $100. The FTSE China 50 Index options would be quoted in index
points and one point would equal $100. The Exchange proposes that the
minimum tick size for series trading below $3 would be 0.05 ($5.00),
and at or above $3 would be 0.10 ($10.00). The Exchange also proposes
that the strike price interval for FTSE China 50 Index options would be
no less than $5, except that the strike price interval would be no less
than $2.50 if the strike price is less than $200.
The Exchange proposes to apply the default position limits for
broad-based index options of 25,000 contracts on the same side of the
market (and 15,000 contracts near-term limit) to FTSE China 50 Index
options. All position limit hedge exemptions would apply. The exercise
limits for FTSE China 50 Index options would be equivalent to the
position limits for those options. In
[[Page 79965]]
addition, the Exchange proposes that the position limits for FLEX
options on the FTSE China 50 Index would be equal to the position
limits for non-FLEX options on the FTSE China 50 Index. The exercise
limits for FLEX options on the FTSE China 50 Index would be equivalent
to the position limits for those options.
The Exchange states that, except as modified by the proposal,
Exchange Rules in Chapters I through XIX, XXIV, XXIVA, and XXIVB would
equally apply to FTSE China 50 Index options. The Exchange also states
that FTSE China 50 Index options would be subject to the same rules
that currently govern other CBOE index options, including sales
practice rules, margin requirements,\12\ and trading rules.\13\
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\12\ The Exchange states that FTSE China 50 Index options would
be margined as broad-based index options.
\13\ See, e.g., Exchange Rule Chapters IX (Doing Business with
the Public), XII (Margins), IV (Business Conduct), VI (Doing
Business on the Exchange Floor), VIII (Market-Makers, Trading Crowds
and Modified Trading Systems), and XXIV (Index Options).
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The Exchange represents that it has an adequate surveillance
program in place for FTSE China 50 Index options and intends to use the
same surveillance procedures currently utilized for each of the
Exchange's other index options to monitor trading in the proposed
options. The Exchange also states that it is a member of the
Intermarket Surveillance Group, is an affiliate member of the
International Organization of Securities Commissions, and has entered
into various comprehensive surveillance agreements and/or Memoranda of
Understanding with various stock exchanges, including SEHK. Finally,
the Exchange represents that it believes it 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 would result from the introduction of FTSE China 50 Index
options.\14\
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\14\ For a complete description of the Exchange's proposal,
please see the Notice, supra note 3.
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III. Discussion and Commission Findings
The Commission finds that the proposed rule change, as modified by
Amendment Nos. 1 and 2, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange.\15\ Specifically, the Commission finds that the
proposed rule change, as modified by Amendment Nos. 1 and 2, is
consistent with Section 6(b)(5) of the Act,\16\ 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.
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\15\ In approving this proposed rule change, as modified by
Amendments Nos. 1 and 2, the Commission has considered the proposed
rule's impact on efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the listing and trading of FTSE China
50 Index options will broaden trading and hedging opportunities for
investors by providing an options instrument based on an index designed
to measure the performance of 50 of the largest and most liquid Chinese
stocks listed and trading on SEHK. Moreover, the Exchange states that
FTSE China 50 ETFs, such as the iShares China Large-Cap exchange traded
fund (``FXI''), are actively-traded products. The Exchange also lists
actively-traded options overlying those ETFs and states that those
options are actively traded as well.
Because the FTSE China 50 Index is a broad-based index composed of
actively-traded, well-capitalized stocks, the trading of options on the
index does not raise unique regulatory concerns. The Commission
believes that the listing standards, which are created specifically and
exclusively for the index, are consistent with the Act, for the reasons
discussed below.
The Commission notes that proposed Interpretation and Policy .03 to
Exchange Rule 24.2 would require that the FTSE China 50 Index consist
of 45 or more component securities. Further, for options on the FTSE
China 50 Index to trade, each of the minimum of 45 component securities
would need to have a market capitalization of greater than $100
million.
The Commission notes that the proposed listing standards for
options on the FTSE China 50 Index would not permit any single
component security to account for more than 15% of the weight of the
index, and would not permit the five highest weighted component
securities to account for more than 50% of the weight of the index in
the aggregate. The Commission believes that, in view of the requirement
on the number of securities in the index and on each security's market
capitalization, this concentration standard is consistent with the Act.
As noted above, the Exchange represents that it has an adequate
surveillance program in place for FTSE China 50 Index options and
intends to use the same surveillance procedures currently utilized for
each of the Exchange's other index options to monitor trading in the
proposed options.
The Commission notes that, consistent with the Exchange's generic
listing standards for broad-based index options, non-U.S. component
securities of the FTSE China 50 Index that are not subject to
comprehensive surveillance agreements will not, in the aggregate,
represent more than 20% of the weight of the index.
The Exchange states that, because trading in the components of the
FTSE China 50 Index starts at approximately 8:30 p.m. (Chicago time)
(prior day) and ends at approximately 3:00 a.m. (Chicago time) (next
day), there will not be a current FTSE China 50 Index level calculated
and disseminated while FTSE China 50 Index options would be traded
(from approximately 8:30 a.m. (Chicago time) to 3:15 p.m. (Chicago
time)). However, the listing standards state that the Exchange may
continue to trade FTSE China 50 Index options after trading in all
component securities has closed for the day and the index level is no
longer widely disseminated at least once every 15 seconds by one or
more major market data vendors, provided that FTSE China 50 futures
contracts are trading and prices for those contracts may be used as a
proxy for the current index value. The Exchange states that during time
that the options would be trading on the exchange, E-Mini FTSE China 50
Index futures contracts will be trading and that the futures prices
would be a proxy for the current FTSE China 50 Index level during this
time period.\17\
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\17\ The Exchange states that E-Mini FTSE China 50 Index futures
contracts are listed for trading on the Chicago Mercantile Exchange
Inc.
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In addition, the proposed listing standards require the Exchange to
reasonably believe that it has adequate system capacity to support the
trading of options on the FTSE China 50 Index. As noted above, the
Exchange represents that it believes it and the OPRA have the necessary
systems capacity to handle the additional traffic associated with the
listing of new series that would result from the introduction of FTSE
China 50 Index options.
As a national securities exchange, the Exchange is required, under
Section 6(b)(1) of the Act,\18\ 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
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rules. As noted above, the Exchange states that, except as modified by
the proposal, Exchange Rules in Chapters I through XIX, XXIV, XXIVA,
and XXIVB would equally apply to FTSE China 50 Index options. The
Exchange also states that FTSE China 50 Index options would be subject
to the same rules that currently govern other CBOE index options,
including sales practice rules, margin requirements, and trading rules.
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\18\ 15 U.S.C. 78f(b)(1).
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The Commission further believes that the Exchange's proposed
position and exercise limits, trading hours, margin, strike price
intervals, minimum tick size, series openings, and other aspects of the
proposed rule change, as modified by Amendment Nos. 1 and 2, are
appropriate and consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-CBOE-2015-099), as modified
by Amendment Nos. 1 and 2, be, and hereby is, approved.
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\19\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-32190 Filed 12-22-15; 8:45 am]
BILLING CODE 8011-01-P