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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Notices A number of options overlie exchange-traded funds ETFs that track the same indexes on which the Exchange lists index options.9 These options are complementary investment tools available to market participants.
The Exchange understands that market participants generally use the same information when pricing an index option and an ETF option with an underlying ETF that tracks the same index. Additionally, market participants investment and hedging strategies often involve index options and related products, including ETF
options. For example, market participants often engage in hedging strategies that involve options on the S&P 500 Index SPX options, which trade exclusively on the Exchange, and SPY options, which may trade on any options exchange.
The Exchange recently amended the definition of current market value to provide that, for certain index options determined by the Exchange, it would be based on quotes for a series of options on the Exchange 15 minutes prior to the close of trading rather than the closing price.10 The purpose of that change was to maintain alignment between the times at which the current market value of index options and the daily settlement price of related futures i.e., futures that overlie the same indexes as the index options is determined for purposes of calculating daily margin requirements.11 Currently, the Exchange has determined to determine the current market value for margin requirements 15 minutes prior to the closing time for the following index options: DJX options, MXEA options, MXEF options, OEX options, RUT
options, SPESG options, SPX options, VIX options, XEO options, and XSP
options.12

Currently, the Exchange determines the daily settlement price for all ETF
options at the time at which they close for trading, which as noted above, is at 4:15 p.m. for a number of ETF options.
Several of these ETF options overlie an ETF that tracks an index on which the Exchange lists index options, including index options for which the Exchange determines the current market value for margin requirements 15 minutes prior to the closing time. The Exchange has received numerous requests from market participants to determine the current market value for such ETF
options at the same time at which it determines the current market value for corresponding index options. Therefore, to permit the Exchange to align the times at which the current market value of index options and options overlying ETFs that track the same indexes is determined for purposes of calculating daily margin requirements, the Exchange proposes to amend the definition of current market value with respect to certain Exchange-designated ETF options 13 to be based on quotes of that series of options on the Exchange 15 minutes prior to the close of trading on any day with respect to which a determination of current market value is made.14 The Exchange intends to apply an indicator to the quotes disseminated to the Options Price Reporting Authority OPRA that will be the daily mark for a series on the applicable trading day. The Exchange anticipates initially applying this proposed definition to SPY options. The proposed flexibility will permit the Exchange to respond in a timely manner to any requests from industry participants and maintain alignment between those times as appropriate.

9 For example, the SPDR S&P 500 ETF Trust SPY tracks the S&P 500 Index. The Exchange as well as other options exchanges list SPY options for trading, and the Exchange lists options on the S&P 500 Index as well SPX. Additional examples of ETF options which may trade on any options exchange with an underlying ETF that tracks an index on which the Exchange lists an option include the iShares Russell 2000 ETF
IWM which tracks the Russell 2000 Index, as do RUT options and the SPDR Dow Jones Industrial Average ETF Trust DIA which tracks the Dow Jones Industrial Average, as do DJX
options.
10 See Securities Exchange Act Release No. 90195
October 15, 2020, 85 FR 67041 October 21, 2020
SRCBOE2020090.
11 See id. As described in that proposed rule change, the Chicago Mercantile Exchange CME, on which index futures products trade, intended to change the daily settlement price for index futures from 4:15 p.m. Eastern time to 4:00 p.m. Eastern time.
12 See Exchange Notice C2020113000, Schedule UpdateCboe Proprietary Index Products MXEA

and MXEF to be Added to 3:00 p.m. Marking Price Files. These index options close for trading at 4:15
p.m. Eastern time.
13 Pursuant to Rule 1.5, the Exchange announces to Trading Permit Holders all determinations it makes pursuant to the Rules which would include the determination of ETF options subject to the proposed rule change via specifications, notices, or regulatory circulars with appropriate advanced notice, which are posted on the Exchanges website, or as otherwise provided in the Rules among other methods.
14 Fifteen minutes prior to the close of trading will generally equate to 4:00 p.m. Eastern time. The Exchange notes the proposed rule change does not change the time at which trading in the applicable ETF options will close. In other words, on a regular trading day, while the current market value for these ETF options will be determined at 4:00 p.m.
Eastern time, those ETF options will continue to trade until 4:15 p.m. Eastern time any options trades that occur between 4:00 and 4:15 on that trading day would use the 4:00 current market value for margin calculation purposes.

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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 6b of the Act.15 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6b5 16 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 6b5 17 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
The Exchange also believes the proposed rule change furthers the objectives of Section 6c3 of the Act,18
which authorizes the Exchange to, among other things, prescribe standards of financial responsibility or operational capability and standards of training, experience and competence for its Trading Permit Holders and person associated with Trading Permit Holders.
In particular, the Exchange believes alignment between the times at which related options prices are used to calculate daily margin requirements will protect investors. In fact, the Exchange has received numerous requests from market participants to make this change.
Among other things, the Exchange believes this alignment will prevent increased risk to market participants that hold positions across related options products due to potential disparities that could occur in relation to factors such as margin requirements, pay-collect obligations, the synchronization of existing hedges, and the level of end-of-day risk. Differing daily valuation times for these products may cause offset relationships between options positions to be lost, which may distort the true status of risk within a market participants portfolio. Use of the same determination time for margin calculations reduces risk of a disconnect 15 15
16 15

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17 Id.
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