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

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-104439; File No. SR-CBOE-2025-069]</DEPDOC> <SUBJECT>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</SUBJECT> <DATE>December 17, 2025.</DATE> <HD SOURCE="HD1">I. Introduction</HD> On September 24, 2025, Cboe Exchange, Inc. (“Exchange” or “Cboe”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1)  <SU>1</SU> <FTREF/> of the Securities Exchange Act of 1934 (“Act”)  <SU>2</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>3</SU> <FTREF/> 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 <E T="04">Federal Register</E> on September 30, 2025. <SU>4</SU> <FTREF/> On November 3, 2025, pursuant to Section 19(b)(2)(A)(ii)(I) of the Act, <SU>5</SU> <FTREF/> the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change. <SU>6</SU> <FTREF/> The Commission has not received any comments on the proposal. Pursuant to Section 19(b)(2)(B) of the Act, <SU>7</SU> <FTREF/> the Commission is hereby instituting proceedings to determine whether to approve or disapprove the proposed rule change. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  15 U.S.C. 78a. </FTNT> <FTNT> <SU>3</SU>  17 CFR 240.19b-4. </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> Securities Exchange Act Release No. 104076 (Sep. 25, 2025), 90 FR 47000 (“Notice”). </FTNT> <FTNT> <SU>5</SU>   <E T="03">See</E> 15 U.S.C. 78s(b)(2)(A)(ii)(I). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> 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. </FTNT> <FTNT> <SU>7</SU>  15 U.S.C. 78s(b)(2)(B). </FTNT> <HD SOURCE="HD1">II. Description of the Proposed Rule Change</HD> Recently, the Exchange amended its rules in connection with plans to list and trade MGTN index options. <SU>8</SU> <FTREF/> 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. <SU>9</SU> <FTREF/> Constituents include companies such as Apple, Microsoft, Nvidia, and Tesla, and are fixed unless adjusted due to corporate actions. <SU>10</SU> <FTREF/> Replacements are selected from a reserve list based on market capitalization, trading volume, and classification under the technology sector. <SU>11</SU> <FTREF/> The MGTN index is reviewed quarterly for reserve list updates and rebalanced monthly. <SU>12</SU> <FTREF/> <FTNT> <SU>8</SU>   <E T="03">See</E> Securities Exchange Act Release No. 104010 (Sep. 22, 2025), 90 FR 46297 (Sep. 25, 2025) (SR-CBOE-2025-067). </FTNT> <FTNT> <SU>9</SU>   <E T="03">See https://cdn.cboe.com/resources/membership/Cboe-Magnificent-10-Index-Options-FS.pdf</E> (last visited December 2025). </FTNT> <FTNT> <SU>10</SU>   <E T="03">See id.</E> </FTNT> <FTNT> <SU>11</SU>   <E T="03">See id.</E> </FTNT> <FTNT> <SU>12</SU>   <E T="03">See id.</E> </FTNT> 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. <SU>13</SU> <FTREF/> The Exchange believes market demand supports a lower trading increment for MGTN index options. <SU>14</SU> <FTREF/> 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. <SU>15</SU> <FTREF/> 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. <SU>16</SU> <FTREF/> <FTNT> <SU>13</SU>   <E T="03">See</E> 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. <E T="03">See</E> Rule 5.4(a). </FTNT> <FTNT> <SU>14</SU>   <E T="03">See</E> Notice, <E T="03">supra</E> note 4, at 47000; <E T="03">see also generally</E> note 4, for the entirety of the Exchange's statements in support of its proposal. </FTNT> <FTNT> <SU>15</SU>   <E T="03">See id.</E> </FTNT> <FTNT> <SU>16</SU>   <E T="03">See id.</E> </FTNT> The Exchange also states that options overlying the individual component stocks of the MGTN index are competitive with MGTN index options  <SU>17</SU> <FTREF/> and that the options overlying the MGTN index components are currently eligible for the Penny Interval Program. <SU>18</SU> <FTREF/> 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. <SU>19</SU> <FTREF/> 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. <SU>20</SU> <FTREF/> 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. <SU>21</SU> <FTREF/> 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. <SU>22</SU> <FTREF/> <FTNT> <SU>17</SU>   <E T="03">See id.</E> at 47001. </FTNT> <FTNT> <SU>18</SU>   <E T="03">See id.</E> 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. <E T="03">See</E> Cboe Rule 5.4(a). </FTNT> <FTNT> <SU>19</SU>   <E T="03">See id.</E> at 47001. </FTNT> <FTNT> <SU>20</SU>   <E T="03">See id.</E> </FTNT> <FTNT> <SU>21</SU>   <E T="03">See id.</E> 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. <E T="03">See id.</E> </FTNT> <FTNT> <SU>22</SU>   <E T="03">See id.</E> at 47000. </FTNT> <HD SOURCE="HD1">III. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change</HD> The Commission hereby institutes proceedings pursuant to Section 19(b)(2)(B) of the Act  <SU>23</SU> <FTREF/> 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. <FTNT> <SU>23</SU>  15 U.S.C. 78s(b)(2)(B). </FTNT> Pursuant to Section 19(b)(2)(B) of the Act, <SU>24</SU> <FTREF/> 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, <SU>25</SU> <FTREF/> 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. <FTNT> <SU>24</SU>   <E T="03">Id.</E> </FTNT> <FTNT> <SU>25</SU>  15 U.S.C. 78f(b)(5). </FTNT> 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.”  <SU>26</SU> <FTREF/> 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, <SU>27</SU> <FTREF/> and any ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 16k characters. 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