To: Trading Permit Holders From: Competitive Analysis RE: Solicitation for Designated Primary Market-Makers for New FTSE Russell Index Option Classes

Transcription

1 Information Circular IC6-002 Date: January, 206 To: Trading Permit Holders From: Competitive Analysis RE: Solicitation for Designated Primary Market-Makers for New FTSE Russell Index Option Classes In the first quarter of 206, Chicago Board Options Exchange, Incorporated ( CBOE or the Exchange ) plans to list options on the FTSE 00 Index, the FTSE China 50 Index, the FTSE Emerging Index and the FTSE Developed Europe Index, under its exclusive license with FTSE-Russell. The Exchange is seeking applications from interested parties for appointment as Designated Primary Market Maker ( DPM ) in these products. These products will trade on the CBOE Hybrid Trading Platform, and applicants for DPM may apply as both on and off-floor DPMs, or as off-floor DPM only, in which case CBOE may appoint an incrowd Lead Market Maker ( LMM ) for each class, at its discretion. Description The FTSE 00 Index (UKXM) is a market-capitalization weighted index of UK-listed blue chip companies. The index is part of the FTSE UK Series and is designed to measure the performance of the 00 largest companies traded on the London Stock Exchange that pass screening for size and liquidity. FTSE 00 constituents are all traded on the London Stock Exchange s SETS trading system. The FTSE China 50 Index (FXTM) is a real-time tradable index comprising 50 of the largest and most liquid Chinese stocks (H Shares, Red Chips and P Chips) listed and trading on the Stock Exchange of Hong Kong (SEHK). The index is specifically designed for international investors, combining the ease of trading on SEHK with a methodology to meet fund regulatory requirements worldwide. The FTSE Emerging Index (FTEM) is a market-capitalization weighted index representing the performance of large and mid-cap companies in Emerging Markets. The index is comprised of approximately 950 securities from 2 countries, and derived from the FTSE Global Equity Index Series (GEIS), which covers over 7,400 securities in 47 different countries and captures 98% of the world's investable market capitalization. The FTSE Developed Europe Index (AWDE) is a market-capitalization weighted index representing the performance of large and mid-cap companies in Developed European markets, including the UK. The index is comprised of approximately 500 securities from 6 countries, and derived from the FTSE Global Equity Index Series (GEIS), which covers over 7,400 securities in 47 different countries and captures 98% of the world's investable market capitalization. The UKXM and FXTM indexes will be cash settled, with European-style exercise and A.M settlement. The FTEM and AWDE indexes will be cash settled, with European-style exercise and P.M. settlement. Product Specifications are attached to this circular.

2 Obligations of Appointed DPMs The CBOE is seeking applicants willing to commit to the following specifications: Upon the launch of the product, the DPM must be prepared to list up to 2 expiration months at strike intervals as follows: o FTSE 00 Mini Index Options (UKXM): Strike Interval of 5pts ( ) Strike Interval of 0 pts ( , ) o FTSE China 50 Mini Index Options (FXTM): Strike Interval of 2.5 pts (5 200) Strike Interval of 5 pts ( ) o FTSE Emerging Index: Strike Interval of 5pts ( ) o FTSE Developed Europe: Strike Interval of 2.5 pts (5 200) Strike Interval of 5pts ( ) Each application must propose a continuous minimum size market and bid/ask width to be considered. Additionally, DPMs will commit to assisting in Business Development efforts to grow the product, and to have a representative available to communicate with market participants and potential customers. Subject to regulatory approval, CBOE will offer a compensation plan, to offset initial DPM costs, of $5,000 per month per product payable from the launch for every full month of trading through December 3, 206. Also subject to regulatory approval, the appointed DPM(s) will also be eligible for a revenue share program in 207 of: 50% of all transaction fee revenues for a class with 5,000 cpd for a calendar month 40% of all transaction fee revenues for a class with 5,00 9,999 cpd for a calendar month 30% of all transaction fee revenues for a class with 0,000 or greater cpd for a calendar month Interested parties may submit applications outlining their qualifications, capabilities and trading experience, along with specifics proposals related to the minimum obligations, to Allison Kile of the Competitive Analysis Department at [email protected] by 3:00 pm Friday, January 5, 206. Additional Information: Please contact Allison Kile at (32) or [email protected] for additional information.

3 FTSE 00 Mini Index Options Contract Specifications Trading Symbol: UKXM Settlement Value Symbol: UKS Description: The FTSE 00 Index is a market-capitalization weighted index of UK-listed blue chip companies. The index is part of the FTSE UK Series and is designed to measure the performance of the 00 largest companies traded on the London Stock Exchange that pass screening for size and liquidity. FTSE 00 constituents are all traded on the London Stock Exchange s SETS trading system. Multiplier: $00. Premium Quotation: Stated in points, one point equals $00. Minimum tick for series trading below $3 is 0.05 ($5.00); at or above $3 is 0.0 ($0.00). Strike (Exercise) Prices: In-, at- and out-of-the-money strike prices are initially listed. New strikes can be added as the underlying trades through the highest and lowest strike price available. Strike Price Interval: Strike prices may be listed with a minimum interval of 2.5 points if the strike price is less than 200. When the strike price is 200 or above, strike price intervals will be no less than 5 points. Expiration Months: Up to 2 near-term months. In addition, the Exchange may list up to 0 UKXM LEAPS expiration months that expire from 2 to 60 months from date of issuance. Expiration Date: The third Friday of the expiration month. Exercise Style: European and A.M.-settled UKXM options generally may be exercised only on the Expiration Date. Pending Regulatory Approval. Last Trading Day: Trading in expiring UKXM options will ordinarily cease on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated. Settlement of Option Exercise: Exercise will result in delivery of cash on the business day following expiration. The exercise settlement

4 value [UKS] is one-tenth (/0 th ) of the FTSE 00 Index calculated by FTSE International with reference to the outcome of the Exchange Delivery Settlement Price ( EDSP ) intra-day auction at the London Stock Exchange carried out on the morning of the expiration date. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $00. Position and Exercise Limits: The position limit is 25,000 contracts on the same side of the market, with no more than 5,000 contracts in the near term expiration month and the exercise limit is 5,000 contracts. Customer Strategy -Based Margin: Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 00% of the option proceeds* plus 5% of the aggregate contract value (current index level x $00) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 0% of the aggregate contract value and a minimum for puts of option proceeds* plus 0% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rules 2.3(h) and 2.0. Customer Portfolio Margin: UKXM options are eligible for a portfolio margin account. UKXM options are accommodated in a newly created high-capitalization broad-based index Product Group the FTSE 00 Product Group. The magnitude of the valuation point range under CBOE Rule 2.4 (Portfolio Margin) for UKXM options held in a portfolio margin account is -8%/+6%. The current (spot or cash) UKXM index value will be used to calculate theoretical gains and losses for UKXM options. Additional margin may be required pursuant to Exchange Rule 2.0. CUSIP Number: 2506A0 Trading Hours: 8:30 a.m. to 3:5 p.m. (Chicago time). FTSE China 50 Mini Index Options Contract Specifications Trading Symbol: FXTM Settlement Value Symbol: FTS Description: The FTSE China 50 Index is a real-time tradable index comprising 50 of the largest and most liquid Chinese stocks (H Shares, Red Chips and P Chips) listed and trading on the Stock Exchange of Hong Kong (SEHK). The index is specifically designed for international investors, combining the ease of trading on SEHK with a methodology to meet fund regulatory requirements worldwide. Multiplier: $00.

5 Premium Quotation: Stated in points, one point equals $00. Minimum tick for series trading below $3 is 0.05 ($5.00); at or above $3 is 0.0 ($0.00). Strike (Exercise) Prices: In-, at- and out-of-the-money strike prices are initially listed. New strikes can be added as the underlying trades through the highest and lowest strike price available. Strike Price Interval: Strike prices may be listed with a minimum interval of 2.5 points if the strike price is less than 200. When the strike price is 200 or above, strike price intervals will be no less than 5 points. Expiration Months: Up to 2 near-term months. In addition, the Exchange may list up to 0 FXTM LEAPS expiration months that expire from 2 to 60 months from date of issuance. Expiration Date: The third Friday of the expiration month. Exercise Style: European and A.M.-settled FXTM options generally may be exercised only on the Expiration Date. Pending Regulatory Approval. Last Trading Day: Trading in expiring FXTM options will ordinarily cease on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated. Settlement of Option Exercise: Exercise will result in delivery of cash on the business day following expiration. The exercise settlement value [FTS] is one-hundredth (/00th) of the official closing value of the FTSE China 50 Index XINOI Index - as reported by FTSE on the expiration date of the expiring contract. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $00. Position and Exercise Limits: The position limit is 25,000 contracts on the same side of the market, with no more than 5,000 contracts in the near term expiration month and the exercise limit is 5,000 contracts. Customer Strategy -Based Margin: Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 00% of the option proceeds* plus 5% of the aggregate contract value (current index level x $00) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 0% of the aggregate contract value and a minimum for puts of option proceeds* plus 0% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rules 2.3(h) and 2.0.

6 Customer Portfolio Margin: FXTM options are eligible for a portfolio margin account. FXTM options are accommodated in the China Indexes Product Group (8), with a 90% offset with the other classes contained in that Product Group. The magnitude of the valuation point range under CBOE Rule 2.4 (Portfolio Margin) for FXTM options held in a portfolio margin account is -0%/+0%. The current (spot or cash) FXTM index value will be used to calculate theoretical gains and losses for FXTM options. Additional margin may be required pursuant to Exchange Rule 2.0. CUSIP Number: 2506B09 Trading Hours: 8:30 a.m. to 3:5 p.m. (Chicago time). FTSE Emerging Index Options Contract Specifications DRAFT 0/08/206 (Index Ticker: Bloomberg = FTAG0 <Index>, Reuters =.FTAWALLER ) Trading Symbol: FTEM Settlement Value Symbol: EMS Description: The FTSE Emerging Index is a market-capitalization weighted index representing the performance of large and mid cap companies in Emerging Markets. The index is comprised of approximately 950 securities from 2 countries, and derived from the FTSE Global Equity Index Series (GEIS), which covers over 7,400 securities in 47 different countries and captures 98% of the world's investable market capitalization. Multiplier: $00. Premium Quotation: Stated in points, one point equals $00. Minimum tick for series trading below $3 is 0.05 ($5.00); at or above $3 is 0.0 ($0.00). Strike (Exercise) Prices: In-, at- and out-of-the-money strike prices are initially listed. New strikes can be added as the underlying trades through the highest and lowest strike price available. Strike Price Interval: Strike prices may be listed with a minimum interval of 2.5 points if the strike price is less than 200. When the strike price is 200 or above, strike price intervals will be no less than 5 points. Expiration Months:

7 Up to 2 near-term months. In addition, the Exchange may list up to 0 FTEM LEAPS expiration months that expire from 2 to 60 months from date of issuance. Expiration Date: The third Friday of the expiration month. Exercise Style: European and P.M.-settled FTEM options generally may be exercised only on the Expiration Date. Pending Regulatory Approval. Last Trading Day: Trading in standard FTEM options will ordinarily cease at 3:00 p.m. Central Time on the expiration date (usually a Friday). Trading in all other FTEM options will ordinarily cease on the expiration date. Settlement of Option Exercise: Exercise will result in delivery of cash on the business day following expiration. The exercise-settlement value, [EMS], is the official closing value of the FTSE Emerging Index as reported by FTSE Russell on the last trading day of the expiring contract. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $00. Position and Exercise Limits: The position limit is 25,000 contracts on the same side of the market, with no more than 5,000 contracts in the near term expiration month and the exercise limit is 5,000 contracts. Customer Strategy -Based Margin: Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Purchases of puts or calls with more than 9 months until expiration may be effected on a margin basis and must comply with Exchange Rule 2.3(c)(4)(B). Writers of uncovered puts or calls must deposit / maintain 00% of the option proceeds* plus 5% of the aggregate contract value (current index level x $00) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 0% of the aggregate contract value and a minimum for puts of option proceeds* plus 0% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rules 2.3(h) and 2.0. Customer Portfolio Margin: FTEM options are eligible for a portfolio margin account. FTEM options are accommodated in the Emerging Markets Indexes Product Group (523), with an 85% offset with the other classes contained in that Product Group. The magnitude of the valuation point range under CBOE Rule 2.4 (Portfolio Margin) for FTEM options held in a portfolio margin account is +/-0%. The current (spot or cash) FTEM index value will be used to calculate theoretical gains and losses for FTEM options. Additional margin may be required pursuant to Exchange Rule 2.0. CUSIP Number: 2507R03 Trading Hours: 8:30 a.m. to 3:5 p.m. (Chicago time).

8 FTSE Developed Europe Index Options Contract Specifications DRAFT 0/08/206 (Index Ticker: Bloomberg = AWDEURSE <Index>, Reuters =.FTAWDEURSE ) Trading Symbol: AWDE Settlement Value Symbol: AWS Description: The FTSE Developed Europe Index is a market-capitalization weighted index representing the performance of large and mid cap companies in Developed European markets, including the UK. The index is comprised of approximately 500 securities from 6 countries, and derived from the FTSE Global Equity Index Series (GEIS), which covers over 7,400 securities in 47 different countries and captures 98% of the world's investable market capitalization. Multiplier: $00. Premium Quotation: Stated in points, one point equals $00. Minimum tick for series trading below $3 is 0.05 ($5.00); at or above $3 is 0.0 ($0.00). Strike (Exercise) Prices: In-, at- and out-of-the-money strike prices are initially listed. New strikes can be added as the underlying trades through the highest and lowest strike price available. Strike Price Interval: Strike prices may be listed with a minimum interval of 2.5 points if the strike price is less than 200. When the strike price is 200 or above, strike price intervals will be no less than 5 points. Expiration Months: Up to 2 near-term months. In addition, the Exchange may list up to 0 AWDE LEAPS expiration months that expire from 2 to 60 months from date of issuance. Expiration Date: The third Friday of the expiration month. Exercise Style: European and P.M.-settled AWDE options generally may be exercised only on the Expiration Date. Pending Regulatory Approval. Last Trading Day: Trading in standard AWDE options will cease at 0:00 a.m. Central Time on the expiration date (usually a

9 Friday). Trading in all other AWDE options will ordinarily cease on the expiration date. Settlement of Option Exercise: Exercise will result in delivery of cash on the business day following expiration. The exercise-settlement value, [AWS], is the official closing value of the FTSE Developed Europe Index as reported by FTSE Russell on the last trading day of the expiring contract. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option, multiplied by $00. Position and Exercise Limits: The position limit is 25,000 contracts on the same side of the market, with no more than 5,000 contracts in the near term expiration month and the exercise limit is 5,000 contracts. Customer Strategy -Based Margin: Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Purchases of puts or calls with more than 9 months until expiration may be effected on a margin basis and must comply with Exchange Rule 2.3(c)(4)(B). Writers of uncovered puts or calls must deposit / maintain 00% of the option proceeds* plus 5% of the aggregate contract value (current index level x $00) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 0% of the aggregate contract value and a minimum for puts of option proceeds* plus 0% of the aggregate exercise price amount. (*For calculating maintenance margin, use option current market value instead of option proceeds.) Additional margin may be required pursuant to Exchange Rules 2.3(h) and 2.0. Customer Portfolio Margin: AWDE options are eligible for a portfolio margin account. AWDE options are accommodated in the European Markets Product Group (42), with an 85% offset with the other classes contained in that Product Group. The magnitude of the valuation point range under CBOE Rule 2.4 (Portfolio Margin) for AWDE options held in a portfolio margin account is -8%/+6%. The current (spot or cash) AWDE index value will be used to calculate theoretical gains and losses for AWDE options. Additional margin may be required pursuant to Exchange Rule 2.0. CUSIP Number: 2507T09 Trading Hours: 8:30 a.m. to 3:5 p.m. (Chicago time).