[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50721-50722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21784]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84344; File No. SR-CBOE-2018-056]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Order 
Approving a Proposed Rule Change To Adopt Rule 6.57, Risk-Weighted 
Asset (``RWA'') Packages

October 2, 2018.

I. Introduction

    On August 8, 2018, the Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to adopt Rule 6.57, Risk-Weighted Assets (``RWA'') 
Transactions. The proposed rule change was published for comment in the 
Federal Register on August 23, 2018.\3\ The Commission did not receive 
any comment letters on the proposed rule change. This order approves 
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. 83870 (August 17, 
2018), 83 FR 42725 (August 23, 2018) (``Notice'').
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II. Description of the Proposed Rule Change

    As described in more detail in the Notice,\4\ the Exchange proposes 
to adopt Rule 6.57 to provide a mechanism for Cboe Options market 
makers to submit an on-floor risk-weighted asset package (``RWA 
Package'') \5\ in the SPX trading crowd for the purpose of reducing 
risk-weighted asset (``RWA'') exposure in

[[Page 50722]]

open SPX positions across numerous series. RWA Packages may be executed 
in the SPX crowd on the trading floor if they meet certain conditions 
specified in Rule 6.57, including that they be initiated for the 
account(s) of a Cboe Options market maker, result in a change in 
beneficial ownership, and include a certification concerning the 
attributable net reduction of RWA.\6\
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    \4\ See id.
    \5\ An RWA Package is a set of SPX options positions with at 
least: 50 options series; 10 contracts per options series; and 
10,000 total contracts. See id. at 42726.
    \6\ See id. at 42726-27.
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    Further, Rule 6.57(c) sets forth a trading procedure that requires 
the entering firm to submit a list of the individual SPX options 
series, their size, and any net debit or credit bid price received, as 
well as contact information for the order.\7\ Cboe will thereafter post 
a list of the individual components of the RWA Package, the proposed 
net price for the RWA Package (if available), the contact information, 
and the time at which the two-hour request-for-quote period (``RFQ 
Period'') concludes.\8\
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    \7\ See id. at 42727.
    \8\ See id. The Exchange believed that this two-hour period was 
sufficient to allow members to review, price, and bid/offer for the 
RWA Package, because the RWA Package will be available in an 
electronic format and the Exchange believed that firms had access to 
electronic systems that will aid them in evaluating and pricing the 
SPX positions contained in an RWA Package. See id.
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    Rule 6.57(c) further specifies that the response that represents 
the best bid or offer on a net debit or credit basis for the RWA 
Package has priority.\9\ In the event that equal bids or offers are 
received, the first RFQ response at the best bid or offer on a net 
debit or credit basis for the RWA Package has priority.\10\ If 
executed, the representing party must report the details of the 
execution to the Exchange.\11\
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    \9\ See id.
    \10\ See id. at 42727.
    \11\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act,\12\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ which 
requires, among other things, that the rules of a national securities 
exchange be designed 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 that the 
rules are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f.
    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by providing a mechanism to facilitate the reduction of SPX 
options positions and concomitant RWA.\15\ Specifically, the Exchange 
represented that such a mechanism would help market makers to continue 
to provide critical liquidity in the options market by reducing RWA to 
comply with ``bank capital regulations that . . . are negatively 
impacting the ability of [market makers] clearing through bank-
affiliated clearing firms to provide liquidity.'' \16\ In reducing RWA, 
bank-affiliated clearing firms will be able to clear more market maker 
activity during periods of increased volume and volatility.\17\ In 
turn, market makers may be better able to continue quoting during those 
periods, lessening the risk of market dislocations or excess volatility 
that could occur if market makers needed to reduce their quoting 
activity during such periods to the detriment of investors.
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    \15\ See Notice, supra note 3, at 42726, 42730.
    \16\ Id. at 42726.
    \17\ See id.
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    Further, with respect to trading, the Exchange's rule is based on 
Rule 6.49A, which establishes a similar process for on-floor transfers, 
but improves upon that rule by adding certifications to assure 
compliance and increases transparency by electronically disseminating 
the list of series in a proposed RWA Package. All Cboe members will be 
given notice of and the ability to participate in the RWA Package 
trading process.
    Finally, the Commission notes the narrow scope of proposed Rule 
6.57. The proposed rule change would apply only to SPX options, which 
are particularly impacted by current bank-capital regulations, and any 
transaction must result in a net reduction of RWA. Furthermore, the 
proposed rule change is only effective for a limited term, ending two 
years from the approval date.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-CBOE-2018-056) be, and 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21784 Filed 10-5-18; 8:45 am]
 BILLING CODE 8011-01-P