[Federal Register Volume 84, Number 33 (Tuesday, February 19, 2019)]
[Notices]
[Pages 4878-4880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02611]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85114; File No. SR-CBOE-2019-006]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Its Financial Incentive Program for Lead Market-Makers
Appointed in MSCI EAFE Index (MXEA) Options and MSCI Emerging Markets
Index (MXEF) Options
February 12, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 1, 2019, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its financial incentive program for Lead Market-Makers
appointed in MSCI EAFE Index (MXEA) options and MSCI Emerging Markets
Index (MXEF) options. The text of the proposed rule change is provided
in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
[[Page 4879]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Fees Schedule to amend its
financial incentive program for Lead Market-Makers (``LMMs'') appointed
in MSCI EAFE Index (MXEA) options and MSCI Emerging Markets Index
(MXEF) options (collectively, MSCI options), effective February 1,
2019. By way of background, the Exchange recently adopted a program
which provided through December 31, 2018, a financial incentive to any
Market-Maker that was appointed as a LMM in MXEA and/or MXEF (``MSCI
LMM'') and met a heightened quoting standard, which is set forth in the
Fees Schedule.\3\ MSCI LMM(s) that meet the heightened quoting
standard, receive $20,000 per month/per product. The LMM receives
$20,000 per month/per class if it provides continuous electronic quotes
that meet or exceed a the heightened quoting standard set forth in the
Fees Schedule in at least 90% of the MXEA and/or MXEF series it must
quote pursuant to Rule 8.15(b) 90% of the time in a given month.
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\3\ MSCI LMMs serve as MSCI LMMs during the RTH session only.
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The Exchange first proposes to renew the MSCI program.
Particularly, as noted above, the Fees Schedule currently provides that
LMM(s) appointed in MXEA and MXEF will receive a payment of $20,000 per
class when they meet prescribed heightened quoting standards in a given
month and provides that the program will be in place through December
31, 2018. In order to continue to encourage LMM(s) in MXEA and MXEF to
provide significant liquidity in these options, the Exchange proposes
to renew this program through June 30, 2019.
Next, the Exchange proposes to increase the payment per class for
the month of February 2019. Specifically, the Exchange proposes to
provide that LMM(s) appointed in MXEA and MXEF will receive a payment
of $40,000 per class when it meets prescribed heightened quoting
standards in the month of February 2019. For the months of March 2019
through June 2019, the payment would be $20,000 per class per month.
Lastly, the Exchange proposes to amend the program to reduce the
amount of time a MSCI LMM needs to quote. Particularly, the Exchange
proposes to provide that in order to receive the financial benefit, a
MSCI LMM must meet the heightened quoting standard set forth in the
Fees Schedule in at least 90% of the MXEA and/or MXEF series it must
quote pursuant to Rule 8.15(b) 80% of the time in a given month
(instead of 90% of the time in a given month). Particularly, the
Exchange notes that if there is extreme volatility in the market during
a given month, it may become more difficult for a MSCI LMM to satisfy
the heightened quoting standard for 90% of the time in that given
month. As such, the Exchange proposes to provide the LMM more
flexibility by slightly reducing the amount of time it must meet the
heightened quoting standard. The Exchange believes the proposed change
is still commensurate with the financial benefit offered and that the
MSCI LMM financial program still encourages a MSCI LMM to provide
significant liquidity in MSCI options.
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 6(b) of the Act.\4\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \5\ 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
Section 6(b)(4) of the Act,\6\ which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its Trading Permit Holders and other persons using
its facilities.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
\6\ 15 U.S.C. 78f(b)(4).
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First, the Exchange believes that it is reasonable, equitable and
not unfairly discriminatory to renew the compensation plan for LMM(s)
appointed in MXEA and MXEF because the Exchange wants to ensure it
continues incentivizing the LMM(s) in these products to provide liquid
and active markets in these products to encourage its growth. The
Exchange notes that it had anticipated extending the MSCI Program for
the month of January 2019 as well, but due to the government shutdown,
was unexpectedly unable to do so.\7\ The Exchange also notes that the
current MSCI LMM met the heightened quoting standard for January 2019,
but because the Exchange was unable to extend the program as
anticipated, the LMM will not be receiving a payment under the program
for the month of January. In light of not being able to compensate the
LMM for the month of January, notwithstanding the LMM's continued
commitment to providing liquid and active markets in the MSCI products,
the Exchange believes it's reasonable to offer a payment of $40,000 per
class to the MSCI LMM for the month of February 2019, provided it meets
the heightened quoting standard for February 2019. The Exchange
believes it is equitable and not unfairly discriminatory to only offer
this financial incentive to the MSCI LMM because it benefits all market
participants trading in MSCI options to encourage the MSCI LMM to
satisfy the heightened quoting standard, which may increase liquidity
and provide more trading opportunities and tighter spreads. Indeed, the
Exchange notes that the LMM provides a crucial role in providing quotes
and the opportunity for market participants to trade MSCI products,
which can lead to increased volume, thereby providing a robust market.
The Exchange also notes that the MSCI LMM may have added costs each
month that it needs to undertake in order to satisfy that heightened
quoting standard (e.g., having to purchase additional bandwidth).
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\7\ See Cboe Options Notice, ``Cboe Options Exchange Fee
Schedule Changes Effective January 2, 2019'' Reference ID:
C2018122000.
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The Exchange believes the proposed change to reduce the quoting
time
[[Page 4880]]
requirement is reasonable as it only slightly reduces the amount of
time a MSCI LMM must meet the heightened quoting standard in a month.
Moreover, the Exchange believes reducing the amount of time a MSCI LMM
must meet the heightened quoting standard is reasonable as extreme
volatility in the market during a given month may make it more
difficult for a MSCI LMM to meet the heightened quoting standard for
the amount of time currently required. The proposed change, therefore,
provides a MSCI LMM more flexibility in meeting the heightened quoting
standard, even in extremely volatile months. Indeed, the Exchange
wishes to ensure a MSCI LMM is adequately incentivized to provide
liquid and active markets in the MSCI products to encourage its growth.
Additionally, if a MSCI LMM does not satisfy the heightened quoting
standard for the duration of the required time, even as amended, then
it simply will not receive the offered per class payment for that
month. The Exchange believes reducing the amount of time the LMM(s)
needs to quote is still commensurate with the financial benefit
offered. The Exchange believes that the program, even as amended, will
continue to encourage increased quoting to add liquidity in MSCI
products, thereby protecting investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that are not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because it applies uniformly to
any MSCI LMM, which market participant plays a crucial role in
providing active and liquid markets in the MSCI products. The Exchange
does not believe that the proposed rule change will impose any burden
on intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because MSCI options are
proprietary products that will only be traded on Cboe Options. To the
extent that the proposed changes make Cboe Options a more attractive
marketplace for market participants at other exchanges, such market
participants are welcome to become Cboe Options market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \8\ and paragraph (f) of Rule 19b-4 \9\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2019-006 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2019-006. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2019-006 and should be submitted on
or before March 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02611 Filed 2-15-19; 8:45 am]
BILLING CODE 8011-01-P