[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13376-13378]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06517]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85458; File No. SR-CBOE-2019-018]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Rule 6.42, Interpretation and Policy .04 To Specify That
Replacement Issues May Be Added to the Penny Pilot Program (``Pilot'')
on a Quarterly Basis, Without Altering the Expiration Date of the
Pilot, Which Is June 30, 2019
March 29, 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 March 22, 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 and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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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 Rule 6.42, Interpretation and Policy .04 to specify that
replacement issues may be added to the Penny Pilot Program (``Pilot'')
on a quarterly basis, without altering the expiration date of the
Pilot, which is June 30, 2019. The text of the proposed rule change is
provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 6.42. Minimum Increments for Bids and Offers
(a)-(b) No change.
. . . Interpretations and Policies:
.01-.03 No change.
.04 The Exchange may replace any option class participating in
the Penny Pilot Program that has been delisted with the next most
actively traded, multiply listed option class, based on national
average daily volume in the preceding six calendar months, that is
not yet included in the Pilot Program. Any replacement class would
be added on the second trading day in the first month of each
quarter [following January 1, 2019]. The Penny Pilot will expire on
June 30, 2019.
* * * * *
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.
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 Rule 6.42, Interpretation and Policy
.04, regarding the Pilot, to specify that replacement issues may be
added to the Pilot on a quarterly basis, without altering the
expiration date of the Pilot, which is June 30, 2019. The Exchange
recently filed to extend the Pilot until June 30, 2019 (from December
31, 2018) and also updated the rule text to provide that replacement
issues may be added to the Pilot on the second trading day following
January 1, 2019.\5\ The
[[Page 13377]]
Rule authorizes the Exchange to replace any options issues in the Pilot
that have been delisted with the next most actively traded multiply
listed options classes that are not yet included in the Program, based
on trading activity in the previous six months.\6\ The Exchange
proposes to modify Rule 6.42, Interpretation and Policy .04 to allow
the Exchange to add replacement issues (for Pilot issues that have been
delisted) on a quarterly basis. The Exchange added replacement issues
in January 2019 and would be able to add eligible replacement issues in
April, July and October. The Exchange believes this change would allow
the Exchange to update issues eligible for the Pilot (by replacing
delisted issues) on a quarterly basis (as opposed to semi-annual) and
would enable further analysis of the Pilot and a determination of how
the Pilot should be structured in the future.
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\5\ See Securities Exchange Act Release No. 84940 (December 21,
2018), 83 FR 67759 (December 31, 2018) (SR-CBOE-2018-076). On
January 3, 2019, the Exchange added new issues to replace delisted
Pilot issues, as announced by Product Update, available here, http://markets.cboe.com/resources/product_update/2019/Penny-Pilot-Replacement-Classes-for-January-3-2019-Updated.pdf.
\6\ See Rule 6.42, Interpretation and Policy .04.
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As is the case today, the Exchange will determine replacement
issues based on trading activity in the previous six months (the ``six-
month lookback'') but will not use the month immediately preceding the
addition of a replacement to the Pilot. Thus, a replacement class to be
added on the second trading day following April 1, 2019 would be
identified based on The Option Clearing Corporation's trading volume
data from September 1, 2018 through February 28, 2019.\7\ The Exchange
believes the six-month lookback is appropriate because this time period
would help reduce the impact of unusual trading activity as a result of
unique market events, such as a corporate action (i.e., it would result
in a more reliable measure of average daily trading volume than would a
shorter period).
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\7\ The Exchange will continue to announce the replacement
issues by Exchange Notice. See supra note 5.
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This filing does not propose any substantive changes to the Pilot:
All classes currently participating will remain the same and all
minimum increments will remain unchanged. The Exchange believes the
benefits to public customers and other market participants who will be
able to express their true prices to buy and sell options have been
demonstrated to outweigh the increase in quote traffic.
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. Specifically, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(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 the Section
6(b)(5) requirement that the rules of an exchange not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
In particular, the Exchange believes the proposal to allow the
addition of replacement issues the Pilot on a quarterly basis would
result in a more current list of Pilot-eligible issues and would enable
further analysis of the Pilot, including for a determination of how the
Pilot should be structured in the future. Further, the Exchange
believes the six-month lookback is appropriate because this time period
would help reduce the impact of unusual trading activity as a result of
unique market events, such as a corporate action (i.e., it would result
in a more reliable measure of average daily trading volume than would a
shorter period). Thus, the Exchange believes this proposal would
promote just and equitable principles of trade, foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and remove impediments to and perfect the mechanisms of a
free and open market and a national market system.
The Exchange notes that it is not making any other substantive
changes to the Pilot, other than modifying the timing for replacement
issues and therefore the Exchange will continue to participate in a
program that has been viewed as beneficial to traders, investors and
public customers and viewed as successful by the other options
exchanges participating in it. The Exchange believes that the Pilot
would continue to promote just and equitable principles of trade by
enabling public customers and other market participants to express
their true prices to buy and sell options to the benefit of all market
participants.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the Exchange
believes that allowing the Exchange to add replacement issues to the
Pilot on a quarterly basis would make the list of Pilot-eligible issues
more current and would enable further analysis of the Pilot, including
for a determination of how the Pilot should be structured in the
future. In doing so, the proposed rule change will also serve to
promote regulatory clarity and consistency, thereby reducing burdens on
the marketplace and facilitating investor protection. The Pilot Program
is an industry-wide initiative supported by all other option exchanges.
The Exchange believes that the proposed change would allow for
continued competition between Exchange market participants trading
similar products as their counterparts on other exchanges, while at the
same time allowing the Exchange to continue to compete for order flow
with other exchanges in option issues trading as part of the Pilot.
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 Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
[[Page 13378]]
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \10\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest. The change will allow
the Exchange to add classes to the pilot that are actively traded at
the start of the second quarter (i.e., in April 2019) and replace those
that have been delisted and are no longer trading on a more frequent
basis. This will help ensure that the top 363 most actively traded,
multiply-listed classes are included in the Pilot, which will enable
further analysis of the Pilot.\12\
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6)(iii).
\12\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such 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 shall institute proceedings under
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\13\ 15 U.S.C. 78s(b)(2)(B).
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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-2019-018 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-2019-018. 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-2019-018 and
should be submitted on or before April 25, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06517 Filed 4-3-19; 8:45 am]
BILLING CODE 8011-01-P