[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13337-13339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06523]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85465; File No. SR-CboeBZX-2019-020]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Rule 21.5, Interpretation and Policy .01 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 BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend Rule 21.5, Interpretation and Policy .01 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 BZX Exchange, Inc.

* * * * *
Rule 21.5. Minimum Increments
    (a)-(c) (No changes).

Interpretations and Policies

    .01 The Exchange will operate a pilot program set to expire on June 
30, 2019 to permit options classes to be quoted and traded in 
increments as low as $.01. The Exchange will specify which options 
trade in such pilot, and in what increments, in Information Circulars 
distributed to Members and posted on the Exchange's website. The 
Exchange may replace any penny pilot issues that have been delisted 
with the next most actively traded multiply listed options classes that 
are not yet included in the penny pilot, based on trading activity in 
the previous six months. The replacement issues may be added to the 
penny pilot on the second trading day in the first month of each 
quarter [following January 1, 2019].
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 21.5, Interpretation and Policy 
.01, 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 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 21.5, Interpretation 
and Policy .01 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. 84953 (December 26, 
2018), 84 FR 845 (January 31, 2019) (SR-CboeBZX-2018-093). 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 21.5, Interpretation and Policy .01.
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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

[[Page 13338]]

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 
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

[[Page 13339]]

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-CboeBZX-2019-020 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-CboeBZX-2019-020. 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-CboeBZX-2019-020 and 
should be submitted on or before April 25, 2019.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06523 Filed 4-3-19; 8:45 am]
BILLING CODE 8011-01-P