[Federal Register Volume 84, Number 77 (Monday, April 22, 2019)]
[Notices]
[Pages 16701-16709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07983]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85657; File No. SR-CBOE-2019-017]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Update
Defined Terms in Its Rules, Delete Obsolete and Redundant Language, and
Make Other Nonsubstantive Changes
April 16, 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 April 10, 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 the
Substance of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to update defined terms in its Rules, delete obsolete and redundant
language, and make other nonsubstantive changes. 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.
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
Rule 1.1 currently contains definitions of terms used throughout
the Cboe Options Rules. Each defined term is currently contained in a
lettered paragraph within Rule 1.1. The proposed rule change first puts
the defined terms in alphabetical order so that market participants can
better locate defined terms within the Rules.
The proposed rule change also moves certain defined terms from
other Rules to Rule 1.1, adds certain defined terms, makes certain
nonsubstantive changes to existing definitions, and makes the changes
described in the following table. The proposed rule change makes
changes throughout the Rules to conform to the changes to defined
terms.\5\
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\5\ For example, the proposed rule change deletes the definition
of ``National Spread Market'' from Rule 6.25, Interpretation and
Policy .07(b), and deletes the definition of ``Exchange Spread
Market'' from Rule 6.53C, Interpretation and Policy .06(b)(2), as
each term is defined in Rule 1.1.
[[Page 16702]]
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Current Cboe Description of
Defined term Provision options rule change .
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Aggregate Exercise the exercise 1.1(t) and Applied the
Price. price of an 24.1(c). definition to
option contract index options
multiplied by and delete
(a) for equity redundant
options, the definition in
number of units Rule 24.1(c).
of the
underlying
security or (b)
for index
options, the
index multiplier
for the
underlying index
covered by the
option contract.
American-Style option contract 1.1(vv)........ No change to
Option. that, subject to definition,
the provisions but delete
of Rule 11.1 redundant
(relating to the definitions in
cutoff time for Rule 24.1(m).
exercise
instructions)
and to the Rules
of the Clearing
Corporation, may
be exercised on
any business day
prior to and on
its expiration
date..
BBO................ the best bid or 6.45(a)(ii)(c)( Moved to Rule
offer 2) and other 1.1.
disseminated on Rules.
the Exchange.
Bid................ the price of a N/A............ Added to Rule
limit order or 1.1.\6\
quote to buy one
or more options
contracts.
Board.............. the Exchange's N/A (Board of Added to Rule
Board of Directors is 1.1.
Directors. currently
referenced
throughout the
Rules).
Book and Simple electronic book 1.1(rrr)....... Adding that
Book. of simple orders Book may also
and quotes be referred to
maintained by as Simple
the System. Book.
Call............... an option 1.1(o) and Added
contract under 24.1(b). clarifying
which the holder language and
of the option applied the
has the right, definition to
in accordance index options;
with the terms \7\ deletes
of the option redundant
and the Rules of definition in
the Clearing 24.1(b).
Corporation, to
purchase from
the Clearing
Corporation (a)
for equity
options, the
number of units
of the
underlying
security covered
by the option
contract, at a
price per unit
equal to the
exercise price,
or (b) for index
options, the
current index
value times the
index multiplier
upon the timely
exercise of the
option.
Capped-Style Option option contract 1.1(ww) and No change;
that is 24.1(o). delete
automatically redundant
exercised when definition in
(a) for equity 24.1(o).
options, the cap
price is reached
or (b) for index
options, the cap
price is less
(greater) than
or equals the
closing index
value for calls
(puts). If this
does not occur
prior to
expiration, it
may be
exercised,
subject to the
provisions of
Rule 11.1
(relating to the
cutoff time for
exercise
instructions)
and to the Rules
of the Clearing
Corporation,
only on its
expiration date;
CAPSTM refers to
capped-style
options traded
on the Exchange.
Class and Hybrid all option 1.1(q)......... Deletes
Class. contracts with unnecessary
the same unit of reference to
trading covering options, given
the same only options
underlying trade on the
security or Exchange;
index. applies the
definition to
index option;
deletes that a
class means
options of the
same type
(currently
defined as put
or call), as a
class is
comprised of
both puts and
calls; adds
that a class
is comprised
of option
contracts with
the same unit
of trading
covering the
same
underlying
security or
index
(discussed
below).\8\
Clearing Options Clearing 1.1(d)......... Adding that the
Corporation and Corporation. Clearing
OCC. Corporation
may also be
referred to as
OCC.
Clearing Trading a Trading Permit 1.1(f)......... Added that
Permit Holder. Holder that has Clearing
been admitted to Trading Permit
membership in Holders self-
the Clearing clear or clear
Corporation on behalf of
pursuant to the others
provisions of (consistent
the rules of the with Cboe
Clearing Options
Corporation and today).\9\
is self-clearing
or that clears
transactions for
other Trading
Permit Holders.
Commission and SEC. U.S. Securities 3.1(a)(vi) and Moved to Rule
and Exchange other Rules. 1.1 and adding
Commission. that the
Commission may
also be
referred to as
SEC.
[[Page 16703]]
Complex Order...... order involving 6.42 and Added general
the concurrent 6.53C(a)(1). definition of
execution of two complex order;
or more \10\ the
different series definition of
in the same complex order
class (the with respect
``legs'' or to Rules 6.9,
``components'' 6.42, 6.45,
of the order), and 6.74 is
for the same limited
account, pursuant to
occurring at or those Rules,
near the same so the
time and for the proposed
purpose of definition
executing a notes the
particular limitations
investment currently set
strategy with no forth in those
more than the Rules (and
applicable deletes them
number of legs from the
(which number specified
the Exchange Rules);
determines on a clarified that
class-by-class complex orders
basis); the for the
Exchange purpose of
determines in electronic
which classes processing
complex orders have a
are eligible for different
processing; definition.\11
unless the \
context
otherwise
requires, the
term complex
order includes
stock-option
order and
security future-
option order;
for purposes of
electronic
trading, the
term ``complex
order'' has the
meaning set
forth in Rule
6.53C; for
purposes of
Rules 6.9, 6.42,
6.45(b), and
6.74, the term
``complex
order'' means a
spread order,
combination
order, straddle
order, or ratio
order (each as
defined in Rule
6.53), a stock-
option order, a
security future-
option order, or
a complex order
as defined Rule
6.53C.
Customer........... Public Customer N/A............ Added to Rule
or broker-dealer. 1.1; new
definition in
the Rules, but
concept of
customers
exists
throughout
current Rules
(including in
priority
rules).
Customer Order..... agency order for N/A............ Added to Rule
the account of a 1.1.
Customer.
DEA................ designated 3.6A(b) and Moved to Rule
examining others. 1.1.
authority.
Discretion......... authority of a N/A............ Added to Rule
broker or dealer 1.1; \12\
to determine for concept of
a Customer the broker
type of option, discretion
class or series contained in
of options, the various Rules
number of (see, e.g.,
contracts, or Rule 6.75).
whether options
are to be bought
or sold.
DPM Designee....... has the meaning 8.81........... Added to Rule
set forth in 1.1 a
Rule 8.81. reference to
the
definition.
Equity Option...... option on an N/A (equity Added to Rule
equity security options 1.1, and
(including Units permitted by clarifying
(or ETFs) or Chapter 5). that equity
Index-Linked options
Securities (or includes
ETNs)). options on
ETFs and ETNs
(both of which
are permitted
to be listed
pursuant to
Rule 5.3).
European-Style option contract 1.1(uu) and No change to
option. that, subject to 24.1(k). definition,
the provisions but delete
of Rule 11.1 redundant
(relating to the definitions in
cutoff time for Rule 24.1(k).
exercise
instructions)
and to the Rules
of OCC, may be
exercised only
on its
expiration date.
Exchange or Cboe Cboe Exchange, N/A (but Added to rule
Options. Inc. referenced 1.1.
throughout).
Exchange Act....... Securities 1.1............ Added rules and
Exchange Act of regulations,
1934, including to which the
rules and Exchange is
regulations also subject.
thereunder.
Exercise Price..... the specified 1.1(s) and Applied the
price per unit 24.1(d). definition to
at which (a) for index options;
equity options, deletes
the underlying redundant
security or (b) definition in
for index Rule 24.1(d).
options, current
index value may
be purchased or
sold upon the
exercise of an
option contract.
Expiration Date.... third Friday of 1.1............ Deleted
expiration month. language about
series that
expire on
Saturday
rather than
Friday, as no
more
grandfathered
series are
listed on the
Exchange.
FINRA.............. Financial 17.2, Added to Rule
Industry Interpretation 1.1.
Regulatory and Policy .05
Authority, Inc. and other
Rules.
Floor Broker....... has the meaning 6.70........... Added to Rule
set forth in 1.1 a
Rule 6.70. reference to
the
definition.
He, Him, His....... deemed to refer N/A............ Added to Rule
to persons of 1.1.
female as well
as male gender
and to include
organizations,
as well as
individuals,
when the context
requires.
Index-Linked shares or other 5.3, Added to Rule
Security or ETN. securities Interpretation 1.1.
traded on a and Policy .13.
national
securities
exchange and
defined as an
``NMS stock'' as
set forth in
Interpretation
and Policy .13.
Index Option....... option on a broad- N/A (index Added to Rule
based, narrow- options 1.1.
based, micro permitted by
narrow-based or Chapter 24).
other index of
equity
securities
prices.
Lead Market-Maker has the meaning 8.15........... Added to Rule
or LMM. set forth in 1.1 a
Rule 8.15. reference to
the
definition.
Limit Up-Limit Down has the meaning 6.3A........... Added to Rule
State. set forth in 1.1 a
Rule 6.3A. reference to
the
definition.
Market-Maker....... has the meaning 8.1............ Added to Rule
set forth in 1.1 a
Rule 8.1. reference to
the
definition.
[[Page 16704]]
NBB, NBO, and NBBO. the national best 6.80 Added to Rule
bid, the (referenced 1.1.
national best throughout the
offer, and the Rules).
national best
bid or offer the
Exchange
calculates based
on market
information it
receives from
OPRA.
NMS Stock.......... has the meaning 5.3(a)(1) and Added to Rule
set forth in other Rules. 1.1.
Rule 600 of
Regulation NMS
of the Exchange
Act.
Notional Value..... value calculated 6.25(e)(1)(C).. Added to Rule
by multiplying 1.1.
the number of
contracts
(contract size
multiplied by
the contract
multiplier) in
an order by the
order's limit
price.
Offer.............. the price of a N/A............ Added to Rule
limit order or 1.1.\13\
quote to sell
one or more
option contracts.
OLPP............... Options Listing 5.5A........... Moved to Rule
Procedures Plan. 1.1.
OPRA............... Options Price 6.43........... Moved to Rule
Reporting 1.1.
Authority.
Options Principal.. person engaged in N/A (but term Added to Rule
the management used in 1.1.\14\
and supervision various Rules).
of the TPH's
business
pertaining to
option contracts
that has
responsibility
for the overall
oversight of the
TPH's options-
related
activities on
the Exchange.
Order.............. firm commitment 1.1(ooo) and Moved market
to buy or sell 6.53. order and
option contracts. limit order
definitions to
Rule 1.1.\15\
Order Service Firm. has the meaning 6.77........... Added to Rule
set forth in 1.1 a
Rule 6.77. reference to
the
definition.
PAR Official....... has the meaning 6.12B.......... Added to Rule
set forth in 1.1 a
Rule 6.12B. reference to
the
definition.
Preferred Market- has the meaning 8.13........... Added to Rule
Maker or PMM. set forth in 1.1 a
Rule 8.13. reference to
the
definition.
Put................ option contract 1.1(n) and Added
under which the 24.1(a). clarifying
holder of the language and
option has the applied the
right, in definition to
accordance with index options;
the terms and \16\ deletes
provisions of redundant
the option and definition in
the Rules of the Rule 24.1(a).
Clearing
Corporation, to
sell to the
Clearing
Corporation (a)
for equity
options, the
number of units
of the
underlying
security covered
by the option
contract, at a
price per unit
equal to the
exercise price,
or (b) for index
options, the
current index
value times the
index multiplier
upon the timely
exercise of the
option.
Reporting authority with respect to a 24.1(h)........ Moved from
particular 24.1(h).
index, the
institution or
reporting
service
designated by
the Exchange as
the official
source for
calculating the
level of the
index from the
reported prices
of the
underlying
securities that
are the basis of
the index and
reporting such
level.
Series or Series of all option 1.1............ Clarified that
Options. contracts of the a series
same class that consists of
are the same options of the
type of option same type
and have the (i.e., options
same exercise with the same
price, and exercise price
expiration date. and date that
are calls are
a series, and
options with
the same
exercise price
and date that
are puts are
another
series).
Sponsored User..... has the meaning 6.20A.......... Added to Rule
set forth in 1.1 a
Rule 6.20A. reference to
the
definition.
System or Hybrid the Exchange's 1.1(aaa)....... As discussed
Trading System. trading platform below, deletes
that allows reference to
Market-Makers to Hybrid 3.0
submit platform and
electronic indicates it
quotes in their may be
appointed referred to as
classes and any System in
connectivity to addition to
the foregoing Hybrid Trading
trading platform System.
that is
administered by
or on behalf of
the Exchange,
such as a
communications
hub.
Trading Session.... hours during 6.1 and 6.1A... Added to Rule
which the 1.1.
Exchange is open
for trading for
Regular Trading
Hours or Global
Trading Hours,
each as defined
in Rule 6.1.
Transaction or transaction 1.1(l)......... Updated and
Exchange involving a simplified the
transaction. contract definition to
effected on or conform to the
through the definition of
Exchange or its transaction in
facilities or C2 Rule 1.1.
systems.
UIT Interest....... share, unit, or 1.1(rr) and Combined
other interest Interpretation definition and
in or relating and Policy .01. types of UIT
to a unit interests into
investment a single term.
trust, including
any component
resulting from
the subdivision
or separation of
such an interest.
Unit or ETF........ shares or other 5.3, Added to Rule
securities Interpretation 1.1.
traded on a and Policy .06
national and 5.8(b).
securities
exchange and
defined as an
``NMS stock'' as
set forth in
Interpretation
and Policy .06.
Unit of Trading.... defined in Rule 6.40........... Added to Rule
6.40. 1.1 a
reference to
the
definition.
Web CRD............ the Central 2.23, Moved to 1.1.
Registration Interpretation
Depository and Policy .02
operated by and other
FINRA. Rules.
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[[Page 16705]]
As noted above, the proposed rule change amends the definition of
class to mean all option contracts with the same unit of trading
(including adjusted series as determined by OCC) covering the same
underlying security or index. The current definition states a class
consists of options of the same type, which is defined as either a put
or a call. This definition of class corresponds to the definition as
used when options trading began on the Exchange in the 1970s. However,
as options trading grew, the term class became understood to include
both puts and calls. This is consistent with current industry use of
the term ``class'' and use of the term class throughout the Exchange's
Rules. Because a class is generally understood to include both puts and
calls, which are types of series, not separate classes, the current
definition of class is outdated. As described above, options with the
same exercise price and expiration date that are puts constitute one
series, and options with the same exercise price and expiration date
that are calls constitute another series. Additionally, there are some
exceptions for options that cover the same underlying but constitute a
separate class, and the proposed definition incorporates this
concept.\17\ For example, mini-options cover the same underlying
security as standard options, but are considered as separate class
since they have a different deliverable (10 shares of the underlying
security rather than 100 shares of the underlying security,
respectively). Additionally, when OCC adjusts series in connection with
corporate actions (see Rule 5.7), it announces whether those series are
part of the same existing class or a new class covering the same
underlying security. The concept of unit of trading more accurately
describes the series that constitute a class (e.g., the unit of trading
for a mini-option is 10, and the unit of trading for a standard option
is 100, making each a separate class under the proposed definition).
The proposed definition accounts for these exceptions, and is a more
accurate definition of what options constitute a class today on the
Exchange.\18\
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\6\ The proposed definition is consistent with the industry term
``bid'' and is the same as the definition of bid in C2 Rule 1.1 and
EDGX Rule 16.1(a)(6).
\7\ The proposed definition is the same as the definition of
call in C2 Rule 1.1 and EDGX Rule 16.1(a)(12).
\8\ The proposed rule change is the same as the definition of
class in C2 Rule 1.1.
\9\ The proposed rule change is the same as the definition of
Clearing Trading Permit Holder in C2 Rule 1.1.
\10\ The proposed rule change is substantially similar the
definition of complex orders that are permitted in open outcry of
other exchanges. See, e.g, BOX Exchange LLC (``BOX'') Rule
7600(a)(4); and Nasdaq Phlx, LLC (``Phlx'') Rule 1098(a)(i) and
(c)(iii).
\11\ The proposed rule change has no impact on the trading,
minimum increment, or priority of complex orders.
\12\ The proposed rule change is substantively the same as the
definition of discretion in C2 Rule 1.1 and EDGX Rule 16.1(a)(21).
\13\ The proposed definition is consistent with the industry
term ``offer'' and is the same as the definition of bid in C2 Rule
1.1 and EDGX Rule 16.1(a)(30).
\14\ The proposed definition is the same as the definition of
Options Principal in C2 Rule 1.1.
\15\ The proposed rule change deletes the concept of ``reaching
a post'' with respect to a market order, as that is solely related
to floor trading and also an obsolete term. Market orders may trade
on the floor or electronically, and trade at the best price
available at the time of execution (either on the trading floor or
in the System). The proposed rule change adds that a limit order to
buy (sell) is marketable when, at the time it enters the System or
is represented on the trading floor, the order is equal to or higher
(lower) than the then-current offer (bid), which is substantively
the same as the definition of limit order in C2 Rule 1.1.
\16\ The proposed definition is the same as the definition of
put in C2 Rule 1.1 and EDGX Rule 16.1(a)(49).
\17\ The proposed definition is the same as the definition of
class in C2 Rule 1.1. The proposed definition with respect to the
phrase ``unit of trading'' is consistent with the OCC definition of
that term (the Exchange notes the OCC definition continues to remain
outdated, as it still refers to a class consisting of contracts of
the same type (OCC By-Laws Article I, C.(11)). See OCC By-Laws
Article 1, U.(5)(a unit of trading. The proposed definition of unit
of trading is consistent with Rule 6.40.
\18\ The proposed rule change makes conforming changes to Rule
4.11, Interpretation and Policy .01(a) and 24A.7(a)(4), which
currently contain references to class as being puts only or calls
only. The term class with respect to these Rules regarding position
limits is currently interpreted to mean both puts and calls, as
described by the proposed definition of class.
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The proposed rule change alphabetizes the terms in Rule 6.53. In
addition, the proposed rule change conforms the definition of ISO to
the definition of ISO in C2 Rule 1.1 and moves the language regarding
how ISOs are not eligible for processing under Rule 6.14A to that Rule.
The proposed rule change amends the definition of a stop order to
eliminate the reference to a trade on the Cboe Options floor, as the
triggering trade may occur electronically (if the Exchange enables stop
orders for electronic trading pursuant to Rule 6.53). The proposed rule
change amends the definitions of FOK and IOC to provide that each may
execute electronically in addition to in open outcry.
The proposed rule change also adds the following order times-in-
force to Rule 6.53:
(a) Day: The term ``Day'' means, for an order so designated, an
order to buy or sell that, if not executed, expires at the close of
trading. While the term is not currently defined in the Rules, Day
orders are currently referenced in various Rules and is consistent with
current functionality.\19\
---------------------------------------------------------------------------
\19\ See, e.g., Rule 6.53C(c)(iii). The proposed definition of
Day is the same as the definition of Day in C2 Rule 1.1.
---------------------------------------------------------------------------
(b) Good-til-Cancelled or GTC: The terms ``Good-til-Cancelled'' or
``GTC'' mean, for an order so designated, if after entry into the
System, the order is not fully executed, the order (or unexecuted
portion) remains available for potential display or execution (with the
same timestamp) unless cancelled by the entering User, or until the
option expires, whichever comes first. While the term is not currently
defined in the Rules, GTC orders are currently referenced in various
Rules and is consistent with current functionality.\20\
---------------------------------------------------------------------------
\20\ See Rule 6.53C(c)(iii). The proposed definition of Day is
the same as the definition of Day in C2 Rule 1.1.
---------------------------------------------------------------------------
The proposed rule change deletes ``One-Cancels-the-Other'' from
current Rule 6.53(h). A one-cancels-the-other order consists of two or
more orders treated as a unit. The Execution of any one of the orders
causes the others to be cancelled. The Exchange no longer offers this
order instruction for any class, and does not intend to in the future.
The proposed rule change makes conforming changes throughout the Rules
to delete this term. The proposed rule change also moves the provisions
in Rule 6.53, Interpretation and Policy .01 to proposed Rule 6.45(d),
and moves the provisions in Rule 6.53, Interpretation and Policy .02 to
Rule 6.24(a)(5).
The proposed rule change makes nonsubstantive changes to the
introductory language of Rule 6.53 to provide that the Exchange
determines which order types are available (or not available) on a
class-by-class and system-by-system basis. This is consistent with the
flexibility currently provided by Rule 6.53.\21\
---------------------------------------------------------------------------
\21\ The proposed rule change is also substantively the same as
C2 Rule 6.10.
---------------------------------------------------------------------------
The proposed rule change amends Rule 6.12A(c) to state that, in
addition to the orders that may not route to PAR pursuant to Rule
6.12A(c), orders may not be eligible to route to PAR if the Rules or
context otherwise requires. For example, there are certain order types
not currently listed in Rule 6.12A(c) that may not route to PAR by
their terms.\22\ Which orders may route to PAR are listed on the
Exchange's website.\23\ The proposed rule change ensures consistency
throughout the Rules.
---------------------------------------------------------------------------
\22\ See, e.g., electronic-only order, opening rotation order.
\23\ See https://www.cboe.org/publish/opsettingsrth/operational-settings-for-rth.pdf.
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[[Page 16706]]
Various Rules provide the Exchange will generally announce any
determinations pursuant to those Rules by Regulatory Circular. The
Exchange announces determinations in a variety of ways, including
Regulatory Circular and Exchange Notice. Proposed Rule 1.2 states the
Exchange will announce to Trading Permit Holders all determinations it
makes pursuant to the Rules via (a) specifications, Notices, or
Regulatory Circulars with appropriate advanced notice, which will be
posted on the Exchange's website, (b) electronic message, or (c) other
communication method as provided in the Rules. To the extent the Rules
provide the Exchange will announce a determination via Regulatory
Circular, the Exchange may announce such determination via Notice.
Proposed Rule 1.2 makes clear this information will be available on
C2's website in an easily accessible manner, regardless of the manner
in which the Exchange announces it. Additionally, certain
determinations are made more real-time pursuant to electronic message
received by Trading Permit Holders (e.g., providing intra-day relief
for parameter settings in in price protection mechanisms described in
proposed Rule 6.14, Interpretation and Policy .01, other determinations
related to need to maintain fair and orderly market). This single rule
simplifies the Rules by eliminating the need to repeatedly state in the
rules how the Exchange will announce determinations.\24\
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\24\ Proposed Rule 1.2 is substantively the same as C2 Rule 1.2.
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The proposed rule change also deletes various Rules that are no
longer necessary or in use. First, the proposed rule change deletes
various Rules from Chapter II.\25\ Current Rule 2.1 provides that the
Board of Directors will have certain specified committees as well as
other committees it establishes in accordance with the Bylaws and the
Rules. Current Rule 2.2 provides the Board with the power to review
Exchange decisions. The Exchange's Bylaws describe all of the Board's
authority, include its authority to establish committees and to oversee
the Exchange's activities.\26\ Therefore, Rules 2.1 and 2.2 are
redundant and unnecessary to include in the Rules, and the proposed
rule change deletes them. Pursuant to the Bylaws, the Board will
continue to retain the same authority as provided by these Rules. The
Exchange notes other options exchanges do not contain similar rules.
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\25\ As a result of these deletions, the only remaining Rules in
Chapter II relate to fees and charges imposed on Trading Permit
Holders. The proposed rule change therefore renames Chapter II as
``Fees and Other Charges'' and deletes the different ``parts'' of
Chapter II that are no longer necessary.
\26\ See Bylaws Section 3 (providing the Board with, among other
things, all powers necessary for the management of the business and
affairs of the Exchange, the authority to exercise all power of the
Exchange, and the authority make decisions as it deems necessary or
appropriate) and Article IV (describing committees of the Board).
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Current Rule 2.15 describes divisions that the Exchange must have.
This Rule relates to the corporate and operational structure of the
Exchange, which is within the authority and discretion of Exchange
management, and does not relate to the how the Exchange operates or
regulates its market. Therefore, the proposed rule change deletes this
rule. Exchange management will continue to have the authority to
determine the Exchange's corporate structure in the same manner as it
does today. The Exchange notes other options exchanges not contain
similar rules.
Current Rule 2.22 provides the Exchange may, from time to time, fix
and impose fees and charges other than those provided for by current
Rule 2.20 to be paid to the Exchange or to an organization designated
by the Exchange by Trading Permit Holders or by categories of Trading
Permit Holders with respect to applications, registrations, approvals,
use of Exchange facilities, or other services or privileges granted.
However, current Rule 2.20 provides that the Exchange may fix, from
time to time, fees and charges payable by Trading Permit Holders. This
provision would include the fees and charges that the Exchange may
impose pursuant to Rule 2.22, and thus Rule 2.22 is redundant.
Therefore, the Exchange proposes to delete current Rule 2.22.
The proposed rule change renumbers the remaining Rules in Chapter
II--current Rules 2.20, 2.23, 2.24, and 2.51--to be Rules 2.1, 2.2,
2.3, and 2.4, respectively. The proposed rule change also makes
nonsubstantive changes to these Rules (including to make the Rules
plain English and update paragraph lettering). The proposed rule change
also updates cross-references as necessary throughout the Rules.
The following rules contain language that the C2 board of directors
may make certain trading decisions:
Rules 5.3(b) and Interpretation and Policy .01 and 5.4,
Interpretation and Policy .01, which state the Board may establish
guidelines the Exchange considers when evaluating potential underlying
securities for options transactions, and that the Board may establish
guidelines to be considered when the Exchange determines whether an
underlying security previously approved for Exchange option
transactions no longer meets its requirements for the continuance of
such approval.\27\
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\27\ The proposed rule change also deletes the provision in Rule
5.3(b) that states, in exceptional circumstances, an underlying
security may be approved by the Exchange even though it does not
meet all the guidelines. Rule 5.3, Interpretation and Policy .01
already provides that the guidelines set forth in that
interpretation and policy must be met except in exception
circumstances, and therefore the provision in Rule 5.3(b) is
redundant.
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Rules 6.1, 21.10, and 24.6, which states the Board
determines trading hours and Exchange holidays.\28\
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\28\ The proposed rule change also restructures Rule 6.1 to more
clearly present the Regular and Global Trading Hours for options on
securities and indexes, as well as identify other Rules that contain
trading hours for different option products, as well as to make
nonsubstantive changes (such as making the Rule plain English).
Additionally, because Rule 6.1 references other Rules related to
trading hours of different option products, the proposed rule change
amends certain of those Rules to delete provisions that state those
Rules replace or supplement Rule 6.1, as those Rules are part of
Rule 6.1 by reference. See Rule 21.10, 28.9, and 29.11.
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Rule 6.6(d), which provides the Board must approve any
Exchange restriction on the entry of stop, stop-limit, or market-if-
touched orders whenever market conditions warrant, if such restriction
is to be effective more than two consecutive business days.
Rule 6.17, which permits the Board to designate persons
other than the CEO or President to halt or suspend trading and take
other action if necessary or appropriate for the maintenance of a fair
and orderly market or the protection of investors, due to emergency
conditions, and requires the person taking action to notify the Board
of actions taken pursuant to that Rule.
Rule 8.7(d)(iv), which states an official designated by
the Board may call upon a Market-Maker to submit a quote or maintain
continuous quotes in a series of a class to which the Market-Maker is
appointed.
Rule 8.87, which permits the board to establish a
participation entitlement formula applicable to DPMs.
These decisions relate to Exchange trading and operations, and thus
are made by Exchange management, rather than the Board, which generally
is not involved in determinations related to day-to-day operations of
the Exchange. Therefore, the proposed rule change modifies these
provisions to indicate the Exchange or senior Exchange officials, as
applicable, will make these determinations rather than the Board. The
Exchange notes pursuant to corresponding C2 and EDGX rules, those
exchanges or senior exchange officials makes those determinations
rather than the exchange's board.
[[Page 16707]]
The proposed rule change deletes the following obsolete rules or
redundant Rules and related provisions:
Hybrid 3.0: The Rules currently provide that the Exchange
has two trading platforms, and the Exchange determines on which
platform each class of options will trade.\29\ Currently, the Exchange
has determined that all option classes trade on the Hybrid Trading
System, and no option classes trade on the Hybrid 3.0 Platform.\30\ The
Exchange has no intention of trading any option classes on the Hybrid
3.0 Platform in the future. Therefore, the proposed rule change deletes
all rule provisions related to and references to the Hybrid 3.0
Platform, as well as the concept of multiple trading platforms.\31\
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\29\ See current Rule 8.14(a).
\30\ See current Rule 1.1(aaa) (definition of Hybrid Trading
System and Hybrid 3.0 Platform).
\31\ See Rules 1.1 (including definitions of Hybrid Trading
System, Voluntary Professional, Professional, and broker-dealer
order), 6.1A(b), 6.2(h) and Interpretation and Policy .05, 6.11,
6.12A(b)(v), 6.13(a), (b)(i)(A)(2) and (C)(1), 6.14A(a)(iii),
6.43(b), 6.45(c)(i)(C) and Interpretations and Policies .01 through
.04, 6.53C, Interpretation and Policy .10, 8.3(c)(iii) and (iv),
8.7, Interpretation and Policy .03 (the proposed rule change
restructures this Interpretation and Policy, as there is no longer a
need for separately lettered paragraphs), 8.14(a), (b), and
Interpretation and Policy .01, 8.15(c) and Interpretation and Policy
.03, 8.18 (eliminating reference to Market-Makers as ``Hybrid
Market-Makers,'' as the term Market-Makers is sufficient given that
all appointed classes are Hybrid classes), 8.83(g), 8.85(e), and
24.9(d)(6).
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Order Book Officials: Recently, the Exchange deleted Rules
related to Order Book Officials, who were Exchange employees
responsible for maintaining the book with respect to classes assigned
to them, effecting proper executions of orders placed with them,
displaying bids and offers, and monitoring the market for classes
assigned to them. The Exchange currently has no employees designated
as, and does not intend to designate any employees as, Order Book
Officials, as Order Book Official functions are generally obsolete now
that most trading occurs electronically.\32\ Several references to
Order Book Officials were inadvertently left in the Rules, and the
proposed rule change deletes those references.\33\
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\32\ Securities Exchange Act Release No. 34-82529 (January 18,
2018), 83 FR 3372 (January 24, 2018) (SR-CBOE-2018-003).
\33\ See Rules 3.9, Interpretation and Policy .02, 6.3B,
Interpretation and Policy .01(c), 6.24, Interpretation and Policy
.02, 6.46, 6.51, Interpretation and Policy .01, 6.74(a) and (d),
8.7, Interpretation and Policy .03, 8.17(b), 21.18, 24.13,
Interpretation and Policy .02, and 29.17.
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Quote Indications: Rule 6.1, Interpretation and Policy .05
permits the Exchange to designate classes and time periods in which
TPHs may, prior to the scheduled opening rotation of Regular Trading
Hours, enter option market quote indications based upon the anticipated
opening price of the security underlying such designated option class.
The Exchange has not designated, and does not intend to designate, any
classes in which TPHs may enter these option market quote indications.
Therefore, the Exchange proposes to delete this Interpretation and
Policy. TPHs may submit orders and quote prior to the opening rotation
pursuant to Rule 6.2.
SAL: Rule 6.13A describes the Simple Auction Liaison
(``SAL''). SAL is a feature within the System that auctions marketable
orders for price improvement over the NBBO. Pursuant to current Rule
6.13A(a), the Exchange has the authority to activate SAL on a class-by-
class basis. Currently, the Exchange has not activated SAL for any
class, and does not intend to activate it for any class in the future.
Therefore, the proposed rule change deletes Rule 6.13A, and references
to that Rule and SAL in various Rules.
COATS Implementation Language: In 2005, the Exchange
adopted Rule 6.24 to require TPHs to systematize certain order
information in connection with the implementation of a consolidated
order audit trail (``COATS''). Rule 6.24 states the requirements of
that Rule were to commence on January 10, 2005, except for certain
classes, for which the requirements of that Rule were to commence on
March 28, 2005 (as set forth in paragraph (c)). As the requirements of
Rule 6.24 are in place and applicable to all classes, the proposed rule
change deletes those provisions.
Provision Related to Rule 6.13B: Rule 6.47, Interpretation
and Policy .02 indicates the applicability of Rule 6.47 to Rule 6.13B.
Rule 6.13B no longer exists, so the proposed rule change deletes that
Interpretation and Policy.
Transactions off the Exchange: Rule 19c-3 under the
Exchange Act describes a rule provision that each national securities
change must contain regarding the ability of members to engage in
transactions off an exchange. The proposed rule change adds this
provision to Interpretation and Policy .01(b). The proposed rule change
also deletes the introductory language in Interpretation and Policy
.01, as it is unnecessary. Rules 19c-1 and 19c-3 under the Exchange Act
only require the Exchange's Rules to include language set forth in
those Exchange Act Rules. The proposed rule change also amends the
current language in Interpretation and Policy .01 (proposed paragraph
(a)) to incorporate terms used throughout the Rules.
Leg Orders: Rule 6.53C(c)(iv) describes leg order
functionality, pursuant to which leg orders may be automatically
generated on behalf of complex orders so that they are represented in
the individual leg markets. The Exchange has not implemented, and does
not intend to implement, leg order functionality. Therefore, the
proposed rule change deletes Rule 6.53C(C)(iv), as well as related
provisions in current Interpretations and Policies .06, .07, and .12
and Rule 6.53(x).
Rules Related to Non-Option Transactions: Currently, the
Exchange only permits and has trading Rules related to options trading.
Rules 6.65 and 10.10 through 10.22 relate to transactions in stocks,
bonds, warrants, and other non-option products. Because these Rules do
not apply to options trading, the proposed rule change deletes them.
Brokerage Bills: Current Rules 6.76 and 6.76A describe
certain payment practices related to amounts due from a customer to a
broker. The Exchange no longer has a role in the billing brokerage
services provided to a customer. All provisions related to how the
Exchange bills Trading Permit Holders are contained in the Fees
Schedule and Rule 3.23. Therefore, the proposed rule change deletes
Rules 6.76 and 6.76A.
Class Quoting Limit: Current Rule 8.3A states the Exchange
may impose an upper limit on the aggregate number of Market-Makers that
may quote in each product (the ``CQL''). The Exchange no longer intends
to impose a limit on the aggregate number of TPHs that may quote
electronically in each product during a trading session, and thus
proposes to delete Rule 8.3A.\34\ The current limit for each class is
50 pursuant to Rule 8.1, Interpretation and Policy .01, and there is no
product for which the Exchange has increased the CQL, as the current
number of quoters per class is below this maximum. The Exchange
represents it has capacity to handle any additional quoters due to the
elimination of the CQL. The Exchange monitors System capacity in other
ways, making a CQL no longer necessary.\35\
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\34\ The proposed rule change deletes a cross-reference to Rule
8.3A in Rule 3.1(b)(ii).
\35\ See, e.g., Rule 6.23B.
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RFQ Functionality: Pursuant to Rule 8.14(b).3, the
Exchange may activate request-for-quote (``RFQ'') functionality in
index classes, and if it does, Market-Makers would have an obligation
to respond to a specified percentage of RFQs. The Exchange has
[[Page 16708]]
not activated, and does not intend to activate in the future, this RFQ
functionality for any index class. Therefore, the proposed rule change
deletes this provision.
Trading Crowd Definition: Rule 1.1 defines in-crowd market
participants. A trading crowd in a pit on the Exchange's trading floor
today consists of market participants other than Market-Makers. The
definition of trading crowd in Rule 8.50 is outdated, and therefore the
proposed rule change deletes this Rule.
The proposed rule change makes additional nonsubstantive changes
throughout the Rules, including to make Rules plain English, update
paragraph lettering and numbering, update cross-references as
necessary, and add or modify headings and subheadings.
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.\36\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \37\ 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) \38\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
\38\ Id.
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In particular, the proposed rule change updates certain terms that
are currently outdated and clarifies applicability of other terms, and
deletes certain rules that are obsolete, no longer applicable to Cboe
Options trading, or duplicative, and makes other nonsubstantive
changes, such as reorganizing rules, updating paragraph lettering and
numbering, and making rule provisions plain English. The Exchange
believes this will more clearly identify currently applicable of rules,
which the Exchange believes removes impediments to and perfects the
mechanism of a free and open market. The Exchange believes the proposed
rule change will eliminate confusion regarding which rules apply to
current trading, which ultimately protects investors and the public
interest. These changes will have no impact on current trading on Cboe
Options.
B. Self-Regulatory Organization's Statement on Burden on Competition
Cboe Options 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. The proposed rule change to
delete rules that no longer apply to Cboe Options trading and make
other nonsubstantive changes will have no impact on current trading on
Cboe Options, and thus are not intended to have any impact on
competition. The proposed rule change eliminates confusion with respect
to rules applicable to current trading on Cboe Options.
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
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to Section 19(b)(3)(A) of the Act \39\ and
Rule 19b-4(f)(6) \40\ thereunder.\41\ 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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\39\ 15 U.S.C. 78s(b)(3)(A).
\40\ 17 CFR 240.19b-4(f)(6).
\41\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of 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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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-2019-017 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-2019-017. 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 such 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-2019-017, and
[[Page 16709]]
should be submitted on or before May 13, 2019.
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\42\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07983 Filed 4-19-19; 8:45 am]
BILLING CODE 8011-01-P