[Federal Register Volume 84, Number 169 (Friday, August 30, 2019)]
[Notices]
[Pages 45807-45810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18753]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86766; File No. SR-CBOE-2019-046]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Concerning
End-of-Month and End-of-Day Indicative Values
August 26, 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 August 12, 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 and move certain current Rules in connection with end-of-month
and end-of-day indicative values from the Exchange's currently
effective Rulebook (``current Rulebook'') to the shell structure for
the Exchange's Rulebook that will become effective upon the migration
of the Exchange's trading platform to the same system used by the Cboe
Affiliated Exchanges (as defined below) (``shell Rulebook''). 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/CBOELegalRegulatory
Home.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
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and,
[[Page 45808]]
together with Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe
Affiliated Exchanges''). The Exchange intends to migrate its trading
platform to the same system used by the Cboe Affiliated Exchanges,
which the Exchange expects to complete on October 7, 2019. In
connection with this technology migration, the Exchange has a shell
Rulebook that resides alongside its current Rulebook, which shell
Rulebook will contain the Rules that will be in place upon completion
of the Cboe Options technology migration.
The Exchange proposes to adopt Rule 4.17 (in the shell Rulebook),
which amends its current rules regarding end-of-month (``EOM'') and
end-of-day (``EOD'') indicative values.\5\ Currently, Rule 6.2.06(a)
describes the Exchange's process for calculating EOM values.
Specifically, it provides that following the close of trading on the
last business day of each calendar month, the Exchange will conduct
special non-trading closing rotations for each series of S&P 500 Index
(``SPX'') options in order to determine the theoretical ``fair value''
of such series as of time of the close of trading in the underlying
cash market. During such special non-trading closing rotations, Lead
Market Makers (``LMMs'') or Select Market Makers (``SMMs'') in the SPX
options in each series of SPX options, may provide bid and offer
quotations, the midpoint of which will reflect the theoretical fair
value of the series of SPX options, as determined by the LMM(s) or
SMM(s) pursuant to the LMMs' or SMMs' algorithmic analysis of relevant
and available data. Notwithstanding that trading in SPX options on the
Exchange continues until fifteen minutes after the close of trading in
the underlying cash market, on the last business day of each month,
after the close of trading, the Exchange shall disseminate the fair
value quotations as of the close of trading in the underlying cash
market provided by the LMM(s) or SMM(s) as the quotations used to
calculate the theoretical fair value for each series of SPX options. In
particular, LMMs and SMMs provide the exchange with quotes to fairly
represent the market of the subject series, using the final EOM fair
value of the corresponding E-Mini S&P 500 (``ES'') futures price
provided by the CME Group, Inc. (``CME''), usually within 10 minutes of
CME's EOM fair value market close, which occurs at 3:00 p.m. on the
last trading day of the month.
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\5\ The Exchange notes that current Rule 6.2.06, which currently
provides for EOM and EOD values, was already ``removed'' from the
current Rulebook in anticipation of migration, therefore, is
effective only until October 7, 2019. See Securities Exchange Act
Release No. 86387 (July 16, 2019), 84 FR 35147 (July 22, 2019) (SR-
CBOE-2019-034).
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Current Rule 6.2.06(b) describes the Exchange's process for
calculating EOD values. Specifically, it provides that following the
close of trading of Regular Trading Hours on any trading day that is
not the last business day of a calendar month, in addition to the
Exchange's regular end-of-day quotations, the Exchange may determine,
on a series-by-series basis, to disseminate two-sided indicative values
in non-expiring series of SPX options in the interests of fair and
orderly markets. The Exchange derives end-of-day indicative values for
series of SPX options using an algorithm based on quotations and orders
displayed in series of SPX options prior to the close of trading or, in
the absence of sufficient quote and order data in a series, using
generally accepted volatility and options pricing models as determined
by the Exchange. EOD indicative values shall be clearly identified and
disseminated via the Options Price Reporting Authority (``OPRA''). This
permits the Exchange to disseminate informational indicative values
more reflective of actual options values in addition to final end-of-
day displayed quotations when Users' systems issues or market
conditions result in an absence of final quotes or extraordinarily wide
final quotes without interfering in the markets or impeding any market
functionalities that rely on accurate pricing or EOD quotes.
Upon migration, the Exchange will discontinue the dissemination of
indicative values to OPRA, \6\ as well as the EOM closing rotation.
Instead, the Exchange will make publicly available, e.g., on its
website, the indicative prices calculated for each series in classes as
the Exchange determines on a class-by-class basis, on any trading day,
including the last trading day of the month, using the same logic
currently implemented for calculating indicative values under current
Rule 6.2.06(b). As such, the Exchange now proposes Rule 4.17 (in the
shell Rulebook), which amends the language under current Rule 6.2.06(b)
and does not adopt language from current Rule 6.2.06(a), to account for
the above-described changes to be implemented upon migration.
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\6\ The Exchange has communicated and worked with OPRA reporting
authorities regarding the implementation of this change.
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The proposed rule does not present any new or novel functionality
as the indicative value logic will function for all trading days in the
same manner as it does today for EOD. The proposed change merely
applies the same process to every trading day, including the last
business day of the calendar month. This will provide a streamlined
indicative price process for each trading day in which indicative
prices may be published. In addition to streamlining the process for
each trading day, the Exchange proposes to remove the theoretical fair
value process for EOM for a number of other reasons. First, the
migrated technology platform will no longer support the ability for
LMMs or SMMs to quote after the close as the current rule provides.
Second, the Exchange believes using an algorithm based on quotations
and orders displayed will provide a more objective, static formulation
for indicative prices as opposed to the current analysis conducted by
LMMs or SMMs, which potentially varies across different LMMs or SMMs.
Third, though CME currently provides for a EOM fair value procedure for
many of its equities products (which differs from the 3:15 p.m. daily
settlement process for such products), it may determine to have a 3:00
p.m. daily settlement process for all days, including the last trading
day of the month, in its equities products as it currently has in place
for other products, which could interfere with the current EOM process.
Therefore, the Exchange proposes to mitigate any possibility that
indicative values could not be calculated on the last day of the month
by applying the current Exchange-generated EOD logic to all trading
days.
The Exchange also proposes that, instead of a series-by-series
basis, the Exchange may determine which indicative values will be
provided on a class-by-class basis, which is consistent with the
majority of Exchange determinations, where applicable, throughout the
Exchange rules, as well as provides the Exchange with flexibility to
potentially provide indicative prices for any and all of its options
classes exclusively listed on the Exchange.\7\ This will benefit all
market participants by providing more indicative values than if the
Exchange determined indicative prices on the narrower series-by-series
basis. In addition to this, rather than disseminating the indicative
pricing to OPRA, for which market participants must pay a fee to OPRA
to access, the Exchange will make indicative prices publicly available,
e.g., by posting on its website, which will provide free access
[[Page 45809]]
to such prices for all market participants.
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\7\ Upon migration, the Exchange plans to provide indicative
prices for SPX, SPXW, VIX, and VIXX options.
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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.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ Id.
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The Exchange notes that the proposed rule does not present any new
or novel functionality, as it will continue to use the EOD logic in the
same manner for calculating indicative values as it does today for all
trading days. The proposed change merely applies the current EOD logic
to every trading day, including the last business day of the calendar
month. As such, the proposed rule change will protect investors by
fostering cooperation and coordination with market participants
processing information with respect to securities and by removing
impediments to and perfecting the mechanism of a free and open market
and national market system by providing market participants with a
streamlined indicative price process. The Exchange believes this will
make the process itself easier to understand within the Exchange Rules,
as well as provide easier access to such pricing. In addition to
streamlining the process for each trading day, removing the theoretical
fair value process for EOM will also remove impediments to and perfect
the mechanism of a free and open market and national market system by
providing market participants with rules that will accurately reflect
the manner in the Exchange's System will function upon migration, allow
for a more objective, static formulation for indicative prices than the
current LMM or SMM analysis, which potentially varies across different
LMMs or SMMs, as well as mitigate any potential issues in deriving
indicative values from CME's EOM fair value process, which is subject
to change and, as a result, could interfere with the current EOM
process. Additionally, by providing the Exchange with the flexibility
to determine indicative values on a broader class-by-class basis, the
proposed rule change will potentially provide more indicative pricing
information, benefitting all market participants. Exchange
determinations on a class-by-class basis are also consistent with the
majority of Exchange determinations currently under the Rules.
Moreover, the proposed rule change will remove impediments to and
perfect the mechanism of a free and open market and national market
system by making the indicative values publicly available and free for
all participants to access, as opposed to the current dissemination of
such prices to OPRA, for which market participants must pay a fee to
access.
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. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition because the dissemination of EOD indicative
values does not impact trading on the Exchange, but is intended merely
to make indicative pricing information available to all market
participants. Likewise, the Exchange does not believe that the proposed
rule change will impose any burden on intermarket competition because
the indicative values will be publicly available, e.g., on the
Exchange's website, to all market participants for free.
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 \11\ and
Rule 19b-4(f)(6) \12\ 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 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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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
\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-2019-046 on the subject line.
Paper Comments
Send paper comments in triplicate to the Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-CBOE-2019-046. 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
[[Page 45810]]
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-2019-046 and should be submitted on or before September 20, 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18753 Filed 8-29-19; 8:45 am]
BILLING CODE 8011-01-P