[Federal Register Volume 85, Number 37 (Tuesday, February 25, 2020)]
[Notices]
[Pages 10784-10786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03645]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88235; File No. SR-CBOE-2020-012]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Amending its 
Financial Incentive Programs for Global Trading Hours (GTH) Lead 
Market-Makers (LMMs) in VIX Options

February 19, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 10, 2020, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its financial incentive programs for Global Trading Hours 
(``GTH'') Lead Market-Makers (``LMMs'') in VIX options. The text of the 
proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its GTH VIX LMMs Incentive Program, 
effective February 10, 2020.
    By way of background, pursuant to the Fees Schedule, an LMM in VIX 
will receive a rebate for that month in the amount of a pro-rata share 
of a compensation pool equal to $20,000 times the number of LMMs in 
that class (or pro-rated amount if an appointment begins after the 
first trading day of the month or ends prior to the last trading day of 
the month) if the LMM(s): provide continuous electronic quotes during 
GTH that meet or exceed the following heightened quoting standards in 
at least 99% of the VIX series 90% of the time in a given month:

------------------------------------------------------------------------
                                                                Maximum
                        Premium level                          allowable
                                                                 width
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$0.00-$100.00...............................................      $10.00
$100.01-$200.00.............................................      $16.00
Greater than $200.000.......................................      $24.00
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[[Page 10785]]

    Additionally, a GTH LMM in VIX is not currently obligated to 
satisfy the heightened quoting standards described in the table above. 
Rather, an LMM is eligible to receive the rebate if they satisfy the 
heightened quoting standards above, which the Exchange believes 
encourage LMMs to provide liquidity during GTH. The Exchange may also 
consider other exceptions to this quoting standard based on 
demonstrated legal or regulatory requirements or other mitigating 
circumstances.
    The Exchange now proposes to amend the GTH VIX LMM Program to 
separate the quoting standard for VIX and VIX Weeklys (``VIXW''); adopt 
a separate rebate for VIXW, increasing the total available rebate; 
eliminate the current compensation pool structure; and update the 
period in which the heightened quoting standard will apply for the 
month of February 2020. First, the Exchange proposes to separate the 
quoting standard for VIX and VIXW and adopt a separate rebate for 
VIXW.\3\ As proposed, if the LMM meets the heightened quoting standard 
described above for VIX, the LMM will continue to receive a rebate of 
$20,000 for VIX, and if the LMM separately meets the heightened quoting 
standard described above for VIXW, the LMM will receive an additional 
rebate of $5,000 for VIXW (for a total increased rebate of $25,000 per 
month for meeting the standard for both VIX and VIXW). The Exchange 
notes this is substantively identical to the format of the Exchange's 
current GTH SPX/SPXW LMM program and the manner in which a GTH SPX/SPXW 
LMM may meet the heightened quoting requirements today.\4\ The Exchange 
also notes that like that of a SPX/SPXW LMM, an LMM appointed in VIX 
also holds an appointment in VIXW.
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    \3\ The Exchange also proposes to update the title of the 
program accordingly to ``GTH VIX/VIXW LMM Program''.
    \4\ See Cboe Options Fees Schedule, ``GTH SPX/SPXW LMM Incentive 
Program''.
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    Next, the Exchange proposes to eliminate the current compensation 
pool structure and provide instead a straight rebate per product per 
LMM, which is also consistent with the manner in which the GTH SPX/SPXW 
LMM program is administered. More specifically, if a GTH VIX/VIXW LMM 
meets the heightened quoting standard, it will receive the applicable 
rebate per product, described above. The Exchange also proposes to 
eliminate the example of how the compensation pool works as it is no 
longer necessary given the elimination of the compensation pool 
structure. The Exchange believes the program as amended will continue 
to encourage the provision of liquidity in VIX and VIXW options during 
GTH, including during the open. Also, as is the case today, GTH VIX/
VIXW LMM(s) will still not be obligated to satisfy the amended 
heightened quoting standard. Additionally, the Exchange notes that a 
VIX/VIXW GTH LMM may need to undertake expenses to be able to quote at 
a significantly heightened standard in VIX/VIXW, such as purchase more 
logical connectivity based on its increased capacity needs.
    Finally, for the month of February 2020, the Exchange proposes to 
apply the heightened quoting standard from February 10 to February 29, 
in light of the mid-month proposal to modify the rebate quoting 
standard. The Exchange also notes the previous LMM term expired January 
31, 2020, and the Exchange intends to appoint a new LMM effective 
February 10, 2020. Such LMM will be eligible for the full financial 
payment for the month February 2020, if the LMM meets the heightened 
quoting standard from February 10 to February 29. The Exchange also 
proposes to remove obsolete language regarding applicability of the 
program in November 2019.
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.\5\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \6\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act,\7\ which requires that Exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its Trading Permit Holders and other persons using 
its facilities.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that separating the quoting standard for VIX 
and VIXW, and adopting a separate rebate for VIXW of $5,000 is 
reasonable because it provides an additional rebate for GTH VIX LMM(s), 
who also hold appointments in VIXW, for meeting the heightened quoting 
standard and takes into consideration costs an LMM may incur. The 
Exchange also believes the proposed amount for meeting the requirements 
in VIXW series will continue to incentivize an appointed LMM to meet 
the GTH quoting standards for VIXW, and continue to meet the GTH 
quoting standard for VIX, thereby providing liquid and active markets, 
which facilitates tighter spreads and increased trading opportunities 
to the benefit of all market participants. The proposed change also 
provides harmonization between the GTH LMM programs (i.e., conforms to 
the format of the GTH SPX/SPXW LMM Program \8\). The Exchange believes 
amending the GTH VIX/VIXW LMM Program by removing the compensation pool 
and providing for a straight rebate per product is reasonable as a GTH 
VIX/VIXW GTH LMM will continue to be eligible to receive the current 
financial payment for VIX and proposed payment for VIXW. The Exchange 
believes the straight rebate simplifies administration of the Program's 
rebates for market participant and the monthly payment will continue to 
be commensurate with the heightened quoting standard, while still 
acting as an incentive for a GTH VIX LMM to provide liquid and active 
markets in VIX and VIXW during GTH. The Exchange believes that it is 
reasonable to apply the quoting standard from February 10 to February 
29 for the month of February 2020, in light of the mid-month proposal 
to modify the heighted quoting standard and in light of the fact that 
the previous LMM term expired January 31, 2020 and the Exchange intends 
to appoint a new LMM effective February 10, 2020 (i.e., there was no 
GTH LMM appointed as of February 3, this timeframe will have no impact 
on rebates available to any market participants).
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    \8\ See supra note 4.
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    The Exchange believes it is equitable and not unfairly 
discriminatory to continue to only offer this financial incentive to 
GTH VIX (and VIXW, as proposed) LMM(s) because it benefits all market 
participants trading VIX/VIXW during GTH to encourage the LMM(s) to 
satisfy the heightened quoting standard, which ensures, and may even 
provide increased, liquidity, which thereby may

[[Page 10786]]

provide more trading opportunities and tighter spreads. Indeed, the 
Exchange notes that the GTH VIX/VIXW LMM(s) serve a crucial role in 
providing quotes and the opportunity for market participants to trade 
VIX/VIXW, which can lead to increased volume, providing a robust 
market. The Exchange ultimately wishes to ensure a GTH LMM is 
adequately incentivized to provide liquid and active markets in VIX/
VIXW during GTH to encourage liquidity. The Exchange believes that the 
program, even as amended, will continue to encourage increased quoting 
to add liquidity in VIX, thereby protecting investors and the public 
interest. The Exchange also notes that a VIX GTH LMM may have added 
costs each month that it needs to undertake in order to satisfy that 
heightened quoting standard (e.g., having to purchase additional 
logical connectivity). The Exchange believes the proposed amendments 
are equitable and not unfairly discriminatory because they apply to any 
TPH that is appointed as a GTH VIX/VIXW LMM equally. Additionally, if a 
GTH VIX/VIXW LMM does not satisfy the heightened quoting standard for 
any given month, then it simply will not receive the offered payment 
for that month.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. 
First, the Exchange believes the proposed rule change does impose any 
burden on intramarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act because it applies uniformly 
to similarly situated GTH VIX/VIXW LMMs, which market participants play 
a crucial role in providing active and liquid markets in VIX/VIXW 
during GTH. The Exchange does not believe that the proposed rule change 
will impose any burden on intermarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act because VIX/
VIXW options are a proprietary product that will only be traded on Cboe 
Options. To the extent that the proposed changes make Cboe Options a 
more attractive marketplace for market participants at other exchanges, 
such market participants are welcome to become Cboe Options market 
participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and paragraph (f) of Rule 19b-4 \10\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2020-012 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-2020-012. 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-2020-012 and should be submitted on 
or before March 17, 2020.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03645 Filed 2-24-20; 8:45 am]
 BILLING CODE 8011-01-P