Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Fees Schedule, 60259-60262 [2017-27227]
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Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BOX–2017–36 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.
sradovich on DSK3GMQ082PROD with NOTICES
All submissions should refer to File
Number SR–BOX–2017–36. 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 (https://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–BOX–2017–36 and should
be submitted on or before January 9,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Eduardo A. Aleman,
Assistant Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82308; File No. SR–CBOE–
2017–077]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating to the Fees
Schedule
December 13, 2017.
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 December
8, 2017, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchanges seeks to amend the
Fees Schedule. The text of the proposed
rule change is available on the
Exchange’s website (https://
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.
[FR Doc. 2017–27234 Filed 12–18–17; 8:45 am]
BILLING CODE 8011–01–P
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange initially filed the proposed rule
change on December 1, 2017 (SR–CBOE–2017–075).
On December 8, 2017 the Exchange withdrew SR–
CBOE–2017–075 and then subsequently submitted
this filing (SR–CBOE–2017–077).
1 15
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60259
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Pursuant to Footnote 38 of the Fees
Schedule, if a Lead Market-Maker
(‘‘LMM’’) in SPX options during
extended trading hours (‘‘ETH’’) (1)
provides continuous electronic quotes
in at least the lesser of 99% of the nonadjusted series or 100% of the nonadjusted series minus one call-put pair
in an ETH allocated class (excluding
intra-day add-on series on the day
during which such series are added for
trading) and (2) enters opening quotes
within five minutes of the initiation of
an opening rotation in any series that is
not open due to the lack of a quote (see
Rule 6.2B(d)(i)(A) or (ii)(A)), provided
that the LMM will not be required to
enter opening quotes in more than the
same percentage of series set forth in
clause (1) for at least 90% of the trading
days during ETH in a month, the LMM
will receive a rebate for that month and
will receive a pro-rata share of a
compensation pool equal to $15,000
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).
The Exchange proposes 3 to amend
Footnote 38 to modify the standard an
SPX LMM will need to satisfy in order
to receive a rebate for its ETH activity,
and increase the compensation pool for
SPX LMMs to $30,000 per LMM.4 In
addition to providing continuous
electronic quotes and entering opening
quotes, as described above, in order for
an LMM in SPX to receive the monthly
rebate, it must satisfy the following
time-weighted average quote widths and
bid/ask sizes for each moneyness
category during the month: (A) Out of
the money options (‘‘OTM’’) category,
average quote width of $0.75 or less and
average bid/ask size of 15 contracts or
greater; (B) at the money options
(‘‘ATM’’) category, average quote width
of $3.00 or less and bid/ask size of 10
contracts or more; and (C) in the money
options (‘‘ITM’’) category, average quote
width of $10.00 or less and bid/ask size
of 5 contracts or more. In other words,
the LMM will need to satisfy the
following nine criteria during a month
to receive the payment described above
for that month.
4 The proposed rule change does not change the
standard a VIX LMM will need to meet to receive
a rebate.
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Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices
OTM
ATM
1. Avg. Quote Width ≤$0.75 .................................
2. Avg. Bid Size ≥15 .............................................
3. Avg. Ask Size ≥15 ............................................
4. Avg. Quote Width ≤$3.00 .................................
5. Avg. Bid Size ≥10 ............................................
6. Avg. Ask Size ≥10 ............................................
The Exchange believes time-weighted
averages are a good way to assess the
overall quality of the market. The
Exchange also believes having separate
requirements per moneyness category
will encourage tighter quote widths and
larger sizes in each moneyness category.
The Exchange will determine an SPX
LMM’s monthly time-weighted average
widths and sizes by capturing each of
the LMM’s quote submission’s width,
bid size, ask size, and receipt time
during the month. Also, the percentage
of series quoted will be weighted for the
time the series is available for quoting
during a month. For example, if a series
is only listed for three days during a
month, the performance in that series is
only weighted for those three days.
Additionally, the Exchange will exclude
5% of the total quote time for all SPX
series during the month in which the
LMM was disseminating its widest
quotes and smallest bid/ask sizes. This
will allow the LMM to widen its quotes
and decrease its bid/ask sizes consistent
with its risk model in response to
market events during ETH while
Quote width
(difference
between
the bid-ask)
Quote
Quote
Quote
Quote
Quote
Quote
1
2
3
4
5
6
(in
(in
(in
(in
(in
(in
A)
A)
B)
B)
B)
B)
ITM
7. Avg. Quote Width ≤$10.00.
8. Avg. Bid Size ≥5.
9. Avg. Ask Size ≥5.
retaining the opportunity to meet the
quoting standard for the month.
The below example demonstrates the
manner in which the Exchange
determines the time-weighted average
quote widths.
• Assume Series A and B are the only
OTM series in SPX during a month.
• If an LMM submits the below 6
quotes in Series A and B during the
entire month, the resultant timeweighted average quote width in Series
A for the month is as follows:
Time
(amount of
time a quote is
resting—in
microseconds)
Quote time
weight
(excludes 5%
of the time
during which
the widest
quotes were
disseminated)
Time-weighted
quote width
(quote width *
quote time
weight)
Time-weighted
average
quote width
(time-weighted
quote width/
quote time
weight)
........................
........................
........................
........................
........................
........................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
0.10
0.10
0.50
0.90
6.00
8.75
13,200
3,600
9,000
14,400
3,600
60
13,200
3,600
9,000
14,400
1,467
0
1,320
360
4,500
12,960
8,802
0
Total ..............................................................................
........................
43,860
41,667
27,942
0.67
The time-weighted average quote
width in OTM series for the month is
0.67; thus, the LMM in this example has
met the OTM time-weighted average
quote width to be eligible for the
monthly payment, because its time-
weighted average quote width is less
than 0.75 for the month.
The Exchange determines the timeweighted average bid size and ask size
in a similar manner. For example:
• Assume Series A and B are the only
OTM series in SPX during a month.
Time
(amount
of time a
quote is
resting—in
microseconds)
sradovich on DSK3GMQ082PROD with NOTICES
Bid size
Quote
Quote
Quote
Quote
Quote
Quote
1
2
3
4
5
6
(in
(in
(in
(in
(in
(in
A)
A)
B)
B)
B)
B)
• If an LMM submits the below 6
quotes in Series A and B during the
entire month, the resultant timeweighted average quote width in Series
A for the month is as follows:
Quote time
weight
(excludes 5%
of the time
during which
the smallest
quotes were
disseminated)
Time-weighted
bid size
(bid size*
quote time
weight)
Time-weighted
average bid
size
(timeweighted bid
size/quote
time weight)
........................
........................
........................
........................
........................
........................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
25
20
10
10
5
2
13,200
3,600
9,000
14,400
3,600
60
13,200
3,600
9,000
14,400
1,467
0
330,000
72,000
90,000
144,000
7,335
0
Total ..............................................................................
........................
43,860
41,667
643,335
15.4
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Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices
The time-weighted average quote bid
size in OTM series for the month is 15.4;
thus, the LMM in this example has met
the OTM time-weighted average quote
bid size to be eligible for the monthly
payment because its time-weighted
average quote bid size is greater than 15
contracts for the month. The LMM
would also need to satisfy the OTM
average quote ask size, as well as the
time-weighted average width, bid size,
and ask size criteria in the ATM and
ITM categories, determined in the same
manner as described in the above
example, to receive the monthly
payment.
Whether a series is OTM, ATM, or
ITM will depend on how far away the
OTM
Expirations
sradovich on DSK3GMQ082PROD with NOTICES
Expiration
Expiration
Expiration
Expiration
Expiration
Expiration
Expiration
1–6 ..............
7–12 ............
13–18 ..........
19–24 ..........
25–30 ..........
31–36 ..........
37–last .........
Calls
%
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ATM
Puts
%
>102
>103
>104
>105
>106
>107
>108
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ITM
Calls
%
<98
<97
<96
<95
<94
<93
<92
For example, if the S&P 500 Index
closes at 2200, all call options with a
near-term expiration (i.e., Expiration 1–
6) that have a strike price greater than
2244 are considered OTM calls because
102% of 2200 is 2244. Similarly, all put
options with a near-term expiration that
have a strike price of less than 2156 are
considered OTM puts because 98% of
2200 is 2156. Which series are
considered OTM, ATM, or ITM will be
readjusted on a daily basis. For
example, series A may be OTM on
trading day 1–5 of the month, and the
S&P 500 Index may appreciate to make
series A an ATM series on day 6 and so
on.
LMMs are not obligated to satisfy the
heightened quoting standards described
in the Fees Schedule or in Rule 8.15
during ETH. LMMs are eligible to
receive a rebate if they satisfy the
heightened standards described in the
Fees Schedule, which the Exchange
believes will encourage LMMs to
provide liquidity during ETH.
Additionally, the Exchange notes that
LMMs may have to undertake other
expenses to be able to quote at the
heightened standard during ETH, such
as purchase additional bandwidth.
The Exchange also seeks to amend
Footnote 38 of the Fees Schedule to
clarify that the rebate described in
Footnote 38 is the pro-rata share of the
compensation pool. Footnote 38
provides, in relevant part that ‘‘. . . the
LMM will receive a rebate for that
month and will receive a pro-rata share
of a compensation pool equal . . .’’
which could suggest there is a rebate
and a payment from the compensation
pool. However, the rebate is the
payment from the compensation pool.
The Exchange believes replacing ‘‘and
series’ strike price is from the S&P 500
Index’s previous day’s closing value,
measured as a percentage. The OTM,
ATM and ITM moneyness percentages
will vary by time to expiration based on
the table below. Expirations 1–6 are the
nearest term expirations and expirations
37-last are the farthest term expirations.
≤102
≤103
≤104
≤105
≤106
≤107
≤108
and
and
and
and
and
and
and
≥98
≥97
≥96
≥95
≥94
≥93
≥92
Puts
%
..............
..............
..............
..............
..............
..............
..............
≤102
≤103
≤104
≤105
≤106
≤107
≤108
and
and
and
and
and
and
and
will receive’’ with ‘‘in the amount of’’
will provide more clarity.
Lastly, the LMM rebate program is
currently described in Rule
6.1A(e)(iii)(C) and the Fees Schedule.
The Exchange believes consolidating
information related to the LMM rebate
program in the Fees Schedule, and
deleting the language in that rule that is
redundant of language in the Fees
Schedule, will prevent potential
confusion that arises from having the
rebate program described in multiple
places. Specifically, the Exchange
proposes to remove subparagraph
(e)(iii)(C) and move the following
language from subparagraph (e)(iii)(C) to
Footnote 38 of the Fees Schedule:
Notwithstanding Rule 1.1(ccc), for
purposes of Footnote 38, an LMM is
deemed to have provided ‘‘continuous
electronic quotes’’ if the LMM provides
electronic two-sided quotes for 90% of
the time during ETH in a given month.
If a technical failure or limitation of a
system of the Exchange prevents the
LMM from maintaining, or prevents the
LMM from communicating to the
Exchange, timely and accurate
electronic quotes in a class, the duration
of such failure shall not be considered
in determining whether the LMM has
satisfied the 90% quoting standard with
respect to that option class. The
Exchange may consider other
exceptions to this quoting standard
based on demonstrated legal or
regulatory requirements or other
mitigating circumstances.
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
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≥98
≥97
≥96
≥95
≥94
≥93
≥92
Calls
%
..............
..............
..............
..............
..............
..............
..............
Puts
%
<98
<97
<96
<95
<94
<93
<92
>102
>103
>104
>105
>106
>107
>108
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
the Section 6(b)(5) 7 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 it
is reasonable, equitable and not unfairly
discriminatory to offer LMMs in SPX
during ETH a rebate if they meet a
certain heightened quoting standard
(described above) to encourage LMMs in
SPX to provide increased liquidity.
More specifically, the Exchange believes
the amount of the amended rebate
($30,000) is reasonable because it takes
into consideration certain additional
costs an LMM may incur and the
Exchange believes the proposed amount
is such that it will incentivize LMMs to
meet the ETH quoting standards for SPX
that are further heightened by this
proposal. Additionally, if a LMM does
not satisfy the heightened quoting
5 15
6 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
7 Id.
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Federal Register / Vol. 82, No. 242 / Tuesday, December 19, 2017 / Notices
standard, then it will not receive the
rebate. The Exchange believes it is
equitable and not unfairly
discriminatory to only offer the rebate to
LMMs because it benefits all market
participants in ETH to encourage LMMs
to satisfy the heightened quoting
standards, which may increase liquidity
during those hours and provide more
trading opportunities and tighter
spreads. Also, the Exchange believes
consolidating information related to the
LMM rebate program in the Fees
Schedule will prevent potential
confusion that arises from having the
rebate program described in multiple
places, which, in general, helps protect
customers and the public interest.
Finally, the Exchange believes clarifying
language in the Fees Schedule will also
prevent potential confusion, which, in
general, helps protect customers and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
sradovich on DSK3GMQ082PROD with NOTICES
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 that
is not necessary or appropriate in
furtherance of the purposes of the Act,
because the amended rebate for ETH is
intended to encourage market
participants to bring liquidity in SPX
during ETH (which benefits all market
participants), while still covering
Exchange costs (including those
associated with the upgrading and
maintenance of Exchange systems).
Furthermore, the Exchange does not
believe that the proposed rule changes
will impose any burden on intermarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act because SPX is 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.
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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 8 and paragraph (f) of Rule
19b–4 9 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
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2017–077 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–2017–077. 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 (https://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
8 15
9 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
Frm 00090
Fmt 4703
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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–2017–077, and
should be submitted on or before
January 9, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–27227 Filed 12–18–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82309; File No. SR–OCC–
2017–017]
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Approving Proposed Rule Change
Concerning Liquidity for Same Day
Settlement
December 13, 2017.
On October 13, 2017, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–OCC–2017–
007 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
The proposed rule change was
published for comment in the Federal
Register on November 1, 2017.3 The
Commission did not receive any
comments on the proposed rule change.
This order approves the proposed rule
change.
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–81956
(Oct. 26, 2017), 82 FR 50705 (Nov. 1, 2017) (SR–
OCC–2017–017) (‘‘Notice’’). OCC also filed an
Advance Notice with the Commission in
connection with the proposed change. See
Securities Exchange Act Release No. 82056 (Nov.
13, 2017), 82 FR 54430 (Nov. 17, 2017) (SR–OCC–
2017–806).
1 15
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]]>Agencies
[Federal Register Volume 82, Number 242 (Tuesday, December 19, 2017)]
[Notices]
[Pages 60259-60262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27227]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82308; File No. SR-CBOE-2017-077]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
to the Fees Schedule
December 13, 2017.
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 December 8, 2017, 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
The Exchanges seeks to amend the Fees Schedule. The text of the
proposed rule change is available on the Exchange's website (https://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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Pursuant to Footnote 38 of the Fees Schedule, if a Lead Market-
Maker (``LMM'') in SPX options during extended trading hours (``ETH'')
(1) provides continuous electronic quotes in at least the lesser of 99%
of the non-adjusted series or 100% of the non-adjusted series minus one
call-put pair in an ETH allocated class (excluding intra-day add-on
series on the day during which such series are added for trading) and
(2) enters opening quotes within five minutes of the initiation of an
opening rotation in any series that is not open due to the lack of a
quote (see Rule 6.2B(d)(i)(A) or (ii)(A)), provided that the LMM will
not be required to enter opening quotes in more than the same
percentage of series set forth in clause (1) for at least 90% of the
trading days during ETH in a month, the LMM will receive a rebate for
that month and will receive a pro-rata share of a compensation pool
equal to $15,000 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).
The Exchange proposes \3\ to amend Footnote 38 to modify the
standard an SPX LMM will need to satisfy in order to receive a rebate
for its ETH activity, and increase the compensation pool for SPX LMMs
to $30,000 per LMM.\4\ In addition to providing continuous electronic
quotes and entering opening quotes, as described above, in order for an
LMM in SPX to receive the monthly rebate, it must satisfy the following
time-weighted average quote widths and bid/ask sizes for each moneyness
category during the month: (A) Out of the money options (``OTM'')
category, average quote width of $0.75 or less and average bid/ask size
of 15 contracts or greater; (B) at the money options (``ATM'')
category, average quote width of $3.00 or less and bid/ask size of 10
contracts or more; and (C) in the money options (``ITM'') category,
average quote width of $10.00 or less and bid/ask size of 5 contracts
or more. In other words, the LMM will need to satisfy the following
nine criteria during a month to receive the payment described above for
that month.
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\3\ The Exchange initially filed the proposed rule change on
December 1, 2017 (SR-CBOE-2017-075). On December 8, 2017 the
Exchange withdrew SR-CBOE-2017-075 and then subsequently submitted
this filing (SR-CBOE-2017-077).
\4\ The proposed rule change does not change the standard a VIX
LMM will need to meet to receive a rebate.
[[Page 60260]]
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OTM ATM ITM
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1. Avg. Quote Width <=$0.75...... 4. Avg. Quote Width 7. Avg. Quote Width <=$10.00.
<=$3.00.
2. Avg. Bid Size >=15............ 5. Avg. Bid Size 8. Avg. Bid Size >=5.
>=10.
3. Avg. Ask Size >=15............ 6. Avg. Ask Size 9. Avg. Ask Size >=5.
>=10.
----------------------------------------------------------------------------------------------------------------
The Exchange believes time-weighted averages are a good way to
assess the overall quality of the market. The Exchange also believes
having separate requirements per moneyness category will encourage
tighter quote widths and larger sizes in each moneyness category.
The Exchange will determine an SPX LMM's monthly time-weighted
average widths and sizes by capturing each of the LMM's quote
submission's width, bid size, ask size, and receipt time during the
month. Also, the percentage of series quoted will be weighted for the
time the series is available for quoting during a month. For example,
if a series is only listed for three days during a month, the
performance in that series is only weighted for those three days.
Additionally, the Exchange will exclude 5% of the total quote time for
all SPX series during the month in which the LMM was disseminating its
widest quotes and smallest bid/ask sizes. This will allow the LMM to
widen its quotes and decrease its bid/ask sizes consistent with its
risk model in response to market events during ETH while retaining the
opportunity to meet the quoting standard for the month.
The below example demonstrates the manner in which the Exchange
determines the time-weighted average quote widths.
Assume Series A and B are the only OTM series in SPX
during a month.
If an LMM submits the below 6 quotes in Series A and B
during the entire month, the resultant time-weighted average quote
width in Series A for the month is as follows:
----------------------------------------------------------------------------------------------------------------
Quote time
weight Time-weighted
Quote width Time (amount (excludes 5% Time-weighted average quote
(difference of time a of the time quote width width (time-
between the quote is during which (quote width * weighted
bid-ask) resting--in the widest quote time quote width/
microseconds) quotes were weight) quote time
disseminated) weight)
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Quote 1 (in A).................. 0.10 13,200 13,200 1,320 ..............
Quote 2 (in A).................. 0.10 3,600 3,600 360 ..............
Quote 3 (in B).................. 0.50 9,000 9,000 4,500 ..............
Quote 4 (in B).................. 0.90 14,400 14,400 12,960 ..............
Quote 5 (in B).................. 6.00 3,600 1,467 8,802 ..............
Quote 6 (in B).................. 8.75 60 0 0 ..............
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Total....................... .............. 43,860 41,667 27,942
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0.67
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The time-weighted average quote width in OTM series for the month
is 0.67; thus, the LMM in this example has met the OTM time-weighted
average quote width to be eligible for the monthly payment, because its
time-weighted average quote width is less than 0.75 for the month.
The Exchange determines the time-weighted average bid size and ask
size in a similar manner. For example:
Assume Series A and B are the only OTM series in SPX
during a month.
If an LMM submits the below 6 quotes in Series A and B
during the entire month, the resultant time-weighted average quote
width in Series A for the month is as follows:
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Quote time
weight Time-weighted
Time (amount (excludes 5% Time-weighted average bid
of time a of the time bid size (bid size (time-
Bid size quote is during which size* quote weighted bid
resting--in the smallest time weight) size/quote
microseconds) quotes were time weight)
disseminated)
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Quote 1 (in A).................. 25 13,200 13,200 330,000 ..............
Quote 2 (in A).................. 20 3,600 3,600 72,000 ..............
Quote 3 (in B).................. 10 9,000 9,000 90,000 ..............
Quote 4 (in B).................. 10 14,400 14,400 144,000 ..............
Quote 5 (in B).................. 5 3,600 1,467 7,335 ..............
Quote 6 (in B).................. 2 60 0 0 ..............
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Total....................... .............. 43,860 41,667 643,335
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15.4
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[[Page 60261]]
The time-weighted average quote bid size in OTM series for the
month is 15.4; thus, the LMM in this example has met the OTM time-
weighted average quote bid size to be eligible for the monthly payment
because its time-weighted average quote bid size is greater than 15
contracts for the month. The LMM would also need to satisfy the OTM
average quote ask size, as well as the time-weighted average width, bid
size, and ask size criteria in the ATM and ITM categories, determined
in the same manner as described in the above example, to receive the
monthly payment.
Whether a series is OTM, ATM, or ITM will depend on how far away
the series' strike price is from the S&P 500 Index's previous day's
closing value, measured as a percentage. The OTM, ATM and ITM moneyness
percentages will vary by time to expiration based on the table below.
Expirations 1-6 are the nearest term expirations and expirations 37-
last are the farthest term expirations.
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OTM ATM ITM
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Expirations Puts
Calls % Puts % Calls % Puts % Calls % %
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expiration 1-6................................. >102 <98 <=102 and >=98................... <=102 and >=98 <98 >102
Expiration 7-12................................ >103 <97 <=103 and >=97................... <=103 and >=97 <97 >103
Expiration 13-18............................... >104 <96 <=104 and >=96................... <=104 and >=96 <96 >104
Expiration 19-24............................... >105 <95 <=105 and >=95................... <=105 and >=95 <95 >105
Expiration 25-30............................... >106 <94 <=106 and >=94................... <=106 and >=94 <94 >106
Expiration 31-36............................... >107 <93 <=107 and >=93................... <=107 and >=93 <93 >107
Expiration 37-last............................. >108 <92 <=108 and >=92................... <=108 and >=92 <92 >108
--------------------------------------------------------------------------------------------------------------------------------------------------------
For example, if the S&P 500 Index closes at 2200, all call options
with a near-term expiration (i.e., Expiration 1-6) that have a strike
price greater than 2244 are considered OTM calls because 102% of 2200
is 2244. Similarly, all put options with a near-term expiration that
have a strike price of less than 2156 are considered OTM puts because
98% of 2200 is 2156. Which series are considered OTM, ATM, or ITM will
be readjusted on a daily basis. For example, series A may be OTM on
trading day 1-5 of the month, and the S&P 500 Index may appreciate to
make series A an ATM series on day 6 and so on.
LMMs are not obligated to satisfy the heightened quoting standards
described in the Fees Schedule or in Rule 8.15 during ETH. LMMs are
eligible to receive a rebate if they satisfy the heightened standards
described in the Fees Schedule, which the Exchange believes will
encourage LMMs to provide liquidity during ETH. Additionally, the
Exchange notes that LMMs may have to undertake other expenses to be
able to quote at the heightened standard during ETH, such as purchase
additional bandwidth.
The Exchange also seeks to amend Footnote 38 of the Fees Schedule
to clarify that the rebate described in Footnote 38 is the pro-rata
share of the compensation pool. Footnote 38 provides, in relevant part
that ``. . . the LMM will receive a rebate for that month and will
receive a pro-rata share of a compensation pool equal . . .'' which
could suggest there is a rebate and a payment from the compensation
pool. However, the rebate is the payment from the compensation pool.
The Exchange believes replacing ``and will receive'' with ``in the
amount of'' will provide more clarity.
Lastly, the LMM rebate program is currently described in Rule
6.1A(e)(iii)(C) and the Fees Schedule. The Exchange believes
consolidating information related to the LMM rebate program in the Fees
Schedule, and deleting the language in that rule that is redundant of
language in the Fees Schedule, will prevent potential confusion that
arises from having the rebate program described in multiple places.
Specifically, the Exchange proposes to remove subparagraph (e)(iii)(C)
and move the following language from subparagraph (e)(iii)(C) to
Footnote 38 of the Fees Schedule:
Notwithstanding Rule 1.1(ccc), for purposes of Footnote 38, an LMM
is deemed to have provided ``continuous electronic quotes'' if the LMM
provides electronic two-sided quotes for 90% of the time during ETH in
a given month. If a technical failure or limitation of a system of the
Exchange prevents the LMM from maintaining, or prevents the LMM from
communicating to the Exchange, timely and accurate electronic quotes in
a class, the duration of such failure shall not be considered in
determining whether the LMM has satisfied the 90% quoting standard with
respect to that option class. The Exchange may consider other
exceptions to this quoting standard based on demonstrated legal or
regulatory requirements or other mitigating circumstances.
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 the
Section 6(b)(5) \7\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ Id.
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In particular, the Exchange believes it is reasonable, equitable
and not unfairly discriminatory to offer LMMs in SPX during ETH a
rebate if they meet a certain heightened quoting standard (described
above) to encourage LMMs in SPX to provide increased liquidity. More
specifically, the Exchange believes the amount of the amended rebate
($30,000) is reasonable because it takes into consideration certain
additional costs an LMM may incur and the Exchange believes the
proposed amount is such that it will incentivize LMMs to meet the ETH
quoting standards for SPX that are further heightened by this proposal.
Additionally, if a LMM does not satisfy the heightened quoting
[[Page 60262]]
standard, then it will not receive the rebate. The Exchange believes it
is equitable and not unfairly discriminatory to only offer the rebate
to LMMs because it benefits all market participants in ETH to encourage
LMMs to satisfy the heightened quoting standards, which may increase
liquidity during those hours and provide more trading opportunities and
tighter spreads. Also, the Exchange believes consolidating information
related to the LMM rebate program in the Fees Schedule will prevent
potential confusion that arises from having the rebate program
described in multiple places, which, in general, helps protect
customers and the public interest. Finally, the Exchange believes
clarifying language in the Fees Schedule will also prevent potential
confusion, which, in general, helps protect customers and the public
interest.
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 that is not necessary or appropriate in
furtherance of the purposes of the Act, because the amended rebate for
ETH is intended to encourage market participants to bring liquidity in
SPX during ETH (which benefits all market participants), while still
covering Exchange costs (including those associated with the upgrading
and maintenance of Exchange systems). Furthermore, the Exchange does
not believe that the proposed rule changes will impose any burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because SPX is 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 \8\ and paragraph (f) of Rule 19b-4 \9\
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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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2017-077 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-2017-077. 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 (https://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-2017-077, and should be submitted
on or before January 9, 2018.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-27227 Filed 12-18-17; 8:45 am]
BILLING CODE 8011-01-P
