Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Rule 21.5, Interpretation and Policy .01 To Specify That Replacement Issues May Be Added to the Penny Pilot Program (“Pilot”) on a Quarterly Basis, Without Altering the Expiration Date of the Pilot, Which Is June 30, 2019, 13332-13335 [2019-06524]

Download as PDF 13332 Federal Register / Vol. 84, No. 65 / Thursday, April 4, 2019 / Notices to FICC by only requiring them to contribute their allotted share of the Aggregate Regular Amount, which is allocated among all Netting Members, but Netting Members with larger obligations are required to contribute a larger amount.68 As a result, the Commission believes that any competitive burden imposed by the proposed changes would not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.69 FICC proposes that while it would provide a netting benefit to a Sponsoring Member’s offsetting positions at FICC, FICC would individually margin each Sponsored Member as FICC novates and guarantees the settlement of each Sponsored Member’s position. Likewise, to the extent the CCLF were to potentially increase as a result of Sponsored Member activity, the CCLF is designed so that requirements are in proportion to the liquidity exposure that each Netting Member presents to GSD. It is necessary for FICC to collect margin requirements and impose liquidity requirements to help ensure FICC can complete settlement in the event of a Netting Member default. Similarly, it is appropriate to assess individual members VaR Charges and CCLF requirement based upon the guarantee and liquidity risks that FICC assumes based upon the member’s position. Therefore, the Commission believes that the proposed rule change is consistent with Section 17A(b)(3)(I) of the Exchange Act, as the proposal would not impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.70 jbell on DSK30RV082PROD with NOTICES A. Consistency With Rule 17Ad– 22(e)(18) of the Exchange Act Rule 17Ad–22(e)(18) under the Act requires that FICC establish, implement, maintain and enforce written policies and procedures reasonably designed to establish objective, risk-based, and publicly disclosed criteria for participation, which permit fair and open access by direct and, where relevant, indirect participants and other financial market utilities, require participants to have sufficient financial resources and robust operational capacity to meet obligations arising from participation in the clearing agency, and monitor compliance with such CCLF Approval Order, 82 FR at 55430. U.S.C. 78q–1(b)(3)(I). 70 15 U.S.C. 78q–1(b)(3)(I). participation requirements on an ongoing basis.71 As described above, the proposed rule change would expand the Sponsored Membership program eligibility. The proposed rule change to expand Sponsoring Member eligibility would establish objective, risk-based, and publicly disclosed criteria for additional types of Netting Members to participate in FICC as Sponsoring Members. As described above, FICC could impose greater financial requirements on an applicant to become a Category 2 Sponsoring Member as they may have substantially less capital than a Category 1 Sponsoring Member. Likewise, the proposed rule change would also impose an activity limit on a Category 2 Sponsoring Member’s Sponsored Member activity. Moreover, FICC would reserve the right to require each Sponsoring Member, or any Netting Member applicant to become such, to furnish to FICC such adequate assurances of its financial responsibility and operational capability. Each of these proposed changes would assist FICC in requiring Netting Members to have sufficient financial resources and robust operational capacity to meet obligations arising from participation in the clearing agency. As described above, commenters argued that the proposed rule change should specify under what qualitative standards Category 2 Sponsoring Members would be evaluated and what additional financial requirements and assurances FICC could impose on them.72 FICC stated that it believes it is appropriate to evaluate all Category 2 Sponsoring Member applicants on a case-by-case basis as applicants can vary widely in terms of their organization structures, capitalizations, and the nature and volume of activity they are interested in centrally clearing through FICC.73 The Commission believes that the limited discretion in the publicly disclosed criteria for participation is consistent with Rule 17Ad–22(e)(18) as it is design to help ensure sufficient financial resources and robust operational capacity by Netting Members. In expanding Sponsored Membership, FICC must account for the risk of Category 2 Sponsoring Members and their Sponsored Members defaulting to FICC. As the entities eligible for Category 2 Sponsoring Membership are diverse, the Commission believes that flexibility in reviewing applicants on a case-by-case 68 See 71 17 69 15 72 See VerDate Sep<11>2014 17:25 Apr 03, 2019 Jkt 247001 CFR 240.17Ad–22(e)(18). Ronin Letter at 5; SIFMA Letter at 2–3. 73 See FICC Response Letter at 4–6. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 basis would help FICC account for this default risk. Therefore, the Commission finds that the proposal is consistent Rule 17Ad–22(e)(18) under the Act V. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 74 and the rules and regulations promulgated thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act 75 that proposed rule change SR–FICC–2018– 013, be, and hereby is, approved.76 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.77 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–06527 Filed 4–3–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–85466; File No. SR– CboeEDGX–2019–013] Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend Rule 21.5, Interpretation and Policy .01 To Specify That Replacement Issues May Be Added to the Penny Pilot Program (‘‘Pilot’’) on a Quarterly Basis, Without Altering the Expiration Date of the Pilot, Which Is June 30, 2019 March 29, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 22, 2019, Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) 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 74 15 U.S.C. 78q–1. U.S.C. 78s(b)(2). 76 In approving the proposed rule change, the Commission considered the proposals’ impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 77 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 75 15 E:\FR\FM\04APN1.SGM 04APN1 Federal Register / Vol. 84, No. 65 / Thursday, April 4, 2019 / Notices Rule 19b–4(f)(6) thereunder.4 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 Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) proposes to amend Rule 21.5, Interpretation and Policy .01 to specify that replacement issues may be added to the Penny Pilot Program (‘‘Pilot’’) on a quarterly basis, without altering the expiration date of the Pilot, which is June 30, 2019. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Rules of Cboe EDGX Exchange, Inc. * * * * * Rule 21.5. Minimum Increments (a)–(c) (No changes). jbell on DSK30RV082PROD with NOTICES Interpretations and Policies 01 The Exchange will operate a pilot program set to expire on June 30, 2019 to permit options classes to be quoted and traded in increments as low as $.01. The Exchange will specify which options trade in such pilot, and in what increments, in Information Circulars distributed to Members and posted on the Exchange’s website. The Exchange may replace any penny pilot issues that have been delisted with the next most actively traded multiply listed options classes that are not yet included in the penny pilot, based on trading activity in the previous six months. The replacement issues may be added to the penny pilot on the second trading day in the first month of each quarter [following January 1, 2019]. * * * * * The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ options/regulation/rule_filings/edgx/), 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 4 17 CFR 240.19b–4(f)(6). VerDate Sep<11>2014 17:25 Apr 03, 2019 Jkt 247001 proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 21.5, Interpretation and Policy .01, regarding the Pilot, to specify that replacement issues may be added to the Pilot on a quarterly basis, without altering the expiration date of the Pilot, which is June 30, 2019. The Exchange recently filed to extend the Pilot until June 30, 2019 (from December 31, 2018) and also updated the rule text to provide that replacement issues may be added to the Pilot on the second trading day following January 1, 2019.5 The Rule authorizes the Exchange to replace any options issues in the Pilot that have been delisted with the next most actively traded multiply listed options classes that are not yet included in the Program, based on trading activity in the previous six months.6 The Exchange proposes to modify Rule 21.5, Interpretation and Policy .01 to allow the Exchange to add replacement issues (for Pilot issues that have been delisted) on a quarterly basis. The Exchange added replacement issues in January 2019 and would be able to add eligible replacement issues in April, July and October. The Exchange believes this change would allow the Exchange to update issues eligible for the Pilot (by replacing delisted issues) on a quarterly basis (as opposed to semi-annual) and would enable further analysis of the Pilot and a determination of how the Pilot should be structured in the future. As is the case today, the Exchange will determine replacement issues based on trading activity in the previous six months (the ‘‘six-month lookback’’) but will not use the month immediately preceding the addition of a replacement to the Pilot. Thus, a replacement class to be added on the second trading day following April 1, 2019 would be identified based on The Option Clearing 5 See Securities Exchange Act Release No. 84946 (December 21, 2018), 83 FR 67757 (December 31, 2018) (SR–CboeEDGX–2018–061). On January 3, 2019, the Exchange added new issues to replace delisted Pilot issues, as announced by Product Update, available here, https://markets.cboe.com/ resources/product_update/2019/Penny-PilotReplacement-Classes-for-January-3-2019Updated.pdf. 6 See Rule 21.5, Interpretation and Policy .01. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 13333 Corporation’s trading volume data from September 1, 2018 through February 28, 2019.7 The Exchange believes the sixmonth lookback is appropriate because this time period would help reduce the impact of unusual trading activity as a result of unique market events, such as a corporate action (i.e., it would result in a more reliable measure of average daily trading volume than would a shorter period). This filing does not propose any substantive changes to the Pilot: All classes currently participating will remain the same and all minimum increments will remain unchanged. The Exchange believes the benefits to public customers and other market participants who will be able to express their true prices to buy and sell options have been demonstrated to outweigh the increase in quote traffic. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act. Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes the proposal to allow the addition of replacement issues the Pilot on a quarterly basis would result in a more current list of Pilot-eligible issues and would enable further analysis of the Pilot, including for a determination of how the Pilot should be structured in the future. Further, the Exchange believes the six-month lookback is appropriate because this time period would help reduce the impact of 7 The Exchange will continue to announce the replacement issues by Exchange Notice. See supra note 5. E:\FR\FM\04APN1.SGM 04APN1 13334 Federal Register / Vol. 84, No. 65 / Thursday, April 4, 2019 / Notices unusual trading activity as a result of unique market events, such as a corporate action (i.e., it would result in a more reliable measure of average daily trading volume than would a shorter period). Thus, the Exchange believes this proposal would promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in facilitating transactions in securities, and remove impediments to and perfect the mechanisms of a free and open market and a national market system. The Exchange notes that it is not making any other substantive changes to the Pilot, other than modifying the timing for replacement issues and therefore the Exchange will continue to participate in a program that has been viewed as beneficial to traders, investors and public customers and viewed as successful by the other options exchanges participating in it. The Exchange believes that the Pilot would continue to promote just and equitable principles of trade by enabling public customers and other market participants to express their true prices to buy and sell options to the benefit of all market participants. jbell on DSK30RV082PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Specifically, the Exchange believes that allowing the Exchange to add replacement issues to the Pilot on a quarterly basis would make the list of Pilot-eligible issues more current and would enable further analysis of the Pilot, including for a determination of how the Pilot should be structured in the future. In doing so, the proposed rule change will also serve to promote regulatory clarity and consistency, thereby reducing burdens on the marketplace and facilitating investor protection. The Pilot Program is an industry-wide initiative supported by all other option exchanges. The Exchange believes that the proposed change would allow for continued competition between Exchange market participants trading similar products as their counterparts on other exchanges, while at the same time allowing the Exchange to continue to compete for order flow with other exchanges in option issues trading as part of the Pilot. VerDate Sep<11>2014 17:25 Apr 03, 2019 Jkt 247001 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 8 and Rule 19b–4(f)(6) thereunder.9 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. A proposed rule change filed under Rule 19b–4(f)(6) 10 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),11 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The change will allow the Exchange to add classes to the pilot that are actively traded at the start of the second quarter (i.e., in April 2019) and replace those that have been delisted and are no longer trading on a more frequent basis. This will help ensure that the top 363 most actively traded, multiply-listed classes are included in the Pilot, which will enable further analysis of the Pilot.12 8 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 10 17 CFR 240.19b–4(f)(6). 11 17 CFR 240.19b–4(f)(6)(iii). 12 For purposes only of waiving the operative delay for this proposal, the Commission has 9 17 PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 13 of the Act 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– CboeEDGX–2019–013 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–CboeEDGX–2019–013. 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 considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 13 15 U.S.C. 78s(b)(2)(B). E:\FR\FM\04APN1.SGM 04APN1 Federal Register / Vol. 84, No. 65 / Thursday, April 4, 2019 / Notices 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–CboeEDGX–2019–013 and should be submitted on or before April 25, 2019. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Deputy Secretary. [FR Doc. 2019–06524 Filed 4–3–19; 8:45 am] SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Specify Replacement Issues That May Be Added to the Penny Pilot in Rule 1034 March 29, 2019. jbell on DSK30RV082PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 21, 2019, Nasdaq PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, 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 Exchange proposes amend Rule 1034, ‘‘Minimum Increments,’’ to specify replacement issues that may be added to the Penny Pilot (‘‘Pilot’’) on a quarterly basis, without altering the expiration date of the Pilot, which is June 30, 2019. The text of the proposed rule change is available on the Exchange’s website at CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 17:25 Apr 03, 2019 Jkt 247001 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. 1. Purpose [Release No. 34–85467; File No. SR–Phlx– 2019–05] 1 15 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 14 17 https://nasdaqphlx.cchwallstreet.com/, at the principal office of the Exchange, and at the Commission’s Public Reference Room. The Exchange proposes to amend Rule 1034, ‘‘Minimum Increments,’’ to specify that replacement issues may be added to the Pilot on a quarterly basis, without altering the expiration date of the Pilot, which is June 30, 2019. The Exchange recently filed to extend the Pilot until June 30, 2019 (from December 31, 2018) and also updated the rule text to provide that replacement issues may be added to the Pilot on the second trading day following January 1, 2019.3 Currently, Rule 1034(a)(i)(B) permits the Exchange to replace any penny pilot issues that have been delisted with the next most actively traded multiply listed options classes that are not yet included in the penny pilot, based on trading activity in the previous six months. The Exchange proposes to amend Rule 1034(a)(i)(B) to permit the Exchange to add replacement issues for Pilot issues that have been delisted on a quarterly basis. The Exchange added replacement issues in January 2019, pursuant to Rule 1034 and, with this proposal, would add eligible replacement issues in April, July and October 2019. The Exchange believes this change would allow the Exchange to update issues eligible for the Pilot by replacing delisted issues on a quarterly basis as opposed to semi-annual and would enable further analysis of the 3 See Securities Exchange Act Release No. 84961 (December 26, 2018), 84 FR 838 (January 31, 2019) (SR–Phlx–2018–84). On January 3, 2019, the Exchange added new issues to replace delisted Pilot issues, as announced by Options Trader Alert #2018–48. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 13335 Pilot and a determination of how the Pilot should be structured in the future. As is the case today, the Exchange will determine replacement issues based on trading activity in the previous six months (the ‘‘six month lookback’’) but will not use the month immediately preceding the addition of a replacement to the Pilot. Thus, a replacement class to be added on the second trading day following April 1, 2019 would be identified based on The Option Clearing Corporation’s trading volume data from September 1, 2018 through February 28, 2019.4 The Exchange believes the six month lookback is appropriate because this time period would help reduce the impact of unusual trading activity as a result of unique market events, such as a corporate action (i.e., it would result in a more reliable measure of average daily trading volume than would a shorter period). This filing does not propose any substantive changes to the Pilot. All classes currently participating will remain the same and all minimum increments will remain unchanged. The Exchange believes the benefits to public customers and other market participants who will be able to express their true prices to buy and sell options have been demonstrated to outweigh the increase in quote traffic. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.5 Specifically, the proposed rule change is consistent with Section 6(b)(5) of the Act,6 because it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes the proposal to allow the addition of replacement issues the Pilot on a quarterly basis would result in the a more current list of Pilot eligible issues and would enable further analysis of the Pilot, including for a determination of how the Pilot should be structured in the future. Further, the Exchange believes the six month lookback is appropriate because this time period would help reduce the 4 The Exchange would announce any replacement issues via an Options Trader Alert. See Rule 1034(a)(i)(B). 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(5). E:\FR\FM\04APN1.SGM 04APN1

Agencies

[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Notices]
[Pages 13332-13335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06524]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85466; File No. SR-CboeEDGX-2019-013]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Amend Rule 21.5, Interpretation and Policy .01 To Specify 
That Replacement Issues May Be Added to the Penny Pilot Program 
(``Pilot'') on a Quarterly Basis, Without Altering the Expiration Date 
of the Pilot, Which Is June 30, 2019

March 29, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 22, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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

[[Page 13333]]

Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (the ``Exchange'' or ``EDGX'') proposes to 
amend Rule 21.5, Interpretation and Policy .01 to specify that 
replacement issues may be added to the Penny Pilot Program (``Pilot'') 
on a quarterly basis, without altering the expiration date of the 
Pilot, which is June 30, 2019. The text of the proposed rule change is 
provided below.
(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe EDGX Exchange, Inc.

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

Interpretations and Policies

    01 The Exchange will operate a pilot program set to expire on June 
30, 2019 to permit options classes to be quoted and traded in 
increments as low as $.01. The Exchange will specify which options 
trade in such pilot, and in what increments, in Information Circulars 
distributed to Members and posted on the Exchange's website. The 
Exchange may replace any penny pilot issues that have been delisted 
with the next most actively traded multiply listed options classes that 
are not yet included in the penny pilot, based on trading activity in 
the previous six months. The replacement issues may be added to the 
penny pilot on the second trading day in the first month of each 
quarter [following January 1, 2019].
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 21.5, Interpretation and Policy 
.01, regarding the Pilot, to specify that replacement issues may be 
added to the Pilot on a quarterly basis, without altering the 
expiration date of the Pilot, which is June 30, 2019. The Exchange 
recently filed to extend the Pilot until June 30, 2019 (from December 
31, 2018) and also updated the rule text to provide that replacement 
issues may be added to the Pilot on the second trading day following 
January 1, 2019.\5\ The Rule authorizes the Exchange to replace any 
options issues in the Pilot that have been delisted with the next most 
actively traded multiply listed options classes that are not yet 
included in the Program, based on trading activity in the previous six 
months.\6\ The Exchange proposes to modify Rule 21.5, Interpretation 
and Policy .01 to allow the Exchange to add replacement issues (for 
Pilot issues that have been delisted) on a quarterly basis. The 
Exchange added replacement issues in January 2019 and would be able to 
add eligible replacement issues in April, July and October. The 
Exchange believes this change would allow the Exchange to update issues 
eligible for the Pilot (by replacing delisted issues) on a quarterly 
basis (as opposed to semi-annual) and would enable further analysis of 
the Pilot and a determination of how the Pilot should be structured in 
the future.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 84946 (December 21, 
2018), 83 FR 67757 (December 31, 2018) (SR-CboeEDGX-2018-061). On 
January 3, 2019, the Exchange added new issues to replace delisted 
Pilot issues, as announced by Product Update, available here, https://markets.cboe.com/resources/product_update/2019/Penny-Pilot-Replacement-Classes-for-January-3-2019-Updated.pdf.
    \6\ See Rule 21.5, Interpretation and Policy .01.
---------------------------------------------------------------------------

    As is the case today, the Exchange will determine replacement 
issues based on trading activity in the previous six months (the ``six-
month lookback'') but will not use the month immediately preceding the 
addition of a replacement to the Pilot. Thus, a replacement class to be 
added on the second trading day following April 1, 2019 would be 
identified based on The Option Clearing Corporation's trading volume 
data from September 1, 2018 through February 28, 2019.\7\ The Exchange 
believes the six-month lookback is appropriate because this time period 
would help reduce the impact of unusual trading activity as a result of 
unique market events, such as a corporate action (i.e., it would result 
in a more reliable measure of average daily trading volume than would a 
shorter period).
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    \7\ The Exchange will continue to announce the replacement 
issues by Exchange Notice. See supra note 5.
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    This filing does not propose any substantive changes to the Pilot: 
All classes currently participating will remain the same and all 
minimum increments will remain unchanged. The Exchange believes the 
benefits to public customers and other market participants who will be 
able to express their true prices to buy and sell options have been 
demonstrated to outweigh the increase in quote traffic.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act. Specifically, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) requirements that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) requirement that the rules of an exchange not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
    In particular, the Exchange believes the proposal to allow the 
addition of replacement issues the Pilot on a quarterly basis would 
result in a more current list of Pilot-eligible issues and would enable 
further analysis of the Pilot, including for a determination of how the 
Pilot should be structured in the future. Further, the Exchange 
believes the six-month lookback is appropriate because this time period 
would help reduce the impact of

[[Page 13334]]

unusual trading activity as a result of unique market events, such as a 
corporate action (i.e., it would result in a more reliable measure of 
average daily trading volume than would a shorter period). Thus, the 
Exchange believes this proposal would promote just and equitable 
principles of trade, foster cooperation and coordination with persons 
engaged in facilitating transactions in securities, and remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system.
    The Exchange notes that it is not making any other substantive 
changes to the Pilot, other than modifying the timing for replacement 
issues and therefore the Exchange will continue to participate in a 
program that has been viewed as beneficial to traders, investors and 
public customers and viewed as successful by the other options 
exchanges participating in it. The Exchange believes that the Pilot 
would continue to promote just and equitable principles of trade by 
enabling public customers and other market participants to express 
their true prices to buy and sell options to the benefit of all market 
participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes that allowing the Exchange to add replacement issues to the 
Pilot on a quarterly basis would make the list of Pilot-eligible issues 
more current and would enable further analysis of the Pilot, including 
for a determination of how the Pilot should be structured in the 
future. In doing so, the proposed rule change will also serve to 
promote regulatory clarity and consistency, thereby reducing burdens on 
the marketplace and facilitating investor protection. The Pilot Program 
is an industry-wide initiative supported by all other option exchanges. 
The Exchange believes that the proposed change would allow for 
continued competition between Exchange market participants trading 
similar products as their counterparts on other exchanges, while at the 
same time allowing the Exchange to continue to compete for order flow 
with other exchanges in option issues trading as part of the Pilot.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \10\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The change will allow 
the Exchange to add classes to the pilot that are actively traded at 
the start of the second quarter (i.e., in April 2019) and replace those 
that have been delisted and are no longer trading on a more frequent 
basis. This will help ensure that the top 363 most actively traded, 
multiply-listed classes are included in the Pilot, which will enable 
further analysis of the Pilot.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \13\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-CboeEDGX-2019-013 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-CboeEDGX-2019-013. 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

[[Page 13335]]

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-CboeEDGX-2019-013 
and should be submitted on or before April 25, 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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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06524 Filed 4-3-19; 8:45 am]
 BILLING CODE 8011-01-P
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