Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Price Protections and Risk Controls, 48664-48671 [2019-19902]
Download as PDF
<![CDATA[
48664
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86784; File No. SR–NYSE–
2019–45]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Its
Price List To Revise the Remove and
Adding Liquidity Tiers for Tape B and
C Securities
Correction
In notice document 2019–18999
beginning on page 46588 in the issue of
Wednesday, September 4, 2019, make
the following correction:
On page 46593, in the third column,
in the first paragraph, starting in the two
last lines ‘‘September 24, 2019’’ should
read ‘‘September 25, 2019’’.
[FR Doc. C1–2019–18999 Filed 9–13–19; 8:45 am]
BILLING CODE 1301–00–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
jspears on DSK3GMQ082PROD with NOTICES
Extension:
Regulation S–AM, SEC File No. 270–548,
OMB Control No. 3235–0609
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Regulation S–AM (17
CFR part 248, subpart B), under the Fair
Credit Reporting Act (15 U.S.C. 1681 et
seq.) (‘‘FCRA’’), the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.), the
Investment Company Act of 1940 (15
U.S.C. 80a–1 et seq.), and the
Investment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.). The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Regulation S–AM implements the
requirements of Section 624 of the
FCRA (15 U.S.C. 1681s–3) with respect
to investment advisers and transfer
agents registered with the Commission,
as well as brokers, dealers and
investment companies (collectively,
‘‘Covered Persons’’). Section 624 and
Regulation S–AM limit a Covered
VerDate Sep<11>2014
18:14 Sep 13, 2019
Jkt 247001
Person’s use of certain consumer
financial information received from an
affiliate to solicit a consumer for
marketing purposes, unless the
consumer has been given notice and a
reasonable opportunity and a reasonable
and simple method to opt out of such
solicitations. Regulation S–AM
potentially applies to all of the
approximately 20,195 Covered Persons
registered with the Commission,
although only approximately 11,309 of
them have one or more corporate
affiliates, and the regulation requires
only approximately 2,020 to provide
consumers with an affiliate marketing
notice and an opt-out opportunity.
The Commission staff estimates that
there are approximately 11,309 Covered
Persons having one or more affiliates,
and that they each spend an average of
0.20 hours per year to review affiliate
marketing practices, for, collectively, an
estimated annual time burden of 2,262
hours at an annual internal compliance
cost of approximately $1,203,384. The
staff also estimates that approximately
2,020 Covered Persons provide notice
and opt-out opportunities to consumers,
and that they each spend an average of
7.6 hours per year creating notices,
providing notices and opt-out
opportunities, monitoring the opt-out
notice process, making and updating
records of opt-out elections, and
addressing consumer questions and
concerns about opt-out notices, for,
collectively, an estimated annual time
burden of 15,352 hours at an annual
internal compliance cost of
approximately $2,999,296. Thus, the
staff estimates that the collection of
information requires a total of
approximately 11,309 respondents to
incur an estimated annual time burden
of a total of 17,614 hours at a total
annual internal cost of compliance of
approximately $4,202,680.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: September 11, 2019.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19971 Filed 9–13–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–86923; File No. SR–CBOE–
2019–057]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Regarding Price
Protections and Risk Controls
September 10, 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
September 5, 2019, Cboe Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘Cboe Options’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
the Exchange’s Rules regarding price
protections and risk controls, and moves
those Rules from the currently effective
Rulebook (‘‘current Rulebook’’) to the
shell structure for the Exchange’s
Rulebook that will become effective
upon the migration of the Exchange’s
trading platform to the same system
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\16SEN1.SGM
16SEN1
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
used by the Cboe Affiliated Exchanges
(as defined below) (‘‘shell Rulebook’’).
The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.)
Current
Cboe options
rule
Proposed
rule
Handling of market orders received in nobid series.
6.13(b)(vi) ........
5.34(a)(1) ...
C2 Rule
6.14(a)(1);
EDGX Rule
21.17(a)(5).
Market order NBBO
width protection.
6.13(b)(v)(A) ....
5.34(a)(2) ...
C2 Rule
6.14(a)(2);
EDGX
21.17(a)(1).
Buy order put check ......
6.14(a) .............
5.34(a)(3) ...
C2 6.14(a)(3);
EDGX
21.17(a)(3).
Drill-through protection
(simple).
6.13(b)(v)(B) ....
5.34(a)(4) ...
C2 6.14(a)(4);
EDGX
21.17(a)(4).
Price protection/
risk control
jspears on DSK3GMQ082PROD with NOTICES
(‘‘Cboe Global’’), which is also the
parent company of Cboe C2 Exchange,
Inc. (‘‘C2’’), acquired Cboe EDGA
Exchange, Inc. (‘‘EDGA’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX’’ or ‘‘EDGX
Options’’), Cboe BZX Exchange, Inc.
(‘‘BZX’’ or ‘‘BZX Options’’), and Cboe
BYX Exchange, Inc. (‘‘BYX’’ and,
together with Cboe Options, C2, EDGX,
EDGA, and BZX, the ‘‘Cboe Affiliated
Exchanges’’). The Cboe Affiliated
Exchanges are working to align certain
system functionality, retaining only
intended differences between the Cboe
Affiliated Exchanges, in the context of a
technology migration. Cboe Options
intends to migrate its trading platform to
the same system used by the Cboe
Affiliated Exchanges, which the
Exchange expects to complete on
October 7, 2019. In connection with this
technology migration, the Exchange has
a shell Rulebook that resides alongside
its current Rulebook, which shell
Rulebook will contain the Rules that
will be in place upon completion of the
Cboe Options technology migration.
The Exchange proposes to harmonize
its rules in connection with the risk
control and price protection functions
on the Exchange to that of its affiliated
Exchanges. Specifically, the Exchange
proposes to consolidate all order and
quote price protection mechanisms and
risk controls into a single rule, proposed
Rule 5.34 (and subsequently delete the
relevant price protection mechanism
and risk control provisions in current
VerDate Sep<11>2014
18:14 Sep 13, 2019
Jkt 247001
PO 00000
Affiliated
exchange
rule
Frm 00087
48665
Rules 6.12, 6.13, 6.14, 6.23C, and
6.53C.08 upon migration). Proposed
Rule 5.34 is substantively identical to
C2 Rule 6.14, as well as substantially
the same as corresponding EDGX
Options Rules 21.16, 21.17 and 22.11. In
line with C2 Rule 6.14, proposed Rule
5.34 categorizes these mechanisms and
controls as ones applicable to simple
orders (proposed paragraph (a)),
complex orders (proposed paragraph
(b)), and all (i.e. simple and complex)
orders (proposed paragraph (c)). The
following table identifies the Exchange’s
current price protection mechanisms
and risk controls, the current Exchange
Rule, the proposed Exchange Rule, the
corresponding C2 Rule and EDGX rule,
where applicable, and any proposed
changes, if any. The Exchange notes that
much of the proposed functionality is
substantially similar to the current price
protections and risk controls
functionality. The Exchange also
proposes to make non-substantive
changes by updating cross-references to
rules in the shell Rulebook and rules not
yet in the shell Rulebook but that in the
Exchange intends to move to the shell
Rulebook, updating Exchange-specific
references for consistency throughout
the rules, and, as a result of
consolidating and conforming the
proposed rule to the rules of affiliated
options exchanges, simplifies, clarifies,
and updates the rule text to read in
plain English, and reformats the
paragraph lettering and/or numbering.
Proposed changes
Pursuant to the proposed rule change, the System cancels or rejects a market order if
there is no-bid and the best offer is less than or equal to $0.50. Under current
functionality, the System would treat the sell order as a limit order with a price equal
to the minimum increment in this situation. The proposed rule change also expands
the same protection to market orders in no-offer series. The Exchange believes the
proposed rule change will provide protection for these orders to prevent execution at
potentially erroneous prices when a market order is entered in a series with no bid
or offer.
The proposed functionality is generally the same as current functionality, except the
acceptable amount away from NBBO that a market order may execute will be determined by a percentage away from the NBBO midpoint (subject to a minimum and
maximum dollar amount) rather than specified dollar ranges based on premium, providing the Exchange with flexibility it believes is appropriate given previous experience with risk controls.
The proposed rule change will apply to market order executions during the Opening
Process, and deletes the call underlying value check in current Rule 6.17(a)(i)(B), as
this functionality will not be available on the Exchange’s new system following the
technology migration.
The proposed functionality is generally the same as current functionality, except the
drill-through amount is a buffer amount determined by class and premium rather
than a number ticks. The proposed rule change deletes the distinction between orders exposed via HAL, which is in line with current functionality on EDGX, which
provides for the HAL equivalent, SUM. The proposed functionality applies to Day orders, as well as Good-til-Date (‘‘GTD’’) and Good-til-Cancel (‘‘GTC’’) 5 orders that reenter the Book from the prior trading day, but not an Immediate-or-Cancel (‘‘IOC’’)
or Fill-or-Kill (‘‘FOK’’) order, as resting in the Book for a period of time is inconsistent with their purpose (which is to cancel if not executed immediately).
Fmt 4703
Sfmt 4703
E:\FR\FM\16SEN1.SGM
16SEN1
jspears on DSK3GMQ082PROD with NOTICES
48666
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
Price protection/
risk control
Current
Cboe options
rule
Proposed
rule
Bulk message fat finger
check.
N/A ..................
5.34(a)(5) ...
C2 6.14(a)(5);
EDGX
21.17(a)(6).
Definitions of vertical
spread, butterfly
spread, and box
spread.
Credit-to-debit parameters.
6.53C.08 ..........
5.34(b)(1) ...
C2 6.14(b)(1);
EDGX
21.17(b)(1).
6.53C.08(b) .....
5.34(b)(2) ...
Debit/credit price reasonability checks.
6.53C.08(c) .....
5.34(b)(3) ...
C2 6.14(b)(2);
EDGX
21.17(b)(2).
C2 6.14(b)(3);
EDGX
21.17(b)(3).
Buy strategy parameters
6.53C.08(d) .....
5.34(b)(4) ...
C2 6.14(b)(4);
EDGX
21.17(b)(4).
Maximum value acceptable price range.
6.53C.08(g) .....
5.34(b)(5) ...
Drill-through protection
(complex).
N/A ..................
5.34(b)(6) ...
C2 6.14(b)(5);
EDGX
21.17(b)(5).
C2 6.14(b)(6);
EDGX
21.17(b)(6).
Limit Order Fat Finger
Check.
6.12(a)(3) and
6.12(b).
5.34(c)(1) ....
C2 6.14(c)(1);
EDGX
21.17(a)(2) &
(b)(7).
Maximum contract size
6.14(e) .............
5.34(c)(2) ....
C2 6.14(c)(2);
EDGX
21.17(b)(8).
Maximum notional value
N/A ..................
5.34(c)(3) ....
C2 6.14(c)(3);
EDGX Technical specifications.
VerDate Sep<11>2014
18:14 Sep 13, 2019
Jkt 247001
PO 00000
Affiliated
exchange
rule
Frm 00088
Proposed changes
The proposed functionality adds a price protection mechanism for bulk messages similar to the fat finger check the Exchange currently provides for orders. The proposed
rule states the System cancels or rejects any bulk message bid (offer) above
(below) the NBO (NBB) by more than a specified amount determined by the Exchange. The proposed check also will not apply to bulk messages submitted prior to
the conclusion of the Opening Process or when no NBBO is available, which is appropriate during the pre-open or opening rotation so that the check does not impact
the determination of the opening price, and also when there is no NBBO, as the Exchange believes that it is the most reliable measure against which to compare the
price of the bulk message to determine its reasonability.
No substantive changes.
No substantive changes.
The proposed functionality is generally the same as current functionality, except the
acceptable price is subject to a pre-set buffer amount, which flexibility is consistent
with C2 and EDGX functionality. The proposed rule also adopts language that accounts for the stock component of a stock-option order, which is consistent with
EDGX Rule 21.17 (and not found within C2 Rule 6.14 because C2 does not currently provide for this functionality). The check will apply to multi-class spreads because, upon migration, such orders will be routed to PAR to which the price protections and risk controls under the proposed rule will apply.
The proposed functionality is generally the same as current functionality, except the
net credit price is subject to a buffer amount (consistent with C2 and EDGX
functionality). The proposed rule change deletes the mechanism’s applicability to
sell strategies, as that functionality will not be available on the Exchange following
the technology migration. The Exchange also uses proposed term ‘‘minimum increment’’ as opposed to ‘‘$0.01’’ as some classes move in increments that differ from a
penny.
The proposed functionality is generally the same as current functionality, except the
price range is calculated using a buffer amount (consistent with C2 and EDGX
functionality) rather than a percentage amount.
The proposed functionality is generally the same as current functionality that applies to
simple orders, and expands it to complex orders. The proposed rule change replaces market width parameter protection and acceptable percentage range parameter in current Rule 6.53C.08(a) and (e), respectively, which currently protect Cboe
Options complex orders from executing at potentially erroneous prices too far away
from the order’s price or the market’s best price. The proposed rule is identical to
the corresponding C2 and EDGX rules, which adds the concept that an order eligible for complex order request for responses auction process (‘‘COA’’) would initiate
a COA at the drill-through price as the prices for complex strategy executions may
be subject to the drill-through protection, and the price of a COA may be impacted
by the drill-through protection; and (2) describes how a change in the SBBO prior to
the end of the time period but the complex order cannot Leg, and the new SBO
(SBB) crosses the drill-through price, the System changes the displayed price of the
complex order to the new SBO (SBB) minus (plus) $0.01, and the order will not be
cancelled at the end of the time period. The proposed rule change merely permits
an order to remain on the complex order book (‘‘COB’’) since the market reflects interest to trade (but not currently executable due to Legging Restrictions) that was
not there at the beginning of the time period, providing additional execution opportunities prior to cancellation.
The proposed functionality is generally the same as current functionality, except the
amount away from the NBBO a limit order price may be is a buffer amount rather
than a number of ticks with no minimum, and Exchange may determine whether the
check applies to simple orders prior to the conclusion of the RTH opening auction
process (current rules codify pre-open application), providing the Exchange with
flexibility it believes appropriate given previous experience with risk controls. The
proposed rule change does not apply to GTC or GTD orders that reenter the Book
from the prior trading day, as this check only applies to orders when the System receives them. The proposed rule change provides Users with the ability to set a different buffer amount to accommodate its own risk modeling; does not apply to adjusted series prior to the RTH opening auction process, as prices may reflect the
corporate action for the underlying but the previous day’s NBBO would not reflect
that action. If the check applies prior to the RTH opening auction process, the System compares the last disseminated NBBO on that trading day, or the midpoint of
the prior trading day’s closing NBBO, if no NBBO has been disseminated on that
trading day, which the Exchange believes is another reasonable price comparison.
The proposed functionality is generally the same as current functionality, except the
Exchange will set a default amount rather than permit User to set amount. The proposed rule change applies per port rather than acronym or login. The functionality to
cancel a resting order or quote if replacement order or quote is entered will not be
available on the Exchange following the technology migration (however, a User can
enable cancel on reject functionality described below to receive same result).
Voluntary functionality similar to maximum contract size, except the System cancels or
rejects an incoming order or quote with a notional value that exceeds the maximum
notional value a User establishes for each of its ports. The proposed rule change
provides an additional, voluntary control for Users to manage their order and execution risk on the Exchange.
Fmt 4703
Sfmt 4703
E:\FR\FM\16SEN1.SGM
16SEN1
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
Price protection/
risk control
Current
Cboe options
rule
Proposed
rule
Affiliated
exchange
rule
Daily risk limits ..............
N/A ..................
5.34(c)(4) ....
C2 6.14(c)(4);
EDGX Technical specifications.
Risk monitor mechanism
6.14(d) and
8.18.
5.34(c)(5) ....
C2 6.14(c)(5);
EDGX 21.16.
Cancel on reject ............
N/A ..................
5.34(c)(6) ....
C2 6.14(c)(6);
EDGX
6.14(a)(7).
Kill switch .......................
6.14(f) ..............
5.34(c)(7) ....
C2 6.14(c)(7);
EDGX 22.11.
Cancel on disconnect ....
6.23C ...............
5.34(c)(8) ....
C2 6.14(c)(8);
EDGX Technical Specifications.
Block new orders ...........
N/A ..................
5.34(c)(9) ....
C2 6.14(c)(9);
EDGX 22.11.
Duplicate order protection.
N/A ..................
5.34(c)(10) ..
Buy-Write/Married Put
Check.
6.53C.08(a)(5)
5.34(c)(11) ..
C2 6.14(c)(10);
EDGX Technical specifications.
EGDX
21.17(b)(9).
jspears on DSK3GMQ082PROD with NOTICES
The price protection mechanisms and
risk controls under proposed Rule 5.34
are applicable to the System’s
acceptance and execution of orders and
quotes pursuant to the Rules, including
Rules 5.31 through 5.33,7 and to and
orders routed to the Exchange’s Public
Automated Routing System (‘‘PAR’’)
5 See Rule 5.6 in the shell Rulebook. For an order
designated as a GTD order, if after entry into the
System, the order is not fully executed, the order
(or unexecuted portion) remains available for
potential display or execution (with the same
timestamp) until a date and time specified by the
entering User unless cancelled by the entering User.
For an order designated as a GTC order, if after
entry into the System, the order is not fully
executed, the order (or unexecuted portion) remains
available for potential display or execution (with
the same timestamp) unless cancelled by the
entering User, or until the option expires,
whichever comes first.
6 The System calculates a notional cutoff on a
gross basis by summing CBB, CBO, CEB, and CEO.
The System calculates a notional cutoff on a net
basis by summing CEO and CBO, then subtracting
the sum of CEB and CBB, and then taking the
absolute value of the resulting amount.
7 Rules to be effective on October 7, 2019 and
cover the opening auction process, order and quote
book processing, display, priority, and execution, as
well as complex orders.
VerDate Sep<11>2014
19:45 Sep 13, 2019
Jkt 247001
Proposed changes
Voluntary functionality pursuant to which a User may establish limits for cumulative notional booked bid (‘‘CBB’’) or offer (‘‘CBO’’) value, and cumulative notional executed
bid (‘‘CEB’’) or offer (‘‘CEO’’) value for each of its ports on a net or gross basis, or
both, and may establish limits for market or limit orders (counting both simple and
complex), or both. If a User exceeds a cutoff value (by aggregating amounts across
the User’s ports), the System cancels or rejects incoming limit or market orders, or
both, as applicable.6
Similar functionality to current quote risk monitor and order entry, execution, and price
parameter rate checks on the Exchange, which will not be available on the Exchange following migration (discussed below).
Additional, voluntary control for Users to manage their order and execution risk on the
Exchange, pursuant to which the System cancels a resting order or quote if the System rejects a cancel or modification instruction (because, for example, it had an invalid instruction) for that resting order or quote. The proposed rule change is consistent with the purpose of a cancel or modification, which is to cancel the resting
order or quote, and carries out this purpose despite an erroneous instruction on the
cancel/modification message.
The proposed functionality is generally the same as current functionality, except Users
may apply it to different categories of orders by EFID rather than acronym or login
(consistent with new System functionality for migration), and block of incoming orders or quotes is a separate request by Users.
The proposed functionality is generally the same as current technical disconnect
functionality, except it is the same for both APIs on the new System. The proposed
rule change will continue to protect Users against erroneous executions if it appears
they are experiencing a system disruption. The proposed functionality will no longer
provide TPHs with the ability to determine length of interval, but does provide additional flexibility with respect to which order types may be cancelled—current
functionality permits a choice of market-maker quotes and day orders, while the proposed functionality permits a choice of day and GTC/GTD orders, or just day orders.
Similar to automatic functionality that occurs on the Exchange currently when a Trading Permit Holder uses kill switch functionality. The proposed rule change merely
provides a separate way to achieve this result on the new System, providing Users
with flexibility regarding how to manage their resting orders and quotes.
Additional, voluntary control for Users to manage their order and execution risk on the
Exchange. The proposed rule change protects Users against execution of multiple
orders that may have been erroneously entered.
The proposed functionality is generally the same as current functionality, the acceptable price range is based on the price of the call (put) plus (minus) an Exchangedetermined buffer amount.
pursuant to Rule 5.82.8 The Exchange
notes that the proposed rule’s inclusion
of PAR orders is an intended difference
made between its proposed rule and
C2’s rule, as PAR is unique to the
Exchange. Upon migration, all orders
routed to PAR will also be subject to
price protection mechanisms and risk
controls. This will provide the same
protections for User’s PAR routed order
as for User’s order and quotes sent
through and executed by the System.
Currently, PAR functions outside of the
System, therefore not all risk controls
are currently applicable to PAR orders.
Upon migration, PAR orders will be
entered into the System in the same
manner as all other orders, and will
route to PAR per User instruction, after
going through the System, therefore, the
same price protection mechanisms and
risk controls will apply.
The proposed rule change also deletes
the mechanisms related to execution of
quotes that lock or cross the NBBO and
quotes inverting the NBBO (current Rule
6.14(b) and (c)). The Exchange’s current
8 Rule to be effective on October 7, 2019 and
governs the operation of the Exchange’s Public
Automated Routing System (‘‘PAR’’).
PO 00000
Frm 00089
48667
Fmt 4703
Sfmt 4703
quote functionality will be replaced
with bulk message functionality 9 upon
migration; however, orders and bulk
messages (the equivalent of current
quotes) submitted by Market-Makers
will be subject to the same protections,
except for those that do not apply to
bulk messages (e.g., for market orders in
no-bid (offer) series, market order NBBO
width and drill-through protections,
limit order fat finger checks, and daily
risk limits) as described above.
Under the current C2 and EDGX
debit/credit price reasonability check
(see C2 Rule 6.14(b)(3) and EDGX Rule
21.17(b)(3)), the System only pairs calls
(puts) if they have the same expiration
date but different exercise prices or the
same exercise price but different
expiration dates. Under the Exchange’s
9 See Rule 1.1 in shell Rulebook, which states that
‘‘bulk message’’ means a single electronic message
a User submits to the Exchange in which the User
may enter, modify, or cancel up to an Exchangespecified number of bids and offers. Upon
migration the System will handle a bulk message
bid or offer in the same manner as it handles an
order or quote, unless the Rules specify otherwise.
The proposed rule change accounts for bulk
message functionality and makes explicit the price
protections that will not apply to such messages.
This is consistent with C2 Rule 6.14.
E:\FR\FM\16SEN1.SGM
16SEN1
48668
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
jspears on DSK3GMQ082PROD with NOTICES
current debit/credit reasonability check,
with respect to pairs with different
expiration the System pairs of calls
(puts) with different expiration dates if
the exercise price for the call (put) with
the farther expiration date is lower
(higher) than the exercise price for the
nearer expiration date in addition to
those with different expiration dates
and the same exercise price. The
proposed rule change amends this check
to pair orders in the same manner as C2
and EDGX, which is to pair calls (puts)
if they have the same expiration date
but different exercise prices or the same
exercise price but different expiration
dates. Additionally, the proposed rule
change deletes the exception for
complex orders with European-style
exercise. This aligns with the
corresponding rules of C2 and EDGX
and the Exchange no longer believes
this exception is necessary and will
expand this check to index options with
all exercise styles.
The proposed Risk Monitor
Mechanism is identical to the current
functionality on C2 and substantively
the same as the functionality currently
available on EDGX. Because there will
no longer be separate order and quote
functionality on the Exchange following
the technology migration, there will no
longer be separate mechanisms to
monitor entry and execution rates, as
there are on the Exchange today. Each
User may establish limits for the
following parameters in the Exchange’s
counting program. The System counts
each of the following within a class
(‘‘class limit’’) 10 and across all classes
for an EFID 11 (‘‘firm limit’’) and/or
across all classes for a group of EFIDs
(‘‘EFID Group’’) (‘‘EFID Group limit’’)
over a User-established time period
(‘‘interval’’) on an absolute basis for a
trading day (‘‘absolute limits’’):
(i) Number of contracts executed
(‘‘volume’’);
(ii) notional value of executions
(‘‘notional’’);
(iii) number of executions (‘‘count’’);
(iv) number of contracts executed as
a percentage of number of contracts
outstanding within an Exchangedesignated time period or during the
trading day, as applicable
(‘‘percentage’’), which the System
determines by calculating the
percentage of a User’s outstanding
contracts that executed on each side of
10 The Exchange also changes the term
‘‘underlying’’ and ‘‘underlying limit’’ currently in
the C2 rule to ‘‘class’’ and ‘‘class limit’’ which more
accurately reflect this Risk Monitor Mechanism
limit and the language in the current Exchange rule.
11 The Exchange will use EFIDs (i.e., Executing
Firm IDs) upon migration. See Rule 1.1 in the shell
Rulebook.
VerDate Sep<11>2014
18:14 Sep 13, 2019
Jkt 247001
the market during the time period or
trading day, as applicable, and then
summing the series percentages on each
side in the class; and
(v) number of times the limits
established by the parameters under the
above-listed are reached (‘‘risk trips’’).
Also, when the System determines the
volume, notional, count, percentage, or
risk trips limits have been reached:
(i) a User’s class limit within the
interval or the absolute limit for the
class, the Risk Monitor Mechanism
cancels or rejects such User’s orders or
quotes in all series of the class and
cancels or rejects any additional orders
or quotes from the User in the class
until the counting program resets (as
described below).
(ii) a User’s firm limit within the
interval or the absolute limit for the
firm, the Risk Monitor Mechanism
cancels or rejects such User’s orders or
quotes in all classes and cancels or
rejects any additional orders or quotes
from the User in all classes until the
counting program resets (as described
below).
(iii) a User’s EFID Group limit within
the interval or the absolute limit for the
EFID Group, the Risk Monitor
Mechanism cancels or rejects such
User’s orders or quotes in all classes and
cancels or rejects any additional orders
or quotes from any EFID within the
EFID Group in all classes until the
counting program resets (as described
below).
The Risk Monitor Mechanism will
also attempt to cancel or reject any
orders routed away to other exchanges.
The System processes messages in the
order in which they are received.
Therefore, it will execute any
marketable orders or quotes that are
executable against a User’s order or
quote and received by the System prior
to the time the Risk Monitor Mechanism
is triggered at the price up to the size
of the User’s order or quote, even if such
execution results in executions in
excess of the User’s parameters. The
System will not accept new orders or
quotes from a User after a class limit is
reached until the User submits an
electronic instruction to the System to
reset the counting program for the class.
The System will not accept new orders
or quotes from a User after an EFID limit
or EFID Group limit is reached until the
User manually notifies the Trade Desk
to reset the counting program for the
firm, unless the User instructs the
Exchange to permit it to reset the
counting program by submitting an
electronic message to the System. The
Exchange may restrict the number of
User class and firm resets per second.
The System counts executed COA
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
responses as part of the Risk Monitor
Mechanism. The System counts
individual trades executed as part of a
complex order when determining
whether the volume, notional, count, or
risk trips limit has been reached. The
System counts the percentage executed
of a complex order when determining
whether the percentage limit has been
reached. In addition, a User may also
engage the Risk Monitor Mechanism to
cancel resting bids and offers, as well as
order set forth in the kill switch
protection provision. The Risk Monitor
Mechanism providers Users with
similar ability to manage their order and
execution risk to the quote risk monitor
and rate checks currently available on
the Exchange, and merely uses different
parameters and modifies the
functionality to conform the new
System to that of C2 and EDGX upon
migration.
With respect to various price
protections and risk controls in current
Rules 6.12.01, 6.13, and 6.53C.08, the
Exchange has the authority to provide
intraday relief by widening or
inactivating one or more of the
parameter settings for the mechanisms
in those rules. This authority is
included in proposed Interpretation and
Policy .01, to provide this flexibility for
all price protections and risk controls
for which the Exchange sets parameters,
providing the Exchange with flexibility
it believes appropriate given previous
experience with risk controls. This is
consistent with corresponding C2 Rule
6.14.01. The Exchange will continue to
make and keep records to document all
determinations to grant intraday relief,
and periodically review these
determinations for consistency with the
interest of a fair and orderly market.
The proposed rule change makes a
non-substantive change in moving the
provision regarding the Exchange’s
ability to share User-designated risk
settings in the System with a Clearing
Trading Permit Holder that clears
Exchange transactions on behalf of the
User from the introduction of current
Rule 6.14 to proposed Rule 5.34.02.
Also, the proposed change makes nonsubstantive changes in that it updates
all provisions to account for ‘‘User’’ as
opposed to Trading Permit Holder
(‘‘TPH’’), which is consistent with the
definition under Rule 1.1 the shell
Rulebook, and the use of the term
throughout the Exchange Rules upon
migration.
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
E:\FR\FM\16SEN1.SGM
16SEN1
jspears on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.12 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 13 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) 14 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The proposed rule change is generally
intended to add or align certain System
functionality in connection with price
protection mechanisms and risk
controls with functionality currently
offered by C2 and EDGX in order to
provide a consistent technology offering
for the Cboe Affiliated Exchanges. A
consistent technology offering, in turn,
will simplify the technology
implementation, changes and
maintenance by Users of the Exchange
that are also participants on Cboe
Affiliated Exchanges. The proposed rule
changes would also provide Users with
access to functionality that is generally
available on markets other than the
Cboe Affiliated Exchanges and may
result in the efficient execution of such
orders and will provide additional
flexibility as well as increased
functionality to the Exchange’s System
and its Users. The proposed rule change
seeks to provide greater harmonization
between the rules of the Cboe Affiliated
Exchanges, which would result in
greater uniformity and less burdensome
and more efficient regulatory
compliance. As such, the proposed rule
change would foster cooperation and
coordination with persons engaged in
facilitating transactions in securities and
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system. The Exchange also believes that
consistent rules will increase the
understanding of the Exchange’s
operations for Trading Permit Holders
that are also participants on the Cboe
12 15
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
14 Id.
VerDate Sep<11>2014
Affiliated Exchanges, thereby
contributing to the protection of
investors and the public interest. The
proposed rule change does not propose
to implement new or unique
functionality that has not been
previously filed with the Commission or
is not available on Cboe Affiliated
Exchanges. The Exchange notes that the
proposed rule text mirrors C2 Rules,
save for intended differences that
account for PAR (unique to the
Exchange), Exchange-specific crossreferences and references to certain
terms (i.e. User throughout the proposed
rule).
Overall, the Exchange believes the
additional and enhanced price
protection mechanisms and risk
controls will protect investors and the
public interest and maintain fair and
orderly markets by mitigating potential
risks associated with market
participants entering orders and quotes
at unintended prices, and risks
associated with orders and quotes
trading at prices that are extreme and
potentially erroneous, which may likely
have resulted from human or
operational error. The Exchange notes
that the proposed rule change is
substantially similar to the current Cboe
Options Rules, and, while the Exchange
currently offers many similar
protections and controls, as described
above, the Exchange believes Users will
benefit from the additional functionality
that will be available following the
technology migration.
As indicated in the table above, the
proposed price protection and risk
control mechanisms no longer establish
outer boundaries or limits to the levels
at which mechanisms are set (save for
the proposed no-bid provision, noted
below), but instead, the proposed rule
change amends the price protection
mechanisms and risk controls to
account for Exchange-determined and/
or User-determined buffer or default
amounts. The Exchange believes this
removes impediments to and perfects
the mechanism of a free and open
market and national market system
because it affords the Exchange and
Users reasonable and necessary
flexibility to establish and modify the
default parameters, which, in turn,
protects investors and the public
interest, and maintains a fair and
orderly market. The Exchange notes any
Exchange-determined parameters will
always be available on the Exchange’s
website via specification or Notice.15
The Exchange also believes the
proposed rule change to the no-bid
provisions, that the System cancels or
15 See
18:14 Sep 13, 2019
Jkt 247001
PO 00000
Rule 1.5 in the shell Rulebook.
Frm 00091
Fmt 4703
Sfmt 4703
48669
rejects a market order if there is no-bid
and the best offer is less than or equal
to $0.50, as well as a market order
where there is no-offer, is designed to
protect User’s as it will provide
protection for market orders to prevent
execution at potentially erroneous
prices when a market order is entered in
a series with no bid or offer.
The proposed drill-through
protections for complex orders removes
impediments to and perfect the
mechanism of a free and open market
and national market system and
facilitates transactions in securities by
adding detail to the rules regarding
complex order price protections.
Particularly, by adding that a COAeligible order would initiate a COA at
the drill-through price because the
prices for complex strategy executions
may be subject to the drill-through
protection and permitting an order that
is not currently executable due to
Legging restrictions to remain on the
COB if the SBBO changes during the set
time-period will provide additional
execution opportunities, for Users’
orders participating in the COA and/or
prior to cancellation.
The proposed provision in connection
with the Risk Monitor Mechanism will
not alter the function of this mechanism
for market participants as it provides
Users with the ability to manage their
order and execution risk to the quote
risk monitor and rate checks similar to
that which is currently available on the
Exchange, and merely uses different
parameters and modifies the
functionality to conform the new
System to that of C2 and EDGX upon
migration. The Exchange also notes that
this functionality is optional; it is Userenabled and the parameters are Userestablished.
The proposed rule change also
removes functionality, and reference to
such functionality, that will not exist
upon migration in order to align the
Exchange’s System with that of its
affiliated options exchanges, which will
serve to remove impediments to and
perfect the mechanism of a free and
open market and national market system
by providing market participants with
rules that accurately reflect
functionality post-migration and
effectively harmonize Exchange
functionality with that of C2 and EDGX.
Moreover, the Exchange does not
believe that the proposed change that
removes functionality that will no
longer be available upon migration will
impact investors because the proposed
change provides substantially similar
alternative mechanisms and controls
that result in the same protections as
current Exchange functionality. The
E:\FR\FM\16SEN1.SGM
16SEN1
48670
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
jspears on DSK3GMQ082PROD with NOTICES
Exchange believes that the proposed
rule provides a full suite of price
protection mechanisms and risk
controls, the same as those currently in
effect on its affiliated options
exchanges, which will sufficiently
mitigate risks associated with market
participants entering orders and quotes
at unintended prices, and risks
associated with orders and quotes
trading at prices that are extreme and
potentially erroneous, as a likely result
of human or operational error. The
Exchange also notes that a majority of
the proposed price protection
mechanisms and risks controls are
voluntary and/or User-determined,
which benefits market participants by
providing Users with additional control
and flexibility in connection with their
orders.
As stated, the Exchange notes the
proposed price protection mechanisms
and risk controls provisions do not
present any new or unique rules or
functionality for market participants as
the proposed rule is substantially
similar to the Exchange’s current rules,
identical to C2 Rule 6.14, as well as
substantively the same as corresponding
EDGX rules and technical
specifications, as discussed above. The
proposed rule change makes various
non-substantive changes throughout the
rules by updating cross-references and
Exchange-specific terms, and by means
of conforming language to C2 Rule 6.14,
as well as corresponding EDGX rules,
that will protect investors and benefit
market participants as these changes
simplify or clarify rules, delete
duplicative rule provisions, conform
paragraph numbering and lettering
throughout the rules, and use plain
English.
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 reiterates that the proposed
rule change is being proposed in the
context of the technology integration of
the Cboe Affiliated Exchanges. Thus, the
Exchange believes this proposed rule
change is necessary to permit fair
competition among national securities
exchanges.
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.
Rather, the proposed rule change is
designed to benefit Exchange
participants in that it will provide a
VerDate Sep<11>2014
18:14 Sep 13, 2019
Jkt 247001
consistent technology offering for Users
by the Cboe Affiliated Exchanges.
Following the technology migration, the
Exchange’s System, as described in this
proposed rule change, will apply to all
Users and order and quotes submitted
by Users in the same manner. The
Exchange also notes that many of the
proposed price protections and risk
controls are either User-determined or
altogether voluntary.
In addition to this, the Exchange does
not believe that the proposed rule
change will impose any burden on
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
basis for the majority of the proposed
rule changes in this filing are the rules
of C2 and EDGX, which have previously
been filed with the Commission. The
Exchange also notes that market
participants on other exchanges are
welcome to become participants on the
Exchange if they determine that this
proposed rule change has made Cboe
Options a more attractive or favorable
venue. As stated, the proposed changes
to the rules that accurately reflect
functionality that will be in place come
October 7, 2019, will not impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
but rather provide clear, consistent rules
for market participants surrounding the
completion of migration.
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 16 and paragraph (f) of Rule
19b–4 17 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
16 15
17 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
Frm 00092
Fmt 4703
Sfmt 4703
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–2019–057 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2019–057. 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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CBOE–2019–057, and
should be submitted on or before
October 7, 2019.
E:\FR\FM\16SEN1.SGM
16SEN1
Federal Register / Vol. 84, No. 179 / Monday, September 16, 2019 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–19902 Filed 9–13–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Investment Company Act Release No.
33622; File No. 812–15031 ETFis Series
Trust I, et al.; Notice of Application
September 11, 2019.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
jspears on DSK3GMQ082PROD with NOTICES
AGENCY:
Notice of an application for an order
under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
12(d)(1)(A), (B), and (C) of the Act and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (2) of the Act. The requested order
would permit certain registered openend investment companies to acquire
shares of certain registered open-end
investment companies (each an
‘‘Unaffiliated Open-End Investment
Company’’), registered closed-end
investment companies and ‘‘business
development companies,’’ as defined in
section 2(a)(48) of the Act (each
registered closed-end management and
each business development company,
an ‘‘Unaffiliated Closed-End Investment
Company’’ and, together with the
Unaffiliated Open-End Investment
Companies, the ‘‘Unaffiliated
Investment Companies’’), and registered
unit investment trusts (the ‘‘Unaffiliated
Trusts,’’ and together with the
Unaffiliated Investment Companies, the
‘‘Unaffiliated Funds’’) that are within
the same group of investment
companies (collectively, the ‘‘Affiliated
Funds’’) and outside the same group of
investment companies as the acquiring
investment companies (collectively, the
Affiliated Funds and, together with the
Unaffiliated Funds, the ‘‘Underlying
Funds’’), in excess of the limits in
section 12(d)(1) of the Act.
APPLICANTS: ETFis Series Trust I and
Virtus ETF Trust II, Delaware statutory
trusts that are registered under the Act
as open-end management investment
companies and intend to introduce
multiple series, and Virtus ETF
Advisers LLC, a Delaware limited
liability company registered as an
18 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:14 Sep 13, 2019
Jkt 247001
investment adviser under the
Investment Advisers Act of 1940.
FILING DATES: The application was filed
on May 9, 2019.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 7, 2019 and
should be accompanied by proof of
service on the applicants, in the form of
an affidavit, or, for lawyers, a certificate
of service. Pursuant to Rule 0–5 under
the Act, hearing requests should state
the nature of the writer’s interest, any
facts bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
Applicants: William J. Smalley, Virtus
ETF Advisers LLC, 1540 Broadway,
New York, NY 10036; and Michael W.
Mundt, Esq., Stradley Ronon Stevens &
Young, LLP, 1250 Connecticut Avenue
NW, Suite 500, Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT:
Rochelle Kauffman Plesset, Senior
Counsel, or David J. Marcinkus, Branch
Chief, at (202) 551–6825, (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
Summary of the Application
1. Applicants request an order to
permit (a) a Fund 1 (each a ‘‘Fund of
1 Applicants request that the order apply to each
existing and future series of ETFis Series Trust I
and Virtus ETF Trust II and to each existing and
future registered open-end investment company or
series thereof that is advised by Virtus ETF
Advisers LLC or its successor or by any other
investment adviser controlling, controlled by or
under common control with Virtus ETF Advisers
LLC or its successor and is part of the same ‘‘group
of investment companies’’ as ETFis Series Trust I
and Virtus ETF Trust II (each, a ‘‘Fund’’). For
purposes of the requested order, ‘‘successor’’ is
limited to an entity that results from a
reorganization into another jurisdiction or a change
in the type of business organization. For purposes
of the request for relief, the term ‘‘group of
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
48671
Funds’’) to acquire shares of Underlying
Funds 2 in excess of the limits in
sections 12(d)(1)(A) and (C) of the Act
and (b) the Underlying Funds that are
registered open-end investment
companies or series thereof, their
principal underwriters and any broker
or dealer registered under the Securities
Exchange Act of 1934 to sell shares of
the Underlying Fund to the Fund of
Funds in excess of the limits in section
12(d)(1)(B) of the Act.3 Applicants also
request an order of exemption under
sections 6(c) and 17(b) of the Act from
the prohibition on certain affiliated
transactions in section 17(a) of the Act
to the extent necessary to permit the
Underlying Funds to sell their shares to,
and redeem their shares from, the Funds
of Funds.4 Applicants state that such
transactions will be consistent with the
policies of each Fund of Funds and each
Underlying Fund and with the general
purposes of the Act and will be based
on the net asset values of the
Underlying Funds.
2. Applicants agree that any order
granting the requested relief will be
subject to the terms and conditions
stated in the application. Such terms
and conditions are designed to, among
other things, help prevent any potential
investment companies’’ means any two or more
registered investment companies, including closedend investment companies and business
development companies, that hold themselves out
to investors as related companies for purposes of
investment and investor services.
2 Certain of the Underlying Funds have obtained
exemptions from the Commission necessary to
permit their shares to be listed and traded on a
national securities exchange at negotiated prices
and, accordingly, to operate as an exchange-traded
fund (‘‘ETF’’).
3 Applicants do not request relief for Funds of
Funds to invest in reliance on the order in business
development companies and registered closed-end
investment companies that are not listed and traded
on a national securities exchange.
4 A Fund of Funds generally would purchase and
sell shares of an Underlying Fund that operates as
an ETF or closed-end fund through secondary
market transactions rather than through principal
transactions with the Underlying Fund. Applicants
nevertheless request relief from sections 17(a)(1)
and (2) to permit each ETF or Unaffiliated ClosedEnd Investment Company that is an affiliated
person, or an affiliated person of an affiliated
person, as defined in section 2(a)(3) of the 1940 Act,
of a Fund of Funds to sell shares to or redeem
shares from the Fund of Funds. This includes, in
the case of sales and redemptions of shares of ETFs,
the in-kind transactions that accompany such sales
and redemptions. The Applicants are not seeking
relief from section 17(a) for, and the requested relief
will not apply to, transactions where an ETF,
business development company, or closed-end fund
could be deemed an affiliated person, or an
affiliated person of an affiliated person, of a Fund
of Funds because an investment adviser to the ETF,
business development company, or closed-end fund
or an entity controlling, controlled by or under
common control with the investment adviser to the
ETF, business development company, or closed-end
fund, is also an investment adviser to the Fund of
Funds.
E:\FR\FM\16SEN1.SGM
16SEN1
]]>Agencies
[Federal Register Volume 84, Number 179 (Monday, September 16, 2019)]
[Notices]
[Pages 48664-48671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19902]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86923; File No. SR-CBOE-2019-057]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Regarding
Price Protections and Risk Controls
September 10, 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 September 5, 2019, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 the
Substance of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend the Exchange's Rules regarding price protections and risk
controls, and moves those Rules from the currently effective Rulebook
(``current Rulebook'') to the shell structure for the Exchange's
Rulebook that will become effective upon the migration of the
Exchange's trading platform to the same system
[[Page 48665]]
used by the Cboe Affiliated Exchanges (as defined below) (``shell
Rulebook''). The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (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
Statutory Basis for, the Proposed Rule Change
1. Purpose
In 2016, the Exchange's parent company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and, together with
Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe Affiliated
Exchanges''). The Cboe Affiliated Exchanges are working to align
certain system functionality, retaining only intended differences
between the Cboe Affiliated Exchanges, in the context of a technology
migration. Cboe Options intends to migrate its trading platform to the
same system used by the Cboe Affiliated Exchanges, which the Exchange
expects to complete on October 7, 2019. In connection with this
technology migration, the Exchange has a shell Rulebook that resides
alongside its current Rulebook, which shell Rulebook will contain the
Rules that will be in place upon completion of the Cboe Options
technology migration.
The Exchange proposes to harmonize its rules in connection with the
risk control and price protection functions on the Exchange to that of
its affiliated Exchanges. Specifically, the Exchange proposes to
consolidate all order and quote price protection mechanisms and risk
controls into a single rule, proposed Rule 5.34 (and subsequently
delete the relevant price protection mechanism and risk control
provisions in current Rules 6.12, 6.13, 6.14, 6.23C, and 6.53C.08 upon
migration). Proposed Rule 5.34 is substantively identical to C2 Rule
6.14, as well as substantially the same as corresponding EDGX Options
Rules 21.16, 21.17 and 22.11. In line with C2 Rule 6.14, proposed Rule
5.34 categorizes these mechanisms and controls as ones applicable to
simple orders (proposed paragraph (a)), complex orders (proposed
paragraph (b)), and all (i.e. simple and complex) orders (proposed
paragraph (c)). The following table identifies the Exchange's current
price protection mechanisms and risk controls, the current Exchange
Rule, the proposed Exchange Rule, the corresponding C2 Rule and EDGX
rule, where applicable, and any proposed changes, if any. The Exchange
notes that much of the proposed functionality is substantially similar
to the current price protections and risk controls functionality. The
Exchange also proposes to make non-substantive changes by updating
cross-references to rules in the shell Rulebook and rules not yet in
the shell Rulebook but that in the Exchange intends to move to the
shell Rulebook, updating Exchange-specific references for consistency
throughout the rules, and, as a result of consolidating and conforming
the proposed rule to the rules of affiliated options exchanges,
simplifies, clarifies, and updates the rule text to read in plain
English, and reformats the paragraph lettering and/or numbering.
----------------------------------------------------------------------------------------------------------------
Current Cboe Affiliated
Price protection/ risk control options rule Proposed rule exchange rule Proposed changes
----------------------------------------------------------------------------------------------------------------
Handling of market orders 6.13(b)(vi)....... 5.34(a)(1)..... C2 Rule Pursuant to the
received in no-bid series. 6.14(a)(1); EDGX proposed rule change,
Rule 21.17(a)(5). the System cancels or
rejects a market
order if there is no-
bid and the best
offer is less than or
equal to $0.50. Under
current
functionality, the
System would treat
the sell order as a
limit order with a
price equal to the
minimum increment in
this situation. The
proposed rule change
also expands the same
protection to market
orders in no-offer
series. The Exchange
believes the proposed
rule change will
provide protection
for these orders to
prevent execution at
potentially erroneous
prices when a market
order is entered in a
series with no bid or
offer.
Market order NBBO width 6.13(b)(v)(A)..... 5.34(a)(2)..... C2 Rule The proposed
protection. 6.14(a)(2); EDGX functionality is
21.17(a)(1). generally the same as
current
functionality, except
the acceptable amount
away from NBBO that a
market order may
execute will be
determined by a
percentage away from
the NBBO midpoint
(subject to a minimum
and maximum dollar
amount) rather than
specified dollar
ranges based on
premium, providing
the Exchange with
flexibility it
believes is
appropriate given
previous experience
with risk controls.
Buy order put check............ 6.14(a)........... 5.34(a)(3)..... C2 6.14(a)(3); The proposed rule
EDGX 21.17(a)(3). change will apply to
market order
executions during the
Opening Process, and
deletes the call
underlying value
check in current Rule
6.17(a)(i)(B), as
this functionality
will not be available
on the Exchange's new
system following the
technology migration.
Drill-through protection 6.13(b)(v)(B)..... 5.34(a)(4)..... C2 6.14(a)(4); The proposed
(simple). EDGX 21.17(a)(4). functionality is
generally the same as
current
functionality, except
the drill-through
amount is a buffer
amount determined by
class and premium
rather than a number
ticks. The proposed
rule change deletes
the distinction
between orders
exposed via HAL,
which is in line with
current functionality
on EDGX, which
provides for the HAL
equivalent, SUM. The
proposed
functionality applies
to Day orders, as
well as Good-til-Date
(``GTD'') and Good-
til-Cancel (``GTC'')
\5\ orders that
reenter the Book from
the prior trading
day, but not an
Immediate-or-Cancel
(``IOC'') or Fill-or-
Kill (``FOK'') order,
as resting in the
Book for a period of
time is inconsistent
with their purpose
(which is to cancel
if not executed
immediately).
[[Page 48666]]
Bulk message fat finger check.. N/A............... 5.34(a)(5)..... C2 6.14(a)(5); The proposed
EDGX 21.17(a)(6). functionality adds a
price protection
mechanism for bulk
messages similar to
the fat finger check
the Exchange
currently provides
for orders. The
proposed rule states
the System cancels or
rejects any bulk
message bid (offer)
above (below) the NBO
(NBB) by more than a
specified amount
determined by the
Exchange. The
proposed check also
will not apply to
bulk messages
submitted prior to
the conclusion of the
Opening Process or
when no NBBO is
available, which is
appropriate during
the pre-open or
opening rotation so
that the check does
not impact the
determination of the
opening price, and
also when there is no
NBBO, as the Exchange
believes that it is
the most reliable
measure against which
to compare the price
of the bulk message
to determine its
reasonability.
Definitions of vertical spread, 6.53C.08.......... 5.34(b)(1)..... C2 6.14(b)(1); No substantive
butterfly spread, and box EDGX 21.17(b)(1). changes.
spread.
Credit-to-debit parameters..... 6.53C.08(b)....... 5.34(b)(2)..... C2 6.14(b)(2); No substantive
EDGX 21.17(b)(2). changes.
Debit/credit price 6.53C.08(c)....... 5.34(b)(3)..... C2 6.14(b)(3); The proposed
reasonability checks. EDGX 21.17(b)(3). functionality is
generally the same as
current
functionality, except
the acceptable price
is subject to a pre-
set buffer amount,
which flexibility is
consistent with C2
and EDGX
functionality. The
proposed rule also
adopts language that
accounts for the
stock component of a
stock-option order,
which is consistent
with EDGX Rule 21.17
(and not found within
C2 Rule 6.14 because
C2 does not currently
provide for this
functionality). The
check will apply to
multi-class spreads
because, upon
migration, such
orders will be routed
to PAR to which the
price protections and
risk controls under
the proposed rule
will apply.
Buy strategy parameters........ 6.53C.08(d)....... 5.34(b)(4)..... C2 6.14(b)(4); The proposed
EDGX 21.17(b)(4). functionality is
generally the same as
current
functionality, except
the net credit price
is subject to a
buffer amount
(consistent with C2
and EDGX
functionality). The
proposed rule change
deletes the
mechanism's
applicability to sell
strategies, as that
functionality will
not be available on
the Exchange
following the
technology migration.
The Exchange also
uses proposed term
``minimum increment''
as opposed to
``$0.01'' as some
classes move in
increments that
differ from a penny.
Maximum value acceptable price 6.53C.08(g)....... 5.34(b)(5)..... C2 6.14(b)(5); The proposed
range. EDGX 21.17(b)(5). functionality is
generally the same as
current
functionality, except
the price range is
calculated using a
buffer amount
(consistent with C2
and EDGX
functionality) rather
than a percentage
amount.
Drill-through protection N/A............... 5.34(b)(6)..... C2 6.14(b)(6); The proposed
(complex). EDGX 21.17(b)(6). functionality is
generally the same as
current functionality
that applies to
simple orders, and
expands it to complex
orders. The proposed
rule change replaces
market width
parameter protection
and acceptable
percentage range
parameter in current
Rule 6.53C.08(a) and
(e), respectively,
which currently
protect Cboe Options
complex orders from
executing at
potentially erroneous
prices too far away
from the order's
price or the market's
best price. The
proposed rule is
identical to the
corresponding C2 and
EDGX rules, which
adds the concept that
an order eligible for
complex order request
for responses auction
process (``COA'')
would initiate a COA
at the drill-through
price as the prices
for complex strategy
executions may be
subject to the drill-
through protection,
and the price of a
COA may be impacted
by the drill-through
protection; and (2)
describes how a
change in the SBBO
prior to the end of
the time period but
the complex order
cannot Leg, and the
new SBO (SBB) crosses
the drill-through
price, the System
changes the displayed
price of the complex
order to the new SBO
(SBB) minus (plus)
$0.01, and the order
will not be cancelled
at the end of the
time period. The
proposed rule change
merely permits an
order to remain on
the complex order
book (``COB'') since
the market reflects
interest to trade
(but not currently
executable due to
Legging Restrictions)
that was not there at
the beginning of the
time period,
providing additional
execution
opportunities prior
to cancellation.
Limit Order Fat Finger Check... 6.12(a)(3) and 5.34(c)(1)..... C2 6.14(c)(1); The proposed
6.12(b). EDGX 21.17(a)(2) functionality is
& (b)(7). generally the same as
current
functionality, except
the amount away from
the NBBO a limit
order price may be is
a buffer amount
rather than a number
of ticks with no
minimum, and Exchange
may determine whether
the check applies to
simple orders prior
to the conclusion of
the RTH opening
auction process
(current rules codify
pre-open
application),
providing the
Exchange with
flexibility it
believes appropriate
given previous
experience with risk
controls. The
proposed rule change
does not apply to GTC
or GTD orders that
reenter the Book from
the prior trading
day, as this check
only applies to
orders when the
System receives them.
The proposed rule
change provides Users
with the ability to
set a different
buffer amount to
accommodate its own
risk modeling; does
not apply to adjusted
series prior to the
RTH opening auction
process, as prices
may reflect the
corporate action for
the underlying but
the previous day's
NBBO would not
reflect that action.
If the check applies
prior to the RTH
opening auction
process, the System
compares the last
disseminated NBBO on
that trading day, or
the midpoint of the
prior trading day's
closing NBBO, if no
NBBO has been
disseminated on that
trading day, which
the Exchange believes
is another reasonable
price comparison.
Maximum contract size.......... 6.14(e)........... 5.34(c)(2)..... C2 6.14(c)(2); The proposed
EDGX 21.17(b)(8). functionality is
generally the same as
current
functionality, except
the Exchange will set
a default amount
rather than permit
User to set amount.
The proposed rule
change applies per
port rather than
acronym or login. The
functionality to
cancel a resting
order or quote if
replacement order or
quote is entered will
not be available on
the Exchange
following the
technology migration
(however, a User can
enable cancel on
reject functionality
described below to
receive same result).
Maximum notional value......... N/A............... 5.34(c)(3)..... C2 6.14(c)(3); Voluntary
EDGX Technical functionality similar
specifications. to maximum contract
size, except the
System cancels or
rejects an incoming
order or quote with a
notional value that
exceeds the maximum
notional value a User
establishes for each
of its ports. The
proposed rule change
provides an
additional, voluntary
control for Users to
manage their order
and execution risk on
the Exchange.
[[Page 48667]]
Daily risk limits.............. N/A............... 5.34(c)(4)..... C2 6.14(c)(4); Voluntary
EDGX Technical functionality
specifications. pursuant to which a
User may establish
limits for cumulative
notional booked bid
(``CBB'') or offer
(``CBO'') value, and
cumulative notional
executed bid
(``CEB'') or offer
(``CEO'') value for
each of its ports on
a net or gross basis,
or both, and may
establish limits for
market or limit
orders (counting both
simple and complex),
or both. If a User
exceeds a cutoff
value (by aggregating
amounts across the
User's ports), the
System cancels or
rejects incoming
limit or market
orders, or both, as
applicable.\6\
Risk monitor mechanism......... 6.14(d) and 8.18.. 5.34(c)(5)..... C2 6.14(c)(5); Similar functionality
EDGX 21.16. to current quote risk
monitor and order
entry, execution, and
price parameter rate
checks on the
Exchange, which will
not be available on
the Exchange
following migration
(discussed below).
Cancel on reject............... N/A............... 5.34(c)(6)..... C2 6.14(c)(6); Additional, voluntary
EDGX 6.14(a)(7). control for Users to
manage their order
and execution risk on
the Exchange,
pursuant to which the
System cancels a
resting order or
quote if the System
rejects a cancel or
modification
instruction (because,
for example, it had
an invalid
instruction) for that
resting order or
quote. The proposed
rule change is
consistent with the
purpose of a cancel
or modification,
which is to cancel
the resting order or
quote, and carries
out this purpose
despite an erroneous
instruction on the
cancel/modification
message.
Kill switch.................... 6.14(f)........... 5.34(c)(7)..... C2 6.14(c)(7); The proposed
EDGX 22.11. functionality is
generally the same as
current
functionality, except
Users may apply it to
different categories
of orders by EFID
rather than acronym
or login (consistent
with new System
functionality for
migration), and block
of incoming orders or
quotes is a separate
request by Users.
Cancel on disconnect........... 6.23C............. 5.34(c)(8)..... C2 6.14(c)(8); The proposed
EDGX Technical functionality is
Specifications. generally the same as
current technical
disconnect
functionality, except
it is the same for
both APIs on the new
System. The proposed
rule change will
continue to protect
Users against
erroneous executions
if it appears they
are experiencing a
system disruption.
The proposed
functionality will no
longer provide TPHs
with the ability to
determine length of
interval, but does
provide additional
flexibility with
respect to which
order types may be
cancelled--current
functionality permits
a choice of market-
maker quotes and day
orders, while the
proposed
functionality permits
a choice of day and
GTC/GTD orders, or
just day orders.
Block new orders............... N/A............... 5.34(c)(9)..... C2 6.14(c)(9); Similar to automatic
EDGX 22.11. functionality that
occurs on the
Exchange currently
when a Trading Permit
Holder uses kill
switch functionality.
The proposed rule
change merely
provides a separate
way to achieve this
result on the new
System, providing
Users with
flexibility regarding
how to manage their
resting orders and
quotes.
Duplicate order protection..... N/A............... 5.34(c)(10).... C2 6.14(c)(10); Additional, voluntary
EDGX Technical control for Users to
specifications. manage their order
and execution risk on
the Exchange. The
proposed rule change
protects Users
against execution of
multiple orders that
may have been
erroneously entered.
Buy-Write/Married Put Check.... 6.53C.08(a)(5).... 5.34(c)(11).... EGDX 21.17(b)(9).. The proposed
functionality is
generally the same as
current
functionality, the
acceptable price
range is based on the
price of the call
(put) plus (minus) an
Exchange-determined
buffer amount.
----------------------------------------------------------------------------------------------------------------
The price protection mechanisms and risk controls under proposed
Rule 5.34 are applicable to the System's acceptance and execution of
orders and quotes pursuant to the Rules, including Rules 5.31 through
5.33,\7\ and to and orders routed to the Exchange's Public Automated
Routing System (``PAR'') pursuant to Rule 5.82.\8\ The Exchange notes
that the proposed rule's inclusion of PAR orders is an intended
difference made between its proposed rule and C2's rule, as PAR is
unique to the Exchange. Upon migration, all orders routed to PAR will
also be subject to price protection mechanisms and risk controls. This
will provide the same protections for User's PAR routed order as for
User's order and quotes sent through and executed by the System.
Currently, PAR functions outside of the System, therefore not all risk
controls are currently applicable to PAR orders. Upon migration, PAR
orders will be entered into the System in the same manner as all other
orders, and will route to PAR per User instruction, after going through
the System, therefore, the same price protection mechanisms and risk
controls will apply.
---------------------------------------------------------------------------
\5\ See Rule 5.6 in the shell Rulebook. For an order designated
as a GTD order, if after entry into the System, the order is not
fully executed, the order (or unexecuted portion) remains available
for potential display or execution (with the same timestamp) until a
date and time specified by the entering User unless cancelled by the
entering User. For an order designated as a GTC order, if after
entry into the System, the order is not fully executed, the order
(or unexecuted portion) remains available for potential display or
execution (with the same timestamp) unless cancelled by the entering
User, or until the option expires, whichever comes first.
\6\ The System calculates a notional cutoff on a gross basis by
summing CBB, CBO, CEB, and CEO. The System calculates a notional
cutoff on a net basis by summing CEO and CBO, then subtracting the
sum of CEB and CBB, and then taking the absolute value of the
resulting amount.
\7\ Rules to be effective on October 7, 2019 and cover the
opening auction process, order and quote book processing, display,
priority, and execution, as well as complex orders.
\8\ Rule to be effective on October 7, 2019 and governs the
operation of the Exchange's Public Automated Routing System
(``PAR'').
---------------------------------------------------------------------------
The proposed rule change also deletes the mechanisms related to
execution of quotes that lock or cross the NBBO and quotes inverting
the NBBO (current Rule 6.14(b) and (c)). The Exchange's current quote
functionality will be replaced with bulk message functionality \9\ upon
migration; however, orders and bulk messages (the equivalent of current
quotes) submitted by Market-Makers will be subject to the same
protections, except for those that do not apply to bulk messages (e.g.,
for market orders in no-bid (offer) series, market order NBBO width and
drill-through protections, limit order fat finger checks, and daily
risk limits) as described above.
---------------------------------------------------------------------------
\9\ See Rule 1.1 in shell Rulebook, which states that ``bulk
message'' means a single electronic message a User submits to the
Exchange in which the User may enter, modify, or cancel up to an
Exchange-specified number of bids and offers. Upon migration the
System will handle a bulk message bid or offer in the same manner as
it handles an order or quote, unless the Rules specify otherwise.
The proposed rule change accounts for bulk message functionality and
makes explicit the price protections that will not apply to such
messages. This is consistent with C2 Rule 6.14.
---------------------------------------------------------------------------
Under the current C2 and EDGX debit/credit price reasonability
check (see C2 Rule 6.14(b)(3) and EDGX Rule 21.17(b)(3)), the System
only pairs calls (puts) if they have the same expiration date but
different exercise prices or the same exercise price but different
expiration dates. Under the Exchange's
[[Page 48668]]
current debit/credit reasonability check, with respect to pairs with
different expiration the System pairs of calls (puts) with different
expiration dates if the exercise price for the call (put) with the
farther expiration date is lower (higher) than the exercise price for
the nearer expiration date in addition to those with different
expiration dates and the same exercise price. The proposed rule change
amends this check to pair orders in the same manner as C2 and EDGX,
which is to pair calls (puts) if they have the same expiration date but
different exercise prices or the same exercise price but different
expiration dates. Additionally, the proposed rule change deletes the
exception for complex orders with European-style exercise. This aligns
with the corresponding rules of C2 and EDGX and the Exchange no longer
believes this exception is necessary and will expand this check to
index options with all exercise styles.
The proposed Risk Monitor Mechanism is identical to the current
functionality on C2 and substantively the same as the functionality
currently available on EDGX. Because there will no longer be separate
order and quote functionality on the Exchange following the technology
migration, there will no longer be separate mechanisms to monitor entry
and execution rates, as there are on the Exchange today. Each User may
establish limits for the following parameters in the Exchange's
counting program. The System counts each of the following within a
class (``class limit'') \10\ and across all classes for an EFID \11\
(``firm limit'') and/or across all classes for a group of EFIDs (``EFID
Group'') (``EFID Group limit'') over a User-established time period
(``interval'') on an absolute basis for a trading day (``absolute
limits''):
---------------------------------------------------------------------------
\10\ The Exchange also changes the term ``underlying'' and
``underlying limit'' currently in the C2 rule to ``class'' and
``class limit'' which more accurately reflect this Risk Monitor
Mechanism limit and the language in the current Exchange rule.
\11\ The Exchange will use EFIDs (i.e., Executing Firm IDs) upon
migration. See Rule 1.1 in the shell Rulebook.
---------------------------------------------------------------------------
(i) Number of contracts executed (``volume'');
(ii) notional value of executions (``notional'');
(iii) number of executions (``count'');
(iv) number of contracts executed as a percentage of number of
contracts outstanding within an Exchange-designated time period or
during the trading day, as applicable (``percentage''), which the
System determines by calculating the percentage of a User's outstanding
contracts that executed on each side of the market during the time
period or trading day, as applicable, and then summing the series
percentages on each side in the class; and
(v) number of times the limits established by the parameters under
the above-listed are reached (``risk trips'').
Also, when the System determines the volume, notional, count,
percentage, or risk trips limits have been reached:
(i) a User's class limit within the interval or the absolute limit
for the class, the Risk Monitor Mechanism cancels or rejects such
User's orders or quotes in all series of the class and cancels or
rejects any additional orders or quotes from the User in the class
until the counting program resets (as described below).
(ii) a User's firm limit within the interval or the absolute limit
for the firm, the Risk Monitor Mechanism cancels or rejects such User's
orders or quotes in all classes and cancels or rejects any additional
orders or quotes from the User in all classes until the counting
program resets (as described below).
(iii) a User's EFID Group limit within the interval or the absolute
limit for the EFID Group, the Risk Monitor Mechanism cancels or rejects
such User's orders or quotes in all classes and cancels or rejects any
additional orders or quotes from any EFID within the EFID Group in all
classes until the counting program resets (as described below).
The Risk Monitor Mechanism will also attempt to cancel or reject
any orders routed away to other exchanges. The System processes
messages in the order in which they are received. Therefore, it will
execute any marketable orders or quotes that are executable against a
User's order or quote and received by the System prior to the time the
Risk Monitor Mechanism is triggered at the price up to the size of the
User's order or quote, even if such execution results in executions in
excess of the User's parameters. The System will not accept new orders
or quotes from a User after a class limit is reached until the User
submits an electronic instruction to the System to reset the counting
program for the class. The System will not accept new orders or quotes
from a User after an EFID limit or EFID Group limit is reached until
the User manually notifies the Trade Desk to reset the counting program
for the firm, unless the User instructs the Exchange to permit it to
reset the counting program by submitting an electronic message to the
System. The Exchange may restrict the number of User class and firm
resets per second. The System counts executed COA responses as part of
the Risk Monitor Mechanism. The System counts individual trades
executed as part of a complex order when determining whether the
volume, notional, count, or risk trips limit has been reached. The
System counts the percentage executed of a complex order when
determining whether the percentage limit has been reached. In addition,
a User may also engage the Risk Monitor Mechanism to cancel resting
bids and offers, as well as order set forth in the kill switch
protection provision. The Risk Monitor Mechanism providers Users with
similar ability to manage their order and execution risk to the quote
risk monitor and rate checks currently available on the Exchange, and
merely uses different parameters and modifies the functionality to
conform the new System to that of C2 and EDGX upon migration.
With respect to various price protections and risk controls in
current Rules 6.12.01, 6.13, and 6.53C.08, the Exchange has the
authority to provide intraday relief by widening or inactivating one or
more of the parameter settings for the mechanisms in those rules. This
authority is included in proposed Interpretation and Policy .01, to
provide this flexibility for all price protections and risk controls
for which the Exchange sets parameters, providing the Exchange with
flexibility it believes appropriate given previous experience with risk
controls. This is consistent with corresponding C2 Rule 6.14.01. The
Exchange will continue to make and keep records to document all
determinations to grant intraday relief, and periodically review these
determinations for consistency with the interest of a fair and orderly
market.
The proposed rule change makes a non-substantive change in moving
the provision regarding the Exchange's ability to share User-designated
risk settings in the System with a Clearing Trading Permit Holder that
clears Exchange transactions on behalf of the User from the
introduction of current Rule 6.14 to proposed Rule 5.34.02. Also, the
proposed change makes non-substantive changes in that it updates all
provisions to account for ``User'' as opposed to Trading Permit Holder
(``TPH''), which is consistent with the definition under Rule 1.1 the
shell Rulebook, and the use of the term throughout the Exchange Rules
upon migration.
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
[[Page 48669]]
thereunder applicable to the Exchange and, in particular, the
requirements of Section 6(b) of the Act.\12\ Specifically, the Exchange
believes the proposed rule change is consistent with the Section
6(b)(5) \13\ 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) \14\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
---------------------------------------------------------------------------
The proposed rule change is generally intended to add or align
certain System functionality in connection with price protection
mechanisms and risk controls with functionality currently offered by C2
and EDGX in order to provide a consistent technology offering for the
Cboe Affiliated Exchanges. A consistent technology offering, in turn,
will simplify the technology implementation, changes and maintenance by
Users of the Exchange that are also participants on Cboe Affiliated
Exchanges. The proposed rule changes would also provide Users with
access to functionality that is generally available on markets other
than the Cboe Affiliated Exchanges and may result in the efficient
execution of such orders and will provide additional flexibility as
well as increased functionality to the Exchange's System and its Users.
The proposed rule change seeks to provide greater harmonization between
the rules of the Cboe Affiliated Exchanges, which would result in
greater uniformity and less burdensome and more efficient regulatory
compliance. As such, the proposed rule change would foster cooperation
and coordination with persons engaged in facilitating transactions in
securities and would remove impediments to and perfect the mechanism of
a free and open market and a national market system. The Exchange also
believes that consistent rules will increase the understanding of the
Exchange's operations for Trading Permit Holders that are also
participants on the Cboe Affiliated Exchanges, thereby contributing to
the protection of investors and the public interest. The proposed rule
change does not propose to implement new or unique functionality that
has not been previously filed with the Commission or is not available
on Cboe Affiliated Exchanges. The Exchange notes that the proposed rule
text mirrors C2 Rules, save for intended differences that account for
PAR (unique to the Exchange), Exchange-specific cross-references and
references to certain terms (i.e. User throughout the proposed rule).
Overall, the Exchange believes the additional and enhanced price
protection mechanisms and risk controls will protect investors and the
public interest and maintain fair and orderly markets by mitigating
potential risks associated with market participants entering orders and
quotes at unintended prices, and risks associated with orders and
quotes trading at prices that are extreme and potentially erroneous,
which may likely have resulted from human or operational error. The
Exchange notes that the proposed rule change is substantially similar
to the current Cboe Options Rules, and, while the Exchange currently
offers many similar protections and controls, as described above, the
Exchange believes Users will benefit from the additional functionality
that will be available following the technology migration.
As indicated in the table above, the proposed price protection and
risk control mechanisms no longer establish outer boundaries or limits
to the levels at which mechanisms are set (save for the proposed no-bid
provision, noted below), but instead, the proposed rule change amends
the price protection mechanisms and risk controls to account for
Exchange-determined and/or User-determined buffer or default amounts.
The Exchange believes this removes impediments to and perfects the
mechanism of a free and open market and national market system because
it affords the Exchange and Users reasonable and necessary flexibility
to establish and modify the default parameters, which, in turn,
protects investors and the public interest, and maintains a fair and
orderly market. The Exchange notes any Exchange-determined parameters
will always be available on the Exchange's website via specification or
Notice.\15\ The Exchange also believes the proposed rule change to the
no-bid provisions, that the System cancels or rejects a market order if
there is no-bid and the best offer is less than or equal to $0.50, as
well as a market order where there is no-offer, is designed to protect
User's as it will provide protection for market orders to prevent
execution at potentially erroneous prices when a market order is
entered in a series with no bid or offer.
---------------------------------------------------------------------------
\15\ See Rule 1.5 in the shell Rulebook.
---------------------------------------------------------------------------
The proposed drill-through protections for complex orders removes
impediments to and perfect the mechanism of a free and open market and
national market system and facilitates transactions in securities by
adding detail to the rules regarding complex order price protections.
Particularly, by adding that a COA-eligible order would initiate a COA
at the drill-through price because the prices for complex strategy
executions may be subject to the drill-through protection and
permitting an order that is not currently executable due to Legging
restrictions to remain on the COB if the SBBO changes during the set
time-period will provide additional execution opportunities, for Users'
orders participating in the COA and/or prior to cancellation.
The proposed provision in connection with the Risk Monitor
Mechanism will not alter the function of this mechanism for market
participants as it provides Users with the ability to manage their
order and execution risk to the quote risk monitor and rate checks
similar to that which is currently available on the Exchange, and
merely uses different parameters and modifies the functionality to
conform the new System to that of C2 and EDGX upon migration. The
Exchange also notes that this functionality is optional; it is User-
enabled and the parameters are User-established.
The proposed rule change also removes functionality, and reference
to such functionality, that will not exist upon migration in order to
align the Exchange's System with that of its affiliated options
exchanges, which will serve to remove impediments to and perfect the
mechanism of a free and open market and national market system by
providing market participants with rules that accurately reflect
functionality post-migration and effectively harmonize Exchange
functionality with that of C2 and EDGX. Moreover, the Exchange does not
believe that the proposed change that removes functionality that will
no longer be available upon migration will impact investors because the
proposed change provides substantially similar alternative mechanisms
and controls that result in the same protections as current Exchange
functionality. The
[[Page 48670]]
Exchange believes that the proposed rule provides a full suite of price
protection mechanisms and risk controls, the same as those currently in
effect on its affiliated options exchanges, which will sufficiently
mitigate risks associated with market participants entering orders and
quotes at unintended prices, and risks associated with orders and
quotes trading at prices that are extreme and potentially erroneous, as
a likely result of human or operational error. The Exchange also notes
that a majority of the proposed price protection mechanisms and risks
controls are voluntary and/or User-determined, which benefits market
participants by providing Users with additional control and flexibility
in connection with their orders.
As stated, the Exchange notes the proposed price protection
mechanisms and risk controls provisions do not present any new or
unique rules or functionality for market participants as the proposed
rule is substantially similar to the Exchange's current rules,
identical to C2 Rule 6.14, as well as substantively the same as
corresponding EDGX rules and technical specifications, as discussed
above. The proposed rule change makes various non-substantive changes
throughout the rules by updating cross-references and Exchange-specific
terms, and by means of conforming language to C2 Rule 6.14, as well as
corresponding EDGX rules, that will protect investors and benefit
market participants as these changes simplify or clarify rules, delete
duplicative rule provisions, conform paragraph numbering and lettering
throughout the rules, and use plain English.
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 reiterates that
the proposed rule change is being proposed in the context of the
technology integration of the Cboe Affiliated Exchanges. Thus, the
Exchange believes this proposed rule change is necessary to permit fair
competition among national securities exchanges.
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. Rather, the
proposed rule change is designed to benefit Exchange participants in
that it will provide a consistent technology offering for Users by the
Cboe Affiliated Exchanges. Following the technology migration, the
Exchange's System, as described in this proposed rule change, will
apply to all Users and order and quotes submitted by Users in the same
manner. The Exchange also notes that many of the proposed price
protections and risk controls are either User-determined or altogether
voluntary.
In addition to this, the Exchange does not believe that the
proposed rule change will impose any burden on intermarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act because the basis for the majority of the proposed rule changes
in this filing are the rules of C2 and EDGX, which have previously been
filed with the Commission. The Exchange also notes that market
participants on other exchanges are welcome to become participants on
the Exchange if they determine that this proposed rule change has made
Cboe Options a more attractive or favorable venue. As stated, the
proposed changes to the rules that accurately reflect functionality
that will be in place come October 7, 2019, will not impose any burden
on intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act but rather provide clear,
consistent rules for market participants surrounding the completion of
migration.
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 \16\ and paragraph (f) of Rule 19b-4 \17\
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.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------
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-2019-057 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2019-057. 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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2019-057, and should be submitted
on or before October 7, 2019.
[[Page 48671]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19902 Filed 9-13-19; 8:45 am]
BILLING CODE 8011-01-P
