Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Exchange's Rules Regarding Cabinet Trading Upon the Migration of the Exchange's Trading Platform to the Same System Used by the Cboe Affiliated Exchanges, 49774-49778 [2019-20477]
Download as PDF
<![CDATA[
49774
Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices
to Add Priority Mail Contract 551 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: September 17, 2019;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3020.30 et seq., and 39 CFR 3015.5;
Public Representative: Christopher C.
Mohr; Comments Due: September 25,
2019.
2. Docket No(s).: MC2019–201 and
CP2019–224; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & First-Class Package Service
Contract 66 to Competitive Product List
and Notice of Filing Materials Under
Seal; Filing Acceptance Date: September
17, 2019; Filing Authority: 39 U.S.C.
3642, 39 CFR 3020.30 et seq., and 39
CFR 3015.5; Public Representative:
Christopher C. Mohr; Comments Due:
September 25, 2019.
This Notice will be published in the
Federal Register.
Darcie S. Tokioka,
Acting Secretary.
[FR Doc. 2019–20485 Filed 9–20–19; 8:45 am]
BILLING CODE 7710–FW–P
Product Change—Priority Mail
Negotiated Service Agreement
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice:
September 23, 2019.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on September 17,
2019, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 551 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2019–200, CP2019–223.
SUMMARY:
[FR Doc. 2019–20471 Filed 9–20–19; 8:45 am]
BILLING CODE 7710–12–P
Product Change—Priority Mail
Express, Priority Mail, & First-Class
Package Service Negotiated Service
Agreement
SECURITIES AND EXCHANGE
COMMISSION
Postal ServiceTM.
ACTION: Notice.
AGENCY:
[Release No. 34–86994; File No. SR–CBOE–
2019–058]
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice:
September 23, 2019.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on September 17,
2019, it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express, Priority Mail, &
First-Class Package Service Contract 66
to Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2019–201, CP2019–224.
SUMMARY:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the
Exchange’s Rules Regarding Cabinet
Trading Upon the Migration of the
Exchange’s Trading Platform to the
Same System Used by the Cboe
Affiliated Exchanges
September 17, 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 6, 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
[FR Doc. 2019–20467 Filed 9–20–19; 8:45 am]
1 15
BILLING CODE 7710–12–P
2 17
VerDate Sep<11>2014
17:55 Sep 20, 2019
Postal ServiceTM.
Notice.
AGENCY:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
POSTAL SERVICE
jbell on DSK3GLQ082PROD with NOTICES
POSTAL SERVICE
Jkt 247001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00070
Fmt 4703
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 Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
the Exchange’s Rules regarding cabinet
trading and move 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 used by the Cboe Affiliated
Exchanges (as defined below) (‘‘shell
Rulebook’’).
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In 2016, the Exchange’s parent
company, Cboe Global Markets, Inc.
(formerly named CBOE Holdings, Inc.)
(‘‘Cboe Global’’), which is also the
parent company of Cboe C2 Exchange,
Inc. (‘‘C2’’), acquired Cboe EDGA
Exchange, Inc. (‘‘EDGA’’), Cboe EDGX
Exchange, Inc. (‘‘EDGX’’ or ‘‘EDGX
Options’’), Cboe BZX Exchange, Inc.
(‘‘BZX’’ or ‘‘BZX Options’’), and Cboe
BYX Exchange, Inc. (‘‘BYX’’ and,
together with Cboe Options, C2, EDGX,
EDGA, and BZX, the ‘‘Cboe Affiliated
Exchanges’’). Cboe Options intends to
migrate its trading platform to the same
3 15
4 17
Sfmt 4703
E:\FR\FM\23SEN1.SGM
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
23SEN1
jbell on DSK3GLQ082PROD with NOTICES
Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices
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.
In anticipation of migration, the
Exchange proposes to update and
amend current Rule 6.54 which governs
transactions in connection with
‘‘cabinet’’ trades, which are trades in
listed options on the Exchange that are
worthless or not actively traded. In
anticipation of migration, the Exchange
proposes to move current Rule 6.54 (and
subsequently delete the current rule
after the shell Rulebook takes effect on
October 7, 2019) to proposed Rule 5.12,
which will govern cabinet trading in
substantially the same manner as the
current rule, with only slight
differences. The proposed rule change
does not propose to implement new or
unique functionality that has not been
previously filed with the Commission,
found to be consistent with the Act, or
is not available on other exchanges. The
proposed rule change largely makes
changes to remove obsolete provisions,
update rule provisions to align with the
manner in which the Exchange’s
System, functionality and other rules
will function upon migration. The
Exchange also proposes to make nonsubstantive changes to simplify, clarify,
and generally update its cabinet trading
provisions by consolidating them into a
single rule, simplifying the rule
language, updating the rule text to read
in plain English, reformatting the
paragraph lettering and/or numbering,
and updating cross-references to rules
that will be in the shell Rulebook and
implemented upon migration. The
Exchange believes that the proposed
changes, overall, will make the rules
easier to follow and understand, thus,
simplifying the regulatory requirements
and increasing the transparency and
understanding of the Exchange’s rules
and operations for Trading Permit
Holders (‘‘TPHs’’).
Current Rule 6.54 provides that
cabinet trades may only occur via open
outcry, even if the class trades on the
Exchange’s System. As all classes
currently trade on the Exchange’s
System, proposed Rule 5.12 merely
updates the current language to state
that all cabinet orders will execute in
open outcry pursuant to Rule 5.85(a) (in
the shell Rulebook). Proposed Rule 5.12
also consolidates provisions in
connection with cabinet trades by
moving the FLEX cabinet trading
VerDate Sep<11>2014
17:55 Sep 20, 2019
Jkt 247001
limitation under current Rule 24A.15 5
to the proposed rule. The proposed
changes do not substantively alter the
manner in which cabinet orders may
trade currently, but merely updates the
rule language to reflect that cabinet
orders will execute in open outcry like
all other orders execute in open outcry,
in accordance with the order allocation,
priority, and execution rules that will be
implemented upon migration, which is
substantially similar to how cabinet
trades currently function. The Exchange
notes that upon migration, Users must
systematize and route any orders they
wish to execute in open outcry to the
Exchange’s Public Automated Routing
System (‘‘PAR’’) prior to representation
on the Exchange’s trading floor for
execution in open outcry.6
Current Rule 6.54.01 states that a PAR
Official may accept bids or offers for
opening transactions at a price of $1 per
contract only to the extent that the
cabinet book (which no longer exists) 7
already contains closing orders for the
contra side. The Exchange notes that a
previous rule filing, SR–CBOE–2018–
010,8 inadvertently removed what was
then paragraph (a) under Rule 6.54,
which included a provision allowing
Floor Brokers and Market-Makers to
represent that bids and offers for cabinet
trades after first yielding priority to all
orders in the cabinet book. Specifically,
when this provision was initially added
to the Exchange Rules, its purpose was
to make clear that Floor Brokers or
Market-Makers may enter into both
opening and closing cabinet
transactions, so long as they first yield
priority to all orders in the Order Book
Official’s cabinet book.9 Previous
paragraph (a) had generally described
cabinet trading for classes not trading on
the Hybrid System, and, because SR–
CBOE–2018–010 had been implemented
to delete Exchange Rules that no longer
applied to the Exchange, it deleted
previous paragraph (a) as all options
5 The Exchange notes that it is deleting the
entirety of current Rule 24A.15 and will discuss the
split price component of the rule in a FLEX-related
rule filing for migration.
6 A PAR workstation is an Exchange-provided
order management tool for use on the Exchange’s
trading floor by Trading Permit Holders and PAR
Officials to manually handle orders pursuant to the
Rules and facilitate open outcry trading.
7 See Securities Exchange Act Release No. 82646
(February 7, 2018), 83 FR 6294 (February 13, 2018)
(SR–CBOE–2018–010), which removed the cabinet
book and Order Book Officials because these
functions were generally obsolete because most
trading occurred electronically, as it does today.
However, Cabinet Book Officials were replaced by
PAR Officials, who currently do hold cabinet orders
for priority execution on the Exchange.
8 See id.
9 See Securities Exchange Act Release No. 55081
(January 10, 2007), 72 FR 2317 (January 18, 2007)
(SR–CBOE–2007–02).
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
49775
traded on the Hybrid System, and
currently do. This deletion
inadvertently occurred because certain
language in previous paragraph (a) is
still relevant to transacting on the
Exchange. Orders in all classes on the
Hybrid System can currently be
automatically executed both
electronically and in open outcry after
routing to PAR (as cabinet orders must).
Even as the Order Book Officials and
cabinet book ceased to exist on the
Exchange,10 functionality continued to
allow market participants to enter into
both opening and closing cabinet
transactions so long as they first yielded
to closing orders on the floor. Therefore,
proposed Rule 5.12 makes explicit that
market participants may continue to
place closing cabinet orders, and may
continue to place opening cabinet
orders, which must continue to yield to
all closing cabinet orders represented by
the trading crowd. In addition to making
this explicit in the Exchange Rules, the
Exchange believes that it is in line with
the primary purpose of cabinet trades by
facilitating the close of positions in a
worthless or inactive series.
In addition to this, proposed Rule
5.12(a) provides that cabinet orders are
priced at $0.01. The current rule
provides that cabinet trades are those
priced at $1.00, which accounts for the
notional value of series actually priced
at $0.01 but adjusted with a multiplier
of 100. Instead, under the proposed rule,
$0.01 is designed to encompass those
series price at $0.01 with a 100
multiplier, as well as series that are
priced at $0.01 or less with a different
multiplier. Additionally, the proposed
rule provides that cabinet orders are not
available in classes with a minimum
increment of $0.01. This is substantially
similar to the function of the current
rule, which does not allow penny pilot
classes as cabinet orders, but accounts
for the fact that the rules may permit
other penny classes in addition to
penny pilot classes. The proposed rule
change appropriately renames such
orders as ‘‘penny cabinets’’.
Proposed Rule 5.12(b) provides for
sub-penny cabinet orders.11 Proposed
Rule 5.12(b) is based on the rules of
other options exchanges, previously
approved by the Commission.12 The
Exchange believes that allowing a price
of at least $0 but less than $0.01 better
accommodates the closing of options
positions in series that are worthless or
10 See
supra note 7.
Rule 6.54.02 contains rule language in
connection with sub-cabinets which expired on
March 5, 2018.
12 See, e.g., NYSE Arca Options Commentary .01
to Rule 6.80–O; and NASDAQ Phlx Options 8, Sec.
33(d).
11 Current
E:\FR\FM\23SEN1.SGM
23SEN1
49776
Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices
jbell on DSK3GLQ082PROD with NOTICES
not actively traded, particularly due to
market conditions which may result in
a significant number of series being outof-the-money. For example, a market
participant might have a long position
in a call series (with a 100 multiplier)
with a strike price of $100 and the
underlying stock might now be trading
at $30. In such an instance, there might
not otherwise be a market for that
person to close-out the position even at
the $0.01 cabinet price (e.g., the series
might be quoted no bid). Proposed Rule
5.12(b) also provides that bids and offers
for opening transactions in sub-penny
cabinets are only permitted to
accommodate closing transactions,
which is consistent with the cabinet
trading rules of other exchanges, as well
as the purpose of cabinet trades in
facilitating closing transactions for open
positions in worthless or inactive series.
The Exchange also notes that proposed
Rule 5.12 does not maintain current
language regarding the reporting of
cabinet transactions (as stated in current
Rule 6.54.01) or adopt such language in
connection with sub-penny cabinets,
which is contained in other exchanges’
sub-cabinet rules, because all cabinet
orders will execute in open outcry just
like other orders (instead of only
through a PAR Official or on the cabinet
book), therefore cabinet order
transaction prices will be also be
reported like all other transactions,
which, pursuant to current Rule 6.51
(Rule 6.1 in the shell Rulebook), must be
reported within 90 seconds of the
execution, which the Exchange then
immediately submits to the Options
Clearing Corporation (‘‘OCC’’). The
Exchange represents that there would be
no operational issues in processing and
clearing sub-penny cabinet trades.13 The
Exchange does not believe that the OCC
will have any operational issues with
processing sub-penny cabinet trades, as
they will be reported to and submitted
by the Exchange like all other
transactions currently executed in open
outcry. Additionally, the Exchange
notes that because sub-penny cabinets
will be reported and processed like all
other open outcry trades market
participants will not be impacted nor
have to take on any additional reporting
or processing burden.14
The Exchange also notes that the
proposed rule change deletes current
Rules 21.15, and 28.12 which governed
13 See also note 7. The Exchange also notes that
there were no issues in processing and clearing
such transactions prior to the expiration of the subcabinet rule.
14 See also note 7. The Exchange notes that
market participants did not raise any concerns with
the processing of sub-cabinet trades prior to the
expiration of the sub-cabinet rule.
VerDate Sep<11>2014
17:55 Sep 20, 2019
Jkt 247001
cabinet trading in connection with
government securities options and
corporate debt security options,
respectively, but are redundant of the
current manner in which cabinet trades
are executed and of the proposed rule,
which allow opening transactions to
execute so long as they first yield to
closing transactions. The proposed rule
change also removes Rule 23.10 because
it refers to provisions that no longer
exist within the Exchange Rules and it
moves Rule 23.10.01 to proposed Rule
5.12(b), and makes non-substantive
changes to the language to reflect the
rest of the proposed sub-penny cabinet
rule language.
The proposed rule change also
renames the rule ‘‘Cabinet Trades’’, and
updates references according. The
Exchange believes that the term
‘‘cabinet trade’’ is a wider-used and
recognized term throughout the
industry. Also, the Exchange notes that
‘‘accommodation liquidations’’ refers
specifically to cabinet trades to close out
positions in worthless or nearly
worthless out-of-the-money option
contracts, whereas cabinet trades more
accurately refer to the wider range of
transactions governed by the proposed
rule, which are trades in options listed
on the Exchange that are worthless or
not actively traded.
In light of the proposed change, the
Exchange also proposes to add ‘‘penny
cabinet’’ orders and ‘‘sub-penny
cabinet’’ orders to the list of types of
order instructions under Rule 5.6(c)
currently in the shell Rulebook.
Likewise, the Exchange proposes to add
penny cabinet and sub-penny cabinet
orders to the list of order available for
PAR routing to open outcry under Rule
5.83(a)(2) currently in the shell
Rulebook. The proposed changes are not
substantive changes but instead are
intended to provide additional clarity
under the rules regarding cabinet order
instructions and that cabinet orders may
route through PAR to execute in open
outcry, which will be available to Users
upon the technology migration.
The Exchange also proposes to delete
Rule 5.7.03 in the shell Rulebook (and
renumber the subsequent provisions),
which excludes accommodation
liquidations from the entry of orders
and quotes into the System and the
systemization of orders. As stated above,
upon migration Users must systematize
and route any orders, including cabinet
orders, they wish to execute in open
outcry to PAR prior to representation on
the Exchange’s trading floor for
execution in open outcry. Additionally,
the Exchange now proposes to delete
Rule 6.24 from the current Rulebook as
it inadvertently failed to delete this rule
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
under SR–CBOE–2019–033,15 which
moved the provisions under current
Rule 6.24 to Rule 5.7 in the shell
Rulebook in anticipation of 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
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.16 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 17 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) 18 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The proposed rule is generally
intended to provide consolidated and
updated rules for market participants in
connection with the October 7, 2019
technology migration. The proposed
rule change does not propose to
implement new or unique functionality
that has not been previously filed with
the Commission, found to be consistent
with the Act, or is not available on other
exchanges. The Exchange notes that the
proposed rule is substantially the same
as the current rule and largely makes
changes to remove obsolete provisions,
update rule provisions to align with the
manner in which the Exchange’s
System, functionality and other rules
that will become live upon migration, as
well as non-substantive changes to
simplify rule language, make the rule
provisions plain English, and update
cross-references and paragraph
formatting. The Exchange believes that
the proposed changes, overall, will
15 See Securities Exchange Act Release No. 86374
(July 15, 2019), 84 FR 34963 (July 19, 2019) (Notice
of Filing and Immediate Effectiveness of a Proposed
Rule Change Relating to System Connectivity and
Order Entry and Allocation Upon the Migration of
the Exchange’s Trading Platform to the Same
System Used by the Cboe Affiliated Exchanges)
(SR–CBOE–2019–033).
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
18 Id.
E:\FR\FM\23SEN1.SGM
23SEN1
jbell on DSK3GLQ082PROD with NOTICES
Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices
make the rules easier to follow and
understand, thus, simplifying the
regulatory requirements and increasing
the transparency and understanding of
the Exchange’s operations for TPHs. As
such, the proposed rule change would
foster cooperation and coordination
with persons engaged in facilitating
transactions in securities, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, contribute to the protection of
investors and the public interest.
Specifically, the proposed change
amending rule language to provide that
all cabinet orders will execute in open
outcry pursuant to Rule 5.82(c)(2) does
not substantively alter the manner in
which cabinet orders may trade
currently, but merely updates the rule
language to reflect the order allocation
and priority rules that will be applicable
to the execution of all orders in open
outcry upon migration. The Exchange
believes that by amending its rule to
accurately reflect Exchange
functionality and processes upon
migration, the proposed rule change
removes impediments to and perfects
the mechanism of a free and open
national market system.
Additionally, the Exchange believes
that the proposed rule change makes it
explicit that market participants may
enter cabinet orders as either opening or
closing transactions, but such orders
must yield priority to all cabinet orders
represented by the trading crowd. The
Exchange notes that this is the manner
in which the cabinet order process
currently functions, yet such rule text
pertaining to this process was
inadvertently removed. Therefore, by
making this process explicit in the
Exchange Rules, the proposed rule
change will remove impediments to and
perfect the mechanism of a free and
open market and national market
system. The proposed rule change does
not alter the manner in which
functionality currently exists for cabinet
trading but merely intends to make the
rules clear that market participants may
continue to place cabinet orders as both
opening and closing transactions that
will execute in accordance with the
allocation and priority rules like that of
all other orders executed in open outcry,
after first yielding to the cabinet orders
on the floor. Similarly, the proposed
rule does not maintain the cabinet
reporting provisions because all cabinet
orders will execute in open outcry just
as any other order and, therefore,
cabinet order transaction prices will
also be reported just like any other
transaction. The Exchange believes that
the proposed changes will remove
VerDate Sep<11>2014
17:55 Sep 20, 2019
Jkt 247001
49777
impediments to and perfect the
mechanism of a free and open market
and national market system, and
otherwise protect investors and the
public interest, because they will
accurately reflect Exchange
functionality upon migration.
The proposed rule change to update
cabinet orders as orders priced $0.01,
does not alter the current application of
the rule. Rather, the proposed change is
intended to add additional detail to the
rule, thereby removing impediments to
and perfecting the mechanism of a free
and open national market system, by
stating the actual options price which
would include both those series priced
at $0.01 with a 100 multiplier
adjustment, as well as series that are
priced at $0.01 or less with a different
multiplier. Likewise, the proposed rule
is intended to account for the fact that
the rules permit other penny classes
than just penny pilot classes, thus, does
not allow cabinet orders for any class
with a minimum increment of $0.01.
Therefore, the proposed change
facilitates transactions in securities by
ensuring that the rule covers cabinet
trade in all series, not only those with
a 100 multiplier, and ensures that the
cabinet order rule accounts for other
Exchange Rules that provide for penny
classes.
The Exchange believes that the
proposed sub-penny cabinet orders will
remove impediments to and perfect the
mechanism of a free and open market
and national market system and, in
general, protect investors because such
orders will allow market participants to
close options positions in series that are
worthless or not actively traded,
particularly due to market conditions
which may result in a significant
number of series being out-of-themoney. The proposed change does not
offer new or unique functionality for
market participants as it is consistent
with sub-cabinet rules on other options
exchanges that have been found to be
consistent with the Act and previously
approved by the Commission,19 as well
as the purpose of cabinet orders in
facilitating closing transactions for open
positions in worthless or inactive series.
The Exchange also believes that the
proposed change will protect investors
because there would be no operational
issues in processing and clearing subpenny cabinet trades because cabinet
trades will be reported to the Exchange
and submitted by the Exchange to OCC
just like all open outcry transactions are
currently reported and submitted.20
Also, because sub-penny cabinets will
be reported and processed like all other
open outcry trades, market participants
will not be impacted nor have to take on
any additional reporting or processing
burden.
The Exchange also notes that the
proposed rule change that deletes
current which governed cabinet trading
in connection with government security,
interest rate, and corporate debt security
options will remove impediments to
and perfect the mechanism of a free and
open market and national market system
by removing redundant and/or obsolete
rules and, as a result, providing
transparent, updated rules for market
participants. Likewise, renaming the
rule ‘‘Cabinet Trades’’, also adds clarity
and updates the rules by reflecting an
industry-wide term and the wider range
of transactions govern by the proposed
rule.
The Exchange believes that the nonsubstantive changes to list cabinet
trades under types of order instructions
and to add penny cabinet and subpenny cabinet orders to the list of order
available for PAR routing to open outcry
under Exchange Rules currently in the
shell Rulebook, as well as updating the
exclusion of cabinet trades from
provisions in relation to systemization
(as cabinet orders will route through
PAR to execute in open outcry) are
designed to provide additional clarity
and transparency under the rules in
connection with cabinet orders and
functionality related to cabinet orders
available to Users upon the technology
migration. The Exchange notes that the
deletion of Rule 6.24 from the current
Rulebook is a non-substantive change as
this rule was inadvertently maintained
in the Rulebook under SR–CBOE–2019–
033 which moved the provisions under
current Rule 6.24 to Rule 5.7 in the shell
Rulebook in anticipation of migration,
yet inadvertently failed to delete the
current rule in anticipation of migration,
as well.
The proposed rule change makes
other various non-substantive changes
throughout the rules that will protect
investors and benefit market
participants as these changes simplify
the rules and use plain English
throughout the rules.
19 See supra note 12. See also note 11. The
Exchange also notes that sub-cabinet functionality
was available to market participants until the
expiration of Rule 6.54.02 on March 5, 2018.
20 See also note 7. The Exchange also notes that
there were no issues in processing and clearing
such transactions prior to the expiration of the subcabinet rule.
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
E:\FR\FM\23SEN1.SGM
23SEN1
49778
Federal Register / Vol. 84, No. 184 / Monday, September 23, 2019 / Notices
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 a technology migration of the
Cboe Affiliated Exchanges. As stated,
the proposed changes to the rules that
reflect functionality that will be in place
come October 7, 2019 provide clear
rules that accurately reflect postmigration functionality upon the
completion of migration.
The Exchange does not believe the
proposed rule change will impose any
burden on intramarket competition
because the proposed cabinet orders
will be available to all market
participants to execute in open outcry in
the same manner as they are able to
execute their other orders. The
Exchange notes that while cabinet
orders must yield to closing cabinet
orders on the floor first, this will not
impact intramarket competition because
it is the manner in which cabinet orders
already trade and is in line with the
primary purpose of cabinet trading to
facilitate closing transactions in
worthless or inactive series. The
Exchange also does not believe that the
proposed rule change will impose any
burden on intermarket competition. As
discussed above, the basis for the
proposed rule change regarding subpenny cabinets are the rules of other
options exchanges, which have already
been found consistent with the Act and
approved by the Commission.21 In
addition to this, these exchanges have
substantially similar rules regarding
cabinet trading.22
jbell on DSK3GLQ082PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule does not (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, provided that the selfregulatory organization has given the
Commission written notice of its intent
to file the proposed rule change at least
five business days prior to the date of
filing of the proposed rule change or
such shorter time as designated by the
Commission,23 the proposed rule
change has become effective pursuant to
Section 19(b)(3)(A) of the Act 24 and
Rule 19b–4(f)(6) thereunder.25
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2019–058 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–2019–058. 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
23 The
Exchange has fulfilled this requirement.
U.S.C. 78s(b)(3)(A).
25 17 CFR 240.19b–4(f)(6).
21 See
supra note 12.
22 See id.
VerDate Sep<11>2014
17:55 Sep 20, 2019
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CBOE–2019–058 and
should be submitted on or before
October 15, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–20477 Filed 9–20–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, the Securities and
Exchange Commission will hold an
Open Meeting on Wednesday,
September 25, 2019 at 10:00 a.m.
PLACE: The meeting will be held in
Auditorium LL–002 at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will begin at 10:00
a.m. (ET) and will be open to the public.
Seating will be on a first-come, firstserved basis. Visitors will be subject to
security checks. The meeting will be
webcast on the Commission’s website at
www.sec.gov.
MATTERS TO BE CONSIDERED:
1. The Commission will consider
whether to propose amendments to Rule
15c2–11 under the Securities Exchange
Act of 1934 that governs the publication
of quotations for securities in a
quotation medium other than a national
securities exchange, and issue proposed
guidance on the Rule and a concept
release requesting public comment on
information repositories.
2. The Commission will consider
whether to adopt a new rule and related
TIME AND DATE:
24 15
Jkt 247001
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
26 17
E:\FR\FM\23SEN1.SGM
CFR 200.30–3(a)(12).
23SEN1
]]>Agencies
[Federal Register Volume 84, Number 184 (Monday, September 23, 2019)]
[Notices]
[Pages 49774-49778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20477]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86994; File No. SR-CBOE-2019-058]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Exchange's Rules Regarding Cabinet Trading Upon the Migration of
the Exchange's Trading Platform to the Same System Used by the Cboe
Affiliated Exchanges
September 17, 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 6, 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 Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend the Exchange's Rules regarding cabinet trading and move 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 used by the Cboe Affiliated Exchanges (as defined below)
(``shell Rulebook'').
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''). Cboe Options intends to migrate its trading platform to
the same
[[Page 49775]]
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.
In anticipation of migration, the Exchange proposes to update and
amend current Rule 6.54 which governs transactions in connection with
``cabinet'' trades, which are trades in listed options on the Exchange
that are worthless or not actively traded. In anticipation of
migration, the Exchange proposes to move current Rule 6.54 (and
subsequently delete the current rule after the shell Rulebook takes
effect on October 7, 2019) to proposed Rule 5.12, which will govern
cabinet trading in substantially the same manner as the current rule,
with only slight differences. The proposed rule change does not propose
to implement new or unique functionality that has not been previously
filed with the Commission, found to be consistent with the Act, or is
not available on other exchanges. The proposed rule change largely
makes changes to remove obsolete provisions, update rule provisions to
align with the manner in which the Exchange's System, functionality and
other rules will function upon migration. The Exchange also proposes to
make non-substantive changes to simplify, clarify, and generally update
its cabinet trading provisions by consolidating them into a single
rule, simplifying the rule language, updating the rule text to read in
plain English, reformatting the paragraph lettering and/or numbering,
and updating cross-references to rules that will be in the shell
Rulebook and implemented upon migration. The Exchange believes that the
proposed changes, overall, will make the rules easier to follow and
understand, thus, simplifying the regulatory requirements and
increasing the transparency and understanding of the Exchange's rules
and operations for Trading Permit Holders (``TPHs'').
Current Rule 6.54 provides that cabinet trades may only occur via
open outcry, even if the class trades on the Exchange's System. As all
classes currently trade on the Exchange's System, proposed Rule 5.12
merely updates the current language to state that all cabinet orders
will execute in open outcry pursuant to Rule 5.85(a) (in the shell
Rulebook). Proposed Rule 5.12 also consolidates provisions in
connection with cabinet trades by moving the FLEX cabinet trading
limitation under current Rule 24A.15 \5\ to the proposed rule. The
proposed changes do not substantively alter the manner in which cabinet
orders may trade currently, but merely updates the rule language to
reflect that cabinet orders will execute in open outcry like all other
orders execute in open outcry, in accordance with the order allocation,
priority, and execution rules that will be implemented upon migration,
which is substantially similar to how cabinet trades currently
function. The Exchange notes that upon migration, Users must
systematize and route any orders they wish to execute in open outcry to
the Exchange's Public Automated Routing System (``PAR'') prior to
representation on the Exchange's trading floor for execution in open
outcry.\6\
---------------------------------------------------------------------------
\5\ The Exchange notes that it is deleting the entirety of
current Rule 24A.15 and will discuss the split price component of
the rule in a FLEX-related rule filing for migration.
\6\ A PAR workstation is an Exchange-provided order management
tool for use on the Exchange's trading floor by Trading Permit
Holders and PAR Officials to manually handle orders pursuant to the
Rules and facilitate open outcry trading.
---------------------------------------------------------------------------
Current Rule 6.54.01 states that a PAR Official may accept bids or
offers for opening transactions at a price of $1 per contract only to
the extent that the cabinet book (which no longer exists) \7\ already
contains closing orders for the contra side. The Exchange notes that a
previous rule filing, SR-CBOE-2018-010,\8\ inadvertently removed what
was then paragraph (a) under Rule 6.54, which included a provision
allowing Floor Brokers and Market-Makers to represent that bids and
offers for cabinet trades after first yielding priority to all orders
in the cabinet book. Specifically, when this provision was initially
added to the Exchange Rules, its purpose was to make clear that Floor
Brokers or Market-Makers may enter into both opening and closing
cabinet transactions, so long as they first yield priority to all
orders in the Order Book Official's cabinet book.\9\ Previous paragraph
(a) had generally described cabinet trading for classes not trading on
the Hybrid System, and, because SR-CBOE-2018-010 had been implemented
to delete Exchange Rules that no longer applied to the Exchange, it
deleted previous paragraph (a) as all options traded on the Hybrid
System, and currently do. This deletion inadvertently occurred because
certain language in previous paragraph (a) is still relevant to
transacting on the Exchange. Orders in all classes on the Hybrid System
can currently be automatically executed both electronically and in open
outcry after routing to PAR (as cabinet orders must). Even as the Order
Book Officials and cabinet book ceased to exist on the Exchange,\10\
functionality continued to allow market participants to enter into both
opening and closing cabinet transactions so long as they first yielded
to closing orders on the floor. Therefore, proposed Rule 5.12 makes
explicit that market participants may continue to place closing cabinet
orders, and may continue to place opening cabinet orders, which must
continue to yield to all closing cabinet orders represented by the
trading crowd. In addition to making this explicit in the Exchange
Rules, the Exchange believes that it is in line with the primary
purpose of cabinet trades by facilitating the close of positions in a
worthless or inactive series.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 82646 (February 7,
2018), 83 FR 6294 (February 13, 2018) (SR-CBOE-2018-010), which
removed the cabinet book and Order Book Officials because these
functions were generally obsolete because most trading occurred
electronically, as it does today. However, Cabinet Book Officials
were replaced by PAR Officials, who currently do hold cabinet orders
for priority execution on the Exchange.
\8\ See id.
\9\ See Securities Exchange Act Release No. 55081 (January 10,
2007), 72 FR 2317 (January 18, 2007) (SR-CBOE-2007-02).
\10\ See supra note 7.
---------------------------------------------------------------------------
In addition to this, proposed Rule 5.12(a) provides that cabinet
orders are priced at $0.01. The current rule provides that cabinet
trades are those priced at $1.00, which accounts for the notional value
of series actually priced at $0.01 but adjusted with a multiplier of
100. Instead, under the proposed rule, $0.01 is designed to encompass
those series price at $0.01 with a 100 multiplier, as well as series
that are priced at $0.01 or less with a different multiplier.
Additionally, the proposed rule provides that cabinet orders are not
available in classes with a minimum increment of $0.01. This is
substantially similar to the function of the current rule, which does
not allow penny pilot classes as cabinet orders, but accounts for the
fact that the rules may permit other penny classes in addition to penny
pilot classes. The proposed rule change appropriately renames such
orders as ``penny cabinets''.
Proposed Rule 5.12(b) provides for sub-penny cabinet orders.\11\
Proposed Rule 5.12(b) is based on the rules of other options exchanges,
previously approved by the Commission.\12\ The Exchange believes that
allowing a price of at least $0 but less than $0.01 better accommodates
the closing of options positions in series that are worthless or
[[Page 49776]]
not actively traded, particularly due to market conditions which may
result in a significant number of series being out-of-the-money. For
example, a market participant might have a long position in a call
series (with a 100 multiplier) with a strike price of $100 and the
underlying stock might now be trading at $30. In such an instance,
there might not otherwise be a market for that person to close-out the
position even at the $0.01 cabinet price (e.g., the series might be
quoted no bid). Proposed Rule 5.12(b) also provides that bids and
offers for opening transactions in sub-penny cabinets are only
permitted to accommodate closing transactions, which is consistent with
the cabinet trading rules of other exchanges, as well as the purpose of
cabinet trades in facilitating closing transactions for open positions
in worthless or inactive series. The Exchange also notes that proposed
Rule 5.12 does not maintain current language regarding the reporting of
cabinet transactions (as stated in current Rule 6.54.01) or adopt such
language in connection with sub-penny cabinets, which is contained in
other exchanges' sub-cabinet rules, because all cabinet orders will
execute in open outcry just like other orders (instead of only through
a PAR Official or on the cabinet book), therefore cabinet order
transaction prices will be also be reported like all other
transactions, which, pursuant to current Rule 6.51 (Rule 6.1 in the
shell Rulebook), must be reported within 90 seconds of the execution,
which the Exchange then immediately submits to the Options Clearing
Corporation (``OCC''). The Exchange represents that there would be no
operational issues in processing and clearing sub-penny cabinet
trades.\13\ The Exchange does not believe that the OCC will have any
operational issues with processing sub-penny cabinet trades, as they
will be reported to and submitted by the Exchange like all other
transactions currently executed in open outcry. Additionally, the
Exchange notes that because sub-penny cabinets will be reported and
processed like all other open outcry trades market participants will
not be impacted nor have to take on any additional reporting or
processing burden.\14\
---------------------------------------------------------------------------
\11\ Current Rule 6.54.02 contains rule language in connection
with sub-cabinets which expired on March 5, 2018.
\12\ See, e.g., NYSE Arca Options Commentary .01 to Rule 6.80-O;
and NASDAQ Phlx Options 8, Sec. 33(d).
\13\ See also note 7. The Exchange also notes that there were no
issues in processing and clearing such transactions prior to the
expiration of the sub-cabinet rule.
\14\ See also note 7. The Exchange notes that market
participants did not raise any concerns with the processing of sub-
cabinet trades prior to the expiration of the sub-cabinet rule.
---------------------------------------------------------------------------
The Exchange also notes that the proposed rule change deletes
current Rules 21.15, and 28.12 which governed cabinet trading in
connection with government securities options and corporate debt
security options, respectively, but are redundant of the current manner
in which cabinet trades are executed and of the proposed rule, which
allow opening transactions to execute so long as they first yield to
closing transactions. The proposed rule change also removes Rule 23.10
because it refers to provisions that no longer exist within the
Exchange Rules and it moves Rule 23.10.01 to proposed Rule 5.12(b), and
makes non-substantive changes to the language to reflect the rest of
the proposed sub-penny cabinet rule language.
The proposed rule change also renames the rule ``Cabinet Trades'',
and updates references according. The Exchange believes that the term
``cabinet trade'' is a wider-used and recognized term throughout the
industry. Also, the Exchange notes that ``accommodation liquidations''
refers specifically to cabinet trades to close out positions in
worthless or nearly worthless out-of-the-money option contracts,
whereas cabinet trades more accurately refer to the wider range of
transactions governed by the proposed rule, which are trades in options
listed on the Exchange that are worthless or not actively traded.
In light of the proposed change, the Exchange also proposes to add
``penny cabinet'' orders and ``sub-penny cabinet'' orders to the list
of types of order instructions under Rule 5.6(c) currently in the shell
Rulebook. Likewise, the Exchange proposes to add penny cabinet and sub-
penny cabinet orders to the list of order available for PAR routing to
open outcry under Rule 5.83(a)(2) currently in the shell Rulebook. The
proposed changes are not substantive changes but instead are intended
to provide additional clarity under the rules regarding cabinet order
instructions and that cabinet orders may route through PAR to execute
in open outcry, which will be available to Users upon the technology
migration.
The Exchange also proposes to delete Rule 5.7.03 in the shell
Rulebook (and renumber the subsequent provisions), which excludes
accommodation liquidations from the entry of orders and quotes into the
System and the systemization of orders. As stated above, upon migration
Users must systematize and route any orders, including cabinet orders,
they wish to execute in open outcry to PAR prior to representation on
the Exchange's trading floor for execution in open outcry.
Additionally, the Exchange now proposes to delete Rule 6.24 from the
current Rulebook as it inadvertently failed to delete this rule under
SR-CBOE-2019-033,\15\ which moved the provisions under current Rule
6.24 to Rule 5.7 in the shell Rulebook in anticipation of migration.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 86374 (July 15,
2019), 84 FR 34963 (July 19, 2019) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change Relating to System
Connectivity and Order Entry and Allocation Upon the Migration of
the Exchange's Trading Platform to the Same System Used by the Cboe
Affiliated Exchanges) (SR-CBOE-2019-033).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\16\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \17\ 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) \18\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
\18\ Id.
---------------------------------------------------------------------------
The proposed rule is generally intended to provide consolidated and
updated rules for market participants in connection with the October 7,
2019 technology migration. The proposed rule change does not propose to
implement new or unique functionality that has not been previously
filed with the Commission, found to be consistent with the Act, or is
not available on other exchanges. The Exchange notes that the proposed
rule is substantially the same as the current rule and largely makes
changes to remove obsolete provisions, update rule provisions to align
with the manner in which the Exchange's System, functionality and other
rules that will become live upon migration, as well as non-substantive
changes to simplify rule language, make the rule provisions plain
English, and update cross-references and paragraph formatting. The
Exchange believes that the proposed changes, overall, will
[[Page 49777]]
make the rules easier to follow and understand, thus, simplifying the
regulatory requirements and increasing the transparency and
understanding of the Exchange's operations for TPHs. As such, the
proposed rule change would foster cooperation and coordination with
persons engaged in facilitating transactions in securities, would
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, contribute to the
protection of investors and the public interest.
Specifically, the proposed change amending rule language to provide
that all cabinet orders will execute in open outcry pursuant to Rule
5.82(c)(2) does not substantively alter the manner in which cabinet
orders may trade currently, but merely updates the rule language to
reflect the order allocation and priority rules that will be applicable
to the execution of all orders in open outcry upon migration. The
Exchange believes that by amending its rule to accurately reflect
Exchange functionality and processes upon migration, the proposed rule
change removes impediments to and perfects the mechanism of a free and
open national market system.
Additionally, the Exchange believes that the proposed rule change
makes it explicit that market participants may enter cabinet orders as
either opening or closing transactions, but such orders must yield
priority to all cabinet orders represented by the trading crowd. The
Exchange notes that this is the manner in which the cabinet order
process currently functions, yet such rule text pertaining to this
process was inadvertently removed. Therefore, by making this process
explicit in the Exchange Rules, the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
national market system. The proposed rule change does not alter the
manner in which functionality currently exists for cabinet trading but
merely intends to make the rules clear that market participants may
continue to place cabinet orders as both opening and closing
transactions that will execute in accordance with the allocation and
priority rules like that of all other orders executed in open outcry,
after first yielding to the cabinet orders on the floor. Similarly, the
proposed rule does not maintain the cabinet reporting provisions
because all cabinet orders will execute in open outcry just as any
other order and, therefore, cabinet order transaction prices will also
be reported just like any other transaction. The Exchange believes that
the proposed changes will remove impediments to and perfect the
mechanism of a free and open market and national market system, and
otherwise protect investors and the public interest, because they will
accurately reflect Exchange functionality upon migration.
The proposed rule change to update cabinet orders as orders priced
$0.01, does not alter the current application of the rule. Rather, the
proposed change is intended to add additional detail to the rule,
thereby removing impediments to and perfecting the mechanism of a free
and open national market system, by stating the actual options price
which would include both those series priced at $0.01 with a 100
multiplier adjustment, as well as series that are priced at $0.01 or
less with a different multiplier. Likewise, the proposed rule is
intended to account for the fact that the rules permit other penny
classes than just penny pilot classes, thus, does not allow cabinet
orders for any class with a minimum increment of $0.01. Therefore, the
proposed change facilitates transactions in securities by ensuring that
the rule covers cabinet trade in all series, not only those with a 100
multiplier, and ensures that the cabinet order rule accounts for other
Exchange Rules that provide for penny classes.
The Exchange believes that the proposed sub-penny cabinet orders
will remove impediments to and perfect the mechanism of a free and open
market and national market system and, in general, protect investors
because such orders will allow market participants to close options
positions in series that are worthless or not actively traded,
particularly due to market conditions which may result in a significant
number of series being out-of-the-money. The proposed change does not
offer new or unique functionality for market participants as it is
consistent with sub-cabinet rules on other options exchanges that have
been found to be consistent with the Act and previously approved by the
Commission,\19\ as well as the purpose of cabinet orders in
facilitating closing transactions for open positions in worthless or
inactive series. The Exchange also believes that the proposed change
will protect investors because there would be no operational issues in
processing and clearing sub-penny cabinet trades because cabinet trades
will be reported to the Exchange and submitted by the Exchange to OCC
just like all open outcry transactions are currently reported and
submitted.\20\ Also, because sub-penny cabinets will be reported and
processed like all other open outcry trades, market participants will
not be impacted nor have to take on any additional reporting or
processing burden.
---------------------------------------------------------------------------
\19\ See supra note 12. See also note 11. The Exchange also
notes that sub-cabinet functionality was available to market
participants until the expiration of Rule 6.54.02 on March 5, 2018.
\20\ See also note 7. The Exchange also notes that there were no
issues in processing and clearing such transactions prior to the
expiration of the sub-cabinet rule.
---------------------------------------------------------------------------
The Exchange also notes that the proposed rule change that deletes
current which governed cabinet trading in connection with government
security, interest rate, and corporate debt security options will
remove impediments to and perfect the mechanism of a free and open
market and national market system by removing redundant and/or obsolete
rules and, as a result, providing transparent, updated rules for market
participants. Likewise, renaming the rule ``Cabinet Trades'', also adds
clarity and updates the rules by reflecting an industry-wide term and
the wider range of transactions govern by the proposed rule.
The Exchange believes that the non-substantive changes to list
cabinet trades under types of order instructions and to add penny
cabinet and sub-penny cabinet orders to the list of order available for
PAR routing to open outcry under Exchange Rules currently in the shell
Rulebook, as well as updating the exclusion of cabinet trades from
provisions in relation to systemization (as cabinet orders will route
through PAR to execute in open outcry) are designed to provide
additional clarity and transparency under the rules in connection with
cabinet orders and functionality related to cabinet orders available to
Users upon the technology migration. The Exchange notes that the
deletion of Rule 6.24 from the current Rulebook is a non-substantive
change as this rule was inadvertently maintained in the Rulebook under
SR-CBOE-2019-033 which moved the provisions under current Rule 6.24 to
Rule 5.7 in the shell Rulebook in anticipation of migration, yet
inadvertently failed to delete the current rule in anticipation of
migration, as well.
The proposed rule change makes other various non-substantive
changes throughout the rules that will protect investors and benefit
market participants as these changes simplify the rules and use plain
English throughout the rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose
[[Page 49778]]
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 a
technology migration of the Cboe Affiliated Exchanges. As stated, the
proposed changes to the rules that reflect functionality that will be
in place come October 7, 2019 provide clear rules that accurately
reflect post-migration functionality upon the completion of migration.
The Exchange does not believe the proposed rule change will impose
any burden on intramarket competition because the proposed cabinet
orders will be available to all market participants to execute in open
outcry in the same manner as they are able to execute their other
orders. The Exchange notes that while cabinet orders must yield to
closing cabinet orders on the floor first, this will not impact
intramarket competition because it is the manner in which cabinet
orders already trade and is in line with the primary purpose of cabinet
trading to facilitate closing transactions in worthless or inactive
series. The Exchange also does not believe that the proposed rule
change will impose any burden on intermarket competition. As discussed
above, the basis for the proposed rule change regarding sub-penny
cabinets are the rules of other options exchanges, which have already
been found consistent with the Act and approved by the Commission.\21\
In addition to this, these exchanges have substantially similar rules
regarding cabinet trading.\22\
---------------------------------------------------------------------------
\21\ See supra note 12.
\22\ See id.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule does not (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest, provided that the self-regulatory organization
has given the Commission written notice of its intent to file the
proposed rule change at least five business days prior to the date of
filing of the proposed rule change or such shorter time as designated
by the Commission,\23\ the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6)
thereunder.\25\
---------------------------------------------------------------------------
\23\ The Exchange has fulfilled this requirement.
\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2019-058 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-2019-058. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2019-058 and should be submitted on
or before October 15, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20477 Filed 9-20-19; 8:45 am]
BILLING CODE 8011-01-P
