Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Opening Triggers for Its Opening Rotation Process for Equity Options, 1362-1365 [2020-00201]
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Federal Register / Vol. 85, No. 7 / Friday, January 10, 2020 / Notices
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relationships where the intermediary is
typically permitted to terminate and
liquidate the positions of its client that
the intermediary guarantees if an event
of default or other similar circumstance
occurs under the bilateral agreement
between the intermediary and the client.
The current inability to effectuate such
termination and liquidation is
inconsistent with other intermediated
relationships and discourages term repo
activity within the Service. The
proposed changes would enable the
Sponsoring Member to cause the
termination and liquidation of the
Sponsored Member’s positions for
which the Sponsoring Member is
responsible, thereby providing it with
greater ability to manage the risks
associated with Sponsored Member
Trades, particularly term repo activity.
Therefore, FICC believes any burden
that is created by these proposed
changes would be appropriate in
furtherance of the purposes of the Act,
as permitted by Section 17A(b)(3)(I) of
the Act.56
FICC believes that the proposed
changes described in Item II(A)1(iii)
above to facilitate the submission of
term repo activity through the Service
by revising how FICC calculates the
funds-only settlement obligations of
Sponsored Members and Sponsoring
Members with respect to Sponsored
Member Trades with haircuts could
promote competition. This is because
the proposed changes would honor the
parties’ contractual intent (as described
in Item II(A)1(iii) above) and, thus,
encourage more term repo activity
within the Service. As such, FICC
believes that these proposed changes
could promote competition.
In addition, FICC does not believe
that the proposed correction,
clarifications, and conforming changes
in Item II(A)1(iv) above would have an
impact on competition. These changes
would simply provide additional
clarity, transparency and consistency to
the Rules and not affect Members’ rights
and obligations. As such, FICC believes
that these proposed changes would not
have any impact on competition.
(C) Clearing Agency’s Statement on
Comments on the Proposed Rule
Change Received From Members,
Participants, or Others
FICC reviewed the proposed rule
change with its Sponsoring Members in
order to benefit from their expertise.
Written comments relating to this
proposed rule change have not been
received from the Sponsoring Members
or any other person. FICC will notify the
56 Id.
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Commission of any written comments
received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change, and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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–
FICC–2019–007 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–FICC–2019–007. 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
PO 00000
Frm 00065
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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 FICC and on DTCC’s website
(https://dtcc.com/legal/sec-rulefilings.aspx). 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–FICC–
2019–007 and should be submitted on
or before January 31, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–00203 Filed 1–9–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87892; File No. SR–C2–
2019–028]
Self-Regulatory Organizations; Cboe
C2 Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Opening
Triggers for Its Opening Rotation
Process for Equity Options
January 6, 2020
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
23, 2019, Cboe C2 Exchange, Inc. (the
‘‘Exchange’’ or ‘‘C2’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
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
The Exchange proposes to amend
Rule 6.11 (Opening Auction Process) in
connection with the opening triggers for
57 17
CFR 200.30–3(a)(12).
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).
1 15
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its opening rotation process for the
Regular Trading Hours (‘‘RTH’’) trading
session in equity options.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/ctwo/),
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
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1. Purpose
The Exchange proposes to amend
Rule 6.11 (Opening Auction Process) in
connection with the opening triggers for
its opening rotation process for the
Regular Trading Hours (‘‘RTH’’) trading
session in equity options. Currently,
Rule 6.11(d)(1) governs the RTH
opening rotation triggers for equity
options, as well as index options.
Particularly, regarding equity options,
Rule 6.11(d)(1) provides that the
System 5 will initiate the opening
rotation after a time period (which the
Exchange determines for all classes)
following the System’s observation after
9:30 a.m. of the first disseminated
transaction on the primary market in the
security underlying an equity option. In
order to ensure a more orderly opening
process, the Exchange proposes to
amend the opening trigger process in
order to contemplate the first
disseminated quote (in addition to the
already included first disseminated
transaction) on the primary market in
the underlying security in determining
whether to initiate the opening rotation,
as well as to add an additional timing
process following the System’s
observation of one, but not both, of the
opening triggers.
5 See C2 Rule 1.1, which defines the ‘‘System’’ to
mean the automated trading system the Exchange
uses for the trading of option contracts.
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Specifically, the Exchange proposes to
include the System’s observation of the
first disseminated quote on the primary
market in the security underlying the
equity options as an additional opening
trigger for equity options.6 The
Exchange notes this trigger is intended
to tie the Exchange’s opening process to
quoting in the underlying security. The
Exchange believes that quoting activity
in the underlying market is an
additional trigger that generally
indicates the presence of post-open
price discovery and liquidity in the
primary market for the underlying, and,
therefore, that the market for the
underlying is adequately situated for the
commencement of options trading on
the underlying. This additional trigger is
also consistent with general practice in
the industry, as other options exchanges
use the first disseminated quote, as well
as first disseminated transaction, as an
opening trigger for their opening auction
processes.7 As a result, the proposed
additional trigger is an industry practice
to which market participants are
generally already accustomed and will
provide for greater consistency in the
opening process across the industry. In
light of this additional opening trigger,
the Exchange also proposes to adopt
additional timing specifications prior to
the initiation of the opening rotation
and contingent upon the System’s
observation of the first disseminated
transaction and/or quote, as proposed,
on the primary market in the underlying
security. Specifically, under proposed
Rule 6.11(d)(1)(A),8 the System would
initiate the opening rotation after an
Exchange-determined time period
(which it currently does) upon the
earlier occurrence of either: (i) The
passage of two minutes (or such shorter
time as determined by the Exchange)
after the System’s observation after 9:30
a.m. of either the first disseminated
transaction or the first disseminated
quote on the primary market in the
security underlying an equity option; or
(ii) the System’s observation after 9:30
a.m. of both the first disseminated
6 The
quote must be a two-sided quote.
Nasdaq PHLX LLC (‘‘PHLX’’) Rule
1017(d)(i); Nasdaq ISE LLC (‘‘ISE’’) Options 3
Section 8(c)(1); Nasdaq GEMX LLC (‘‘GEMX’’)
Options 3 Section 8(c)(1); Nasdaq MRX LLC
(‘‘MRX’’) Options 3 Section 8(c)(1); Miami
International Securities Exchange, LLC (‘‘MIAX’’)
Rule 503(e); NYSE American, Inc. (‘‘NYSE
American’’) Rule 952NY; and NYSE Arca, Inc.
(‘‘NYSE Arca’’) Rule 6.64–O(b).
8 The Exchange also proposes to format current
Rule 6.11(d)(1) into two subparagraphs;
subparagraph (d)(1)(A), governing the RTH opening
rotation triggers for equity options, and
subparagraph (d)(1)(B), governing such for index
options. This proposed formatting change will make
the rule better organized and easier to follow and
understand.
7 See
PO 00000
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1363
transaction and the first disseminated
quote on the primary market in the
security underlying an equity option.
The proposed additional timing steps
in connection with the opening triggers
are intended to ensure that the market
for the underlying security has had
sufficient time to open prior to the
initiation of the opening rotation where
there is not both a two-sided quote and
an execution in the underlying security.
By waiting a requisite amount of time
after the System observes one of the
opening triggers, the proposed process
pursuant to proposed Rule
6.11(d)(1)(A)(i) is intended to permit
post-opening price discovery to occur in
the underlying security prior to the
opening of options on the security.
Similarly, by initiating the opening
rotation upon the System’s observation
of both opening triggers prior to the
passage of two minutes, proposed Rule
6.11(d)(1)(A)(ii) ties the Exchange’s
opening process to specific market
conditions in the underlying security
that generally indicate that sufficient
post-opening price discovery has
occurred prior to the opening of options
on the security. To illustrate, if the
System were to observe a disseminated
quote (or transaction) in the primary
market for the underlying security, it
would begin the two-minute (or shorter)
timer pursuant to proposed Rule
6.11(d)(1)(A)(i). If two minutes then
passed without the System’s observation
of a disseminated transaction (or quote)
on the primary market for the
underlying security (which would cause
the scenario in Rule 6.11(d)(1)(A)(ii) to
occur) then it would initiate the opening
rotation after a time period determined
by the Exchange, as it currently does
today. Conversely, if the System were to
observe a disseminated quote (or
transaction) in the primary market and
begin the two minute (or shorter) timer,
but then observe a disseminated
transaction (or quote) in the primary
market before the passage of two
minutes (or shorter), it would then, at
the time it observed the disseminated
transaction (or quote) prior to the
passage of two minutes (or shorter),
initiate the opening rotation after a
period of time determined by the
Exchange.
The Exchange notes that the proposed
rule change in connection with
initiating the opening rotation upon
receipt of a trade and a quote in the
underlying is consistent with the
opening process rules of NYSE Arca.9
Additionally, the proposed rule change
in connection with initiating the
opening rotation following the receipt of
9 See
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NYSE Arca Rule 6.64–O(b).
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either a quote or trade in the underlying
and a timed pause is consistent with
other options exchanges that have
similar timers in place following the
receipt of a transaction or quote in the
primary market for the underlying
security. For example, MIAX’s opening
process rule currently provides that its
opening process may begin following a
pause period (no longer than one half
second) that, like the proposed rule
change, begins upon the dissemination
of either a quote or a trade in the
underlying security.10 The Exchange
notes that the MIAX opening process
rule provides that following the
dissemination of either a quote or a
trade in the underlying security and the
requisite pause period, its opening
process will begin upon the occurrence
of certain Market Maker quotes
submitted on MIAX. The Exchange
notes, however, that this is not
consequential to the activity or status of
the market for the underlying security or
the use of an opening quote or trade in
the underlying to trigger the initiation of
an opening process on an options
exchange. The Exchange further notes
that the proposed two minute timer (or
shorter) is consistent with the timer
provided pursuant to the opening
process rules on PHLX, ISE, GEMX, and
MRX.11
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.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
10 See
MIAX Rule 503(e).
PHLX Options Rule 1017(d)(i); ISE Options
3 Section 8(c)(1); GEMX Options 3 Section 8(c)(1);
and MRX Options 3 Section 8(c)(1), each of which
begin their opening processes within two minutes
(or such shorter time as determined by the
Exchange) of the opening trade or quote on the
market for the underlying security in the case of
equity options (plus the occurrence of another
condition as laid out in the exchanges’ rules).
12 15 U.S.C. 78f(b).
13 15 U.S.C. 78f(b)(5).
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11 See
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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 Exchange believes that the
proposed rule change to include the first
dissemination of a quote on the primary
market for the underlying security as an
additional opening trigger for equity
options would serve to remove
impediments to and perfect the
mechanism of a free and open market
and national market system by
incorporating an additional opening
trigger into the Exchange’s opening
process which would help ensure that
the primary market for the underlying is
adequately situated with the appropriate
liquidity and active price discovery in
order to open for trading options on the
underlying. Additionally, the proposed
rule change would foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in securities
because it will align the triggers for its
equity options opening rotation with the
triggers used by most other options
exchanges.15 The proposed change will
benefit investors, as it will create
consistency throughout the industry by
implementing an additional opening
rotation trigger already in place across
much of the industry and, thus, already
familiar to market participants.
In addition to this, the Exchange
believes that the proposed rule change
to implement additional timing
procedures in connection with the
System’s observation of the first
disseminated transaction and/or quote
in the primary market for the underlying
security prior to the initiation of the
opening rotation would also serve to
remove impediments to and perfect the
mechanism of a free and open market
and national market system by ensuring
that stability is present in the
underlying markets upon the initiation
of the opening rotation to the benefits of
investors. The proposed rule change is
intended to promote the maintenance of
a fair and orderly market and, in
general, to protect investors and the
public interest by either waiting a
requisite amount of time after the
System observes one opening trigger in
order to allocate enough time to permit
the price of the underlying security to
stabilize after its opening, or by
initiating the opening rotation upon the
System’s observation of both opening
14 Id.
15 See
PO 00000
triggers (as proposed), thus tying the
Exchange’s open to the existence of
liquidity on the primary market which
generally indicates that sufficient postopening price discovery has occurred
prior to the opening of options on the
underlying security. Additionally, the
Exchange does not believe that the
proposed rule change in connection
with initiating trading on the Exchange
when the System observes a quote and
a trade in the underlying security, or
observes either a quote or a trade in the
underlying security followed by a
pause, which, as proposed would be
two minutes (or shorter) would
significantly impact investors or the
public interest because, as stated, these
conditions are consistent with other
options exchanges that have
substantively the same conditions in
place in connection with their opening
processes.16
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed changes would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule changes would impose
any burden on intramarket competition
that is not necessary in furtherance of
the purposes of the Act, because the
proposed additional opening trigger and
steps in the opening trigger process
would apply in the same manner to all
equity options. The proposed rule
change impacts a System process that
occurs prior to the opening of trading,
and merely modifies when the System
will initiate an opening rotation. The
Exchange also does not believe that the
proposed change would impose any
burden on intermarket competition that
is not necessary in furtherance of the
purposes of the Act, because use of the
first disseminated quote from the
primary market as a trigger for the
opening rotation, as well as the
combination of both opening triggers, or
of one opening trigger plus a pause
period of a two minutes (or shorter)
prior to initiating the opening rotation,
is consistent with the rules of other
options exchanges.17
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.
16 See
supra note 7.
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17 See
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supra notes 7, 9, 10, and 11.
id.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 18 and
subparagraph (f)(6) of Rule 19b–4
thereunder.19
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 20 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 21
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative upon filing. The
Exchange states that the waiver of the
operative delay would serve to sooner
protect investors by implementing an
additional opening trigger and
additional timing steps in the
Exchange’s opening process. Based on
the Exchange’s representations, the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission hereby waives the
operative delay and designates the
proposed rule change operative upon
filing.22
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 shall institute proceedings
18 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
20 17 CFR 240.19b–4(f)(6).
21 17 CFR 240.19b–4(f)(6)(iii).
22 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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19 17
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to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
1365
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
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:
[FR Doc. 2020–00201 Filed 1–9–20; 8:45 am]
Electronic Comments
[Release No. 34–87894; File No. SR–CBOE–
2020–002]
• 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–
C2–2019–028 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–C2–2019–028. 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–C2–2019–028 and should
be submitted on or before January 31,
2020.
PO 00000
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Opening
Triggers for its Opening Rotation
Process for Equity Options
January 6, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 2,
2020, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ 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 Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
the opening triggers for its opening
rotation process for equity options. The
text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, and at the Commission’s
Public Reference Room.
23 17
CFR 200.30–3(a)(12).
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).
1 15
E:\FR\FM\10JAN1.SGM
10JAN1
]]>Agencies
[Federal Register Volume 85, Number 7 (Friday, January 10, 2020)]
[Notices]
[Pages 1362-1365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00201]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87892; File No. SR-C2-2019-028]
Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Opening Triggers for Its Opening Rotation Process for Equity
Options
January 6, 2020
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 23, 2019, Cboe C2 Exchange, Inc. (the ``Exchange'' or
``C2'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.11 (Opening Auction Process)
in connection with the opening triggers for
[[Page 1363]]
its opening rotation process for the Regular Trading Hours (``RTH'')
trading session in equity options.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/options/regulation/rule_filings/ctwo/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.11 (Opening Auction Process)
in connection with the opening triggers for its opening rotation
process for the Regular Trading Hours (``RTH'') trading session in
equity options. Currently, Rule 6.11(d)(1) governs the RTH opening
rotation triggers for equity options, as well as index options.
Particularly, regarding equity options, Rule 6.11(d)(1) provides that
the System \5\ will initiate the opening rotation after a time period
(which the Exchange determines for all classes) following the System's
observation after 9:30 a.m. of the first disseminated transaction on
the primary market in the security underlying an equity option. In
order to ensure a more orderly opening process, the Exchange proposes
to amend the opening trigger process in order to contemplate the first
disseminated quote (in addition to the already included first
disseminated transaction) on the primary market in the underlying
security in determining whether to initiate the opening rotation, as
well as to add an additional timing process following the System's
observation of one, but not both, of the opening triggers.
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\5\ See C2 Rule 1.1, which defines the ``System'' to mean the
automated trading system the Exchange uses for the trading of option
contracts.
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Specifically, the Exchange proposes to include the System's
observation of the first disseminated quote on the primary market in
the security underlying the equity options as an additional opening
trigger for equity options.\6\ The Exchange notes this trigger is
intended to tie the Exchange's opening process to quoting in the
underlying security. The Exchange believes that quoting activity in the
underlying market is an additional trigger that generally indicates the
presence of post-open price discovery and liquidity in the primary
market for the underlying, and, therefore, that the market for the
underlying is adequately situated for the commencement of options
trading on the underlying. This additional trigger is also consistent
with general practice in the industry, as other options exchanges use
the first disseminated quote, as well as first disseminated
transaction, as an opening trigger for their opening auction
processes.\7\ As a result, the proposed additional trigger is an
industry practice to which market participants are generally already
accustomed and will provide for greater consistency in the opening
process across the industry. In light of this additional opening
trigger, the Exchange also proposes to adopt additional timing
specifications prior to the initiation of the opening rotation and
contingent upon the System's observation of the first disseminated
transaction and/or quote, as proposed, on the primary market in the
underlying security. Specifically, under proposed Rule
6.11(d)(1)(A),\8\ the System would initiate the opening rotation after
an Exchange-determined time period (which it currently does) upon the
earlier occurrence of either: (i) The passage of two minutes (or such
shorter time as determined by the Exchange) after the System's
observation after 9:30 a.m. of either the first disseminated
transaction or the first disseminated quote on the primary market in
the security underlying an equity option; or (ii) the System's
observation after 9:30 a.m. of both the first disseminated transaction
and the first disseminated quote on the primary market in the security
underlying an equity option.
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\6\ The quote must be a two-sided quote.
\7\ See Nasdaq PHLX LLC (``PHLX'') Rule 1017(d)(i); Nasdaq ISE
LLC (``ISE'') Options 3 Section 8(c)(1); Nasdaq GEMX LLC (``GEMX'')
Options 3 Section 8(c)(1); Nasdaq MRX LLC (``MRX'') Options 3
Section 8(c)(1); Miami International Securities Exchange, LLC
(``MIAX'') Rule 503(e); NYSE American, Inc. (``NYSE American'') Rule
952NY; and NYSE Arca, Inc. (``NYSE Arca'') Rule 6.64-O(b).
\8\ The Exchange also proposes to format current Rule 6.11(d)(1)
into two subparagraphs; subparagraph (d)(1)(A), governing the RTH
opening rotation triggers for equity options, and subparagraph
(d)(1)(B), governing such for index options. This proposed
formatting change will make the rule better organized and easier to
follow and understand.
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The proposed additional timing steps in connection with the opening
triggers are intended to ensure that the market for the underlying
security has had sufficient time to open prior to the initiation of the
opening rotation where there is not both a two-sided quote and an
execution in the underlying security. By waiting a requisite amount of
time after the System observes one of the opening triggers, the
proposed process pursuant to proposed Rule 6.11(d)(1)(A)(i) is intended
to permit post-opening price discovery to occur in the underlying
security prior to the opening of options on the security. Similarly, by
initiating the opening rotation upon the System's observation of both
opening triggers prior to the passage of two minutes, proposed Rule
6.11(d)(1)(A)(ii) ties the Exchange's opening process to specific
market conditions in the underlying security that generally indicate
that sufficient post-opening price discovery has occurred prior to the
opening of options on the security. To illustrate, if the System were
to observe a disseminated quote (or transaction) in the primary market
for the underlying security, it would begin the two-minute (or shorter)
timer pursuant to proposed Rule 6.11(d)(1)(A)(i). If two minutes then
passed without the System's observation of a disseminated transaction
(or quote) on the primary market for the underlying security (which
would cause the scenario in Rule 6.11(d)(1)(A)(ii) to occur) then it
would initiate the opening rotation after a time period determined by
the Exchange, as it currently does today. Conversely, if the System
were to observe a disseminated quote (or transaction) in the primary
market and begin the two minute (or shorter) timer, but then observe a
disseminated transaction (or quote) in the primary market before the
passage of two minutes (or shorter), it would then, at the time it
observed the disseminated transaction (or quote) prior to the passage
of two minutes (or shorter), initiate the opening rotation after a
period of time determined by the Exchange.
The Exchange notes that the proposed rule change in connection with
initiating the opening rotation upon receipt of a trade and a quote in
the underlying is consistent with the opening process rules of NYSE
Arca.\9\ Additionally, the proposed rule change in connection with
initiating the opening rotation following the receipt of
[[Page 1364]]
either a quote or trade in the underlying and a timed pause is
consistent with other options exchanges that have similar timers in
place following the receipt of a transaction or quote in the primary
market for the underlying security. For example, MIAX's opening process
rule currently provides that its opening process may begin following a
pause period (no longer than one half second) that, like the proposed
rule change, begins upon the dissemination of either a quote or a trade
in the underlying security.\10\ The Exchange notes that the MIAX
opening process rule provides that following the dissemination of
either a quote or a trade in the underlying security and the requisite
pause period, its opening process will begin upon the occurrence of
certain Market Maker quotes submitted on MIAX. The Exchange notes,
however, that this is not consequential to the activity or status of
the market for the underlying security or the use of an opening quote
or trade in the underlying to trigger the initiation of an opening
process on an options exchange. The Exchange further notes that the
proposed two minute timer (or shorter) is consistent with the timer
provided pursuant to the opening process rules on PHLX, ISE, GEMX, and
MRX.\11\
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\9\ See NYSE Arca Rule 6.64-O(b).
\10\ See MIAX Rule 503(e).
\11\ See PHLX Options Rule 1017(d)(i); ISE Options 3 Section
8(c)(1); GEMX Options 3 Section 8(c)(1); and MRX Options 3 Section
8(c)(1), each of which begin their opening processes within two
minutes (or such shorter time as determined by the Exchange) of the
opening trade or quote on the market for the underlying security in
the case of equity options (plus the occurrence of another condition
as laid out in the exchanges' rules).
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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.\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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ Id.
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The Exchange believes that the proposed rule change to include the
first dissemination of a quote on the primary market for the underlying
security as an additional opening trigger for equity options would
serve to remove impediments to and perfect the mechanism of a free and
open market and national market system by incorporating an additional
opening trigger into the Exchange's opening process which would help
ensure that the primary market for the underlying is adequately
situated with the appropriate liquidity and active price discovery in
order to open for trading options on the underlying. Additionally, the
proposed rule change would foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities because it will align the triggers for its equity options
opening rotation with the triggers used by most other options
exchanges.\15\ The proposed change will benefit investors, as it will
create consistency throughout the industry by implementing an
additional opening rotation trigger already in place across much of the
industry and, thus, already familiar to market participants.
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\15\ See supra note 7.
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In addition to this, the Exchange believes that the proposed rule
change to implement additional timing procedures in connection with the
System's observation of the first disseminated transaction and/or quote
in the primary market for the underlying security prior to the
initiation of the opening rotation would also serve to remove
impediments to and perfect the mechanism of a free and open market and
national market system by ensuring that stability is present in the
underlying markets upon the initiation of the opening rotation to the
benefits of investors. The proposed rule change is intended to promote
the maintenance of a fair and orderly market and, in general, to
protect investors and the public interest by either waiting a requisite
amount of time after the System observes one opening trigger in order
to allocate enough time to permit the price of the underlying security
to stabilize after its opening, or by initiating the opening rotation
upon the System's observation of both opening triggers (as proposed),
thus tying the Exchange's open to the existence of liquidity on the
primary market which generally indicates that sufficient post-opening
price discovery has occurred prior to the opening of options on the
underlying security. Additionally, the Exchange does not believe that
the proposed rule change in connection with initiating trading on the
Exchange when the System observes a quote and a trade in the underlying
security, or observes either a quote or a trade in the underlying
security followed by a pause, which, as proposed would be two minutes
(or shorter) would significantly impact investors or the public
interest because, as stated, these conditions are consistent with other
options exchanges that have substantively the same conditions in place
in connection with their opening processes.\16\
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\16\ See supra notes 7, 9, 10, and 11.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed changes would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule changes would impose any burden on
intramarket competition that is not necessary in furtherance of the
purposes of the Act, because the proposed additional opening trigger
and steps in the opening trigger process would apply in the same manner
to all equity options. The proposed rule change impacts a System
process that occurs prior to the opening of trading, and merely
modifies when the System will initiate an opening rotation. The
Exchange also does not believe that the proposed change would impose
any burden on intermarket competition that is not necessary in
furtherance of the purposes of the Act, because use of the first
disseminated quote from the primary market as a trigger for the opening
rotation, as well as the combination of both opening triggers, or of
one opening trigger plus a pause period of a two minutes (or shorter)
prior to initiating the opening rotation, is consistent with the rules
of other options exchanges.\17\
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\17\ See id.
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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.
[[Page 1365]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \18\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \20\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \21\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative upon filing. The Exchange states that
the waiver of the operative delay would serve to sooner protect
investors by implementing an additional opening trigger and additional
timing steps in the Exchange's opening process. Based on the Exchange's
representations, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Therefore, the Commission hereby waives the operative
delay and designates the proposed rule change operative upon
filing.\22\
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\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of 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 shall 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-C2-2019-028 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-C2-2019-028. 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-C2-2019-028 and should be submitted on
or before January 31, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00201 Filed 1-9-20; 8:45 am]
BILLING CODE 8011-01-P
