Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 4.13 and 5.31 Concerning the Modified Opening Auction Process, 12362-12368 [2020-04183]
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Federal Register / Vol. 85, No. 41 / Monday, March 2, 2020 / Notices
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[FR Doc. 2020–04184 Filed 2–28–20; 8:45 am]
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[FR Doc. 2020–04296 Filed 2–27–20; 11:15 am]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rules 4.13 and
5.31 Concerning the Modified Opening
Auction Process
February 25, 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 February
1 15
13 17
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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11, 2020, Cboe Exchange, Inc. 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
Rules 4.13 and 5.31. The text of the
proposed rule change is provided
below.
(additions are italicized; deletions are
[bracketed])
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Rules of Cboe Exchange, Inc.
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Rule 4.13. Series of Index Options
(a) General.
(1)–(4) No change.
(5) Method of Determining Day that
Exercise Settlement Value will be
Calculated, Special Opening Quotation
and Expiration Date and Last Trading
Day for Options on Volatility Indexes
that Measure a 30-Day Volatility Period
(‘‘Volatility Index options’’).
(A) No change.
(B) Special Opening Quotation. The
exercise settlement value of a Volatility
Index option for such purposes shall be
calculated by the Exchange as a Special
Opening Quotation (SOQ) of the
applicable Volatility Index using the
sequence of opening prices of the
options that comprise the Volatility
Index[ ]. The opening price for any
series in which there is no trade shall
be the average of that option’s bid price
and ask price (which ask price equals
$0.05 if the series opens with
unexecuted sell market orders) as
determined at the opening of trading.
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Rule 5.31. Opening Auction Process
(a) Definitions. For purposes of the
opening auction process in this Rule
5.31, the following terms have the
meaning below. A term defined
elsewhere in the Rules has the same
3 15
4 17
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U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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meaning with respect to this Rule 5.31,
unless otherwise defined below.
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Opening Auction Updates
The term ‘‘opening auction updates’’
means Exchange-disseminated messages
that contain information regarding the
expected opening of a series based on
orders and quotes in the Queuing Book
for the applicable trading session and, if
applicable, the GTH Book, including the
expected opening price, the thencurrent cumulative size on each side at
or more aggressive than the expected
opening price, and whether the series
would open (and any reason it would
not open pursuant to paragraphs (e) and
(j)([5]6) below).
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(b)–(i) No change.
(j) Modified Opening Auction Process.
All provisions set forth above in this
Rule 5.31 apply to the opening of SPX
constituent option series for Regular
Trading Hours on exercise settlement
value determination days, except as
otherwise provided in this paragraph (j)
(‘‘modified opening auction process’’).
The Exchange uses the opening trade
prices of SPX series that comprise the
settlement strip (or the average of a
series’ opening bid and ask (which ask
price equals $0.05 if the series opens
with unexecuted sell market orders) if
there is no opening trade in that series)
established by the modified opening
auction process to calculate the exercise
or final settlement value, as applicable,
of expiring VIX derivatives.
(1)–(4) No change.
(5) SPX Option Series Opening
Sequence. On exercise settlement value
determination days, following the
opening trigger as set forth in
subparagraph (d)(1)(B), the System
initiates the opening rotation process for
SPX option series in the following
sequence:
(i) at-the-money (‘‘ATM’’) (including
series 5.00 above or below, as
applicable, the then-current index level)
and out-of-the-money (‘‘OTM’’)
constituent series in order from closest
to furthest away from the ATM strike (if
a put and call are the same distance
away from the ATM strike, the System
opens them randomly);
(ii) all other constituent series (i.e., inthe-money constituent series) in order
from closest to furthest away from the
ATM strike (if a put and call are the
same distance away from the ATM
strike, the System opens them
randomly); and
(iii) all non-constituent series in a
random order.
(6) Opening Rotation. On exercise
settlement value determination days,
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the opening rotation process occurs as
set forth in paragraph (e) above, except
the System performs the Maximum
Composite Width Check and determines
the Opening Trade Price pursuant to
this subparagraph ([5]6), in lieu of
subparagraphs (e)(1) and (2),
respectively.
(A) No change.
(B) Opening Trade Price
Determination. After a series satisfies
the Maximum Composite Width Check
in subparagraph (A), if there are orders
and quotes marketable against each
other at a price not outside the Opening
Collar, the System determines the
Opening Trade Price for the series. If
there are no such orders or quotes, there
is no Opening Trade Price.
(i) No change.
(ii) If (a) the VMIM price is not
outside the Opening Collar, (b) there
would be no unexecuted buy market
orders (or remaining portions), and (c)
there would be no unexecuted sell
market orders (or remaining portions)
unless the low end of the Opening
Collar equals $0.05, [it]the VMIM price
is the Opening Trade Price, and the
System opens the series pursuant to
subparagraph (e)(3) above.
(iii) If (a) the VMIM price is outside
the Opening Collar, [or] (b) there would
be unexecuted buy market orders (or
remaining portions), or (c) there would
be unexecuted sell market orders (or
remaining portions) and the low end of
the Opening Collar is greater than $0.05,
the series does not open. The Queuing
Period for the series continues
(including the dissemination of opening
auction updates) until [the VMIM price
is not outside the Opening Collar]none
of the conditions in clauses (a) through
(c) are present, or the Exchange opens
the series pursuant to paragraph (h).
([6]7) Opening Rotation Self-Trades. A
User may submit multiple orders and
quotes in accordance with subparagraph
(3) above. If, during the opening
rotation, the System executes an order
or quote of that User against another
order or quote of that User, the
Exchange does not deem that fact alone
to cause these executions to be
considered violations of Section 9(a)(1)
of the Exchange Act, and instead will
evaluate other facts and circumstances.
The Exchange reviews all activity,
including these executions, during the
modified opening auction process for
compliance with [the Rules and] the
Exchange Act and the Rules, including
Rule [10]8.6 (which prohibits
manipulation).
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The text of the proposed rule change
is also available on the Exchange’s
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12363
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
The Exchange proposes to amend its
Rules regarding the modified opening
auction process in no-bid series. Rule
5.31(j) describes the opening auction
process for S&P 500 options (‘‘SPX’’)
that are constituent option series 5 on
exercise settlement value determination
days.6 All provisions set forth in Rule
5.31 apply to the opening of SPX
constituent option series for Regular
Trading Hours on exercise settlement
value determination days, except as
otherwise provided in Rule 5.31(j) (the
‘‘modified opening auction process’’),
which the Exchange uses in connection
with calculating exercise or final
settlement values for VIX derivatives.
The Exchange uses the opening trade
prices of SPX option series that
comprise the settlement strip 7 (or the
5 The term ‘‘constituent option series’’ means all
SPX (including SPXW) option series listed on the
Exchange with the expirations the Exchange uses to
calculate the exercise or final settlement value of
the expiring VIX derivative on exercise settlement
value determination days. The term ‘‘VIX
derivatives’’ means VIX options listed for trading on
the Exchange, VIX futures listed for trading on an
affiliated designated contract market, or over-thecounter derivatives overlying VIX whose exercise or
final settlement values, as applicable, are calculated
pursuant to, or by reference to, as applicable, the
modified opening auction process. See Rule
5.31(j)(1).
6 The term ‘‘exercise settlement value
determination day’’ means a day on which the
Exchange determines the exercise or final
settlement value, as applicable, of expiring VIX
derivatives. See Rule 5.31(j)(1).
7 The term ‘‘settlement strip’’ means the
constituent option series used to calculate the
exercise or final settlement value, as applicable, of
expiring VIX derivatives. See Rule 5.31(j)(1).
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average of a series’ opening bid and ask
if there is not opening trade in that
series) established by the modified
opening auction process to calculate the
exercise or final settlement value, as
applicable, of expiring VIX derivatives.
Current Rule 5.31(j)(5) (proposed Rule
5.31(j)(6)) describes the opening rotation
process for the modified opening
auction process. Specifically, on
exercise settlement value determination
days, the opening rotation process
occurs in the same manner it does on all
other days (as set forth in Rule 5.31(e)),
except for the Maximum Composite
Width Check and Opening Trade Price,8
which the System performs pursuant to
current Rule 5.31(j)(5)(A) and (B),
respectively. Currently, after the
opening trigger for SPX options, once a
series satisfies the Maximum Composite
Width 9 Check in current Rule
5.31(j)(5)(A), if there are orders and
quotes marketable against each other at
a price not outside the Opening Collar,10
the System determines the Opening
Trade Price for the series. If there are no
such orders or quotes, there is no
Opening Trade Price for the series.
If there will be an opening trade, in
order to determine the Opening Trade
Price, the System determines the
volume-maximizing, imbalanceminimizing (‘‘VMIM’’) price pursuant to
Rule 5.31(e)(2)(A) through (C) (in the
same manner it determines the VMIM
price on non-exercise settlement value
determination days). If the VMIM price
is not outside the Opening Collar, it is
the Opening Trade Price, and the
System opens the series.11 If (a) the
VMIM price is outside the Opening
Collar or (b) there would be unexecuted
market orders (or remaining portions),
the series does not open.12
8 See Rule 5.31(e)(1) and (2) for descriptions of
the Maximum Composite Width Check and
Opening Trade Price determination on non-exercise
settlement value determination days.
9 The term ‘‘Maximum Composite Width’’ means
the amount that the width of the Composite Market
(which is the market for a series comprised of (1)
the higher of the then-current best appointed
Market-Maker bulk message bid on the Exchange
and the away best bid (‘‘ABB’’) (if there is an ABB)
and (2) the lower of the then-current best appointed
Market-Maker bulk message offer on the Exchange
and the away best offer (‘‘ABO’’) (if there is an
ABO)) of a series may generally not be greater than
for the series to open, subject to certain exceptions.
See Rule 5.31(a) and (j)(1).
10 The term ‘‘Opening Collar’’ means the price
range that establishes limits at or inside of which
the System determines the Opening Trade Price
(which is the price at which the System executes
opening trades in a series during the opening
rotation) for a series. See Rule 5.31(a) and (j)(1).
11 Rule 5.31(e)(3) describes how the System opens
a series on all days.
12 In this case, the Queuing Period (the time
period prior to the initiation of an opening rotation
during which the System accepts orders and quotes
in the electronic book for participation in the
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The proposed rule change first adopts
a sequence in which the System will
open SPX option series on exercise
settlement value determination days.
Currently, the System initiates the
opening rotation process in all classes
each day in no particular order.13 Prior
to the Exchange’s System migration,
which was effective on October 7, 2019,
the System opened series in a specific
sequence. While the System opened
series in all classes in accordance with
that sequence on all trading days, the
purpose of opening series in that order
was to enhance the modified opening
auction process on exercise settlement
value determination days.14 In
connection with the System migration,
the Exchange determined to not
maintain this functionality due to other
enhancements implemented at the time
of migration.15 The Exchange believes
those enhancements have had a positive
impact on the modified opening auction
process on exercise settlement value
determination days. However, the
Exchange has determined
reimplementation of the functionality to
open constituent series on exercise
settlement value determination days in
a specified sequence (in a slightly
different manner) may further enhance
the modified opening auction process.
Specifically, the proposed rule change
adopts Rule 5.31(j)(5),16 which provides
that on exercise settlement value
determination days, following the
opening trigger as set forth in Rule
5.31(d)(1)(B),17 the System initiates the
opening rotation) for the series continues (including
the dissemination of opening auction updates) until
the VMIM price is not outside the Opening Collar,
or the Exchange opens the series pursuant to Rule
5.31(h) (which permits the Exchange to deviate
from the standard manner of the opening auction
process when it believes it is necessary in the
interests of a fair and orderly market).
13 See Securities Exchange Act Release No. 86387
(July 16, 2019), 84 FR 35147, 35152 (July 22, 2019)
(SR–CBOE–2019–034) (notice of filing of proposed
rule change to amend the Exchange’s opening
process).
14 See Securities Exchange Act Release No. 83505
(June 25, 2018), 83 FR 30787, 30790 (June 29, 2018)
(SR–CBOE–2018–046) (notice of filing and
immediate effectiveness of proposed rule change to
amend the hybrid opening process, which was the
name of the former opening auction process on the
Exchange).
15 See supra note 14.
16 The proposed rule change renumbers current
subparagraphs (j)(5) and (6) to be subparagraphs
(j)(6) and (7), respectively. There are no substantive
changes to current subparagraph (j)(6) (proposed
subparagraph (j)(7)). Proposed changes to current
subparagraph (j)(5) (proposed subparagraph (j)(6))
are described below.
17 Rule 5.31(d)(1)(B) provides that for index
options (including SPX options, but excluding VIX
options), the System initiates the opening rotation
after a time period (which the Exchange determines
for all classes) following the System’s observation
after 9:30 a.m. Eastern time of the first disseminated
index value for the index underlying an index
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opening rotation process for SPX option
series in the following sequence:
(i) at-the-money (‘‘ATM’’) (including series
5.00 above or below, as applicable, the thencurrent index level) and out-of-the-money
(‘‘OTM’’) constituent series in order from
closest to furthest away from the ATM strike
(if a put and call are the same distance away
from the ATM strike, the System opens them
randomly);
(ii) all other constituent series (i.e., in-themoney constituent series) in order from
closest to furthest away from the ATM strike
(if a put and call are the same distance away
from the ATM strike, the System opens them
randomly); and
(iii) all non-constituent series in a random
order.
For purposes of this proposed rule
change, a series is ATM if its strike price
equals the last disseminated index value
on the same trading day. The proposed
5.00 buffer ensures that the ATM series
at the time the opening rotation process
is initiated is included in the first
grouping of series to be opened. For
example, assume for an exercise
settlement value determination day that
the ATM strike value for SPX series is
3300. The System will first initiate the
opening rotation for SPX constituent
series with strike prices equal to 3300,
and then any series with strike prices of
3305 and 3295.18 The System then
initiates the opening rotation for OTM
SPX constituent series (which would
consist of any SPX constituent put
series with strike prices below 3300 and
SPX constituent call series with strike
prices above 3300) in order from series
with strike prices closest to 3300 to
those with strike prices further away
from 3300 until there are no more OTM
constituent series. For example, if there
were constituent series puts with strike
prices of 3290, 3285, 3275, and 3270,
and constituent series calls with strike
prices of 3310, 3315, 3320, and 3330,
the System would initiate the opening
rotation process first for the 3290 put
and 3310 call (in a random order), then
the 3285 put and 3315 call (in a random
order), then the 3320 call, then the 3725
put, and finally the 3270 put and 3330
call (in a random order). The System
then initiates the opening rotation for
ITM SPX constituent series in order
from series with strike prices closest to
3300 to those with strike prices further
away from 3300 until there are no more
constituent series (in other words, in the
same manner it initiated the opening
rotation for the OTM SPX constituent
option. This applies on exercise settlement value
determination days.
18 If there is a put series and call series with strike
prices the same distance away from the ATM strike,
the System opens them randomly. In other words,
sometimes the put will open first, and other times
the call will open first.
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series). After the System has initiated
the opening rotation process for all
constituent series, the System initiates
the opening rotation process for all
other SPX series (i.e., SPX nonconstituent series) in no particular order
(as they are opened today).
The order in which the System
initiates the opening rotation process for
trading is generally immaterial;
however, on exercise settlement value
determination days, certain ATM and
OTM constituent series comprise the
settlement strip, and thus their the
opening trade prices are used to
calculate the exercise or settlement
value, as applicable, of expiring VIX
derivatives. The Exchange has observed
enhanced liquidity in the modified
opening auction process since
enhancements were implemented in
connection with the System migration.
At this time, the Exchange believes
opening these series first may further
enhance liquidity in constituent series
on exercise settlement value
determination days.
Specifically, Market-Makers are the
primary liquidity providers in the
Exchange’s market, and, pursuant to
Rule 5.31, Market-Maker quotes on the
Exchange comprise the Composite
Market for a class exclusively listed on
the Exchange (such as SPX options).
The Exchange provides Users, including
Market-Makers, with a tool, the Risk
Monitor Mechanism (‘‘RMM’’), they use
to control risk of multiple, automatic
executions. An RMM event in a class
will cause a Market-Makers’ quotes in
all series in the class to be rejected or
cancelled (certain events may cause a
User’s quotes in all classes to be
cancelled).19 As a result, a MarketMaker’s opening transactions in series
not used to calculate an exercise or
settlement value, as applicable, may
cause an RMM event, cancelling the
Market-Makers’ orders or quotes in all
other series in the class, including series
used to calculate an exercise settlement
value. This reduces liquidity in
constituent series, and may contribute
to delayed openings of these series,
which could ultimately delay
calculation of the exercise or settlement
value, as applicable, of expiring VIX
derivatives. Additionally, the Exchange
has observed larger Market-Maker quote
sizes in further OTM puts and calls
compared to sizes in less OTM puts and
calls and ATM puts and calls, which
have higher weightings in the formula
used to determine the exercise or final
settlement value, as applicable, of
expiring VIX derivatives in accordance
with the VIX Index methodology.20 If
the further OTM puts and calls open
prior to the less OTM puts and calls and
ATM puts and calls, similarly reduced
liquidity in those ATM and less OTM
puts and calls from RMM events may
occur. The Exchange believes the
proposed rule change may increase
liquidity in constituent series, which is
desirable to ensure these series open at
competitive prices on exercise
settlement value determination days.
While liquidity is important to open all
series on the Exchange, given the
potential impact on the exercise
settlement value determined for
expiring VIX derivatives, the Exchange
believes it is appropriate to ensure a fair
and orderly opening of the series used
to calculate the exercise settlement
value.
The proposed rule change clarifies in
proposed Rule 5.31(j)(6)(B)(ii) and (iii)
that having no unexecuted market
orders (or remaining portions) is a
condition for a series to open, as
implied by current Rule 5.31(j)(5)(B)(iii),
which states a series does not open if
there would be unexecuted market
orders (or remaining portions). The
Exchange believes this proposed
clarification enhances the description of
when a series is eligible to open
pursuant to the modified opening
auction process by listing the complete
list of opening criteria in all relevant
provisions within the rule.
The proposed rule change also
amends the modified opening auction
process to permit a series to open when
Composite market (CM)
there would be unexecuted sell market
orders 21 (or remaining portions) if the
low end of the Opening Collar equals
$0.05.22 A sell market order may only
fully execute during the opening
rotation (at the Opening Trade Price) if
there is sufficient buy interest to satisfy
the size of the market order. Currently,
if there is a sell market order but no buy
interest, or insufficient buy interest to
satisfy the size of the sell market order,
the series would not open pursuant to
current Rule 5.31(j)(5)(B)(iii).
The proposed rule change will permit
series to open with unexecuted sell
market orders (or remaining portions) if
the lower end of the Opening Collar
equals $0.05 (the minimum increment
for the series). If a series opens with any
unexecuted sell market orders (or
remaining portions), the System will
handle those orders as it would any
other orders that are unexecuted at the
open.23 The current prohibition on
opening a series if there would be
unexecuted sell market orders is
intended to protect those orders from
executing at potentially erroneous
prices following the conclusion of the
opening rotation in series that may not
be truly zero-bid options. The Exchange
does not believe a low-value series
should not open because there is no (or
minimal) interest from investors
purchase contracts in that series, as that
is consistent with the value (or lack of
value) of the series. The Exchange
believes series for which the lower end
of the Opening Collar equals $0.05 are
likely true no-bid series, or series with
minimal value. The following table
demonstrates that when the Composite
Market is no-bid 24 with an offer of 0.40
or less, the lower end of the Opening
Collar is $0.05 (which is the minimum
increment in SPX series trading less
than $3.00).25 The lower end of the
Opening Collar will be greater than
$0.05 in a series with a Composite
Market offer greater than 0.40.
CM midpoint
0–.05 ............................................................................................................................................
0–.10 ............................................................................................................................................
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19 See
Rule 5.34(c)(5).
e.g., the VIX methodology at https://
www.cboe.com/vix/.
21 A market order is an order to buy or sell a
stated number of option contracts at the best price
available at the time of execution. See Rule 5.6(b).
22 The minimum increment applicable to SPX
options is $0.05 if the series trading price is lower
than $3.00 and $0.10 if the series trading price is
$3.00 or higher. See Rule 5.4(a). A series will
continue to not be eligible to open if there would
20 See,
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be unexecuted buy market orders (or remaining
portions) or unexecuted sell market orders (or
remaining portions) if the low end of the Opening
Collar equals anything other than $0.05.
23 Pursuant to Rule 5.31(f), following the
conclusion of the opening rotation, the System
enters any unexecuted orders and quotes (or
remaining portions) from the Queuing Book into the
Book in time sequence (subject to a User’s
instructions), where they may be processed in
accordance with Rule 5.32. The System cancels any
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.25
.25
Opening collar
(OC) 26
.05–.15
.05–.20
unexecuted opening only orders (or remaining
portions) following the conclusion of the opening
rotation.
24 While it is possible for the lower end of the
Opening Collar to equal $0.05 in a series with a
Composite Market bid of 0.05, if a series will open
with unexecuted sell market orders, that means it
would open with no Market-Maker bid in the series.
Therefore, the proposed rule change focuses on nobid Composite Markets.
25 See Rule 5.4(a).
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Composite market (CM)
0–.15
0–.20
0–.25
0–.30
0–.35
0–.40
0–.45
............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
The Exchange believes it will
contribute to a fair and orderly opening
and settlement process to open lowervalue constituent series on exercise
settlement value determination days
even if there would be unexecuted sell
market order interest. In order for the
Exchange to calculate the exercise or
settlement value for expiring VIX
derivatives, in its role as index
calculator for the VIX Index, all
constituent series that comprise the
settlement strip must be open (with or
without an opening trade) on exercise
settlement value determination days. As
set forth in Rules 4.13(a)(5)(B) and
5.31(j), the Exchange uses the opening
trade prices of SPX constituent series
that comprise the settlement strip (or
the average of a series’ opening bid and
ask if there is no opening trade in that
series) established by the modified
opening auction process to calculate the
exercise or final settlement value, as
applicable, of expiring VIX derivatives.
This will permit these constituent series
(which may be truly no-bid series) that
may be part of the settlement strip to
open sooner, and thus permit
calculation of the exercise or settlement
value, as applicable, for VIX derivatives
sooner. This may also provide
unexecuted sell market orders in lowvalue series with additional execution
opportunities, which may be limited in
such series. The Exchange believes the
benefit of opening these series earlier to
permit calculation of the exercise or
settlement value of expiring VIX
derivatives outweighs the minimal risk
(if any) of executing sell market orders
at anomalous execution prices following
the opening rotation given the low-value
of these series.
If an option series has a larger offer,
it is less likely to be worthless but may
just not have any bids for a brief time.27
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CM midpoint
26 Because the Opening Collar establishes the
limits for the opening trade price, the minimum
amount for the lower end of the range collar is 0.05
in a nickel class, as that is the lowest eligible
opening trade price.
27 For similar reasons, the System currently
converts a sell market order to a limit order with
a price equal to the minimum trading increment for
the series if it is no-bid and the national best offer
is less than or equal to $0.50, but will cancel the
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The Exchange believes options in series
with a Composite Market bid of zero but
a larger Composite Market offer 28 are
less likely to be worthless, and therefore
believes it is appropriate to not open
such a series if there would be
unexecuted sell market orders to
prevent a potentially anomalous
execution price, since the next bid
entered in that series is likely to be
much higher than $0.05. It would be
unfair to an investor to let its sell market
order trade at a price of $0.05 because,
for example, the firm submitted its order
during the Queuing Period on a day
when there was insufficient buy interest
to satisfy all sell market orders, even
though the bids present during that
Queuing Period were significantly
higher than $0.05.
As noted above, the Exchange uses
the average of a series’ opening bid and
ask if there is no opening trade in that
series when calculating the exercise or
final settlement value, as applicable, of
expiring VIX derivatives on exercise
settlement value determination days. If
a series opens with unexecuted sell
market orders, that could only occur if
there was an opening bid of zero.29 In
connection with the proposed rule
change that creates the possibility that
a series may open with no opening bid
and unexecuted sell market orders, the
proposed rule change amends Rules
4.13(a)(5)(B) and 5.31(j) to provide that,
in series in which there is no opening
trade, the ask price will equal $0.05 (the
minimum increment of the series) if the
series opens with unexecuted sell
market orders. The Exchange believes it
is reasonable to use such an ask price,
as it is consistent with currently
functionality that converts a sell market
order to a limit order with a price equal
order if the national best offer is greater than $0.50.
See Rule 5.34(a)(1)(A).
28 The Composite Market threshold of $0.40 is
similar to the threshold the Exchange currently has
in place to protect sell market orders in no-bid
series after the opening of trading. See id.
29 As set forth in Rule 5.31(e)(3)(A), market orders
have first priority to trade at the Opening Trade
Price. Therefore, if there are unexecuted sell market
orders (or remaining portions) at the open, there
was either no buy interest or any buy interest
executed against part of the sell market orders but
there was an insufficient amount to satisfy the size
of the sell market order interest.
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.075
.10
.125
.15
.175
.20
.225
.25
.25
.25
.25
.25
.25
.25
Opening collar
(OC) 26
.05–.20
.05–.25
.05–.25
.05–.30
.05–.30
.05–.35
.10–.35
to the minimum trading increment for
the series if it is no-bid and the national
best offer is less than or equal to $0.50.30
The proposed rule change also
amends proposed Rule 5.31(j)(7)
(current Rule 5.31(j)(6)) to make a
clarifying change and correct a crossreference. Currently, that subparagraph
regarding self-trades that may occur
during an opening rotation states that
the Exchange reviews all activity,
including these types of executions,
during the modified opening auction
process for compliance with the Rules
and the Exchange Act, including Rule
10.6 (which prohibits manipulation).
First, the proposed rule change
rephrases this sentence so that it
references the Exchange Act and the
Rules, including Rule 10.6, to make
clear that the rule cross-reference refers
to an Exchange Rule rather than a Rule
under the Exchange Act. Second, the
proposed rule change corrects to the
rule cross-reference to say Rule 8.6,
rather than Rule 10.6. Rule 8.6 describes
the Exchange’s prohibition on
manipulative activity.
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.31 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 32 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.
30 See
Rule 5.34(a)(1)(A).
U.S.C. 78f(b).
32 15 U.S.C. 78f(b)(5).
31 15
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Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 33 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
the proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest, as it may permit an earlier
opening of constituent series on exercise
settlement value determination days. As
a result, the Exchange may be able to
calculate the exercise or settlement
value, as applicable, of expiring VIX
derivatives, at an earlier time.
The proposed rule change regarding
the sequence in which constituent series
will open merely modifies the order in
which the System opens select series in
one class for trading on the Exchange on
certain days. The System will continue
to open all non-constituent series on all
trading days, and all constituent series
on non-exercise settlement value
determination days, in no particular
order. With respect to constituent series,
the proposed rule change will permit
the System to initiate the opening
rotation process for series with higher
weightings in the formula used to
determine the exercise or final
settlement value prior to the series with
lower weightings (or not SPX option
series that are not part of the exercise
settlement value calculation). While the
order in which the System opens series
is generally immaterial (and thus why
the Exchange has opened them in no
particular order, and will continue to do
so for all non-constituent series on all
trading days, and for constituent series
on all trading days other than exercise
settlement value determination days),
the Exchange believes opening ATM
and OTM constituent series prior to all
other series on expiration settlement
value determination days will permit
series used to calculate exercise or final
settlement values, as applicable, for
expiring VIX Index derivatives to open
at an earlier time. As discussed above,
the Exchange also believes this
proposed rule change may enhance
liquidity in these series on exercise
settlement value determination days,
which benefits investors that hold
expiring VIX derivatives.
The proposed rule change regarding
the opening of constituent series when
there are unexecuted sell market orders
in certain circumstances will further
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest. This proposed rule change will
permit these constituent series (which
may be truly no-bid series) that may be
part of the settlement strip to open
sooner, and thus permit calculation of
the settlement value for VIX derivatives
sooner. This may also provide
unexecuted sell market orders in lowvalue series with additional execution
opportunities, which may be limited in
such series, and may be individuals
seeking to close out a worthless
position. The Exchange believes the
benefit of opening these series earlier to
permit calculation of the exercise or
settlement value of expiring VIX
derivatives outweighs the minimal risk
(if any) of executing sell market orders
at anomalous execution prices following
the opening rotation given the low-value
of these series. By continuing to not
open series with higher offers if there
would be unexecuted sell market orders,
the Exchange believes the modified
opening auction process will continue
to protect these orders from executing at
potentially erroneous prices following
the opening rotation in series that are
not truly low-value/no-bid.
The Exchange believes the proposed
threshold of series for which the lower
end of the Opening Collar is $0.05 (and
thus has a Composite Market offer of no
more than $0.40) appropriately reflects
the interests of investors, as options in
series with offers higher than $0.40 are
less likely to be worthless, and not
permitting a series to open in these
conditions may prevent execution of
these orders at unfavorable prices. The
Exchange also believes the threshold
promotes fair and orderly markets,
because sell market orders in low-bid/
no-bid series with offers of $0.40 or less
are likely to be individuals seeking to
close out worthless positions. The
proposed rule change provides these
orders with additional execution
opportunities by making these series
eligible to open earlier. The Exchange
notes the proposed rule change is
consistent with other current
functionality that converts sell market
orders in no-bid series to limit orders
with a price equal to the minimum
increment in the series if the offer is
$0.50 or less.34 Additionally, other
options exchanges will open series if
there are unexecuted sell market
orders.35
The Exchange believes the proposed
rule change to clarify opening
conditions on exercise settlement value
34 See
Rule 5.34(a)(1)(A).
e.g., NYSE Arca, Inc. (‘‘Arca’’) Rule 6.64–
35 See,
33 Id.
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12367
determination days enhances the
description of when a series is eligible
to open pursuant to the modified
opening auction process, which
promotes transparency in the
Exchange’s Rules and ultimately
benefits investors. As noted above, this
is not a change in the modified opening
auction process, but merely a
clarification.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe the proposed
rule change will impose any burden on
intramarket competition, because it will
apply in the same manner to all
constituent series on exercise settlement
value determination days. The proposed
rule change regarding the opening
sequence of constituent series only
modified the order in which the System
will open these series for trading, and
only those days. The proposed rule
change has no impact on the sequence
in which the System will open nonconstituent series on all trading days, or
constituent series on all trading days
other than exercise settlement value
determination days. The proposed rule
change regarding opening constituent
series with unexecuted sell market
orders will only impact low-value
constituent series in a narrow set of
circumstances. The proposed rule
change has no impact on constituent
series in which there would be
unexecuted sell market orders and the
lower end of the Opening Collar is
greater than $0.05, which series will
continue to not be eligible to open until
that condition is resolved.
The Exchange does not believe the
proposed rule change will impose any
burden on intermarket competition, as it
solely impacts the timing of the opening
of certain series in one class listed for
trading on the Exchange on certain days.
The proposed rule change will permit
constituent series with higher
weightings in the calculation of the
exercise or settlement value, as
applicable, of expiring VIX derivatives,
as well as low-value/no-bid constituent
series that may be part of the settlement
strip, to open sooner, and thus permit
an earlier calculation of the exercise or
settlement value, as applicable, for VIX
derivatives. As discussed above, the
Exchange believes the proposed rule
change regarding the opening sequence
of constituent series may enhance
liquidity in these series on exercise
settlement value determination days.
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Additionally, the proposed rule change
regarding opening constituent series
with unexecuted sell market orders may
also provide unexecuted sell market
orders in low-value series with
additional execution opportunities,
which may be limited in such series.
The Exchange believes the benefit of
opening these series earlier to permit
calculation of the exercise or settlement
value, as applicable, of expiring VIX
derivatives outweighs the minimal risk
(if any) of executing sell market orders
at anomalous execution prices following
the opening rotation given the low-value
of these series. By continuing to not
open series with higher Composite
Market offers if there would be
unexecuted sell market orders, the
Exchange believes the modified opening
auction process will continue to protect
these orders from executing at
potentially erroneous prices following
the opening rotation in series that are
not truly low-value/no-bid. As noted
above, the proposed rule change is
consistent with current Exchange
functionality regarding the handling of
sell market orders in no-bid series.36
Additionally, other options exchanges
will open series if there are unexecuted
sell market orders.37
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 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 38 and
subparagraph (f)(6) of Rule 19b–4
thereunder.39
At any time within 60 days of the
filing of the proposed rule change, the
36 See
Rule 5.34(a)(1)(A).
e.g., Arca Rule 6.64–O.
38 15 U.S.C. 78s(b)(3)(A).
39 17 CFR 240.19b–4(f)(6). In addition, Rule19b–
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.
khammond on DSKJM1Z7X2PROD with NOTICES
37 See,
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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.
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CBOE–2020–013 and
should be submitted on or before March
23, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
J. Matthew DeLesDernier,
Assistant Secretary.
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:
[FR Doc. 2020–04183 Filed 2–28–20; 8:45 am]
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–2020–013 on the subject line.
TIME AND DATE:
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–2020–013. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
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
PLACE:
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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, March 4,
2020 at 10:00 a.m.
The meeting will be held in
Auditorium LL–002 at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
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.
STATUS:
The
Commission will consider whether to
propose rule amendments that would
simplify, harmonize, and improve
certain aspects of the framework for
exemptions from registration under the
Securities Act of 1933 to promote
capital formation while preserving or
enhancing important investor
protections.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
MATTER TO BE CONSIDERED:
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact
Vanessa A. Countryman, Office of the
Secretary, at (202) 551–5400.
Dated: February 26, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–04295 Filed 2–27–20; 11:15 am]
BILLING CODE 8011–01–P
40 17
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]]>Agencies
[Federal Register Volume 85, Number 41 (Monday, March 2, 2020)]
[Notices]
[Pages 12362-12368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04183]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88281; File No. SR-CBOE-2020-013]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rules 4.13 and 5.31 Concerning the Modified Opening Auction Process
February 25, 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 February 11, 2020, Cboe Exchange, Inc. 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 ``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 Rules 4.13 and 5.31. The text of the proposed rule change is
provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 4.13. Series of Index Options
(a) General.
(1)-(4) No change.
(5) Method of Determining Day that Exercise Settlement Value will
be Calculated, Special Opening Quotation and Expiration Date and Last
Trading Day for Options on Volatility Indexes that Measure a 30-Day
Volatility Period (``Volatility Index options'').
(A) No change.
(B) Special Opening Quotation. The exercise settlement value of a
Volatility Index option for such purposes shall be calculated by the
Exchange as a Special Opening Quotation (SOQ) of the applicable
Volatility Index using the sequence of opening prices of the options
that comprise the Volatility Index[ ]. The opening price for any series
in which there is no trade shall be the average of that option's bid
price and ask price (which ask price equals $0.05 if the series opens
with unexecuted sell market orders) as determined at the opening of
trading.
* * * * *
Rule 5.31. Opening Auction Process
(a) Definitions. For purposes of the opening auction process in
this Rule 5.31, the following terms have the meaning below. A term
defined elsewhere in the Rules has the same
[[Page 12363]]
meaning with respect to this Rule 5.31, unless otherwise defined below.
* * * * *
Opening Auction Updates
The term ``opening auction updates'' means Exchange-disseminated
messages that contain information regarding the expected opening of a
series based on orders and quotes in the Queuing Book for the
applicable trading session and, if applicable, the GTH Book, including
the expected opening price, the then-current cumulative size on each
side at or more aggressive than the expected opening price, and whether
the series would open (and any reason it would not open pursuant to
paragraphs (e) and (j)([5]6) below).
* * * * *
(b)-(i) No change.
(j) Modified Opening Auction Process. All provisions set forth
above in this Rule 5.31 apply to the opening of SPX constituent option
series for Regular Trading Hours on exercise settlement value
determination days, except as otherwise provided in this paragraph (j)
(``modified opening auction process''). The Exchange uses the opening
trade prices of SPX series that comprise the settlement strip (or the
average of a series' opening bid and ask (which ask price equals $0.05
if the series opens with unexecuted sell market orders) if there is no
opening trade in that series) established by the modified opening
auction process to calculate the exercise or final settlement value, as
applicable, of expiring VIX derivatives.
(1)-(4) No change.
(5) SPX Option Series Opening Sequence. On exercise settlement
value determination days, following the opening trigger as set forth in
subparagraph (d)(1)(B), the System initiates the opening rotation
process for SPX option series in the following sequence:
(i) at-the-money (``ATM'') (including series 5.00 above or below,
as applicable, the then-current index level) and out-of-the-money
(``OTM'') constituent series in order from closest to furthest away
from the ATM strike (if a put and call are the same distance away from
the ATM strike, the System opens them randomly);
(ii) all other constituent series (i.e., in-the-money constituent
series) in order from closest to furthest away from the ATM strike (if
a put and call are the same distance away from the ATM strike, the
System opens them randomly); and
(iii) all non-constituent series in a random order.
(6) Opening Rotation. On exercise settlement value determination
days, the opening rotation process occurs as set forth in paragraph (e)
above, except the System performs the Maximum Composite Width Check and
determines the Opening Trade Price pursuant to this subparagraph
([5]6), in lieu of subparagraphs (e)(1) and (2), respectively.
(A) No change.
(B) Opening Trade Price Determination. After a series satisfies the
Maximum Composite Width Check in subparagraph (A), if there are orders
and quotes marketable against each other at a price not outside the
Opening Collar, the System determines the Opening Trade Price for the
series. If there are no such orders or quotes, there is no Opening
Trade Price.
(i) No change.
(ii) If (a) the VMIM price is not outside the Opening Collar, (b)
there would be no unexecuted buy market orders (or remaining portions),
and (c) there would be no unexecuted sell market orders (or remaining
portions) unless the low end of the Opening Collar equals $0.05,
[it]the VMIM price is the Opening Trade Price, and the System opens the
series pursuant to subparagraph (e)(3) above.
(iii) If (a) the VMIM price is outside the Opening Collar, [or] (b)
there would be unexecuted buy market orders (or remaining portions), or
(c) there would be unexecuted sell market orders (or remaining
portions) and the low end of the Opening Collar is greater than $0.05,
the series does not open. The Queuing Period for the series continues
(including the dissemination of opening auction updates) until [the
VMIM price is not outside the Opening Collar]none of the conditions in
clauses (a) through (c) are present, or the Exchange opens the series
pursuant to paragraph (h).
([6]7) Opening Rotation Self-Trades. A User may submit multiple
orders and quotes in accordance with subparagraph (3) above. If, during
the opening rotation, the System executes an order or quote of that
User against another order or quote of that User, the Exchange does not
deem that fact alone to cause these executions to be considered
violations of Section 9(a)(1) of the Exchange Act, and instead will
evaluate other facts and circumstances. The Exchange reviews all
activity, including these executions, during the modified opening
auction process for compliance with [the Rules and] the Exchange Act
and the Rules, including Rule [10]8.6 (which prohibits manipulation).
* * * * *
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
The Exchange proposes to amend its Rules regarding the modified
opening auction process in no-bid series. Rule 5.31(j) describes the
opening auction process for S&P 500 options (``SPX'') that are
constituent option series \5\ on exercise settlement value
determination days.\6\ All provisions set forth in Rule 5.31 apply to
the opening of SPX constituent option series for Regular Trading Hours
on exercise settlement value determination days, except as otherwise
provided in Rule 5.31(j) (the ``modified opening auction process''),
which the Exchange uses in connection with calculating exercise or
final settlement values for VIX derivatives. The Exchange uses the
opening trade prices of SPX option series that comprise the settlement
strip \7\ (or the
[[Page 12364]]
average of a series' opening bid and ask if there is not opening trade
in that series) established by the modified opening auction process to
calculate the exercise or final settlement value, as applicable, of
expiring VIX derivatives.
---------------------------------------------------------------------------
\5\ The term ``constituent option series'' means all SPX
(including SPXW) option series listed on the Exchange with the
expirations the Exchange uses to calculate the exercise or final
settlement value of the expiring VIX derivative on exercise
settlement value determination days. The term ``VIX derivatives''
means VIX options listed for trading on the Exchange, VIX futures
listed for trading on an affiliated designated contract market, or
over-the-counter derivatives overlying VIX whose exercise or final
settlement values, as applicable, are calculated pursuant to, or by
reference to, as applicable, the modified opening auction process.
See Rule 5.31(j)(1).
\6\ The term ``exercise settlement value determination day''
means a day on which the Exchange determines the exercise or final
settlement value, as applicable, of expiring VIX derivatives. See
Rule 5.31(j)(1).
\7\ The term ``settlement strip'' means the constituent option
series used to calculate the exercise or final settlement value, as
applicable, of expiring VIX derivatives. See Rule 5.31(j)(1).
---------------------------------------------------------------------------
Current Rule 5.31(j)(5) (proposed Rule 5.31(j)(6)) describes the
opening rotation process for the modified opening auction process.
Specifically, on exercise settlement value determination days, the
opening rotation process occurs in the same manner it does on all other
days (as set forth in Rule 5.31(e)), except for the Maximum Composite
Width Check and Opening Trade Price,\8\ which the System performs
pursuant to current Rule 5.31(j)(5)(A) and (B), respectively.
Currently, after the opening trigger for SPX options, once a series
satisfies the Maximum Composite Width \9\ Check in current Rule
5.31(j)(5)(A), if there are orders and quotes marketable against each
other at a price not outside the Opening Collar,\10\ the System
determines the Opening Trade Price for the series. If there are no such
orders or quotes, there is no Opening Trade Price for the series.
---------------------------------------------------------------------------
\8\ See Rule 5.31(e)(1) and (2) for descriptions of the Maximum
Composite Width Check and Opening Trade Price determination on non-
exercise settlement value determination days.
\9\ The term ``Maximum Composite Width'' means the amount that
the width of the Composite Market (which is the market for a series
comprised of (1) the higher of the then-current best appointed
Market-Maker bulk message bid on the Exchange and the away best bid
(``ABB'') (if there is an ABB) and (2) the lower of the then-current
best appointed Market-Maker bulk message offer on the Exchange and
the away best offer (``ABO'') (if there is an ABO)) of a series may
generally not be greater than for the series to open, subject to
certain exceptions. See Rule 5.31(a) and (j)(1).
\10\ The term ``Opening Collar'' means the price range that
establishes limits at or inside of which the System determines the
Opening Trade Price (which is the price at which the System executes
opening trades in a series during the opening rotation) for a
series. See Rule 5.31(a) and (j)(1).
---------------------------------------------------------------------------
If there will be an opening trade, in order to determine the
Opening Trade Price, the System determines the volume-maximizing,
imbalance-minimizing (``VMIM'') price pursuant to Rule 5.31(e)(2)(A)
through (C) (in the same manner it determines the VMIM price on non-
exercise settlement value determination days). If the VMIM price is not
outside the Opening Collar, it is the Opening Trade Price, and the
System opens the series.\11\ If (a) the VMIM price is outside the
Opening Collar or (b) there would be unexecuted market orders (or
remaining portions), the series does not open.\12\
---------------------------------------------------------------------------
\11\ Rule 5.31(e)(3) describes how the System opens a series on
all days.
\12\ In this case, the Queuing Period (the time period prior to
the initiation of an opening rotation during which the System
accepts orders and quotes in the electronic book for participation
in the opening rotation) for the series continues (including the
dissemination of opening auction updates) until the VMIM price is
not outside the Opening Collar, or the Exchange opens the series
pursuant to Rule 5.31(h) (which permits the Exchange to deviate from
the standard manner of the opening auction process when it believes
it is necessary in the interests of a fair and orderly market).
---------------------------------------------------------------------------
The proposed rule change first adopts a sequence in which the
System will open SPX option series on exercise settlement value
determination days. Currently, the System initiates the opening
rotation process in all classes each day in no particular order.\13\
Prior to the Exchange's System migration, which was effective on
October 7, 2019, the System opened series in a specific sequence. While
the System opened series in all classes in accordance with that
sequence on all trading days, the purpose of opening series in that
order was to enhance the modified opening auction process on exercise
settlement value determination days.\14\ In connection with the System
migration, the Exchange determined to not maintain this functionality
due to other enhancements implemented at the time of migration.\15\ The
Exchange believes those enhancements have had a positive impact on the
modified opening auction process on exercise settlement value
determination days. However, the Exchange has determined
reimplementation of the functionality to open constituent series on
exercise settlement value determination days in a specified sequence
(in a slightly different manner) may further enhance the modified
opening auction process.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 86387 (July 16,
2019), 84 FR 35147, 35152 (July 22, 2019) (SR-CBOE-2019-034) (notice
of filing of proposed rule change to amend the Exchange's opening
process).
\14\ See Securities Exchange Act Release No. 83505 (June 25,
2018), 83 FR 30787, 30790 (June 29, 2018) (SR-CBOE-2018-046) (notice
of filing and immediate effectiveness of proposed rule change to
amend the hybrid opening process, which was the name of the former
opening auction process on the Exchange).
\15\ See supra note 14.
---------------------------------------------------------------------------
Specifically, the proposed rule change adopts Rule 5.31(j)(5),\16\
which provides that on exercise settlement value determination days,
following the opening trigger as set forth in Rule 5.31(d)(1)(B),\17\
the System initiates the opening rotation process for SPX option series
in the following sequence:
---------------------------------------------------------------------------
\16\ The proposed rule change renumbers current subparagraphs
(j)(5) and (6) to be subparagraphs (j)(6) and (7), respectively.
There are no substantive changes to current subparagraph (j)(6)
(proposed subparagraph (j)(7)). Proposed changes to current
subparagraph (j)(5) (proposed subparagraph (j)(6)) are described
below.
\17\ Rule 5.31(d)(1)(B) provides that for index options
(including SPX options, but excluding VIX options), the System
initiates the opening rotation after a time period (which the
Exchange determines for all classes) following the System's
observation after 9:30 a.m. Eastern time of the first disseminated
index value for the index underlying an index option. This applies
on exercise settlement value determination days.
(i) at-the-money (``ATM'') (including series 5.00 above or
below, as applicable, the then-current index level) and out-of-the-
money (``OTM'') constituent series in order from closest to furthest
away from the ATM strike (if a put and call are the same distance
away from the ATM strike, the System opens them randomly);
(ii) all other constituent series (i.e., in-the-money
constituent series) in order from closest to furthest away from the
ATM strike (if a put and call are the same distance away from the
ATM strike, the System opens them randomly); and
(iii) all non-constituent series in a random order.
For purposes of this proposed rule change, a series is ATM if its
strike price equals the last disseminated index value on the same
trading day. The proposed 5.00 buffer ensures that the ATM series at
the time the opening rotation process is initiated is included in the
first grouping of series to be opened. For example, assume for an
exercise settlement value determination day that the ATM strike value
for SPX series is 3300. The System will first initiate the opening
rotation for SPX constituent series with strike prices equal to 3300,
and then any series with strike prices of 3305 and 3295.\18\ The System
then initiates the opening rotation for OTM SPX constituent series
(which would consist of any SPX constituent put series with strike
prices below 3300 and SPX constituent call series with strike prices
above 3300) in order from series with strike prices closest to 3300 to
those with strike prices further away from 3300 until there are no more
OTM constituent series. For example, if there were constituent series
puts with strike prices of 3290, 3285, 3275, and 3270, and constituent
series calls with strike prices of 3310, 3315, 3320, and 3330, the
System would initiate the opening rotation process first for the 3290
put and 3310 call (in a random order), then the 3285 put and 3315 call
(in a random order), then the 3320 call, then the 3725 put, and finally
the 3270 put and 3330 call (in a random order). The System then
initiates the opening rotation for ITM SPX constituent series in order
from series with strike prices closest to 3300 to those with strike
prices further away from 3300 until there are no more constituent
series (in other words, in the same manner it initiated the opening
rotation for the OTM SPX constituent
[[Page 12365]]
series). After the System has initiated the opening rotation process
for all constituent series, the System initiates the opening rotation
process for all other SPX series (i.e., SPX non-constituent series) in
no particular order (as they are opened today).
---------------------------------------------------------------------------
\18\ If there is a put series and call series with strike prices
the same distance away from the ATM strike, the System opens them
randomly. In other words, sometimes the put will open first, and
other times the call will open first.
---------------------------------------------------------------------------
The order in which the System initiates the opening rotation
process for trading is generally immaterial; however, on exercise
settlement value determination days, certain ATM and OTM constituent
series comprise the settlement strip, and thus their the opening trade
prices are used to calculate the exercise or settlement value, as
applicable, of expiring VIX derivatives. The Exchange has observed
enhanced liquidity in the modified opening auction process since
enhancements were implemented in connection with the System migration.
At this time, the Exchange believes opening these series first may
further enhance liquidity in constituent series on exercise settlement
value determination days.
Specifically, Market-Makers are the primary liquidity providers in
the Exchange's market, and, pursuant to Rule 5.31, Market-Maker quotes
on the Exchange comprise the Composite Market for a class exclusively
listed on the Exchange (such as SPX options). The Exchange provides
Users, including Market-Makers, with a tool, the Risk Monitor Mechanism
(``RMM''), they use to control risk of multiple, automatic executions.
An RMM event in a class will cause a Market-Makers' quotes in all
series in the class to be rejected or cancelled (certain events may
cause a User's quotes in all classes to be cancelled).\19\ As a result,
a Market-Maker's opening transactions in series not used to calculate
an exercise or settlement value, as applicable, may cause an RMM event,
cancelling the Market-Makers' orders or quotes in all other series in
the class, including series used to calculate an exercise settlement
value. This reduces liquidity in constituent series, and may contribute
to delayed openings of these series, which could ultimately delay
calculation of the exercise or settlement value, as applicable, of
expiring VIX derivatives. Additionally, the Exchange has observed
larger Market-Maker quote sizes in further OTM puts and calls compared
to sizes in less OTM puts and calls and ATM puts and calls, which have
higher weightings in the formula used to determine the exercise or
final settlement value, as applicable, of expiring VIX derivatives in
accordance with the VIX Index methodology.\20\ If the further OTM puts
and calls open prior to the less OTM puts and calls and ATM puts and
calls, similarly reduced liquidity in those ATM and less OTM puts and
calls from RMM events may occur. The Exchange believes the proposed
rule change may increase liquidity in constituent series, which is
desirable to ensure these series open at competitive prices on exercise
settlement value determination days. While liquidity is important to
open all series on the Exchange, given the potential impact on the
exercise settlement value determined for expiring VIX derivatives, the
Exchange believes it is appropriate to ensure a fair and orderly
opening of the series used to calculate the exercise settlement value.
---------------------------------------------------------------------------
\19\ See Rule 5.34(c)(5).
\20\ See, e.g., the VIX methodology at https://www.cboe.com/vix/.
---------------------------------------------------------------------------
The proposed rule change clarifies in proposed Rule
5.31(j)(6)(B)(ii) and (iii) that having no unexecuted market orders (or
remaining portions) is a condition for a series to open, as implied by
current Rule 5.31(j)(5)(B)(iii), which states a series does not open if
there would be unexecuted market orders (or remaining portions). The
Exchange believes this proposed clarification enhances the description
of when a series is eligible to open pursuant to the modified opening
auction process by listing the complete list of opening criteria in all
relevant provisions within the rule.
The proposed rule change also amends the modified opening auction
process to permit a series to open when there would be unexecuted sell
market orders \21\ (or remaining portions) if the low end of the
Opening Collar equals $0.05.\22\ A sell market order may only fully
execute during the opening rotation (at the Opening Trade Price) if
there is sufficient buy interest to satisfy the size of the market
order. Currently, if there is a sell market order but no buy interest,
or insufficient buy interest to satisfy the size of the sell market
order, the series would not open pursuant to current Rule
5.31(j)(5)(B)(iii).
---------------------------------------------------------------------------
\21\ A market order is an order to buy or sell a stated number
of option contracts at the best price available at the time of
execution. See Rule 5.6(b).
\22\ The minimum increment applicable to SPX options is $0.05 if
the series trading price is lower than $3.00 and $0.10 if the series
trading price is $3.00 or higher. See Rule 5.4(a). A series will
continue to not be eligible to open if there would be unexecuted buy
market orders (or remaining portions) or unexecuted sell market
orders (or remaining portions) if the low end of the Opening Collar
equals anything other than $0.05.
---------------------------------------------------------------------------
The proposed rule change will permit series to open with unexecuted
sell market orders (or remaining portions) if the lower end of the
Opening Collar equals $0.05 (the minimum increment for the series). If
a series opens with any unexecuted sell market orders (or remaining
portions), the System will handle those orders as it would any other
orders that are unexecuted at the open.\23\ The current prohibition on
opening a series if there would be unexecuted sell market orders is
intended to protect those orders from executing at potentially
erroneous prices following the conclusion of the opening rotation in
series that may not be truly zero-bid options. The Exchange does not
believe a low-value series should not open because there is no (or
minimal) interest from investors purchase contracts in that series, as
that is consistent with the value (or lack of value) of the series. The
Exchange believes series for which the lower end of the Opening Collar
equals $0.05 are likely true no-bid series, or series with minimal
value. The following table demonstrates that when the Composite Market
is no-bid \24\ with an offer of 0.40 or less, the lower end of the
Opening Collar is $0.05 (which is the minimum increment in SPX series
trading less than $3.00).\25\ The lower end of the Opening Collar will
be greater than $0.05 in a series with a Composite Market offer greater
than 0.40.
---------------------------------------------------------------------------
\23\ Pursuant to Rule 5.31(f), following the conclusion of the
opening rotation, the System enters any unexecuted orders and quotes
(or remaining portions) from the Queuing Book into the Book in time
sequence (subject to a User's instructions), where they may be
processed in accordance with Rule 5.32. The System cancels any
unexecuted opening only orders (or remaining portions) following the
conclusion of the opening rotation.
\24\ While it is possible for the lower end of the Opening
Collar to equal $0.05 in a series with a Composite Market bid of
0.05, if a series will open with unexecuted sell market orders, that
means it would open with no Market-Maker bid in the series.
Therefore, the proposed rule change focuses on no-bid Composite
Markets.
\25\ See Rule 5.4(a).
----------------------------------------------------------------------------------------------------------------
Opening collar
Composite market (CM) CM midpoint OC width (OC) \26\
----------------------------------------------------------------------------------------------------------------
0-.05........................................................... .025 .25 .05-.15
0-.10........................................................... .05 .25 .05-.20
[[Page 12366]]
0-.15........................................................... .075 .25 .05-.20
0-.20........................................................... .10 .25 .05-.25
0-.25........................................................... .125 .25 .05-.25
0-.30........................................................... .15 .25 .05-.30
0-.35........................................................... .175 .25 .05-.30
0-.40........................................................... .20 .25 .05-.35
0-.45........................................................... .225 .25 .10-.35
----------------------------------------------------------------------------------------------------------------
The Exchange believes it will contribute to a fair and orderly
opening and settlement process to open lower-value constituent series
on exercise settlement value determination days even if there would be
unexecuted sell market order interest. In order for the Exchange to
calculate the exercise or settlement value for expiring VIX
derivatives, in its role as index calculator for the VIX Index, all
constituent series that comprise the settlement strip must be open
(with or without an opening trade) on exercise settlement value
determination days. As set forth in Rules 4.13(a)(5)(B) and 5.31(j),
the Exchange uses the opening trade prices of SPX constituent series
that comprise the settlement strip (or the average of a series' opening
bid and ask if there is no opening trade in that series) established by
the modified opening auction process to calculate the exercise or final
settlement value, as applicable, of expiring VIX derivatives. This will
permit these constituent series (which may be truly no-bid series) that
may be part of the settlement strip to open sooner, and thus permit
calculation of the exercise or settlement value, as applicable, for VIX
derivatives sooner. This may also provide unexecuted sell market orders
in low-value series with additional execution opportunities, which may
be limited in such series. The Exchange believes the benefit of opening
these series earlier to permit calculation of the exercise or
settlement value of expiring VIX derivatives outweighs the minimal risk
(if any) of executing sell market orders at anomalous execution prices
following the opening rotation given the low-value of these series.
---------------------------------------------------------------------------
\26\ Because the Opening Collar establishes the limits for the
opening trade price, the minimum amount for the lower end of the
range collar is 0.05 in a nickel class, as that is the lowest
eligible opening trade price.
---------------------------------------------------------------------------
If an option series has a larger offer, it is less likely to be
worthless but may just not have any bids for a brief time.\27\ The
Exchange believes options in series with a Composite Market bid of zero
but a larger Composite Market offer \28\ are less likely to be
worthless, and therefore believes it is appropriate to not open such a
series if there would be unexecuted sell market orders to prevent a
potentially anomalous execution price, since the next bid entered in
that series is likely to be much higher than $0.05. It would be unfair
to an investor to let its sell market order trade at a price of $0.05
because, for example, the firm submitted its order during the Queuing
Period on a day when there was insufficient buy interest to satisfy all
sell market orders, even though the bids present during that Queuing
Period were significantly higher than $0.05.
---------------------------------------------------------------------------
\27\ For similar reasons, the System currently converts a sell
market order to a limit order with a price equal to the minimum
trading increment for the series if it is no-bid and the national
best offer is less than or equal to $0.50, but will cancel the order
if the national best offer is greater than $0.50. See Rule
5.34(a)(1)(A).
\28\ The Composite Market threshold of $0.40 is similar to the
threshold the Exchange currently has in place to protect sell market
orders in no-bid series after the opening of trading. See id.
---------------------------------------------------------------------------
As noted above, the Exchange uses the average of a series' opening
bid and ask if there is no opening trade in that series when
calculating the exercise or final settlement value, as applicable, of
expiring VIX derivatives on exercise settlement value determination
days. If a series opens with unexecuted sell market orders, that could
only occur if there was an opening bid of zero.\29\ In connection with
the proposed rule change that creates the possibility that a series may
open with no opening bid and unexecuted sell market orders, the
proposed rule change amends Rules 4.13(a)(5)(B) and 5.31(j) to provide
that, in series in which there is no opening trade, the ask price will
equal $0.05 (the minimum increment of the series) if the series opens
with unexecuted sell market orders. The Exchange believes it is
reasonable to use such an ask price, as it is consistent with currently
functionality that converts a sell market order to a limit order with a
price equal to the minimum trading increment for the series if it is
no-bid and the national best offer is less than or equal to $0.50.\30\
---------------------------------------------------------------------------
\29\ As set forth in Rule 5.31(e)(3)(A), market orders have
first priority to trade at the Opening Trade Price. Therefore, if
there are unexecuted sell market orders (or remaining portions) at
the open, there was either no buy interest or any buy interest
executed against part of the sell market orders but there was an
insufficient amount to satisfy the size of the sell market order
interest.
\30\ See Rule 5.34(a)(1)(A).
---------------------------------------------------------------------------
The proposed rule change also amends proposed Rule 5.31(j)(7)
(current Rule 5.31(j)(6)) to make a clarifying change and correct a
cross-reference. Currently, that subparagraph regarding self-trades
that may occur during an opening rotation states that the Exchange
reviews all activity, including these types of executions, during the
modified opening auction process for compliance with the Rules and the
Exchange Act, including Rule 10.6 (which prohibits manipulation).
First, the proposed rule change rephrases this sentence so that it
references the Exchange Act and the Rules, including Rule 10.6, to make
clear that the rule cross-reference refers to an Exchange Rule rather
than a Rule under the Exchange Act. Second, the proposed rule change
corrects to the rule cross-reference to say Rule 8.6, rather than Rule
10.6. Rule 8.6 describes the Exchange's prohibition on manipulative
activity.
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.\31\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \32\ 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.
[[Page 12367]]
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \33\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
\33\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest, as it may permit an earlier opening of
constituent series on exercise settlement value determination days. As
a result, the Exchange may be able to calculate the exercise or
settlement value, as applicable, of expiring VIX derivatives, at an
earlier time.
The proposed rule change regarding the sequence in which
constituent series will open merely modifies the order in which the
System opens select series in one class for trading on the Exchange on
certain days. The System will continue to open all non-constituent
series on all trading days, and all constituent series on non-exercise
settlement value determination days, in no particular order. With
respect to constituent series, the proposed rule change will permit the
System to initiate the opening rotation process for series with higher
weightings in the formula used to determine the exercise or final
settlement value prior to the series with lower weightings (or not SPX
option series that are not part of the exercise settlement value
calculation). While the order in which the System opens series is
generally immaterial (and thus why the Exchange has opened them in no
particular order, and will continue to do so for all non-constituent
series on all trading days, and for constituent series on all trading
days other than exercise settlement value determination days), the
Exchange believes opening ATM and OTM constituent series prior to all
other series on expiration settlement value determination days will
permit series used to calculate exercise or final settlement values, as
applicable, for expiring VIX Index derivatives to open at an earlier
time. As discussed above, the Exchange also believes this proposed rule
change may enhance liquidity in these series on exercise settlement
value determination days, which benefits investors that hold expiring
VIX derivatives.
The proposed rule change regarding the opening of constituent
series when there are unexecuted sell market orders in certain
circumstances will further remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, protect investors and the public interest. This proposed
rule change will permit these constituent series (which may be truly
no-bid series) that may be part of the settlement strip to open sooner,
and thus permit calculation of the settlement value for VIX derivatives
sooner. This may also provide unexecuted sell market orders in low-
value series with additional execution opportunities, which may be
limited in such series, and may be individuals seeking to close out a
worthless position. The Exchange believes the benefit of opening these
series earlier to permit calculation of the exercise or settlement
value of expiring VIX derivatives outweighs the minimal risk (if any)
of executing sell market orders at anomalous execution prices following
the opening rotation given the low-value of these series. By continuing
to not open series with higher offers if there would be unexecuted sell
market orders, the Exchange believes the modified opening auction
process will continue to protect these orders from executing at
potentially erroneous prices following the opening rotation in series
that are not truly low-value/no-bid.
The Exchange believes the proposed threshold of series for which
the lower end of the Opening Collar is $0.05 (and thus has a Composite
Market offer of no more than $0.40) appropriately reflects the
interests of investors, as options in series with offers higher than
$0.40 are less likely to be worthless, and not permitting a series to
open in these conditions may prevent execution of these orders at
unfavorable prices. The Exchange also believes the threshold promotes
fair and orderly markets, because sell market orders in low-bid/no-bid
series with offers of $0.40 or less are likely to be individuals
seeking to close out worthless positions. The proposed rule change
provides these orders with additional execution opportunities by making
these series eligible to open earlier. The Exchange notes the proposed
rule change is consistent with other current functionality that
converts sell market orders in no-bid series to limit orders with a
price equal to the minimum increment in the series if the offer is
$0.50 or less.\34\ Additionally, other options exchanges will open
series if there are unexecuted sell market orders.\35\
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\34\ See Rule 5.34(a)(1)(A).
\35\ See, e.g., NYSE Arca, Inc. (``Arca'') Rule 6.64-O.
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The Exchange believes the proposed rule change to clarify opening
conditions on exercise settlement value determination days enhances the
description of when a series is eligible to open pursuant to the
modified opening auction process, which promotes transparency in the
Exchange's Rules and ultimately benefits investors. As noted above,
this is not a change in the modified opening auction process, but
merely a clarification.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe the proposed rule change will impose any burden on intramarket
competition, because it will apply in the same manner to all
constituent series on exercise settlement value determination days. The
proposed rule change regarding the opening sequence of constituent
series only modified the order in which the System will open these
series for trading, and only those days. The proposed rule change has
no impact on the sequence in which the System will open non-constituent
series on all trading days, or constituent series on all trading days
other than exercise settlement value determination days. The proposed
rule change regarding opening constituent series with unexecuted sell
market orders will only impact low-value constituent series in a narrow
set of circumstances. The proposed rule change has no impact on
constituent series in which there would be unexecuted sell market
orders and the lower end of the Opening Collar is greater than $0.05,
which series will continue to not be eligible to open until that
condition is resolved.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition, as it solely impacts the timing
of the opening of certain series in one class listed for trading on the
Exchange on certain days. The proposed rule change will permit
constituent series with higher weightings in the calculation of the
exercise or settlement value, as applicable, of expiring VIX
derivatives, as well as low-value/no-bid constituent series that may be
part of the settlement strip, to open sooner, and thus permit an
earlier calculation of the exercise or settlement value, as applicable,
for VIX derivatives. As discussed above, the Exchange believes the
proposed rule change regarding the opening sequence of constituent
series may enhance liquidity in these series on exercise settlement
value determination days.
[[Page 12368]]
Additionally, the proposed rule change regarding opening constituent
series with unexecuted sell market orders may also provide unexecuted
sell market orders in low-value series with additional execution
opportunities, which may be limited in such series. The Exchange
believes the benefit of opening these series earlier to permit
calculation of the exercise or settlement value, as applicable, of
expiring VIX derivatives outweighs the minimal risk (if any) of
executing sell market orders at anomalous execution prices following
the opening rotation given the low-value of these series. By continuing
to not open series with higher Composite Market offers if there would
be unexecuted sell market orders, the Exchange believes the modified
opening auction process will continue to protect these orders from
executing at potentially erroneous prices following the opening
rotation in series that are not truly low-value/no-bid. As noted above,
the proposed rule change is consistent with current Exchange
functionality regarding the handling of sell market orders in no-bid
series.\36\ Additionally, other options exchanges will open series if
there are unexecuted sell market orders.\37\
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\36\ See Rule 5.34(a)(1)(A).
\37\ See, e.g., Arca Rule 6.64-O.
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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.
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 \38\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\39\
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\38\ 15 U.S.C. 78s(b)(3)(A).
\39\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-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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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-2020-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2020-013. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official 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-2020-013 and should be submitted on
or before March 23, 2020.
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\40\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04183 Filed 2-28-20; 8:45 am]
BILLING CODE 8011-01-P
