Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Operation of Its Flexible Exchange Options (“FLEX Options”) PM Exercise Settlement Pilot Program for FLEX Index Options, 27004-27008 [2020-09632]
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Federal Register / Vol. 85, No. 88 / Wednesday, May 6, 2020 / Notices
proposal is intended to help the
Exchange compete as an ETP listing
venue. Accordingly, the Exchange does
not believe that the proposed change
will impair the ability of issuers or
competing ETP listing venues to
maintain their competitive standing.
The Exchange also notes that the
proposed change represents a
competitive pricing structure designed
to incentivize issuers to list new
products and transfer existing products
to the Exchange, which the Exchange
believes will enhance competition both
among ETP issuers and listing venues,
to the benefit of investors. The Exchange
believes that such proposed changes
will directly enhance competition
among ETP listing venues by reducing
the costs associated with listing on the
Exchange for generically-listed
Exchange-Traded Fund Shares.
Similarly, the Exchange believes that
exempting entry fees on such ETPs will
enhance competition both among listing
venues of Exchange-Traded Fund
Shares and among issuers through an
overall reduction of fees for listing such
products. As such, the proposal is a
competitive proposal designed to
enhance pricing competition among
listing venues and implement pricing
for listings that better reflects the
revenue and expenses associated with
listing ETPs on the Exchange. The
Exchange does not believe the proposed
amendments would burden intramarket
competition as they would be available
to all issuers uniformly.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 19 and paragraph (f) of Rule
19b–4 20 thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
19 15
20 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
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. 2020–09637 Filed 5–5–20; 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–
CboeBZX–2020–034 on the subject line.
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Extend the Operation
of Its Flexible Exchange Options
(‘‘FLEX Options’’) PM Exercise
Settlement Pilot Program for FLEX
Index Options
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–CboeBZX–2020–034. 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–CboeBZX–2020–034 and
should be submitted on or before May
27, 2020.
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88782; File No. SR–CBOE–
2020–039]
April 30, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 16,
2020, Cboe Exchange, Inc. (‘‘Exchange’’
or ‘‘Cboe Options’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to extend
the operation of its Flexible Exchange
Options (‘‘FLEX Options’’) pilot
program regarding permissible exercise
settlement values for FLEX Index
Options. The text of the proposed rule
change is provided below.
(additions are in italics; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
Rule 4.21. Series of FLEX Options
(a) No change.
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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(b) Terms. When submitting a FLEX Order
for a FLEX Option series to the System, the
submitting FLEX Trader must include one of
each of the following terms in the FLEX
Order (all other terms of a FLEX Option
series are the same as those that apply to
non-FLEX Options), which terms constitute
the FLEX Option series:
(1)–(4) No change.
(5) settlement type:
(A) No change.
(B) FLEX Index Options. FLEX Index
Options are settled in U.S. dollars, and may
be:
(i) No change.
(ii) p.m.-settled (with exercise settlement
value determined by reference to the reported
level of the index derived from the reported
closing prices of the component securities),
except for a FLEX Index Option that expires
on any business day that falls on or within
two business days of a third Friday-of-themonth expiration day for a non-FLEX Option
(other than a QIX option) may only be a.m.settled; however, for a pilot period ending
the earlier of [May 4]November 2, 2020 or the
date on which the pilot program is approved
on a permanent basis, a FLEX Index Option
with an expiration date on the third-Friday
of the month may be p.m.-settled;
(iii)–(iv) No change.
*
*
*
*
*
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
On January 28, 2010, the Securities
and Exchange Commission (the
‘‘Commission’’) approved a Cboe
Options rule change that, among other
things, established a pilot program
regarding permissible exercise
settlement values for FLEX Index
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Options.5 The Exchange has extended
the pilot period numerous times, which
is currently set to expire on the earlier
of May 4, 2020 or the date on which the
pilot program is approved on a
permanent basis.6 The purpose of this
rule change filing is to extend the pilot
program through the earlier of
November 2, 2020 or the date on which
the pilot program is approved on a
permanent basis. This filing simply
seeks to extend the operation of the
pilot program and does not propose any
substantive changes to the pilot
program.
Under Rule 4.21(b), Series of FLEX
Options (regarding terms of a FLEX
Option),7 a FLEX Option may expire on
5 Securities Exchange Act Release No. 61439
(January 28, 2010), 75 FR 5831 (February 4, 2010)
(SR–CBOE–2009–087) (‘‘Approval Order’’). The
initial pilot period was set to expire on March 28,
2011, which date was added to the rules in 2010.
See Securities Exchange Act Release No. 61676
(March 9, 2010), 75 FR 13191 (March 18, 2010) (SR–
CBOE–2010–026).
6 See Securities Exchange Act Release Nos. 64110
(March 23, 2011), 76 FR 17463 (March 29, 2011)
(SR–CBOE–2011–024) (extending the pilot program
through the earlier of March 30, 2012 or the date
on which the pilot program is approved on the
permanent basis); 66701 (March 30, 2012), 77 FR
20673 (April 5, 2012) (SR–CBOE–2012–027)
(extending the pilot through the earlier of
November 2, 2012 or the date on which the pilot
program is approved on a permanent basis); 68145
(November 2, 2012), 77 FR 67044 (November 8,
2012) (SR–CBOE–2012–102) (extending the pilot
program through the earlier of November 2, 2013 or
the date on which the pilot program is approved on
a permanent basis); 70752 (October 24, 2013), 78 FR
65023 (October 30, 2013) (SR–CBOE–2013–099)
(extending the pilot program through the earlier of
November 3, 2014 or the date on which the pilot
program is approved on a permanent basis); 73460
(October 29, 2014), 79 FR 65464 (November 4, 2014)
(SR–CBOE–2014–080) (extending the pilot program
through the earlier of May 3, 2016 or the date on
which the pilot program is approved on a
permanent basis); 77742 (April 29, 2016), 81 FR
26857 (May 4, 2016) (SR–CBOE–2016–032)
(extending the pilot program through the earlier of
May 3, 2017 or the date on which the pilot program
is approved on a permanent basis); 80443 (April 12,
2017), 82 FR 18331 (April 18, 2017) (SR–CBOE–
2017–032), 83 FR 21808 (May 10, 2018) (extending
the pilot program through the earlier of May 3, 2018
or the date on which the pilot program is approved
on a permanent basis); 83175 (May 4, 2018), 83 FR
21808 (May 10, 2018) (SR–CBOE–2018–037); 84537
(November 5, 2018), 83 FR 56113 (November 9,
2018) (SR–CBOE–2018–071); 85707 (April 23,
2019), 84 FR 18100 (April 29, 2019) (SR–CBOE–
2019–021); and 87515 (November 13, 2020), 84 FR
63945 (November 19, 2019) (SR–CBOE–2019–108).
At the same time the permissible exercise
settlement values pilot was established for FLEX
Index Options, the Exchange also established a pilot
program eliminating the minimum value size
requirements for all FLEX Options. See Approval
Order, supra note 2. The pilot program eliminating
the minimum value size requirements was extended
twice pursuant to the same rule filings that
extended the permissible exercise settlement values
(for the same extended periods) and was approved
on a permanent basis in a separate rule change
filing. See id; and Securities Exchange Act Release
No. 67624 (August 8, 2012), 77 FR 48580 (August
14, 2012) (SR–CBOE–2012–040).
7 On October 7, 2019, the Exchange migrated its
trading platform to the same system used by the
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27005
any business day (specified to day,
month and year) no more than 15 years
from the date on which a FLEX Trader
submits a FLEX Order to the System.8
FLEX Index Options are settled in U.S.
dollars, and may be a.m.-settled (with
exercise settlement value determined by
reference to the reported level of the
index derived from the reported
opening prices of the component
securities) or p.m.-settled (with exercise
settlement value determined by
reference to the reported level of the
index derived from the reported closing
prices of the component securities).9
Specifically, a FLEX Index Option that
expires on, or within two business days
of, a third Friday-of-the-month
expiration day for a non-FLEX Option
(other than a QIX option), may only be
a.m. settled.10 However, under the
exercise settlement values pilot, this
restriction on p.m.-settled FLEX Index
Options was eliminated.11 As stated, the
exercise settlement values pilot is
currently set to expire on the earlier of
May 4, 2020 or the date on which the
pilot program is approved on a
permanent basis.
Cboe Options is proposing to extend
the pilot program through the earlier of
November 2, 2020 or the date on which
the pilot program is approved on a
permanent basis. Cboe Options believes
the pilot program has been successful
Cboe Affiliated Exchanges (Cboe C2 Exchange, Inc.
(‘‘C2’’), Cboe EDGX Exchange, Inc. (‘‘EDGX’’), Cboe
BZX Exchange, Inc. (‘‘BZX’’), Cboe BYX Exchange,
Inc. (‘‘BYX’’), Cboe EDGA Exchange, Inc.
(‘‘EDGA’’)). In connection with this migration the
Exchange restructured its Rulebook. Prior Rule
24A.4.01, covering the pilot program, was relocated
to current Rule 4.21(b)(5). See Securities Exchange
Act Release No. 87235 (October 4, 2019), 84 FR
54671 (October 10, 2019) (SR–CBOE–2019–084).
8 Except an Asian-settled or Cliquet-settled FLEX
Option series, which must have an expiration date
that is a business day but may only expire 350 to
371 days (which is approximately 50 to 53 calendar
weeks) from the date on which a FLEX Trader
submits a FLEX Order to the System.
9 See Rule 4.21(b)(5)(B); see also Securities
Exchange Act Release No. 87235 (October 4, 2019),
84 FR 54671 (October 10, 2019) (SR–CBOE–2019–
084). The rule change removed the provision
regarding the exercise settlement value of FLEX
Index Options on the NYSE Composite Index, as the
Exchange no longer lists options on that index for
trading, and included the provisions regarding how
the exercise settlement value is determined for each
settlement type, as how the exercise settlement
value is determined is dependent on the settlement
type.
10 For example, notwithstanding the pilot, the
exercise settlement value of a FLEX Index Option
that expires on the Tuesday before the third Fridayof-the-month could be a.m. or p.m. settled.
However, the exercise settlement value of a FLEX
Index Option that expires on the Wednesday before
the third Friday-of-the-month could only be a.m.
settled.
11 No change was necessary or requested with
respect to FLEX Equity Options. Regardless of the
expiration date, FLEX Equity Options are settled by
physical delivery of the underlying.
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and well received by its Trading Permit
Holders and the investing public for the
period that it has been in operation as
a pilot. In support of the proposed
extension of the pilot program, and as
required by the pilot program’s
Approval Order, the Exchange has
submitted to the Commission pilot
program reports regarding the pilot,
which detail the Exchange’s experience
with the program. Specifically, the
Exchange provided the Commission
with annual reports analyzing volume
and open interest for each broad-based
FLEX Index Options class overlying a
third Friday-of-the-month expiration
day, p.m.-settled FLEX Index Options
series.12 The annual reports also
contained information and analysis of
FLEX Index Options trading patterns.
The Exchange also provided the
Commission, on a periodic basis,
interim reports of volume and open
interest. In providing the pilot reports to
the Commission, the Exchange has
previously requested confidential
treatment of the pilot reports under the
Freedom of Information Act (‘‘FOIA’’).13
The Exchange believes there is
sufficient investor interest and demand
in the pilot program to warrant its
extension. The Exchange believes that,
for the period that the pilot has been in
operation, the program has provided
investors with additional means of
managing their risk exposures and
carrying out their investment objectives.
Furthermore, the Exchange believes that
it has not experienced any adverse
market effects with respect to the pilot
program, including any adverse market
volatility effects that might occur as a
result of large FLEX exercises in FLEX
Option series that expire near NonFLEX expirations and use a p.m.
settlement (as discussed below).
In that regard, based on the
Exchange’s experience in trading FLEX
Options to date and over the pilot
period, Cboe Options continues to
believe that the restrictions on exercise
settlement values are no longer
necessary to insulate Non-FLEX
expirations from the potential adverse
market impacts of FLEX expirations.14
12 The annual reports also contained certain pilot
period and pre-pilot period analyses of volume and
open interest for third Friday-of-the-month
expiration days, a.m.-settled FLEX Index series and
third Friday-of-the-month expiration day Non-FLEX
Index series overlying the same index as a third
Friday-of-the-month expiration day, p.m.-settled
FLEX Index option.
13 5 U.S.C. 552; see infra note 12.
14 In further support, the Exchange also notes that
the p.m. settlements are already permitted for FLEX
Index Options on any other business day except on,
or within two business days of, the third Friday-ofthe-month. The Exchange is not aware of any
market disruptions or problems caused by the use
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To the contrary, Cboe Options believes
that the restriction actually places the
Exchange at a competitive disadvantage
to its OTC counterparts in the market for
customized options, and unnecessarily
limits market participants’ ability to
trade in an exchange environment that
offers the added benefits of
transparency, price discovery, liquidity,
and financial stability.
The Exchange also notes that certain
position limit, aggregation and exercise
limit requirements continue to apply to
FLEX Index Options in accordance with
Rules 8.35, Position Limits for FLEX
Options, 8.42(g) Exercise Limits (in
connection with FLEX Options) and
8.43(j), Reports Related to Position
Limits (in connection with FLEX
Options). Additionally, all FLEX
Options remain subject to the general
position reporting requirements in Rule
8.43(a).15 Moreover, the Exchange and
of these settlement methodologies on these
expiration dates (or on the expiration dates
addressed under the pilot program). The Exchange
is also not aware of any market disruptions or
problems caused by the use of customized options
in the over-the-counter (‘‘OTC’’) markets that expire
on or near the third Friday-of-the-month and are
p.m. settled. In addition, the Exchange believes the
reasons for limiting expirations to a.m. settlement,
which is something the SEC has imposed since the
early 1990s for Non-FLEX Options, revolved around
a concern about expiration pressure on the New
York Stock Exchange (‘‘NYSE’’) at the close that are
no longer relevant in today’s market. Today, the
Exchange believes stock exchanges are able to better
handle volume. There are multiple primary listing
and unlisted trading privilege (‘‘UTP’’) markets, and
trading is dispersed among several exchanges and
alternative trading systems. In addition, the
Exchange believes that surveillance techniques are
much more robust and automated. In the early
1990s, it was also thought by some that opening
procedures allow more time to attract contra-side
interest to reduce imbalances. The Exchange
believes, however, that today, order flow is
predominantly electronic and the ability to smooth
out openings and closes is greatly reduced (e.g.,
market-on-close procedures work just as well as
openings). Also, other markets, such as the
NASDAQ Stock Exchange, do not have the same
type of pre-opening imbalance disseminations as
NYSE, so many stocks are not subject to the same
procedures on the third Friday-of-the-month. In
addition, the Exchange believes that NYSE has
reduced the required time a specialist has to wait
after disseminating a pre-opening indication. So, in
this respect, the Exchange believes there is less time
to react in the opening than in the close. Moreover,
to the extent there may be a risk of adverse market
effects attributable to p.m. settled options that
would otherwise be traded in a non-transparent
fashion in the OTC market, the Exchange continues
to believe that such risk would be lessened by
making these customized options eligible for
trading in an exchange environment because of the
added transparency, price discovery, liquidity, and
financial stability available.
15 Rule 8.43(a) provides that ‘‘[i]n a manner and
form prescribed by the Exchange, each Trading
Permit Holder shall report to the Exchange, the
name, address, and social security or tax
identification number of any customer who, acting
alone, or in concert with others, on the previous
business day maintained aggregate long or short
positions on the same side of the market of 200 or
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its Trading Permit Holder organizations
each have the authority, pursuant to
Rule 10.9, Margin Required is Minimum,
to impose additional margin as deemed
advisable. Cboe Options continues to
believe these existing safeguards serve
sufficiently to help monitor open
interest in FLEX Option series and
significantly reduce any risk of adverse
market effects that might occur as a
result of large FLEX exercises in FLEX
Option series that expire near NonFLEX expirations and use a p.m.
settlement.
Cboe Options is also cognizant of the
OTC market, in which similar
restrictions on exercise settlement
values do not apply. Cboe Options
continues to believe that the pilot
program is appropriate and reasonable
and provides market participants with
additional flexibility in determining
whether to execute their customized
options in an exchange environment or
in the OTC market. Cboe Options
continues to believe that market
participants benefit from being able to
trade these customized options in an
exchange environment in several ways,
including, but not limited to, enhanced
efficiency in initiating and closing out
positions, increased market
transparency, and heightened contraparty creditworthiness due to the role of
the Options Clearing Corporation as
issuer and guarantor of FLEX Options.
If, in the future, the Exchange
proposes an additional extension of the
pilot program, or should the Exchange
propose to make the pilot program
permanent, the Exchange will submit,
along with any filing proposing such
amendments to the pilot program, an
annual report (addressing the same
areas referenced above and consistent
with the pilot program’s Approval
Order) to the Commission at least two
months prior to the expiration date of
the program. The Exchange will also
continue, on a periodic basis, to submit
interim reports of volume and open
interest consistent with the terms of the
exercise settlement values pilot program
as described in the pilot program’s
Approval Order. Additionally, the
Exchange will provide the Commission
more contracts of any single class of option
contracts dealt in on the Exchange. The report shall
indicate for each such class of options, the number
of option contracts comprising each such position
and, in the case of short positions, whether covered
or uncovered.’’ For purposes of Rule 8.43, the term
‘‘customer’’ in respect of any Trading Permit Holder
includes ‘‘the Trading Permit Holder, any general
or special partner of the Trading Permit Holder, any
officer or director of the Trading Permit Holder, or
any participant, as such, in any joint, group or
syndicate account with the Trading Permit Holder
or with any partner, officer or director thereof.’’
Rule 8.43(d).
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with any additional data or analyses the
Commission requests because it deems
such data or analyses necessary to
determine whether the pilot program is
consistent with the Exchange Act. The
Exchange is in the process of making
public on its website all data and
analyses previously submitted to the
Commission under the pilot program,
and will make public any data and
analyses it submits to the Commission
under the pilot program in the future.16
As noted in the pilot program’s
Approval Order, any positions
established under the pilot program
would not be impacted by the
expiration of the pilot program.17
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.18 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 19 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 20 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
that the proposed extension of the pilot
program, which permits an additional
exercise settlement value, would
provide greater opportunities for
investors to manage risk through the use
16 Available at https://www.cboe.com/aboutcboe/
legal-regulatory/national-market-system-plans/pmsettlement-flex-pm-data.
17 For example, a position in a p.m.-settled FLEX
Index Option series that expires on the third Fridayof-the-month in January 2020 could be established
during the exercise settlement values pilot. If the
pilot program were not extended (or made
permanent), then the position could continue to
exist. However, the Exchange notes that any further
trading in the series would be restricted to
transactions where at least one side of the trade is
a closing transaction. See Approval Order at
footnote 3, supra note 2.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
20 Id.
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of FLEX Options. Further, the Exchange
believes that it has not experienced any
adverse effects from the operation of the
pilot program, including any adverse
market volatility effects that might occur
as a result of large FLEX exercises in
FLEX Option series that expire near
Non-FLEX expirations and are p.m.settled. The Exchange also believes that
the extension of the exercise settlement
values pilot does not raise any unique
regulatory concerns. In particular,
although p.m. settlements may raise
questions with the Commission, the
Exchange believes that, based on the
Exchange’s experience in trading FLEX
Options to date and over the pilot
period, market impact and investor
protection concerns will not be raised
by this rule change. The Exchange also
believes that the proposed rule change
would continue to provide Trading
Permit Holders and investors with
additional opportunities to trade
customized options in an exchange
environment (which offers the added
benefits of transparency, price
discovery, liquidity, and financial
stability as compared to the over-thecounter market) and subject to
exchange-based rules, and investors
would benefit as a result.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Cboe Options 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 believes there is sufficient
investor interest and demand in the
pilot program to warrant its extension.
The Exchange believes that, for the
period that the pilot has been in
operation, the program has provided
investors with additional means of
managing their risk exposures and
carrying out their investment objectives.
Furthermore, the Exchange believes that
it has not experienced any adverse
market effects with respect to the pilot
program, including any adverse market
volatility effects that might occur as a
result of large FLEX exercises in FLEX
Option series that expire near Non-Flex
expirations and use a p.m. settlement.
Cboe Options believes that the
restriction actually places the Exchange
at a competitive disadvantage to its OTC
counterparts in the market for
customized options, and unnecessarily
limits market participants’ ability to
trade in an exchange environment that
offers the added benefits of
transparency, price discovery, liquidity,
and financial stability. Therefore, the
Exchange does not believe that the
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
27007
proposed rule change will impose any
burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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 21 and Rule 19b–
4(f)(6) thereunder.22
A proposed rule change filed under
Rule 19b–4(f)(6) 23 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),24 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The Exchange
states that such waiver will allow the
Exchange to extend the pilot program
and maintain the status quo, thereby
reducing market disruption.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest, as it
will allow the pilot program to continue
uninterrupted, thereby avoiding
investor confusion that could result
from a temporary interruption in the
pilot program. For this reason, the
Commission designates the proposed
rule change to be operative upon
filing.25
21 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
23 17 CFR 240.19b–4(f)(6).
24 17 CFR 240.19b–4(f)(6)(iii).
25 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
22 17
E:\FR\FM\06MYN1.SGM
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27008
Federal Register / Vol. 85, No. 88 / Wednesday, May 6, 2020 / Notices
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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–2020–039 and
should be submitted on or before May
27, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
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. 2020–09632 Filed 5–5–20; 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–2020–039 on the subject line.
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Extend the
Pilot Programs in Connection With the
Listing and Trading of P.M.-Settled
Series on Certain Broad-Based Index
Options
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–2020–039. 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
VerDate Sep<11>2014
19:08 May 05, 2020
Jkt 250001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88788; File No. SR–
CboeBZX–2020–038]
April 30, 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 April 24,
2020, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX 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 BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX Options’’)
proposes to extend the pilot programs in
connection with the listing and trading
of P.M.-settled series on certain broadbased index options. The text of the
proposed rule change is provided in
Exhibit 5.
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), 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 proposed rule change extends the
listing and trading of P.M.-settled series
on certain broad-based index options on
a pilot basis.5 Rule 29.11(a)(6) currently
permits the listing and trading of XSP
options with third-Friday-of-the-month
expiration dates, whose exercise
settlement value will be based on the
closing index value on the expiration
day (‘‘P.M.-settled’’) on a pilot basis set
to expire on May 4, 2020 (the ‘‘XSPPM
Pilot Program’’). Rule 29.11(j)(3) also
permits the listing and trading of P.M.settled options on broad-based indexes
with weekly expirations (‘‘Weeklys’’)
and end-of-month expirations (‘‘EOMs’’)
on a pilot basis set to expire on May 4,
2020 (the ‘‘Nonstandard Expirations
Pilot Program’’, and together with the
XSPPM Pilot Program, the ‘‘Pilot
5 The Exchange is authorized to list for trading
options that overlie the Mini-SPX Index (‘‘XSP’’)
and the Russell 2000 Index (‘‘RUT’’). See Rule
29.11(a). See also Securities Exchange Act Release
Nos. 84480 (October 24, 2018), 83 FR 54635
(October 30, 2018) (Notice of Filing of a Proposed
Rule Change To Permit the Listing and Trading of
P.M.-Settled Series on Certain Broad-Based Index
Options on a Pilot Basis) (SR–CboeBZX–2018–066)
(‘‘Notice’’); 85181 (February 22, 2019), 84 FR 6842
(February 28, 2019) (Notice of Deemed Approval of
a Proposed Rule Change To Permit the Listing and
Trading of P.M.-Settled Series on Certain BroadBased Index Options on a Pilot Basis) (SR–
CboeBZX–2018–066); and 88052 (January 27, 2020),
85 FR 5753 (January 31, 2020) (Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change
To Extend the Pilot Programs in Connection With
the Listing and Trading of P.M.-Settled Series on
Certain Broad-Based Index Options) (SR–CboeBZX–
2020–004).
E:\FR\FM\06MYN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 88 (Wednesday, May 6, 2020)]
[Notices]
[Pages 27004-27008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09632]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88782; File No. SR-CBOE-2020-039]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend
the Operation of Its Flexible Exchange Options (``FLEX Options'') PM
Exercise Settlement Pilot Program for FLEX Index Options
April 30, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 16, 2020, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``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).
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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 extend the operation of its Flexible Exchange Options (``FLEX
Options'') pilot program regarding permissible exercise settlement
values for FLEX Index Options. The text of the proposed rule change is
provided below.
(additions are in italics; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 4.21. Series of FLEX Options
(a) No change.
[[Page 27005]]
(b) Terms. When submitting a FLEX Order for a FLEX Option series
to the System, the submitting FLEX Trader must include one of each
of the following terms in the FLEX Order (all other terms of a FLEX
Option series are the same as those that apply to non-FLEX Options),
which terms constitute the FLEX Option series:
(1)-(4) No change.
(5) settlement type:
(A) No change.
(B) FLEX Index Options. FLEX Index Options are settled in U.S.
dollars, and may be:
(i) No change.
(ii) p.m.-settled (with exercise settlement value determined by
reference to the reported level of the index derived from the
reported closing prices of the component securities), except for a
FLEX Index Option that expires on any business day that falls on or
within two business days of a third Friday-of-the-month expiration
day for a non-FLEX Option (other than a QIX option) may only be
a.m.-settled; however, for a pilot period ending the earlier of [May
4]November 2, 2020 or the date on which the pilot program is
approved on a permanent basis, a FLEX Index Option with an
expiration date on the third-Friday of the month may be p.m.-
settled;
(iii)-(iv) No change.
* * * * *
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
On January 28, 2010, the Securities and Exchange Commission (the
``Commission'') approved a Cboe Options rule change that, among other
things, established a pilot program regarding permissible exercise
settlement values for FLEX Index Options.\5\ The Exchange has extended
the pilot period numerous times, which is currently set to expire on
the earlier of May 4, 2020 or the date on which the pilot program is
approved on a permanent basis.\6\ The purpose of this rule change
filing is to extend the pilot program through the earlier of November
2, 2020 or the date on which the pilot program is approved on a
permanent basis. This filing simply seeks to extend the operation of
the pilot program and does not propose any substantive changes to the
pilot program.
---------------------------------------------------------------------------
\5\ Securities Exchange Act Release No. 61439 (January 28,
2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (``Approval
Order''). The initial pilot period was set to expire on March 28,
2011, which date was added to the rules in 2010. See Securities
Exchange Act Release No. 61676 (March 9, 2010), 75 FR 13191 (March
18, 2010) (SR-CBOE-2010-026).
\6\ See Securities Exchange Act Release Nos. 64110 (March 23,
2011), 76 FR 17463 (March 29, 2011) (SR-CBOE-2011-024) (extending
the pilot program through the earlier of March 30, 2012 or the date
on which the pilot program is approved on the permanent basis);
66701 (March 30, 2012), 77 FR 20673 (April 5, 2012) (SR-CBOE-2012-
027) (extending the pilot through the earlier of November 2, 2012 or
the date on which the pilot program is approved on a permanent
basis); 68145 (November 2, 2012), 77 FR 67044 (November 8, 2012)
(SR-CBOE-2012-102) (extending the pilot program through the earlier
of November 2, 2013 or the date on which the pilot program is
approved on a permanent basis); 70752 (October 24, 2013), 78 FR
65023 (October 30, 2013) (SR-CBOE-2013-099) (extending the pilot
program through the earlier of November 3, 2014 or the date on which
the pilot program is approved on a permanent basis); 73460 (October
29, 2014), 79 FR 65464 (November 4, 2014) (SR-CBOE-2014-080)
(extending the pilot program through the earlier of May 3, 2016 or
the date on which the pilot program is approved on a permanent
basis); 77742 (April 29, 2016), 81 FR 26857 (May 4, 2016) (SR-CBOE-
2016-032) (extending the pilot program through the earlier of May 3,
2017 or the date on which the pilot program is approved on a
permanent basis); 80443 (April 12, 2017), 82 FR 18331 (April 18,
2017) (SR-CBOE-2017-032), 83 FR 21808 (May 10, 2018) (extending the
pilot program through the earlier of May 3, 2018 or the date on
which the pilot program is approved on a permanent basis); 83175
(May 4, 2018), 83 FR 21808 (May 10, 2018) (SR-CBOE-2018-037); 84537
(November 5, 2018), 83 FR 56113 (November 9, 2018) (SR-CBOE-2018-
071); 85707 (April 23, 2019), 84 FR 18100 (April 29, 2019) (SR-CBOE-
2019-021); and 87515 (November 13, 2020), 84 FR 63945 (November 19,
2019) (SR-CBOE-2019-108). At the same time the permissible exercise
settlement values pilot was established for FLEX Index Options, the
Exchange also established a pilot program eliminating the minimum
value size requirements for all FLEX Options. See Approval Order,
supra note 2. The pilot program eliminating the minimum value size
requirements was extended twice pursuant to the same rule filings
that extended the permissible exercise settlement values (for the
same extended periods) and was approved on a permanent basis in a
separate rule change filing. See id; and Securities Exchange Act
Release No. 67624 (August 8, 2012), 77 FR 48580 (August 14, 2012)
(SR-CBOE-2012-040).
---------------------------------------------------------------------------
Under Rule 4.21(b), Series of FLEX Options (regarding terms of a
FLEX Option),\7\ a FLEX Option may expire on any business day
(specified to day, month and year) no more than 15 years from the date
on which a FLEX Trader submits a FLEX Order to the System.\8\ FLEX
Index Options are settled in U.S. dollars, and may be a.m.-settled
(with exercise settlement value determined by reference to the reported
level of the index derived from the reported opening prices of the
component securities) or p.m.-settled (with exercise settlement value
determined by reference to the reported level of the index derived from
the reported closing prices of the component securities).\9\
Specifically, a FLEX Index Option that expires on, or within two
business days of, a third Friday-of-the-month expiration day for a non-
FLEX Option (other than a QIX option), may only be a.m. settled.\10\
However, under the exercise settlement values pilot, this restriction
on p.m.-settled FLEX Index Options was eliminated.\11\ As stated, the
exercise settlement values pilot is currently set to expire on the
earlier of May 4, 2020 or the date on which the pilot program is
approved on a permanent basis.
---------------------------------------------------------------------------
\7\ On October 7, 2019, the Exchange migrated its trading
platform to the same system used by the Cboe Affiliated Exchanges
(Cboe C2 Exchange, Inc. (``C2''), Cboe EDGX Exchange, Inc.
(``EDGX''), Cboe BZX Exchange, Inc. (``BZX''), Cboe BYX Exchange,
Inc. (``BYX''), Cboe EDGA Exchange, Inc. (``EDGA'')). In connection
with this migration the Exchange restructured its Rulebook. Prior
Rule 24A.4.01, covering the pilot program, was relocated to current
Rule 4.21(b)(5). See Securities Exchange Act Release No. 87235
(October 4, 2019), 84 FR 54671 (October 10, 2019) (SR-CBOE-2019-
084).
\8\ Except an Asian-settled or Cliquet-settled FLEX Option
series, which must have an expiration date that is a business day
but may only expire 350 to 371 days (which is approximately 50 to 53
calendar weeks) from the date on which a FLEX Trader submits a FLEX
Order to the System.
\9\ See Rule 4.21(b)(5)(B); see also Securities Exchange Act
Release No. 87235 (October 4, 2019), 84 FR 54671 (October 10, 2019)
(SR-CBOE-2019-084). The rule change removed the provision regarding
the exercise settlement value of FLEX Index Options on the NYSE
Composite Index, as the Exchange no longer lists options on that
index for trading, and included the provisions regarding how the
exercise settlement value is determined for each settlement type, as
how the exercise settlement value is determined is dependent on the
settlement type.
\10\ For example, notwithstanding the pilot, the exercise
settlement value of a FLEX Index Option that expires on the Tuesday
before the third Friday-of-the-month could be a.m. or p.m. settled.
However, the exercise settlement value of a FLEX Index Option that
expires on the Wednesday before the third Friday-of-the-month could
only be a.m. settled.
\11\ No change was necessary or requested with respect to FLEX
Equity Options. Regardless of the expiration date, FLEX Equity
Options are settled by physical delivery of the underlying.
---------------------------------------------------------------------------
Cboe Options is proposing to extend the pilot program through the
earlier of November 2, 2020 or the date on which the pilot program is
approved on a permanent basis. Cboe Options believes the pilot program
has been successful
[[Page 27006]]
and well received by its Trading Permit Holders and the investing
public for the period that it has been in operation as a pilot. In
support of the proposed extension of the pilot program, and as required
by the pilot program's Approval Order, the Exchange has submitted to
the Commission pilot program reports regarding the pilot, which detail
the Exchange's experience with the program. Specifically, the Exchange
provided the Commission with annual reports analyzing volume and open
interest for each broad-based FLEX Index Options class overlying a
third Friday-of-the-month expiration day, p.m.-settled FLEX Index
Options series.\12\ The annual reports also contained information and
analysis of FLEX Index Options trading patterns. The Exchange also
provided the Commission, on a periodic basis, interim reports of volume
and open interest. In providing the pilot reports to the Commission,
the Exchange has previously requested confidential treatment of the
pilot reports under the Freedom of Information Act (``FOIA'').\13\
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\12\ The annual reports also contained certain pilot period and
pre-pilot period analyses of volume and open interest for third
Friday-of-the-month expiration days, a.m.-settled FLEX Index series
and third Friday-of-the-month expiration day Non-FLEX Index series
overlying the same index as a third Friday-of-the-month expiration
day, p.m.-settled FLEX Index option.
\13\ 5 U.S.C. 552; see infra note 12.
---------------------------------------------------------------------------
The Exchange believes there is sufficient investor interest and
demand in the pilot program to warrant its extension. The Exchange
believes that, for the period that the pilot has been in operation, the
program has provided investors with additional means of managing their
risk exposures and carrying out their investment objectives.
Furthermore, the Exchange believes that it has not experienced any
adverse market effects with respect to the pilot program, including any
adverse market volatility effects that might occur as a result of large
FLEX exercises in FLEX Option series that expire near Non-FLEX
expirations and use a p.m. settlement (as discussed below).
In that regard, based on the Exchange's experience in trading FLEX
Options to date and over the pilot period, Cboe Options continues to
believe that the restrictions on exercise settlement values are no
longer necessary to insulate Non-FLEX expirations from the potential
adverse market impacts of FLEX expirations.\14\ To the contrary, Cboe
Options believes that the restriction actually places the Exchange at a
competitive disadvantage to its OTC counterparts in the market for
customized options, and unnecessarily limits market participants'
ability to trade in an exchange environment that offers the added
benefits of transparency, price discovery, liquidity, and financial
stability.
---------------------------------------------------------------------------
\14\ In further support, the Exchange also notes that the p.m.
settlements are already permitted for FLEX Index Options on any
other business day except on, or within two business days of, the
third Friday-of-the-month. The Exchange is not aware of any market
disruptions or problems caused by the use of these settlement
methodologies on these expiration dates (or on the expiration dates
addressed under the pilot program). The Exchange is also not aware
of any market disruptions or problems caused by the use of
customized options in the over-the-counter (``OTC'') markets that
expire on or near the third Friday-of-the-month and are p.m.
settled. In addition, the Exchange believes the reasons for limiting
expirations to a.m. settlement, which is something the SEC has
imposed since the early 1990s for Non-FLEX Options, revolved around
a concern about expiration pressure on the New York Stock Exchange
(``NYSE'') at the close that are no longer relevant in today's
market. Today, the Exchange believes stock exchanges are able to
better handle volume. There are multiple primary listing and
unlisted trading privilege (``UTP'') markets, and trading is
dispersed among several exchanges and alternative trading systems.
In addition, the Exchange believes that surveillance techniques are
much more robust and automated. In the early 1990s, it was also
thought by some that opening procedures allow more time to attract
contra-side interest to reduce imbalances. The Exchange believes,
however, that today, order flow is predominantly electronic and the
ability to smooth out openings and closes is greatly reduced (e.g.,
market-on-close procedures work just as well as openings). Also,
other markets, such as the NASDAQ Stock Exchange, do not have the
same type of pre-opening imbalance disseminations as NYSE, so many
stocks are not subject to the same procedures on the third Friday-
of-the-month. In addition, the Exchange believes that NYSE has
reduced the required time a specialist has to wait after
disseminating a pre-opening indication. So, in this respect, the
Exchange believes there is less time to react in the opening than in
the close. Moreover, to the extent there may be a risk of adverse
market effects attributable to p.m. settled options that would
otherwise be traded in a non-transparent fashion in the OTC market,
the Exchange continues to believe that such risk would be lessened
by making these customized options eligible for trading in an
exchange environment because of the added transparency, price
discovery, liquidity, and financial stability available.
---------------------------------------------------------------------------
The Exchange also notes that certain position limit, aggregation
and exercise limit requirements continue to apply to FLEX Index Options
in accordance with Rules 8.35, Position Limits for FLEX Options,
8.42(g) Exercise Limits (in connection with FLEX Options) and 8.43(j),
Reports Related to Position Limits (in connection with FLEX Options).
Additionally, all FLEX Options remain subject to the general position
reporting requirements in Rule 8.43(a).\15\ Moreover, the Exchange and
its Trading Permit Holder organizations each have the authority,
pursuant to Rule 10.9, Margin Required is Minimum, to impose additional
margin as deemed advisable. Cboe Options continues to believe these
existing safeguards serve sufficiently to help monitor open interest in
FLEX Option series and significantly reduce any risk of adverse market
effects that might occur as a result of large FLEX exercises in FLEX
Option series that expire near Non-FLEX expirations and use a p.m.
settlement.
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\15\ Rule 8.43(a) provides that ``[i]n a manner and form
prescribed by the Exchange, each Trading Permit Holder shall report
to the Exchange, the name, address, and social security or tax
identification number of any customer who, acting alone, or in
concert with others, on the previous business day maintained
aggregate long or short positions on the same side of the market of
200 or more contracts of any single class of option contracts dealt
in on the Exchange. The report shall indicate for each such class of
options, the number of option contracts comprising each such
position and, in the case of short positions, whether covered or
uncovered.'' For purposes of Rule 8.43, the term ``customer'' in
respect of any Trading Permit Holder includes ``the Trading Permit
Holder, any general or special partner of the Trading Permit Holder,
any officer or director of the Trading Permit Holder, or any
participant, as such, in any joint, group or syndicate account with
the Trading Permit Holder or with any partner, officer or director
thereof.'' Rule 8.43(d).
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Cboe Options is also cognizant of the OTC market, in which similar
restrictions on exercise settlement values do not apply. Cboe Options
continues to believe that the pilot program is appropriate and
reasonable and provides market participants with additional flexibility
in determining whether to execute their customized options in an
exchange environment or in the OTC market. Cboe Options continues to
believe that market participants benefit from being able to trade these
customized options in an exchange environment in several ways,
including, but not limited to, enhanced efficiency in initiating and
closing out positions, increased market transparency, and heightened
contra-party creditworthiness due to the role of the Options Clearing
Corporation as issuer and guarantor of FLEX Options.
If, in the future, the Exchange proposes an additional extension of
the pilot program, or should the Exchange propose to make the pilot
program permanent, the Exchange will submit, along with any filing
proposing such amendments to the pilot program, an annual report
(addressing the same areas referenced above and consistent with the
pilot program's Approval Order) to the Commission at least two months
prior to the expiration date of the program. The Exchange will also
continue, on a periodic basis, to submit interim reports of volume and
open interest consistent with the terms of the exercise settlement
values pilot program as described in the pilot program's Approval
Order. Additionally, the Exchange will provide the Commission
[[Page 27007]]
with any additional data or analyses the Commission requests because it
deems such data or analyses necessary to determine whether the pilot
program is consistent with the Exchange Act. The Exchange is in the
process of making public on its website all data and analyses
previously submitted to the Commission under the pilot program, and
will make public any data and analyses it submits to the Commission
under the pilot program in the future.\16\
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\16\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-flex-pm-data.
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As noted in the pilot program's Approval Order, any positions
established under the pilot program would not be impacted by the
expiration of the pilot program.\17\
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\17\ For example, a position in a p.m.-settled FLEX Index Option
series that expires on the third Friday-of-the-month in January 2020
could be established during the exercise settlement values pilot. If
the pilot program were not extended (or made permanent), then the
position could continue to exist. However, the Exchange notes that
any further trading in the series would be restricted to
transactions where at least one side of the trade is a closing
transaction. See Approval Order at footnote 3, supra note 2.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\18\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \19\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \20\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
\20\ Id.
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In particular, the Exchange believes that the proposed extension of
the pilot program, which permits an additional exercise settlement
value, would provide greater opportunities for investors to manage risk
through the use of FLEX Options. Further, the Exchange believes that it
has not experienced any adverse effects from the operation of the pilot
program, including any adverse market volatility effects that might
occur as a result of large FLEX exercises in FLEX Option series that
expire near Non-FLEX expirations and are p.m.-settled. The Exchange
also believes that the extension of the exercise settlement values
pilot does not raise any unique regulatory concerns. In particular,
although p.m. settlements may raise questions with the Commission, the
Exchange believes that, based on the Exchange's experience in trading
FLEX Options to date and over the pilot period, market impact and
investor protection concerns will not be raised by this rule change.
The Exchange also believes that the proposed rule change would continue
to provide Trading Permit Holders and investors with additional
opportunities to trade customized options in an exchange environment
(which offers the added benefits of transparency, price discovery,
liquidity, and financial stability as compared to the over-the-counter
market) and subject to exchange-based rules, and investors would
benefit as a result.
B. Self-Regulatory Organization's Statement on Burden on Competition
Cboe Options 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 believes there
is sufficient investor interest and demand in the pilot program to
warrant its extension. The Exchange believes that, for the period that
the pilot has been in operation, the program has provided investors
with additional means of managing their risk exposures and carrying out
their investment objectives. Furthermore, the Exchange believes that it
has not experienced any adverse market effects with respect to the
pilot program, including any adverse market volatility effects that
might occur as a result of large FLEX exercises in FLEX Option series
that expire near Non-Flex expirations and use a p.m. settlement. Cboe
Options believes that the restriction actually places the Exchange at a
competitive disadvantage to its OTC counterparts in the market for
customized options, and unnecessarily limits market participants'
ability to trade in an exchange environment that offers the added
benefits of transparency, price discovery, liquidity, and financial
stability. Therefore, the Exchange does not believe that the proposed
rule change will impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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 \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
such waiver will allow the Exchange to extend the pilot program and
maintain the status quo, thereby reducing market disruption.
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\23\ 17 CFR 240.19b-4(f)(6).
\24\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the pilot program to continue uninterrupted, thereby
avoiding investor confusion that could result from a temporary
interruption in the pilot program. For this reason, the Commission
designates the proposed rule change to be operative upon filing.\25\
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\25\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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[[Page 27008]]
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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-2020-039 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-2020-039. 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-2020-039 and should be submitted on
or before May 27, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09632 Filed 5-5-20; 8:45 am]
BILLING CODE 8011-01-P
