Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Permanently Adopt the Related Futures Cross Order Type, 55869-55872 [2020-20023]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 176 / Thursday, September 10, 2020 / Notices
Dated: September 3, 2020.
For the Nuclear Regulatory Commission.
Joel S. Wiebe,
Senior Project Manager, Plant Licensing
Branch III–2, Division of Operating Reactor
Licensing, Office of Nuclear Reactor
Regulation.
[FR Doc. 2020–19937 Filed 9–9–20; 8:45 am]
BILLING CODE 7590–01–P
POSTAL REGULATORY COMMISSION
[Docket Nos. MC2020–241 and CP2020–271;
MC2020–242 and CP2020–272]
New Postal Products
Postal Regulatory Commission.
ACTION: Notice.
AGENCY:
The Commission is noticing a
recent Postal Service filing for the
Commission’s consideration concerning
negotiated service agreements. This
notice informs the public of the filing,
invites public comment, and takes other
administrative steps.
DATES: Comments are due: September
15, 2020.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Docketed Proceeding(s)
khammond on DSKJM1Z7X2PROD with NOTICES
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
VerDate Sep<11>2014
16:38 Sep 09, 2020
Jkt 250001
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3011.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3030, and 39
CFR part 3040, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3035, and
39 CFR part 3040, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: MC2020–241 and
CP2020–271; Filing Title: USPS Request
to Add Priority Mail & First-Class
Package Service Contract 166 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: September 3, 2020;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3040.130 through 3040.135, and 39 CFR
3035.105; Public Representative:
Kenneth R. Moeller; Comments Due:
September 15, 2020.
2. Docket No(s).: MC2020–242 and
CP2020–272; Filing Title: USPS Request
to Add Priority Mail & First-Class
Package Service Contract 167 to
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: September 3, 2020;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3040.130 through 3040.135, and 39 CFR
3035.105; Public Representative:
Kenneth R. Moeller; Comments Due:
September 15, 2020.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2020–19997 Filed 9–9–20; 8:45 am]
BILLING CODE 7710–FW–P
1 See Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
PO 00000
Frm 00058
Fmt 4703
Sfmt 4703
55869
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89768; File No. SR–CBOE–
2020–060]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1 Thereto, To
Permanently Adopt the Related
Futures Cross Order Type
September 4, 2020.
I. Introduction
On July 1, 2020, Cboe Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘Cboe Options’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to permanently adopt the
Related Futures Cross (‘‘RFC’’) order
type. The proposed rule change was
published for comment in the Federal
Register on July 21, 2020.3 On August
13, 2020, the Exchange filed
Amendment No. 1 to the proposed rule
change.4 The Commission received one
comment on the proposed rule change.5
This order approves the proposed rule
change, as modified by Amendment No.
1, on an accelerated basis.
II. Summary of the Proposal, as
Modified by Amendment No. 1
From March 16 to June 12, 2020, the
Exchange closed its trading floor in
response to the coronavirus pandemic.
As a result, the Exchange operated in an
all-electronic configuration. Because the
trading floor was closed during this
time, floor brokers could not execute
crosses of option combos (i.e., synthetic
futures) on the trading floor on behalf of
market participants who were
exchanging futures contracts in either
VIX or SPX for related options positions
in order to swap related exposures,6 and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89325
(July 15, 2020), 85 FR 44125.
4 Amendment No. 1 is publicly available on the
Commission’s website at: https://www.sec.gov/
comments/sr-cboe-2020-060/srcboe20200607640381-222308.pdf.
5 See Letter from Joyana Pilquist, CFA, dated
August 24, 2020. The Commission believes this
comment, which relates to FLEX options, is outside
the scope of this proposed rule change as CBOE is
not proposing to change the substantive terms of
FLEX options transactions. Accordingly, the
Commission does not believe this comment can be
appropriately addressed through this proposal.
6 In the Notice, the Exchange provides the
following example of such a transaction: If a market
participant has positions in VIX options but would
2 17
E:\FR\FM\10SEN1.SGM
Continued
10SEN1
55870
Federal Register / Vol. 85, No. 176 / Thursday, September 10, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
there was no means to electronically
pair and execute the options legs of
these transactions on the Exchange.
To enable Trading Permit Holders
(‘‘TPHs’’) to execute the options part of
these transactions when the floor was
closed, the Exchange adopted the
electronic RFC order type under Rule
5.24(e)(1)(D).7 RFCs under Rule
5.24(e)(1)(D) were automatically
executed without exposure to open
outcry due to the all-electronic
environment at the time.8 These RFCs
were also required to execute in
accordance with the same priority
principles that apply to all complex
orders on CBOE.9 Specifically: (i) Each
option leg must have executed at a price
that complies with Rule 5.33(f)(2),
provided that no option leg executes at
the same price as a Priority Customer
Order in the Simple Book; (ii) each
option leg must have executed at a price
at or between the national best bid or
offer (‘‘NBBO’’) for the applicable series;
and (iii) the execution price must have
been better than the price of any
complex order resting in the complex
order book, unless the RFC Order was
a Priority Customer Order and the
resting complex order is a non-Priority
Customer Order, in which case the
execution price may be the same as or
better than the price of the resting
complex order.10 If an RFC could not
have executed in accordance with these
requirements, the CBOE System would
have cancelled the order.11 When the
CBOE trading floor reopened on June
15, 2020, RFC Orders were no longer
available,12 though, the RFC rule text in
Rule 5.24(e)(1)(D) remains in the CBOE
rulebook. Accordingly, under CBOE’s
current rules with an operable trading
floor, TPHs no longer have the option to
prefer to hold a corresponding position in VIX
futures (such as, for example, to reduce margin or
risk related to the option positions), that market
participant may swap its VIX options positions with
another market participant(s)’s VIX futures
positions that have corresponding risk exposure.
See Notice, supra note 3, at 44125. The Exchange
explains that the transaction between the market
participants for the futures positions occurs in
accordance with the rules of the applicable
designated contract market that lists the futures. See
id., n.3 (citing Cboe Futures Exchange LLC Rule
414). The Exchange further explains that these are
riskless transactions that carry no profit or loss for
the market participants that are party to the
transactions, but rather are intended to provide a
seamless method for market participants to reduce
margin and capital requirements while maintaining
the same risk exposure within their portfolios. See
Notice, supra note 3, at 44125.
7 See Securities Exchange Act Release No. 88447
(March 20, 2020), 85 FR 17129 (March 26, 2020)
(CBOE–2020–023).
8 See id., at 17131.
9 See id., at 17131.
10 See id., at 17131.
11 See id., at 17131.
12 See Notice, supra note 3, at 44126.
VerDate Sep<11>2014
16:38 Sep 09, 2020
Jkt 250001
submit electronic RFC Orders for
automatic execution.
In this proposal, the Exchange seeks
to adopt electronic RFC Orders on a
permanent basis.13 The Exchange
explains that the need to reduce risk is
prevalent in VIX and SPX, particularly
when the markets are volatile, and that
customers often have corresponding
futures that could make these
transactions possible.14 The Exchange
further explains that it is necessary for
both the option and future legs of the
transactions that would be subject to
RFC to occur between the same market
participants in order to successfully
swap the related exposures; while incrowd market participants have the
opportunity to bid or offer to participate
on the trade on the floor (i.e., to break
up the options cross between the two
parties), the Exchange represents that
other TPHs on the floor generally
declined on a voluntary basis to do so
upon hearing that the cross was part of
an exchange of related futures
contracts.15
To facilitate this proposed rule
change, the Exchange first proposes to
delete Rule 5.24(e)(1)(D). Second, the
Exchange proposes to add RFC Orders
to its list of complex orders under Rule
5.33(b)(5). For purposes of electronic
trading, RFC Orders would be identical
to the current definition in Rule
5.24(e)(1)(D) and defined as an SPX or
VIX complex order comprised of an
option combo order coupled with a
contra-side order or orders totaling an
equal number of option combo orders.
For purposes of open outcry trading, an
RFC order is an SPX or VIX complex
order comprised of an option combo
that may execute against a contra-side
RFC order or orders totaling an equal
number of option combo orders.
Furthermore, an RFC order must be
identified to the Exchange as being part
of an exchange of option contracts for
related futures positions. Rule 5.33(m)
would be adopted to add the same
priority protection principles that were
adopted under Rule 5.24(e)(1)(D),16 and
if an RFC Order under Rule 5.33 cannot
be executed in accordance with these
priority principles, it will be cancelled.
Finally, the Exchange proposes to
amend Rules 5.83 and 5.85 to permit
RFC Orders to be handled by a floor
broker for execution on the floor
without representation on the floor
13 See Notice, supra note 3, at 44126–27 for a
more detailed description of the proposal.
14 See Notice, supra note 3, at 44125.
15 See id. at 44125–26.
16 See supra note 10 and accompanying text; see
also Notice, supra note 3, 44126.
PO 00000
Frm 00059
Fmt 4703
Sfmt 4703
rather than submitted for automatic
execution electronically.
III. Discussion and Commission
Findings
After careful review and
consideration, the Commission finds
that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and the rules and regulations
thereunder that are applicable to a
national securities exchange.17 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,18 which
requires, among other things, that the
rules of a national securities exchange
be designed to promote just and
equitable principles of trade, 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, and that the rules of a
national securities exchange not be
designed to permit unfair
discrimination between customers,
issuers, brokers or dealers.
This proposal has two components.
First, the Exchange seeks to make
electronic RFC Orders permanent, even
when the trading floor of the Exchange
is operable. The electronic RFC order
type is designed to allow market
participants trading SPX and VIX
options to more efficiently execute risk
mitigating transactions on the Exchange,
as explained above.19 The Exchange
represents that it received feedback from
customers regarding the benefits of
electronic RFC Orders when its floor
was closed—including the efficiency
this order type provided with respect to
the execution of these crosses—which is
what prompted it to file this proposal.20
Second, when the trading floor is
operative, amended Rules 5.83 and 5.85
would permit RFC Orders to be handled
by a floor broker for execution without
representation on the trading floor as an
alternative to automatic electronic
execution.
In Amendment No. 1, the Exchange
further reiterates that there is a mutual
understanding among TPHs on the floor
to not break up the options leg of
transactions that would qualify for the
proposed RFC order type due to the
necessity of keeping the terms of the
17 In approving this proposed rule change, as
amended, the Commission notes that it has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
18 15 U.S.C. 78f(b)(5).
19 See also Notice, supra note 3, at 44125–26,
44127–28.
20 See Notice, supra note 3, at 44126.
E:\FR\FM\10SEN1.SGM
10SEN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 176 / Thursday, September 10, 2020 / Notices
hedging transactions unchanged
through execution. The Exchange
asserts that this understanding among
TPHs contributes to smoother
operations on the trading floor. The
Exchange further argues that while the
electronic RFC order type would
preclude the options component of
these hedging transactions to be broken
up going forward, the benefits of
permitting RFC Orders to execute as
clean crosses greatly outweigh any
detriments, if there are even any, that
may result from exposing these orders
for potential break up. The Exchange
believes that the benefits of requiring a
broker to expose an order on the trading
floor generally flow to that order, which
include the potential of price
improvement for the order and to locate
liquidity against which to execute the
order. In the case of orders that would
qualify to use the RFC order type, the
Exchange asserts that the representing
broker has already located the necessary
liquidity to execute the order, as that is
necessary given the nature of these
transactions.
Based on the foregoing, the
Commission finds that the proposed
rule change is designed to promote just
and equitable principles of trade, 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. In addition to the above
assertions and representations by the
Exchange, the Commission notes that
the proposed electronic RFC order type
contains the same priority protection
principles that were adopted under Rule
5.24(e)(1)(D) when the Exchange
permitted electronic RFC Orders as
clean crosses due to the closure of its
trading floor. Furthermore, Rule 5.33(m)
provides that: (i) An RFC order may
only be entered in the standard
increment applicable to the class; (ii)
the execution of an RFC order must
happen contemporaneously with the
execution of the related futures position
portion of the exchange; and (iii) the
transaction involving the related futures
position of the exchange must comply
with all applicable rules of the
designated contract market on which
the futures are listed for trading. With
regard to the proposed changes to Rules
5.83 and 5.85, RFC Orders handled by
floor brokers would be covered by the
same protections.
For the above reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with the
requirements of the Act.
VerDate Sep<11>2014
16:38 Sep 09, 2020
Jkt 250001
IV. Solicitation of Comments on
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 to
the proposed rule change is consistent
with the Exchange Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2020–060 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–2020–060. 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 this
filing will also 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–2020–060 and
should be submitted on or before
October 1, 2020.
PO 00000
Frm 00060
Fmt 4703
Sfmt 4703
55871
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of notice of Amendment No.
1 in the Federal Register.
Amendment No. 1 has two main
aspects. First, in Amendment No. 1, the
Exchange makes certain technical edits
to the Exhibit 5 that was initially filed.21
Second, as stated above, the Exchange
expands its statutory basis analysis in
Amendment No. 1 to provide additional
arguments and representations to
support its position that allowing RFC
Orders to execute automatically without
exposure is consistent with the Act.
Furthermore, the Exchange also expands
the analysis in its request that this filing
be approved on an accelerated basis,
and it adds an analysis to Item 8 of the
filing to assert that the proposed CBOE
RFC order type is ‘‘virtually identical’’
to a recently approved RFC order type
on Miami International Securities
Exchange, LLC.22
Amendment No. 1 does not change
any substantive provisions of the
proposed rule change that were noticed
for public comment. It contains only
minor, technical revisions to the
proposed rule text, and it provides
additional justification that the proposal
is consistent with the Act. Accordingly,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,23 to approve the proposed rule
change, as modified by Amendment No.
1, on an accelerated basis.
VI. Conclusion
It is therefore ordered that, pursuant
to Section 19(b)(2) of the Act,24 the
proposed rule change, as modified by
Amendment No. 1, (SR–CBOE–2020–
060) be, and hereby is, approved on an
accelerated basis.
21 Specifically, Amendment No. 1: Deletes the
closing bracket and period from the end of Rule
5.24(e)(1)(C); deletes the opening bracket before
Rule 5.24(e)(1)(D); inserts a closing bracket before
the semi-colon at the end of Rule 5.24(e)(1)(D)(7),
and deletes the closing bracket following the ‘‘and’’
at the end of Rule 5.24(e)(1)(D)(7); proposes to
change current Rule 5.24(e)(1)(E) to Rule
5.24(e)(1)(D), and includes the introductory
paragraph (with no other proposed changes) of that
subparagraph in the Exhibit; and adds the current
definition of a ‘‘Post Only’’ order in Rule 5.33(b)
(with no proposed changes) to demonstrate where
in that paragraph the proposed definition of an RFC
order will be located.
22 See Securities Exchange Act Release No. 89213
(July 1, 2020), 85 FR 41077 (July 8, 2020) (MIAX–
2020–11).
23 15 U.S.C. 78s(b)(2).
24 15 U.S.C. 78s(b)(2).
E:\FR\FM\10SEN1.SGM
10SEN1
55872
Federal Register / Vol. 85, No. 176 / Thursday, September 10, 2020 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–20023 Filed 9–9–20; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–89766; File No. SR–LTSE–
2020–15]
Self-Regulatory Organizations; LongTerm Stock Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Continue
Suspending the Application of Order
Price Collars in Rule 11.190(f)(1) Until
October 8, 2020
September 3, 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
September 3, 2020, Long-Term Stock
Exchange, Inc. (‘‘LTSE’’ or the
‘‘Exchange’’) 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 self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
LTSE proposes to continue
suspending until October 8, 2020, the
provisions of Rule 11.190(f)(1) pending
further systems development work.
The text of the proposed rule change
is available at the Exchange’s website at
https://longtermstockexchange.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement on the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
16:38 Sep 09, 2020
Jkt 250001
A. Self-Regulatory Organization’s
Statement on the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change 3
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
25 17
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
LTSE Rule 11.190(f)(1) prevents an
incoming order or order resting on the
Order Book, including those marked
ISO, from executing at a price outside
the Order Collar price range (i.e.,
prevents buy orders from trading at
prices above the collar and prevents sell
orders from trading at prices below the
collar). The Order Collar price range is
calculated using the numerical
guidelines for clearly erroneous
executions (‘‘CEE’’).4 Under Rule
11.190(f)(1), executions are permitted at
prices within the Order Collar price
range, inclusive of the boundaries.
Thus, Rule 11.190(f)(1) seeks to prevent
an execution that would otherwise be
handled under the CEE procedures.
The Exchange became operational on
August 28, 2020.5 However, the
automated processes to set the Order
Collar price range pursuant to Rule
11.190(f)(1) were not yet fully
operational at that time, and the
Exchange temporarily suspended Rule
11.190(f)(1) until September 8, 2020.6 It
is anticipated that the automated
processes will still not be fully
operational on September 8, 2020.
Therefore, to ensure the Exchange
operates in conformity with its Rule
Book, the Exchange proposes to
continue suspending Rule 11.190(f)(1)
until October 8, 2020, pending further
systems development work. The
Exchange will continue to work
diligently to finalize the implementation
of the Order Collar price range as
described in Rule 11.190(f)(1). The
Exchange previously issued a
Regulatory Information Circular alerting
its Members of the prior delay until
September 8, 2020,7 and will promptly
3 Unless otherwise defined, capitalized terms are
used herein as defined in the LTSE Rulebook.
4 See LTSE Rule 11.270(f)(1)(D).
5 See LTSE Production Securities Phase-In Set for
Friday, August 28, LTSE (August 24, 2010),
available at https://assets.ctfassets.net/
cchj2z2dcfyd/4Ul3ygPsrihSz4lpQnBThu/
56a54c087891a5aa20152398bdb51cea/MA-2020022__Reminder_Production_Securities_Launching_
August_28_-_Google_Docs.pdf.
6 See Securities Exchange Act Release No. 89710
(August 28, 2020) (File No. SR–LTSE–2020–14).
7 See Notice of Rule Filing to Temporarily
Suspend Rule 11.190(f)(1), LTSE (Aug. 27, 2020),
available at https://assets.ctfassets.net/
cchj2z2dcfyd/6l5zWem57DZ2zHHHUKQENo/
PO 00000
Frm 00061
Fmt 4703
Sfmt 4703
issue a new Regulatory Information
Circular regarding the continued
suspension of Rule 11.190(f)(1).
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,8
in general, and furthers the objectives of
Section 6(b)(5) of the Act,9 in particular,
in that it is designed to prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in 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.
The Order Collar provisions of Rule
11.190(f)(1) are a prophylactic measure
to prevent trade executions outside of
certain price bands. The Exchange has
in effect other provisions to address
trade executions at prices outside of
these price bands, such as Rule 11.270
(Clearly Erroneous Executions).
Additionally, Rule 11.281 (Limit-Up
Limit-Down) prevents trades in NMS
Stocks from occurring outside specified
price bands.10 The Exchange further
notes that other national securities
exchanges operate without order price
collars during their regular, continuous
market trading sessions.11
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change is not designed to
address any competitive issue, but
rather would provide the public and
market participants with clarity and
certainty regarding the operations of the
Exchange. Additionally, the proposed
rule change would not be an
inappropriate burden on intramarket
114fd721fca7dd3812a1534110803114/RIC-202007.pdf.
8 15 U.S.C. 78f.
9 15 U.S.C. 78f(b)(5).
10 Rule 11.281 was adopted under the LULD Plan,
see Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019), and
is designed to prevent trades in NMS Stocks from
occurring outside specified price bands, which are
set at a percentage level above and below the
average reference price of a security over the
preceding five-minute period.
11 See, e.g., MEMX Rulebook (8.17.20), available
at https://info.memxtrading.com/wp-content/
uploads/2020/08/MEMX-Rulebook-8.17.20.pdf;
Rulebook—The Nasdaq Stock Market, available at
https://listingcenter.nasdaq.com/rulebook/nasdaq/
rules (last accessed September 3, 2020).
E:\FR\FM\10SEN1.SGM
10SEN1
]]>Agencies
[Federal Register Volume 85, Number 176 (Thursday, September 10, 2020)]
[Notices]
[Pages 55869-55872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20023]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89768; File No. SR-CBOE-2020-060]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, To Permanently Adopt the Related Futures Cross
Order Type
September 4, 2020.
I. Introduction
On July 1, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to permanently adopt the Related Futures Cross
(``RFC'') order type. The proposed rule change was published for
comment in the Federal Register on July 21, 2020.\3\ On August 13,
2020, the Exchange filed Amendment No. 1 to the proposed rule
change.\4\ The Commission received one comment on the proposed rule
change.\5\ This order approves the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89325 (July 15,
2020), 85 FR 44125.
\4\ Amendment No. 1 is publicly available on the Commission's
website at: https://www.sec.gov/comments/sr-cboe-2020-060/srcboe2020060-7640381-222308.pdf.
\5\ See Letter from Joyana Pilquist, CFA, dated August 24, 2020.
The Commission believes this comment, which relates to FLEX options,
is outside the scope of this proposed rule change as CBOE is not
proposing to change the substantive terms of FLEX options
transactions. Accordingly, the Commission does not believe this
comment can be appropriately addressed through this proposal.
---------------------------------------------------------------------------
II. Summary of the Proposal, as Modified by Amendment No. 1
From March 16 to June 12, 2020, the Exchange closed its trading
floor in response to the coronavirus pandemic. As a result, the
Exchange operated in an all-electronic configuration. Because the
trading floor was closed during this time, floor brokers could not
execute crosses of option combos (i.e., synthetic futures) on the
trading floor on behalf of market participants who were exchanging
futures contracts in either VIX or SPX for related options positions in
order to swap related exposures,\6\ and
[[Page 55870]]
there was no means to electronically pair and execute the options legs
of these transactions on the Exchange.
---------------------------------------------------------------------------
\6\ In the Notice, the Exchange provides the following example
of such a transaction: If a market participant has positions in VIX
options but would prefer to hold a corresponding position in VIX
futures (such as, for example, to reduce margin or risk related to
the option positions), that market participant may swap its VIX
options positions with another market participant(s)'s VIX futures
positions that have corresponding risk exposure. See Notice, supra
note 3, at 44125. The Exchange explains that the transaction between
the market participants for the futures positions occurs in
accordance with the rules of the applicable designated contract
market that lists the futures. See id., n.3 (citing Cboe Futures
Exchange LLC Rule 414). The Exchange further explains that these are
riskless transactions that carry no profit or loss for the market
participants that are party to the transactions, but rather are
intended to provide a seamless method for market participants to
reduce margin and capital requirements while maintaining the same
risk exposure within their portfolios. See Notice, supra note 3, at
44125.
---------------------------------------------------------------------------
To enable Trading Permit Holders (``TPHs'') to execute the options
part of these transactions when the floor was closed, the Exchange
adopted the electronic RFC order type under Rule 5.24(e)(1)(D).\7\ RFCs
under Rule 5.24(e)(1)(D) were automatically executed without exposure
to open outcry due to the all-electronic environment at the time.\8\
These RFCs were also required to execute in accordance with the same
priority principles that apply to all complex orders on CBOE.\9\
Specifically: (i) Each option leg must have executed at a price that
complies with Rule 5.33(f)(2), provided that no option leg executes at
the same price as a Priority Customer Order in the Simple Book; (ii)
each option leg must have executed at a price at or between the
national best bid or offer (``NBBO'') for the applicable series; and
(iii) the execution price must have been better than the price of any
complex order resting in the complex order book, unless the RFC Order
was a Priority Customer Order and the resting complex order is a non-
Priority Customer Order, in which case the execution price may be the
same as or better than the price of the resting complex order.\10\ If
an RFC could not have executed in accordance with these requirements,
the CBOE System would have cancelled the order.\11\ When the CBOE
trading floor reopened on June 15, 2020, RFC Orders were no longer
available,\12\ though, the RFC rule text in Rule 5.24(e)(1)(D) remains
in the CBOE rulebook. Accordingly, under CBOE's current rules with an
operable trading floor, TPHs no longer have the option to submit
electronic RFC Orders for automatic execution.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 88447 (March 20,
2020), 85 FR 17129 (March 26, 2020) (CBOE-2020-023).
\8\ See id., at 17131.
\9\ See id., at 17131.
\10\ See id., at 17131.
\11\ See id., at 17131.
\12\ See Notice, supra note 3, at 44126.
---------------------------------------------------------------------------
In this proposal, the Exchange seeks to adopt electronic RFC Orders
on a permanent basis.\13\ The Exchange explains that the need to reduce
risk is prevalent in VIX and SPX, particularly when the markets are
volatile, and that customers often have corresponding futures that
could make these transactions possible.\14\ The Exchange further
explains that it is necessary for both the option and future legs of
the transactions that would be subject to RFC to occur between the same
market participants in order to successfully swap the related
exposures; while in-crowd market participants have the opportunity to
bid or offer to participate on the trade on the floor (i.e., to break
up the options cross between the two parties), the Exchange represents
that other TPHs on the floor generally declined on a voluntary basis to
do so upon hearing that the cross was part of an exchange of related
futures contracts.\15\
---------------------------------------------------------------------------
\13\ See Notice, supra note 3, at 44126-27 for a more detailed
description of the proposal.
\14\ See Notice, supra note 3, at 44125.
\15\ See id. at 44125-26.
---------------------------------------------------------------------------
To facilitate this proposed rule change, the Exchange first
proposes to delete Rule 5.24(e)(1)(D). Second, the Exchange proposes to
add RFC Orders to its list of complex orders under Rule 5.33(b)(5). For
purposes of electronic trading, RFC Orders would be identical to the
current definition in Rule 5.24(e)(1)(D) and defined as an SPX or VIX
complex order comprised of an option combo order coupled with a contra-
side order or orders totaling an equal number of option combo orders.
For purposes of open outcry trading, an RFC order is an SPX or VIX
complex order comprised of an option combo that may execute against a
contra-side RFC order or orders totaling an equal number of option
combo orders. Furthermore, an RFC order must be identified to the
Exchange as being part of an exchange of option contracts for related
futures positions. Rule 5.33(m) would be adopted to add the same
priority protection principles that were adopted under Rule
5.24(e)(1)(D),\16\ and if an RFC Order under Rule 5.33 cannot be
executed in accordance with these priority principles, it will be
cancelled. Finally, the Exchange proposes to amend Rules 5.83 and 5.85
to permit RFC Orders to be handled by a floor broker for execution on
the floor without representation on the floor rather than submitted for
automatic execution electronically.
---------------------------------------------------------------------------
\16\ See supra note 10 and accompanying text; see also Notice,
supra note 3, 44126.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review and consideration, the Commission finds that
the proposed rule change, as modified by Amendment No. 1, is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange.\17\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\18\ which requires, among
other things, that the rules of a national securities exchange be
designed to promote just and equitable principles of trade, 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, and that the rules of a national securities exchange
not be designed to permit unfair discrimination between customers,
issuers, brokers or dealers.
---------------------------------------------------------------------------
\17\ In approving this proposed rule change, as amended, the
Commission notes that it has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
This proposal has two components. First, the Exchange seeks to make
electronic RFC Orders permanent, even when the trading floor of the
Exchange is operable. The electronic RFC order type is designed to
allow market participants trading SPX and VIX options to more
efficiently execute risk mitigating transactions on the Exchange, as
explained above.\19\ The Exchange represents that it received feedback
from customers regarding the benefits of electronic RFC Orders when its
floor was closed--including the efficiency this order type provided
with respect to the execution of these crosses--which is what prompted
it to file this proposal.\20\ Second, when the trading floor is
operative, amended Rules 5.83 and 5.85 would permit RFC Orders to be
handled by a floor broker for execution without representation on the
trading floor as an alternative to automatic electronic execution.
---------------------------------------------------------------------------
\19\ See also Notice, supra note 3, at 44125-26, 44127-28.
\20\ See Notice, supra note 3, at 44126.
---------------------------------------------------------------------------
In Amendment No. 1, the Exchange further reiterates that there is a
mutual understanding among TPHs on the floor to not break up the
options leg of transactions that would qualify for the proposed RFC
order type due to the necessity of keeping the terms of the
[[Page 55871]]
hedging transactions unchanged through execution. The Exchange asserts
that this understanding among TPHs contributes to smoother operations
on the trading floor. The Exchange further argues that while the
electronic RFC order type would preclude the options component of these
hedging transactions to be broken up going forward, the benefits of
permitting RFC Orders to execute as clean crosses greatly outweigh any
detriments, if there are even any, that may result from exposing these
orders for potential break up. The Exchange believes that the benefits
of requiring a broker to expose an order on the trading floor generally
flow to that order, which include the potential of price improvement
for the order and to locate liquidity against which to execute the
order. In the case of orders that would qualify to use the RFC order
type, the Exchange asserts that the representing broker has already
located the necessary liquidity to execute the order, as that is
necessary given the nature of these transactions.
Based on the foregoing, the Commission finds that the proposed rule
change is designed to promote just and equitable principles of trade,
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. In addition to the above assertions
and representations by the Exchange, the Commission notes that the
proposed electronic RFC order type contains the same priority
protection principles that were adopted under Rule 5.24(e)(1)(D) when
the Exchange permitted electronic RFC Orders as clean crosses due to
the closure of its trading floor. Furthermore, Rule 5.33(m) provides
that: (i) An RFC order may only be entered in the standard increment
applicable to the class; (ii) the execution of an RFC order must happen
contemporaneously with the execution of the related futures position
portion of the exchange; and (iii) the transaction involving the
related futures position of the exchange must comply with all
applicable rules of the designated contract market on which the futures
are listed for trading. With regard to the proposed changes to Rules
5.83 and 5.85, RFC Orders handled by floor brokers would be covered by
the same protections.
For the above reasons, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act.
IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to the proposed rule change is consistent with the Exchange 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-2020-060 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-2020-060. 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 this filing will also 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-2020-060 and should be submitted on
or before October 1, 2020.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register.
Amendment No. 1 has two main aspects. First, in Amendment No. 1,
the Exchange makes certain technical edits to the Exhibit 5 that was
initially filed.\21\ Second, as stated above, the Exchange expands its
statutory basis analysis in Amendment No. 1 to provide additional
arguments and representations to support its position that allowing RFC
Orders to execute automatically without exposure is consistent with the
Act. Furthermore, the Exchange also expands the analysis in its request
that this filing be approved on an accelerated basis, and it adds an
analysis to Item 8 of the filing to assert that the proposed CBOE RFC
order type is ``virtually identical'' to a recently approved RFC order
type on Miami International Securities Exchange, LLC.\22\
---------------------------------------------------------------------------
\21\ Specifically, Amendment No. 1: Deletes the closing bracket
and period from the end of Rule 5.24(e)(1)(C); deletes the opening
bracket before Rule 5.24(e)(1)(D); inserts a closing bracket before
the semi-colon at the end of Rule 5.24(e)(1)(D)(7), and deletes the
closing bracket following the ``and'' at the end of Rule
5.24(e)(1)(D)(7); proposes to change current Rule 5.24(e)(1)(E) to
Rule 5.24(e)(1)(D), and includes the introductory paragraph (with no
other proposed changes) of that subparagraph in the Exhibit; and
adds the current definition of a ``Post Only'' order in Rule 5.33(b)
(with no proposed changes) to demonstrate where in that paragraph
the proposed definition of an RFC order will be located.
\22\ See Securities Exchange Act Release No. 89213 (July 1,
2020), 85 FR 41077 (July 8, 2020) (MIAX-2020-11).
---------------------------------------------------------------------------
Amendment No. 1 does not change any substantive provisions of the
proposed rule change that were noticed for public comment. It contains
only minor, technical revisions to the proposed rule text, and it
provides additional justification that the proposal is consistent with
the Act. Accordingly, the Commission finds good cause, pursuant to
Section 19(b)(2) of the Act,\23\ to approve the proposed rule change,
as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered that, pursuant to Section 19(b)(2) of the
Act,\24\ the proposed rule change, as modified by Amendment No. 1, (SR-
CBOE-2020-060) be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78s(b)(2).
[[Page 55872]]
---------------------------------------------------------------------------
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
---------------------------------------------------------------------------
\25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20023 Filed 9-9-20; 8:45 am]
BILLING CODE 8011-01-P
