Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Authorize for Trading Flexible Exchange Options on Full-Value Indexes With a Contract Multiplier of One, 67037-67040 [2020-23261]
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Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
4. Applicants request relief under
section 6(c), discussed above, and
section 23(c)(3) from rule 23c–3 to the
extent necessary for the Funds to
impose EWCs on shares of the Funds
submitted for repurchase that have been
held for less than a specified period.
5. Applicants state that the EWCs they
intend to impose are functionally
similar to CDSLs imposed by open-end
investment companies under rule 6c–10
under the Act. Rule 6c–10 permits openend investment companies to impose
CDSLs, subject to certain conditions.
Applicants note that rule 6c–10 is
grounded in policy considerations
supporting the employment of CDSLs
where there are adequate safeguards for
the investor and state that the same
policy considerations support
imposition of EWCs in the interval fund
context. In addition, applicants state
that EWCs may be necessary for the
distributor to recover distribution costs.
Applicants represent that any EWC
imposed by the Funds will comply with
rule 6c–10 under the Act as if the rule
were applicable to closed-end
investment companies. The Funds will
disclose EWCs in accordance with the
requirements of Form N–1A concerning
CDSLs.
rules applied to closed-end investment
companies, which they believe will
resolve any concerns that might arise in
connection with a Fund financing the
distribution of its shares through assetbased distribution fees.
3. For the reasons stated above,
applicants submit that the exemptions
requested under section 6(c) are
necessary and appropriate in the public
interest and are consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act. Applicants further
submit that the relief requested
pursuant to section 23(c)(3) will be
consistent with the protection of
investors and will insure that applicants
do not unfairly discriminate against any
holders of the class of securities to be
purchased. Finally, applicants state that
the Funds’ imposition of asset-based
distribution and/or service fees is
consistent with the provisions, policies
and purposes of the Act and does not
involve participation on a basis different
from or less advantageous than that of
other participants.
Asset-Based Distribution and/or Service
Fees
1. Section 17(d) of the Act and rule
17d–1 under the Act prohibit an
affiliated person of a registered
investment company, or an affiliated
person of such person, acting as
principal, from participating in or
effecting any transaction in connection
with any joint enterprise or joint
arrangement in which the investment
company participates unless the
Commission issues an order permitting
the transaction. In reviewing
applications submitted under section
17(d) and rule 17d–1, the Commission
considers whether the participation of
the investment company in a joint
enterprise or joint arrangement is
consistent with the provisions, policies
and purposes of the Act, and the extent
to which the participation is on a basis
different from or less advantageous than
that of other participants.
2. Rule 17d–3 under the Act provides
an exemption from section 17(d) and
rule 17d–1 to permit open–end
investment companies to enter into
distribution arrangements pursuant to
rule 12b–1 under the Act. Applicants
request an order under section 17(d) and
rule 17d–1 under the Act to the extent
necessary to permit the Fund to impose
asset–based distribution and/or service
fees. Applicants have agreed to comply
with rules 12b–1 and 17d–3 as if those
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Each Fund relying on the order will
comply with the provisions of rules 6c–
10, 12b–1, 17d–3, 18f–3, 22d–1, and,
where applicable, 11a–3 under the Act,
as amended from time to time, as if
those rules applied to closed-end
management investment companies,
and will comply with the FINRA Sales
Charge Rule, as amended from time to
time, as if that rule applied to all
closed–end management investment
companies.
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Applicants’ Condition
For the Commission, by the Division of
Investment Management, under delegated
authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–23242 Filed 10–20–20; 8:45 am]
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67037
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90204; File No. SR–CBOE–
2020–034]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To Authorize for Trading
Flexible Exchange Options on FullValue Indexes With a Contract
Multiplier of One
October 15, 2020.
On June 30, 2020, Cboe Exchange, Inc.
(‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to authorize for trading flexible
exchange options (‘‘FLEX Options’’) on
full-value indexes with a contract
multiplier of one. The proposed rule
change was published for comment in
the Federal Register on July 20, 2020.3
On September 2, 2020, pursuant to
Section 19(b)(2) of the Exchange Act,4
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
This order institutes proceedings under
Section 19(b)(2)(B) of the Exchange Act 6
to determine whether to approve or
disapprove the proposed rule change.
I. Description of the Proposal and
Comment Received 7
The Exchange has proposed to amend
its rules to authorize for trading on the
Exchange FLEX Options on full-value
indexes (‘‘FLEX Index Options’’) with a
contract multiplier of one. Currently,
CBOE Rule 4.21(b)(1) states that the
index multiplier for FLEX Index
Options is 100. The Exchange proposes
to provide that, in addition to the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89308
(July 14, 2020), 85 FR 43923 (‘‘Notice’’). Comments
received on the proposed rule change are available
on the Commission’s website at: https://
www.sec.gov/comments/sr-cboe-2020-034/
srcboe2020034.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 89743,
85 FR 55717 (September 9, 2020). The Commission
designated October 18, 2020, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 For a complete description of the Exchange’s
proposal, see the Notice, supra note 3.
2 17
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current index multiplier of 100, the
index multiplier for FLEX Index
Options on full-value indexes may also
be one.
The Exchange’s rules provide that,
when submitting a FLEX Order, the
submitting FLEX Trader 8 must include
all required terms of a FLEX Option
series,9 including the underlying equity
security or index (i.e., the FLEX Option
class) on the FLEX Order. The proposed
rule change would amend Rule
4.21(b)(1) to state that if a FLEX Trader
specifies a full-value index on a FLEX
Order, the FLEX Trader must also
include whether the index option has an
index multiplier of 100 or 1 when
identifying the class of FLEX Order. In
the proposal, the Exchange stated that
each FLEX Index Option series in a
FLEX Index Option class with a
multiplier of one will include the same
flexible terms as any other FLEX Option
series, including strike price, settlement,
expiration date, and exercise style as
required by Rule 4.21(b).10
The Exchange’s rules permit trading
in a put or call FLEX Option series only
if it does not have the same exercise
style, same expiration date, and same
exercise price as a non-FLEX option
series on the same underlying security
or index that is already available for
trading.11 Rule 1.1 defines the term
‘‘series’’ as all option contracts of the
same class that are the same type of
option and have the same exercise price
and expiration date. The Exchange
stated that it therefore believes that a
FLEX Option series in one class may
have the same exercise style, expiration
date, settlement, and exercise price as a
non-FLEX option series in a different
8 A ‘‘FLEX Trader’’ is a Trading Permit Holder the
Exchange has approved to trade FLEX Options on
the Exchange.
9 These terms include, in addition to the
underlying equity security or index, the type of
options (put or call), exercise style, expiration date,
settlement type, and exercise price. See Rule
4.21(b). A ‘‘FLEX Order’’ is an order submitted in
FLEX Options. The submission of a FLEX Order
makes the FLEX Option series in that order eligible
for trading. See Rule 5.72(b).
10 The Exchange stated that because these are the
terms designated by the Commission as those that
constitute standardized options, therefore, the
Exchange believes the proposed rule change is
consistent with Section 9(b) of the Exchange Act.
See Securities Exchange Act Release No. 31910
(February 23, 1993), 58 FR 12056 (March 2, 1993)
(Order Designating FLEX Options as Standardized
Options under Rule 9b–1 of the Exchange Act)
(‘‘FLEX Rule 9b–1 Order’’).
11 See Rule 4.21(a)(1). Non-FLEX options are
standardized options traded on CBOE’s non-FLEX
options market. All terms of non-FLEX options such
as strike prices, exercise types, expiration dates,
and settlement types are the same and standardized
for all market participants trading non-FLEX
options. This is in contrast to the Exchange’s FLEX
Options market where such terms can be ‘‘flexed’’
by market participants.
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class, even if they are on the same
underlying security or index. The
Exchange stated that it believes, for
example, pursuant to the proposed rule
change, a FLEX Option series overlying
the S&P 500 with a multiplier of one
may have the same exercise style,
expiration date, settlement, and exercise
price as a non-FLEX option series
overlying the S&P 500 with a multiplier
of 100, as they are series in different
classes.
The Exchange represented that FLEX
Index Options with a multiplier of one
will be traded in the same manner as all
other FLEX Options pursuant to Chapter
5, Section F of the Exchange’s rules. The
proposed rule change would amend
Rule 4.21(b)(6) to state that the exercise
price for a FLEX Index Option series in
a class with a multiplier of one is set at
the same level as the exercise price for
a FLEX Index Option series in a class
with a multiplier of 100. The proposed
rule change also would add to Rule
5.3(e)(3) that FLEX Index Options with
a multiplier of one must be expressed in
(a) U.S. dollars and decimals if the
exercise price for the FLEX Option
series is a fixed price, or (b) a
percentage, if the exercise price for the
FLEX Option series is a percentage of
the closing value of the underlying
equity security or index on the trade
date, per 1/100th unit. In addition, the
proposed rule change would state that
the Exchange’s system rounds bids and
offers of FLEX Options to the nearest
minimum increment following
application of the designated percentage
to the closing value of the underlying
security or index. The Exchange stated
that it believes that this is consistent
with current functionality and is merely
a clarification in the Exchange’s rules.
The Exchange stated that it believes a
FLEX Option position with a multiplier
of one would not be fungible with any
non-FLEX index option. Pursuant to
Rule 4.22(a), a FLEX Option position
becomes fungible with a non-FLEX
option that becomes listed with
identical terms. The Exchange stated
that it does not list for trading any nonFLEX index option class with a
multiplier of one, and that, therefore, in
its view, no FLEX Index Option series
with a multiplier of 100 could be
identical to, and fungible with, any nonFLEX option pursuant to Rule 4.22(a)
despite the fact that all the other terms
of the FLEX Index Option could be
identical to a non-FLEX index option.
The Exchange stated that if it
determines to list non-FLEX index
options with a one multiplier in the
future, then a FLEX Index Option with
a multiplier of one would become
fungible with any non-FLEX index
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option with a multiplier of one with the
same terms pursuant to Rule 4.22(a).
The proposed rule change would
amend Rule 8.35(a) regarding position
limits for FLEX Options to describe how
FLEX Index Options with a multiplier of
one will be counted for purposes of
determining compliance with position
limits. Because 100 FLEX Index Options
with a multiplier of one are equivalent
to one FLEX Index Option with a
multiplier of 100 overlying the same
index due to the difference in contract
multipliers, proposed Rule 8.35(a)(7)
states that for purposes of determining
compliance with the position limits
under Rule 8.35, 100 FLEX Index
Option contracts with a multiplier of
one equal one FLEX Index Option
contract with a multiplier of 100 with
the same underlying index.12 The
Exchange stated that it believes that this
is consistent with the current treatment
of other reduced-value FLEX Index
Options with respect to position limits.
The proposed rule change also would
amend Rule 8.42 to make a
corresponding statement regarding the
application of exercise limits to FLEX
Index Options with a multiplier of one.
The Exchange stated that the margin
requirements set forth in Chapter 10 of
the Exchange’s rules would apply to
FLEX Index Options with a multiplier of
one (as they currently do to all FLEX
Options).13
The Exchange stated that it believes
that permitting investors to trade FLEX
Index Option contracts on full-value
indexes with an index multiplier of one
will provide investors with additional
granularity in the prices at which they
may execute and exercise their FLEX
Options on the Exchange, and thus
provide investors with an additional
tool to manage the positions and
associated risk in their portfolios based
on notional value, which currently may
equal a fraction of a standard contract.
The Exchange represented that, with
regard to the impact of this proposal on
system capacity, the Exchange has
analyzed its capacity and represents that
it and the Options Price Reporting
Authority have the necessary systems
12 According to the Exchange, the proposed rule
change would make a corresponding change to Rule
8.35(b) to clarify that, like reduced-value FLEX
contracts, FLEX Index Option contracts with a
multiplier of one will be aggregated with full-value
contracts and counted by the amount by which they
equal a full-value contract for purposes of the
reporting obligation in that provision (i.e., 100
FLEX Index Options with a multiplier of one will
equal one FLEX Index Option contract with a
multiplier of 100 overlying the same index).
13 The Exchange stated that, pursuant to Rule
8.43(j), FLEX Index Options with a multiplier of
one will be aggregated with non-FLEX index
options on the same underlying index in the same
manner as all other FLEX Index Options.
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capacity to handle the potential
additional traffic associated with the
listing and trading of FLEX Index
Options with a multiplier of one. The
Exchange also stated that it understands
that the Options Clearing Corporation
will be able to accommodate the listing
and trading of FLEX Index Options with
a multiplier of one. The Exchange stated
that, to reduce any potential confusion,
FLEX Index Options with a multiplier of
one would be listed with different
trading symbols than FLEX Index
Options with a multiplier of 100.
To date the Commission has received
one comment letter, which supports the
proposed rule change.14 The commenter
stated that, as a customer of CBOE, the
proposal would ‘‘dramatically increase
the ease of use FLEX options’’ in its
hedging process.15
II. Proceedings To Determine Whether
To Approve or Disapprove SR–CBOE–
2020–034 and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act 16 to
determine whether the proposed rule
change should be approved or
disapproved. Institution of such
proceedings is appropriate at this time
in view of the legal and policy issues
raised by the proposed rule change, as
discussed below. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as stated below,
the Commission seeks and encourages
interested persons to provide comments
on the proposed rule change to inform
the Commission’s analysis of whether to
approve or disapprove the proposal.
Pursuant to Section 19(b)(2)(B) of the
Exchange Act,17 the Commission is
providing notice of the grounds for
disapproval under consideration. The
Commission is instituting proceedings
to allow for additional analysis of the
proposed rule change’s consistency with
the Exchange Act, and, in particular,
with Section 6(b)(5) of the Exchange
Act, which requires, among other
things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, 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
14 See letter from Joyana Pilquist, CFA, dated
August 24, 2020.
15 See id.
16 15 U.S.C. 78s(b)(2)(B).
17 Id.
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general, to protect investors and the
public interest.18
The proposal would permit the
trading of FLEX Index Options with a
contract multiplier of one, which could
have the exact same, or similar, terms as
non-FLEX options 19 on the same index
with a multiplier of 100.20 The trading
of FLEX Index Options with a contract
multiplier of one under the proposal
presents issues related to price
protection in currently-existing nonFLEX index options on the same
underlying index. Specifically,
permitting two options with different
contract multipliers on the same
underlying interest could have the effect
of allowing FLEX Options with a
multiplier of one to gain priority over
customer orders on the book for the
similar non-FLEX index options
overlying the same index and also allow
bypassing or trading through the
national best bid or offer (‘‘NBBO’’) in
non-FLEX index options. Furthermore,
the proposal could lead to market
fragmentation by allowing FLEX Index
Options to trade with a multiplier of one
and index options on the same index to
trade in the non-FLEX market with a
multiplier of 100. Accordingly, the
Commission believes there are questions
as to whether the proposal is consistent
with Section 6(b)(5) of the Exchange Act
and the requirements that the rules of
the exchange be designed to prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, and in general, to
protect investors and the public interest,
and whether the proposal is consistent
with the maintenance of fair and orderly
markets under the Exchange Act.
The FLEX Rule 9b–1 Order deemed
FLEX Options to be standardized
options for purposes of the options
disclosure framework established under
Exchange Act Rule 9b–1, which applies
solely to standardized options.21 The
FLEX Rule 9b–1 Order specifically
discussed the ability to flex strike
prices, settlement, expiration dates, and
exercise style, and states that all of the
other terms of FLEX Options are
standardized.22 In addition, the Original
FLEX Order specifically stated that the
index multiplier, among other terms, is
the same for FLEX as for non-FLEX
index options.23 Accordingly, the
18 15
U.S.C. 78f(b)(5).
supra note 11.
20 Under the proposal, 100 FLEX Index Options
with a multiplier of one would be economically
equivalent to one non-FLEX index option with the
same exact terms.
21 See FLEX Rule 9b–1 Order, supra note 10.
22 See id.
23 See Securities Exchange Act Release No. 31920
(February 24, 1993), 58 FR 12280 at 12282 (March
19 See
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67039
Commission believes there are questions
as to whether the Exchange’s proposal is
consistent with the FLEX Rule 9b–1
Order and Original FLEX Order and the
policies underlying those orders, and
whether the proposal is consistent with
Section 6(b)(5) of the Exchange Act.
The Commission notes that, under the
Commission’s Rules of Practice, the
‘‘burden to demonstrate that a proposed
rule change is consistent with the
Exchange Act and the rules and
regulations thereunder . . . is on the
self-regulatory organization [‘‘SRO’’]
that proposed the rule change.24 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,25 and any failure of an SRO to
provide this information may result in
the Commission not having sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Exchange Act and the
applicable rule and regulations.26
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act 27 to
determine whether the proposal should
be approved or disapproved.
III. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the
Exchange Act, or the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval that would
3, 1993) (original order approving a CBOE proposal
to list and trade FLEX Options on the S&P 100 and
500 Index options (‘‘Original FLEX Order’’)). The
Original FLEX Order stated, among other things,
that except for flexing certain terms different from
a standardized option (i.e., (1) strike prices; (2)
exercise types; (3) expiration date; and (4) form of
settlement), ‘‘[o]ther terms, such as the level of the
index multiplier and the nature of the rights and
obligations FLEX Option purchasers and sellers, are
the same for FLEX as for non-FLEX index options.’’
The Commission notes that the Exchange does not
currently allow trading of options with a multiplier
of one on either FLEX or non-FLEX index options.
24 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
25 See id.
26 See id.
27 15 U.S.C. 78s(b)(2)(B).
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be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.28
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by November 12, 2020.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal by November 25, 2020.
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in the
Notice,29 in addition to any other
comments they may wish to submit
about the proposed rule change.
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–2020–034 on the subject line.
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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–2020–034. 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
28 Section 19(b)(2) of the Exchange Act, as
amended by the Securities Act Amendments of
1975, Public Law 94–29 (June 4, 1975), grants the
Commission flexibility to determine what type of
proceeding—either oral or notice and opportunity
for written comments—is appropriate for
consideration of a particular proposal by a selfregulatory organization. See Securities Act
Amendments of 1975, Senate Comm. on Banking,
Housing & Urban Affairs, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
29 See supra note 3.
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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–2020–034 and
should be submitted on or before
November 12, 2020. Rebuttal comments
should be submitted by November 25,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–23261 Filed 10–20–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90211; File No. 265–33]
Asset Management Advisory
Committee; Meeting
Securities and Exchange
Commission.
ACTION: Notice of meeting.
AGENCY:
Notice is being provided that
the Securities and Exchange
Commission Asset Management
Advisory Committee (‘‘AMAC’’) will
hold a public meeting on November 5,
2020, by remote means. The meeting
will begin at 9:00 a.m. (ET) and will be
open to the public via webcast on the
Commission’s website at www.sec.gov.
Persons needing special
accommodations to take part because of
a disability should notify the contact
person listed below. The public is
invited to submit written statements to
the Committee. The meeting will
include potential recommendations
concerning COVID–19 related
operational issues.
DATES: The public meeting will be held
on November 5, 2020. Written
statements should be received on or
before October 29, 2020.
ADDRESSES: The meeting will be held by
remote means and webcast on
SUMMARY:
www.sec.gov. Written statements may be
submitted by any of the following
methods. To help us process and review
your statement more efficiently, please
use only one method. At this time,
electronic statements are preferred.
Electronic Statements
• Use the Commission’s internet
submission form (https://www.sec.gov/
rules/other.shtml); or
• Send an email message to rulecomments@sec.gov. Please include File
Number 265–33 on the subject line; or
Paper Statements
• Send paper statements to Vanessa
Countryman, Federal Advisory
Committee Management Officer,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090.
All submissions should refer to File No.
265–33. This file number should be
included on the subject line if email is
used. The Commission will post all
statements on the Commission’s website
at (https://www.sec.gov/comments/26533/265-33.htm).
Statements also will be available for
website viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE, Room 1580,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. For up-to-date
information on the availability of the
Public Reference Room, please refer to
https://www.sec.gov/fast-answers/
answerspublicdocshtm.html or call
(202) 551–5450.
All statements received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT:
Christian Broadbent, Senior Special
Counsel, Angela Mokodean, Branch
Chief, or Jay Williamson, Branch Chief,
at (202) 551–6720, Division of
Investment Management, Securities and
Exchange Commission, 100 F Street NE,
Washington DC 20549–3628.
SUPPLEMENTARY INFORMATION: In
accordance with Section 10(a) of the
Federal Advisory Committee Act, 5
U.S.C. App. 1, and the regulations
thereunder, Dalia Blass, Designated
Federal Officer of the Committee, has
ordered publication of this notice.
Dated: October 16, 2020.
Vanessa A. Countryman,
Committee Management Officer.
[FR Doc. 2020–23302 Filed 10–20–20; 8:45 am]
30 17
PO 00000
CFR 200.30–3(a)(57).
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[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Notices]
[Pages 67037-67040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23261]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90204; File No. SR-CBOE-2020-034]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Authorize for Trading Flexible Exchange Options
on Full-Value Indexes With a Contract Multiplier of One
October 15, 2020.
On June 30, 2020, Cboe Exchange, Inc. (``Exchange'' or ``CBOE'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to authorize for trading flexible exchange options (``FLEX
Options'') on full-value indexes with a contract multiplier of one. The
proposed rule change was published for comment in the Federal Register
on July 20, 2020.\3\ On September 2, 2020, pursuant to Section 19(b)(2)
of the Exchange Act,\4\ the Commission designated a longer period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ This order institutes
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to
determine whether to approve or disapprove the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89308 (July 14,
2020), 85 FR 43923 (``Notice''). Comments received on the proposed
rule change are available on the Commission's website at: https://www.sec.gov/comments/sr-cboe-2020-034/srcboe2020034.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 89743, 85 FR 55717
(September 9, 2020). The Commission designated October 18, 2020, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Proposal and Comment Received \7\
The Exchange has proposed to amend its rules to authorize for
trading on the Exchange FLEX Options on full-value indexes (``FLEX
Index Options'') with a contract multiplier of one. Currently, CBOE
Rule 4.21(b)(1) states that the index multiplier for FLEX Index Options
is 100. The Exchange proposes to provide that, in addition to the
[[Page 67038]]
current index multiplier of 100, the index multiplier for FLEX Index
Options on full-value indexes may also be one.
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\7\ For a complete description of the Exchange's proposal, see
the Notice, supra note 3.
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The Exchange's rules provide that, when submitting a FLEX Order,
the submitting FLEX Trader \8\ must include all required terms of a
FLEX Option series,\9\ including the underlying equity security or
index (i.e., the FLEX Option class) on the FLEX Order. The proposed
rule change would amend Rule 4.21(b)(1) to state that if a FLEX Trader
specifies a full-value index on a FLEX Order, the FLEX Trader must also
include whether the index option has an index multiplier of 100 or 1
when identifying the class of FLEX Order. In the proposal, the Exchange
stated that each FLEX Index Option series in a FLEX Index Option class
with a multiplier of one will include the same flexible terms as any
other FLEX Option series, including strike price, settlement,
expiration date, and exercise style as required by Rule 4.21(b).\10\
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\8\ A ``FLEX Trader'' is a Trading Permit Holder the Exchange
has approved to trade FLEX Options on the Exchange.
\9\ These terms include, in addition to the underlying equity
security or index, the type of options (put or call), exercise
style, expiration date, settlement type, and exercise price. See
Rule 4.21(b). A ``FLEX Order'' is an order submitted in FLEX
Options. The submission of a FLEX Order makes the FLEX Option series
in that order eligible for trading. See Rule 5.72(b).
\10\ The Exchange stated that because these are the terms
designated by the Commission as those that constitute standardized
options, therefore, the Exchange believes the proposed rule change
is consistent with Section 9(b) of the Exchange Act. See Securities
Exchange Act Release No. 31910 (February 23, 1993), 58 FR 12056
(March 2, 1993) (Order Designating FLEX Options as Standardized
Options under Rule 9b-1 of the Exchange Act) (``FLEX Rule 9b-1
Order'').
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The Exchange's rules permit trading in a put or call FLEX Option
series only if it does not have the same exercise style, same
expiration date, and same exercise price as a non-FLEX option series on
the same underlying security or index that is already available for
trading.\11\ Rule 1.1 defines the term ``series'' as all option
contracts of the same class that are the same type of option and have
the same exercise price and expiration date. The Exchange stated that
it therefore believes that a FLEX Option series in one class may have
the same exercise style, expiration date, settlement, and exercise
price as a non-FLEX option series in a different class, even if they
are on the same underlying security or index. The Exchange stated that
it believes, for example, pursuant to the proposed rule change, a FLEX
Option series overlying the S&P 500 with a multiplier of one may have
the same exercise style, expiration date, settlement, and exercise
price as a non-FLEX option series overlying the S&P 500 with a
multiplier of 100, as they are series in different classes.
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\11\ See Rule 4.21(a)(1). Non-FLEX options are standardized
options traded on CBOE's non-FLEX options market. All terms of non-
FLEX options such as strike prices, exercise types, expiration
dates, and settlement types are the same and standardized for all
market participants trading non-FLEX options. This is in contrast to
the Exchange's FLEX Options market where such terms can be
``flexed'' by market participants.
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The Exchange represented that FLEX Index Options with a multiplier
of one will be traded in the same manner as all other FLEX Options
pursuant to Chapter 5, Section F of the Exchange's rules. The proposed
rule change would amend Rule 4.21(b)(6) to state that the exercise
price for a FLEX Index Option series in a class with a multiplier of
one is set at the same level as the exercise price for a FLEX Index
Option series in a class with a multiplier of 100. The proposed rule
change also would add to Rule 5.3(e)(3) that FLEX Index Options with a
multiplier of one must be expressed in (a) U.S. dollars and decimals if
the exercise price for the FLEX Option series is a fixed price, or (b)
a percentage, if the exercise price for the FLEX Option series is a
percentage of the closing value of the underlying equity security or
index on the trade date, per 1/100th unit. In addition, the proposed
rule change would state that the Exchange's system rounds bids and
offers of FLEX Options to the nearest minimum increment following
application of the designated percentage to the closing value of the
underlying security or index. The Exchange stated that it believes that
this is consistent with current functionality and is merely a
clarification in the Exchange's rules.
The Exchange stated that it believes a FLEX Option position with a
multiplier of one would not be fungible with any non-FLEX index option.
Pursuant to Rule 4.22(a), a FLEX Option position becomes fungible with
a non-FLEX option that becomes listed with identical terms. The
Exchange stated that it does not list for trading any non-FLEX index
option class with a multiplier of one, and that, therefore, in its
view, no FLEX Index Option series with a multiplier of 100 could be
identical to, and fungible with, any non-FLEX option pursuant to Rule
4.22(a) despite the fact that all the other terms of the FLEX Index
Option could be identical to a non-FLEX index option. The Exchange
stated that if it determines to list non-FLEX index options with a one
multiplier in the future, then a FLEX Index Option with a multiplier of
one would become fungible with any non-FLEX index option with a
multiplier of one with the same terms pursuant to Rule 4.22(a).
The proposed rule change would amend Rule 8.35(a) regarding
position limits for FLEX Options to describe how FLEX Index Options
with a multiplier of one will be counted for purposes of determining
compliance with position limits. Because 100 FLEX Index Options with a
multiplier of one are equivalent to one FLEX Index Option with a
multiplier of 100 overlying the same index due to the difference in
contract multipliers, proposed Rule 8.35(a)(7) states that for purposes
of determining compliance with the position limits under Rule 8.35, 100
FLEX Index Option contracts with a multiplier of one equal one FLEX
Index Option contract with a multiplier of 100 with the same underlying
index.\12\ The Exchange stated that it believes that this is consistent
with the current treatment of other reduced-value FLEX Index Options
with respect to position limits. The proposed rule change also would
amend Rule 8.42 to make a corresponding statement regarding the
application of exercise limits to FLEX Index Options with a multiplier
of one. The Exchange stated that the margin requirements set forth in
Chapter 10 of the Exchange's rules would apply to FLEX Index Options
with a multiplier of one (as they currently do to all FLEX
Options).\13\
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\12\ According to the Exchange, the proposed rule change would
make a corresponding change to Rule 8.35(b) to clarify that, like
reduced-value FLEX contracts, FLEX Index Option contracts with a
multiplier of one will be aggregated with full-value contracts and
counted by the amount by which they equal a full-value contract for
purposes of the reporting obligation in that provision (i.e., 100
FLEX Index Options with a multiplier of one will equal one FLEX
Index Option contract with a multiplier of 100 overlying the same
index).
\13\ The Exchange stated that, pursuant to Rule 8.43(j), FLEX
Index Options with a multiplier of one will be aggregated with non-
FLEX index options on the same underlying index in the same manner
as all other FLEX Index Options.
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The Exchange stated that it believes that permitting investors to
trade FLEX Index Option contracts on full-value indexes with an index
multiplier of one will provide investors with additional granularity in
the prices at which they may execute and exercise their FLEX Options on
the Exchange, and thus provide investors with an additional tool to
manage the positions and associated risk in their portfolios based on
notional value, which currently may equal a fraction of a standard
contract.
The Exchange represented that, with regard to the impact of this
proposal on system capacity, the Exchange has analyzed its capacity and
represents that it and the Options Price Reporting Authority have the
necessary systems
[[Page 67039]]
capacity to handle the potential additional traffic associated with the
listing and trading of FLEX Index Options with a multiplier of one. The
Exchange also stated that it understands that the Options Clearing
Corporation will be able to accommodate the listing and trading of FLEX
Index Options with a multiplier of one. The Exchange stated that, to
reduce any potential confusion, FLEX Index Options with a multiplier of
one would be listed with different trading symbols than FLEX Index
Options with a multiplier of 100.
To date the Commission has received one comment letter, which
supports the proposed rule change.\14\ The commenter stated that, as a
customer of CBOE, the proposal would ``dramatically increase the ease
of use FLEX options'' in its hedging process.\15\
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\14\ See letter from Joyana Pilquist, CFA, dated August 24,
2020.
\15\ See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2020-034 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \16\ to determine whether the proposed
rule change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change, as discussed below.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as stated below, the Commission seeks and encourages interested
persons to provide comments on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposal.
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\16\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\17\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with the
Exchange Act, and, in particular, with Section 6(b)(5) of the Exchange
Act, which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, 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.\18\
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\17\ Id.
\18\ 15 U.S.C. 78f(b)(5).
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The proposal would permit the trading of FLEX Index Options with a
contract multiplier of one, which could have the exact same, or
similar, terms as non-FLEX options \19\ on the same index with a
multiplier of 100.\20\ The trading of FLEX Index Options with a
contract multiplier of one under the proposal presents issues related
to price protection in currently-existing non-FLEX index options on the
same underlying index. Specifically, permitting two options with
different contract multipliers on the same underlying interest could
have the effect of allowing FLEX Options with a multiplier of one to
gain priority over customer orders on the book for the similar non-FLEX
index options overlying the same index and also allow bypassing or
trading through the national best bid or offer (``NBBO'') in non-FLEX
index options. Furthermore, the proposal could lead to market
fragmentation by allowing FLEX Index Options to trade with a multiplier
of one and index options on the same index to trade in the non-FLEX
market with a multiplier of 100. Accordingly, the Commission believes
there are questions as to whether the proposal is consistent with
Section 6(b)(5) of the Exchange Act and the requirements that the rules
of the exchange be designed to prevent fraudulent and manipulative acts
and practices, promote just and equitable principles of trade, and in
general, to protect investors and the public interest, and whether the
proposal is consistent with the maintenance of fair and orderly markets
under the Exchange Act.
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\19\ See supra note 11.
\20\ Under the proposal, 100 FLEX Index Options with a
multiplier of one would be economically equivalent to one non-FLEX
index option with the same exact terms.
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The FLEX Rule 9b-1 Order deemed FLEX Options to be standardized
options for purposes of the options disclosure framework established
under Exchange Act Rule 9b-1, which applies solely to standardized
options.\21\ The FLEX Rule 9b-1 Order specifically discussed the
ability to flex strike prices, settlement, expiration dates, and
exercise style, and states that all of the other terms of FLEX Options
are standardized.\22\ In addition, the Original FLEX Order specifically
stated that the index multiplier, among other terms, is the same for
FLEX as for non-FLEX index options.\23\ Accordingly, the Commission
believes there are questions as to whether the Exchange's proposal is
consistent with the FLEX Rule 9b-1 Order and Original FLEX Order and
the policies underlying those orders, and whether the proposal is
consistent with Section 6(b)(5) of the Exchange Act.
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\21\ See FLEX Rule 9b-1 Order, supra note 10.
\22\ See id.
\23\ See Securities Exchange Act Release No. 31920 (February 24,
1993), 58 FR 12280 at 12282 (March 3, 1993) (original order
approving a CBOE proposal to list and trade FLEX Options on the S&P
100 and 500 Index options (``Original FLEX Order'')). The Original
FLEX Order stated, among other things, that except for flexing
certain terms different from a standardized option (i.e., (1) strike
prices; (2) exercise types; (3) expiration date; and (4) form of
settlement), ``[o]ther terms, such as the level of the index
multiplier and the nature of the rights and obligations FLEX Option
purchasers and sellers, are the same for FLEX as for non-FLEX index
options.'' The Commission notes that the Exchange does not currently
allow trading of options with a multiplier of one on either FLEX or
non-FLEX index options.
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The Commission notes that, under the Commission's Rules of
Practice, the ``burden to demonstrate that a proposed rule change is
consistent with the Exchange Act and the rules and regulations
thereunder . . . is on the self-regulatory organization [``SRO''] that
proposed the rule change.\24\ The description of a proposed rule
change, its purpose and operation, its effect, and a legal analysis of
its consistency with applicable requirements must all be sufficiently
detailed and specific to support an affirmative Commission finding,\25\
and any failure of an SRO to provide this information may result in the
Commission not having sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Exchange Act and the
applicable rule and regulations.\26\
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\24\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\25\ See id.
\26\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange
Act \27\ to determine whether the proposal should be approved or
disapproved.
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\27\ 15 U.S.C. 78s(b)(2)(B).
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III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Exchange
Act, or the rules and regulations thereunder. Although there do not
appear to be any issues relevant to approval or disapproval that would
[[Page 67040]]
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4, any request for
an opportunity to make an oral presentation.\28\
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\28\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by November 12, 2020. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 25, 2020.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice,\29\ in addition to any other comments they may wish to
submit about the proposed rule change.
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\29\ See supra note 3.
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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-2020-034 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-2020-034. 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-CBOE-2020-034 and should be submitted on
or before November 12, 2020. Rebuttal comments should be submitted by
November 25, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23261 Filed 10-20-20; 8:45 am]
BILLING CODE 8011-01-P
