Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Extend the Operation of Its Flexible Exchange Options (“FLEX Options”) Pilot Program Regarding Permissible Exercise Settlement Values for FLEX Index Options, 69667-69671 [2020-24270]

Download as PDF Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices Washington, DC, at U.S. Postal Service Headquarters, 475 L’Enfant Plaza SW, in the Benjamin Franklin Room. STATUS: Thursday, November 12, 2020, at 10:15 a.m.—Closed; Friday, November 13, 2020, at 9:00 a.m.—Open. MATTERS TO BE CONSIDERED: PLACE: Thursday, November 12, 2020, at 10:15 a.m. (Closed) 1. Strategic Issues. 2. Financial and Operational Matters. 3. Compensation and Personnel Matters. 4. Administrative Items. Friday, November 13, 2020, at 9:00 a.m. (Open) 1. Remarks of the Chairman of the Board of Governors. 2. Remarks of the Postmaster General and CEO. 3. Approval of Minutes of Previous Meetings. 4. Committee Reports. 5. Financial Matters, including FY2020 10K and Financial Statements, and Annual Reports to Congress. 6. FY2021 Integrated Financial Plan and Financing Resolution. 7. FY2022 Congressional Reimbursement Request. 8. Quarterly Service Performance Report. 9. Bylaws. 10. Approval of Tentative Agenda for February Meetings. 11. Board Leadership. CONTACT PERSON FOR MORE INFORMATION: Katherine Sigler, acting Secretary of the Board, U.S. Postal Service, 475 L’Enfant Plaza SW, Washington, DC 20260–1000. Telephone: (202) 268–4800. Katherine Sigler, Acting Secretary. [FR Doc. 2020–24492 Filed 10–30–20; 4:15 pm] BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION khammond on DSKJM1Z7X2PROD with NOTICES [Release No. 34–90279; File No. SR–CBOE– 2020–103] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Extend the Operation of Its Flexible Exchange Options (‘‘FLEX Options’’) Pilot Program Regarding Permissible Exercise Settlement Values for FLEX Index Options Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the 16:55 Nov 02, 2020 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to extend the operation of its Flexible Exchange Options (‘‘FLEX Options’’) pilot program regarding permissible exercise settlement values for FLEX Index Options. The text of the proposed rule change is provided below. (additions are italicized; deletions are [bracketed]) * * * * * Rules of Cboe Exchange, Inc. * * * * * Rule 4.21. Series of FLEX Options (a) No change. (b) Terms. When submitting a FLEX Order for a FLEX Option series to the System, the submitting FLEX Trader must include one of each of the following terms in the FLEX Order (all other terms of a FLEX Option series are the same as those that apply to nonFLEX Options), which terms constitute the FLEX Option series: (1)–(4) No change. (5) settlement type: (A) No change. (B) FLEX Index Options. FLEX Index Options are settled in U.S. dollars, and may be: (i) No change. (ii) p.m.-settled (with exercise settlement value determined by reference to the reported level of the index derived from the reported closing prices of the component securities), except for a FLEX Index Option that expires on any business day that falls on or within two business days of a third Friday-of-the-month expiration day for a 1 15 October 28, 2020. VerDate Sep<11>2014 ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 16, 2020, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Jkt 253001 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 69667 non-FLEX Option (other than a QIX option) may only be a.m.-settled; however, for a pilot period ending the earlier of [November 2, 2020] May 3, 2021 or the date on which the pilot program is approved on a permanent basis, a FLEX Index Option with an expiration date on the third-Friday of the month may be p.m.-settled; (iii)–(iv) No change. * * * * * The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On January 28, 2010, the Securities and Exchange Commission (the ‘‘Commission’’) approved a Cboe Options rule change that, among other things, established a pilot program regarding permissible exercise settlement values for FLEX Index Options.5 The Exchange has extended the pilot period numerous times, which is currently set to expire on the earlier of November 2, 2020 or the date on which the pilot program is approved on a permanent basis.6 The purpose of this 5 Securities Exchange Act Release No. 61439 (January 28, 2010), 75 FR 5831 (February 4, 2010) (SR–CBOE–2009–087) (‘‘Approval Order’’). The initial pilot period was set to expire on March 28, 2011, which date was added to the rules in 2010. See Securities Exchange Act Release No. 61676 (March 9, 2010), 75 FR 13191 (March 18, 2010) (SR– CBOE–2010–026). 6 See Securities Exchange Act Release Nos. 64110 (March 23, 2011), 76 FR 17463 (March 29, 2011) (SR–CBOE–2011–024) (extending the pilot program through the earlier of March 30, 2012 or the date on which the pilot program is approved on the permanent basis); 66701 (March 30, 2012), 77 FR Continued E:\FR\FM\03NON1.SGM 03NON1 69668 Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES rule change filing is to extend the pilot program through the earlier of May 3, 2021 or the date on which the pilot program is approved on a permanent basis. This filing simply seeks to extend the operation of the pilot program and does not propose any substantive changes to the pilot program. Under Rule 4.21(b), Series of FLEX Options (regarding terms of a FLEX Option),7 a FLEX Option may expire on any business day (specified to day, month and year) no more than 15 years from the date on which a FLEX Trader submits a FLEX Order to the System.8 20673 (April 5, 2012) (SR–CBOE–2012–027) (extending the pilot through the earlier of November 2, 2012 or the date on which the pilot program is approved on a permanent basis); 68145 (November 2, 2012), 77 FR 67044 (November 8, 2012) (SR–CBOE–2012–102) (extending the pilot program through the earlier of November 2, 2013 or the date on which the pilot program is approved on a permanent basis); 70752 (October 24, 2013), 78 FR 65023 (October 30, 2013) (SR–CBOE–2013–099) (extending the pilot program through the earlier of November 3, 2014 or the date on which the pilot program is approved on a permanent basis); 73460 (October 29, 2014), 79 FR 65464 (November 4, 2014) (SR–CBOE–2014–080) (extending the pilot program through the earlier of May 3, 2016 or the date on which the pilot program is approved on a permanent basis); 77742 (April 29, 2016), 81 FR 26857 (May 4, 2016) (SR–CBOE–2016–032) (extending the pilot program through the earlier of May 3, 2017 or the date on which the pilot program is approved on a permanent basis); 80443 (April 12, 2017), 82 FR 18331 (April 18, 2017) (SR–CBOE– 2017–032), 83 FR 21808 (May 10, 2018) (extending the pilot program through the earlier of May 3, 2018 or the date on which the pilot program is approved on a permanent basis); 83175 (May 4, 2018), 83 FR 21808 (May 10, 2018) (SR–CBOE–2018–037); 84537 (November 5, 2018), 83 FR 56113 (November 9, 2018) (SR–CBOE–2018–071); 85707 (April 23, 2019), 84 FR 18100 (April 29, 2019) (SR–CBOE– 2019–021); 87515 (November 13, 2020), 84 FR 63945 (November 19, 2019) (SR–CBOE–2019–108); 88782 (April 30, 2020), 85 FR 27004 (May 6, 2020) (SR–CBOE–2020–039). At the same time the permissible exercise settlement values pilot was established for FLEX Index Options, the Exchange also established a pilot program eliminating the minimum value size requirements for all FLEX Options. See Approval Order, supra note 6. The pilot program eliminating the minimum value size requirements was extended twice pursuant to the same rule filings that extended the permissible exercise settlement values (for the same extended periods) and was approved on a permanent basis in a separate rule change filing. See id; and Securities Exchange Act Release No. 67624 (August 8, 2012), 77 FR 48580 (August 14, 2012) (SR–CBOE–2012– 040). 7 On October 7, 2019, the Exchange migrated its trading platform to the same system used by the Cboe Affiliated Exchanges (Cboe C2 Exchange, Inc. (‘‘C2’’), Cboe EDGX Exchange, Inc. (‘‘EDGX’’), Cboe BZX Exchange, Inc. (‘‘BZX’’), Cboe BYX Exchange, Inc. (‘‘BYX’’), Cboe EDGA Exchange, Inc. (‘‘EDGA’’)). In connection with this migration the Exchange restructured its Rulebook. Prior Rule 24A.4.01, covering the pilot program, was relocated to current Rule 4.21(b)(5). See Securities Exchange Act Release No. 87235 (October 4, 2019), 84 FR 54671 (October 10, 2019) (SR–CBOE–2019–084). 8 Except an Asian-settled or Cliquet-settled FLEX Option series, which must have an expiration date that is a business day but may only expire 350 to 371 days (which is approximately 50 to 53 calendar VerDate Sep<11>2014 16:55 Nov 02, 2020 Jkt 253001 FLEX Index Options are settled in U.S. dollars, and may be a.m.-settled (with exercise settlement value determined by reference to the reported level of the index derived from the reported opening prices of the component securities) or p.m.-settled (with exercise settlement value determined by reference to the reported level of the index derived from the reported closing prices of the component securities).9 Specifically, a FLEX Index Option that expires on, or within two business days of, a third Friday-of-the-month expiration day for a non-FLEX Option (other than a QIX option), may only be a.m. settled.10 However, under the exercise settlement values pilot, this restriction on p.m.-settled FLEX Index Options was eliminated.11 As stated, the exercise settlement values pilot is currently set to expire on the earlier of November 2, 2020 or the date on which the pilot program is approved on a permanent basis. Cboe Options is proposing to extend the pilot program through the earlier of May 3, 2021 or the date on which the pilot program is approved on a permanent basis. Cboe Options believes the pilot program has been successful and well received by its Trading Permit Holders and the investing public for the period that it has been in operation as a pilot. In support of the proposed extension of the pilot program, and as required by the pilot program’s Approval Order, the Exchange has submitted to the Commission pilot program reports regarding the pilot, which detail the Exchange’s experience with the program. Specifically, the Exchange provided the Commission with annual reports analyzing volume and open interest for each broad-based FLEX Index Options class overlying a weeks) from the date on which a FLEX Trader submits a FLEX Order to the System. 9 See Rule 4.21(b)(5)(B); see also Securities Exchange Act Release No. 87235 (October 4, 2019), 84 FR 54671 (October 10, 2019) (SR–CBOE–2019– 084). The rule change removed the provision regarding the exercise settlement value of FLEX Index Options on the NYSE Composite Index, as the Exchange no longer lists options on that index for trading, and included the provisions regarding how the exercise settlement value is determined for each settlement type, as how the exercise settlement value is determined is dependent on the settlement type. 10 For example, notwithstanding the pilot, the exercise settlement value of a FLEX Index Option that expires on the Tuesday before the third Fridayof-the-month could be a.m. or p.m. settled. However, the exercise settlement value of a FLEX Index Option that expires on the Wednesday before the third Friday-of-the-month could only be a.m. settled. 11 No change was necessary or requested with respect to FLEX Equity Options. Regardless of the expiration date, FLEX Equity Options are settled by physical delivery of the underlying. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 third Friday-of-the-month expiration day, p.m.-settled FLEX Index Options series.12 The annual reports also contained information and analysis of FLEX Index Options trading patterns. The Exchange also provided the Commission, on a periodic basis, interim reports of volume and open interest. In providing the pilot reports to the Commission, the Exchange has previously requested confidential treatment of the pilot reports under the Freedom of Information Act (‘‘FOIA’’).13 The Exchange believes there is sufficient investor interest and demand in the pilot program to warrant its extension. The Exchange believes that, for the period that the pilot has been in operation, the program has provided investors with additional means of managing their risk exposures and carrying out their investment objectives. Furthermore, the Exchange believes that it has not experienced any adverse market effects with respect to the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near NonFLEX expirations and use a p.m. settlement (as discussed below). In that regard, based on the Exchange’s experience in trading FLEX Options to date and over the pilot period, Cboe Options continues to believe that the restrictions on exercise settlement values are no longer necessary to insulate Non-FLEX expirations from the potential adverse market impacts of FLEX expirations.14 12 The annual reports also contained certain pilot period and pre-pilot period analyses of volume and open interest for third Friday-of-the-month expiration days, a.m.-settled FLEX Index series and third Friday-of-the-month expiration day Non-FLEX Index series overlying the same index as a third Friday-of-the-month expiration day, p.m.-settled FLEX Index option. 13 5 U.S.C. 552; see infra note 12. 14 In further support, the Exchange also notes that the p.m. settlements are already permitted for FLEX Index Options on any other business day except on, or within two business days of, the third Friday-ofthe-month. The Exchange is not aware of any market disruptions or problems caused by the use of these settlement methodologies on these expiration dates (or on the expiration dates addressed under the pilot program). The Exchange is also not aware of any market disruptions or problems caused by the use of customized options in the over-the-counter (‘‘OTC’’) markets that expire on or near the third Friday-of-the-month and are p.m. settled. In addition, the Exchange believes the reasons for limiting expirations to a.m. settlement, which is something the SEC has imposed since the early 1990s for Non-FLEX Options, revolved around a concern about expiration pressure on the New York Stock Exchange (‘‘NYSE’’) at the close that are no longer relevant in today’s market. Today, the Exchange believes stock exchanges are able to better handle volume. There are multiple primary listing and unlisted trading privilege (‘‘UTP’’) markets, and trading is dispersed among several exchanges and alternative trading systems. In addition, the E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices khammond on DSKJM1Z7X2PROD with NOTICES To the contrary, Cboe Options believes that the restriction actually places the Exchange at a competitive disadvantage to its OTC counterparts in the market for customized options, and unnecessarily limits market participants’ ability to trade in an exchange environment that offers the added benefits of transparency, price discovery, liquidity, and financial stability. The Exchange also notes that certain position limit, aggregation and exercise limit requirements continue to apply to FLEX Index Options in accordance with Rules 8.35, Position Limits for FLEX Options, 8.42(g) Exercise Limits (in connection with FLEX Options) and 8.43(j), Reports Related to Position Limits (in connection with FLEX Options). Additionally, all FLEX Options remain subject to the general position reporting requirements in Rule 8.43(a).15 Moreover, the Exchange and its Trading Permit Holder organizations each have the authority, pursuant to Rule 10.9, Margin Required is Minimum, to impose additional margin as deemed Exchange believes that surveillance techniques are much more robust and automated. In the early 1990s, it was also thought by some that opening procedures allow more time to attract contra-side interest to reduce imbalances. The Exchange believes, however, that today, order flow is predominantly electronic and the ability to smooth out openings and closes is greatly reduced (e.g., market-on-close procedures work just as well as openings). Also, other markets, such as the NASDAQ Stock Exchange, do not have the same type of pre-opening imbalance disseminations as NYSE, so many stocks are not subject to the same procedures on the third Friday-of-the-month. In addition, the Exchange believes that NYSE has reduced the required time a specialist has to wait after disseminating a pre-opening indication. So, in this respect, the Exchange believes there is less time to react in the opening than in the close. Moreover, to the extent there may be a risk of adverse market effects attributable to p.m. settled options that would otherwise be traded in a non-transparent fashion in the OTC market, the Exchange continues to believe that such risk would be lessened by making these customized options eligible for trading in an exchange environment because of the added transparency, price discovery, liquidity, and financial stability available. 15 Rule 8.43(a) provides that ‘‘[i]n a manner and form prescribed by the Exchange, each Trading Permit Holder shall report to the Exchange, the name, address, and social security or tax identification number of any customer who, acting alone, or in concert with others, on the previous business day maintained aggregate long or short positions on the same side of the market of 200 or more contracts of any single class of option contracts dealt in on the Exchange. The report shall indicate for each such class of options, the number of option contracts comprising each such position and, in the case of short positions, whether covered or uncovered.’’ For purposes of Rule 8.43, the term ‘‘customer’’ in respect of any Trading Permit Holder includes ‘‘the Trading Permit Holder, any general or special partner of the Trading Permit Holder, any officer or director of the Trading Permit Holder, or any participant, as such, in any joint, group or syndicate account with the Trading Permit Holder or with any partner, officer or director thereof.’’ Rule 8.43(d). VerDate Sep<11>2014 16:55 Nov 02, 2020 Jkt 253001 advisable. Cboe Options continues to believe these existing safeguards serve sufficiently to help monitor open interest in FLEX Option series and significantly reduce any risk of adverse market effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near NonFLEX expirations and use a p.m. settlement. Cboe Options is also cognizant of the OTC market, in which similar restrictions on exercise settlement values do not apply. Cboe Options continues to believe that the pilot program is appropriate and reasonable and provides market participants with additional flexibility in determining whether to execute their customized options in an exchange environment or in the OTC market. Cboe Options continues to believe that market participants benefit from being able to trade these customized options in an exchange environment in several ways, including, but not limited to, enhanced efficiency in initiating and closing out positions, increased market transparency, and heightened contraparty creditworthiness due to the role of the Options Clearing Corporation as issuer and guarantor of FLEX Options. If, in the future, the Exchange proposes an additional extension of the pilot program, or should the Exchange propose to make the pilot program permanent, the Exchange will submit, along with any filing proposing such amendments to the pilot program, an annual report (addressing the same areas referenced above and consistent with the pilot program’s Approval Order) to the Commission at least two months prior to the expiration date of the program. The Exchange will also continue, on a periodic basis, to submit interim reports of volume and open interest consistent with the terms of the exercise settlement values pilot program as described in the pilot program’s Approval Order. Additionally, the Exchange will provide the Commission with any additional data or analyses the Commission requests because it deems such data or analyses necessary to determine whether the pilot program is consistent with the Exchange Act. The Exchange is in the process of making public on its website all data and analyses previously submitted to the Commission under the pilot program, and will make public any data and analyses it submits to the Commission under the pilot program in the future.16 16 Available at https://www.cboe.com/aboutcboe/ legal-regulatory/national-market-system-plans/pmsettlement-flex-pm-data. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 69669 As noted in the pilot program’s Approval Order, any positions established under the pilot program would not be impacted by the expiration of the pilot program.17 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.18 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 19 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 20 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposed extension of the pilot program, which permits an additional exercise settlement value, would provide greater opportunities for investors to manage risk through the use of FLEX Options. Further, the Exchange believes that it has not experienced any adverse effects from the operation of the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-FLEX expirations and are p.m.settled. The Exchange also believes that the extension of the exercise settlement values pilot does not raise any unique regulatory concerns. In particular, although p.m. settlements may raise questions with the Commission, the 17 For example, a position in a p.m.-settled FLEX Index Option series that expires on the third Fridayof-the-month in January 2020 could be established during the exercise settlement values pilot. If the pilot program were not extended (or made permanent), then the position could continue to exist. However, the Exchange notes that any further trading in the series would be restricted to transactions where at least one side of the trade is a closing transaction. See Approval Order at footnote 3, supra note 6. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). 20 Id. E:\FR\FM\03NON1.SGM 03NON1 69670 Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices Exchange believes that, based on the Exchange’s experience in trading FLEX Options to date and over the pilot period, market impact and investor protection concerns will not be raised by this rule change. The Exchange also believes that the proposed rule change would continue to provide Trading Permit Holders and investors with additional opportunities to trade customized options in an exchange environment (which offers the added benefits of transparency, price discovery, liquidity, and financial stability as compared to the over-thecounter market) and subject to exchange-based rules, and investors would benefit as a result. B. Self-Regulatory Organization’s Statement on Burden on Competition khammond on DSKJM1Z7X2PROD with NOTICES Cboe Options does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes there is sufficient investor interest and demand in the pilot program to warrant its extension. The Exchange believes that, for the period that the pilot has been in operation, the program has provided investors with additional means of managing their risk exposures and carrying out their investment objectives. Furthermore, the Exchange believes that it has not experienced any adverse market effects with respect to the pilot program, including any adverse market volatility effects that might occur as a result of large FLEX exercises in FLEX Option series that expire near Non-Flex expirations and use a p.m. settlement. Cboe Options believes that the restriction actually places the Exchange at a competitive disadvantage to its OTC counterparts in the market for customized options, and unnecessarily limits market participants’ ability to trade in an exchange environment that offers the added benefits of transparency, price discovery, liquidity, and financial stability. Therefore, the Exchange does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. VerDate Sep<11>2014 16:55 Nov 02, 2020 Jkt 253001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 21 and Rule 19b– 4(f)(6) thereunder.22 A proposed rule change filed under Rule 19b–4(f)(6) 23 normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii),24 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange states that such waiver will allow the Exchange to extend the pilot program and maintain the status quo, thereby reducing market disruption. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the pilot program to continue uninterrupted, thereby avoiding investor confusion that could result from a temporary interruption in the pilot program. For this reason, the Commission designates the proposed rule change to be operative upon filing.25 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings 21 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 23 17 CFR 240.19b–4(f)(6). 24 17 CFR 240.19b–4(f)(6)(iii). 25 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 22 17 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CBOE–2020–103 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–2020–103. 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–2020–103, and should be submitted on or before November 24, 2020. 26 17 E:\FR\FM\03NON1.SGM CFR 200.30–3(a)(12). 03NON1 Federal Register / Vol. 85, No. 213 / Tuesday, November 3, 2020 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–24270 Filed 11–2–20; 8:45 am] SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meetings Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission Small Business Capital Formation Advisory Committee will hold a public meeting on Monday, November 9, 2020, via videoconference. TIME AND DATE: The meeting will begin at 10:00 a.m. (ET) and will be open to the public. The meeting will be conducted by remote means (videoconference) and/or at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. Members of the public may watch the webcast of the meeting on the Commission’s website at www.sec.gov. PLACE: On October 23, 2020, the Commission published notice of the Committee meeting (Release No. 33– 10877), indicating that the meeting is open to the public and inviting the public to submit written comments to the Committee. This Sunshine Act notice is being issued because a majority of the Commission may attend the meeting. STATUS: The agenda for the meeting includes matters relating to rules and regulations affecting small and emerging businesses and their investors. MATTER TO BE CONSIDERED: CONTACT PERSON FOR MORE INFORMATION: For further information and to ascertain what, if any, matters have been added, deleted or postponed; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. khammond on DSKJM1Z7X2PROD with NOTICES Dated: October 30, 2020. Vanessa A. Countryman, Secretary. [FR Doc. 2020–24490 Filed 10–30–20; 4:15 pm] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION the most significant aspects of such statements. [Release No. 34–90278; File No. SR–MEMX– 2020–13] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Enable Members To Designate Certain Orders To Be Identified as Retail Orders to the Exchange BILLING CODE 8011–01–P October 28, 2020. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on October 26, 2020, MEMX LLC (‘‘MEMX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 4 and Rule 19b–4(f)(6) thereunder.5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposed rule change to adopt new Rule 11.21 to enable members of the Exchange (‘‘Members’’) to designate certain orders they submit to the Exchange on behalf of retail customers to be identified as retail orders to the Exchange. The text of the proposed rule change is provided in Exhibit 5. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 4 15 U.S.C. 78s(b)(3)(A)(iii). 5 17 CFR 240.19b–4(f)(6). VerDate Sep<11>2014 16:55 Nov 02, 2020 Jkt 253001 69671 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 1. Purpose The Exchange proposes to adopt new Rule 11.21 to enable Members to designate certain orders they submit to the Exchange on behalf of retail customers to be identified as retail orders to the Exchange. Under the proposed rule change, the Exchange would create a new class of market participant for any Member that satisfies the requirements under proposed Rule 11.21 called a Retail Member Organization (‘‘RMO’’), which would be eligible to submit certain retail order flow (‘‘Retail Orders’’) to the Exchange. Specifically, proposed Rule 11.21 would: (i) Define a Retail Order and RMO; (ii) set forth an RMO’s qualification and application requirements and the Exchange’s approval process; (iii) outline procedures for when an RMO fails to abide by the Retail Order requirements; and (iv) outline the procedures under which a Member may appeal the Exchange’s decision to disapprove it or disqualify it as an RMO. The Exchange notes that proposed Rule 11.21 is substantially similar to and based on paragraphs (a)–(d) of Cboe BZX Exchange, Inc. (‘‘Cboe BZX’’) Rule 11.25.6 Definitions The Exchange proposes to adopt the following definitions under proposed Rule 11.21(a). First, the term ‘‘Retail Member Organization’’ or ‘‘RMO’’ would be defined as a Member (or a division thereof) that has been approved by the Exchange to submit Retail Orders. Second, the term ‘‘Retail Order’’ would be defined as an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person and is submitted to the Exchange by an RMO, provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. 6 See Cboe BZX Rule 11.25; see also Securities Exchange Act Release Nos. 73237 (September 26, 2014), 79 FR 59537 (October 2, 2014) (SR–BATS– 2014–043); 73677 (November 24, 2014), 79 FR 71150 (December 1, 2014) (SR–BATS–2014–058); 76205 (October 21, 2015), 80 FR 65828 (October 27, 2015) (SR–BATS–2015–90). E:\FR\FM\03NON1.SGM 03NON1

Agencies

[Federal Register Volume 85, Number 213 (Tuesday, November 3, 2020)]
[Notices]
[Pages 69667-69671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24270]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90279; File No. SR-CBOE-2020-103]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Extend the Operation of Its Flexible Exchange Options (``FLEX 
Options'') Pilot Program Regarding Permissible Exercise Settlement 
Values for FLEX Index Options

October 28, 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 October 16, 2020, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to extend the operation of its Flexible Exchange Options (``FLEX 
Options'') pilot program regarding permissible exercise settlement 
values for FLEX Index Options. The text of the proposed rule change is 
provided below.
(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe Exchange, Inc.

* * * * *
Rule 4.21. Series of FLEX Options
    (a) No change.
    (b) Terms. When submitting a FLEX Order for a FLEX Option series to 
the System, the submitting FLEX Trader must include one of each of the 
following terms in the FLEX Order (all other terms of a FLEX Option 
series are the same as those that apply to non-FLEX Options), which 
terms constitute the FLEX Option series:
    (1)-(4) No change.
    (5) settlement type:
    (A) No change.
    (B) FLEX Index Options. FLEX Index Options are settled in U.S. 
dollars, and may be:
    (i) No change.
    (ii) p.m.-settled (with exercise settlement value determined by 
reference to the reported level of the index derived from the reported 
closing prices of the component securities), except for a FLEX Index 
Option that expires on any business day that falls on or within two 
business days of a third Friday-of-the-month expiration day for a non-
FLEX Option (other than a QIX option) may only be a.m.-settled; 
however, for a pilot period ending the earlier of [November 2, 2020] 
May 3, 2021 or the date on which the pilot program is approved on a 
permanent basis, a FLEX Index Option with an expiration date on the 
third-Friday of the month may be p.m.-settled;
    (iii)-(iv) No change.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 28, 2010, the Securities and Exchange Commission (the 
``Commission'') approved a Cboe Options rule change that, among other 
things, established a pilot program regarding permissible exercise 
settlement values for FLEX Index Options.\5\ The Exchange has extended 
the pilot period numerous times, which is currently set to expire on 
the earlier of November 2, 2020 or the date on which the pilot program 
is approved on a permanent basis.\6\ The purpose of this

[[Page 69668]]

rule change filing is to extend the pilot program through the earlier 
of May 3, 2021 or the date on which the pilot program is approved on a 
permanent basis. This filing simply seeks to extend the operation of 
the pilot program and does not propose any substantive changes to the 
pilot program.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 61439 (January 28, 
2010), 75 FR 5831 (February 4, 2010) (SR-CBOE-2009-087) (``Approval 
Order''). The initial pilot period was set to expire on March 28, 
2011, which date was added to the rules in 2010. See Securities 
Exchange Act Release No. 61676 (March 9, 2010), 75 FR 13191 (March 
18, 2010) (SR-CBOE-2010-026).
    \6\ See Securities Exchange Act Release Nos. 64110 (March 23, 
2011), 76 FR 17463 (March 29, 2011) (SR-CBOE-2011-024) (extending 
the pilot program through the earlier of March 30, 2012 or the date 
on which the pilot program is approved on the permanent basis); 
66701 (March 30, 2012), 77 FR 20673 (April 5, 2012) (SR-CBOE-2012-
027) (extending the pilot through the earlier of November 2, 2012 or 
the date on which the pilot program is approved on a permanent 
basis); 68145 (November 2, 2012), 77 FR 67044 (November 8, 2012) 
(SR-CBOE-2012-102) (extending the pilot program through the earlier 
of November 2, 2013 or the date on which the pilot program is 
approved on a permanent basis); 70752 (October 24, 2013), 78 FR 
65023 (October 30, 2013) (SR-CBOE-2013-099) (extending the pilot 
program through the earlier of November 3, 2014 or the date on which 
the pilot program is approved on a permanent basis); 73460 (October 
29, 2014), 79 FR 65464 (November 4, 2014) (SR-CBOE-2014-080) 
(extending the pilot program through the earlier of May 3, 2016 or 
the date on which the pilot program is approved on a permanent 
basis); 77742 (April 29, 2016), 81 FR 26857 (May 4, 2016) (SR-CBOE-
2016-032) (extending the pilot program through the earlier of May 3, 
2017 or the date on which the pilot program is approved on a 
permanent basis); 80443 (April 12, 2017), 82 FR 18331 (April 18, 
2017) (SR-CBOE-2017-032), 83 FR 21808 (May 10, 2018) (extending the 
pilot program through the earlier of May 3, 2018 or the date on 
which the pilot program is approved on a permanent basis); 83175 
(May 4, 2018), 83 FR 21808 (May 10, 2018) (SR-CBOE-2018-037); 84537 
(November 5, 2018), 83 FR 56113 (November 9, 2018) (SR-CBOE-2018-
071); 85707 (April 23, 2019), 84 FR 18100 (April 29, 2019) (SR-CBOE-
2019-021); 87515 (November 13, 2020), 84 FR 63945 (November 19, 
2019) (SR-CBOE-2019-108); 88782 (April 30, 2020), 85 FR 27004 (May 
6, 2020) (SR-CBOE-2020-039). At the same time the permissible 
exercise settlement values pilot was established for FLEX Index 
Options, the Exchange also established a pilot program eliminating 
the minimum value size requirements for all FLEX Options. See 
Approval Order, supra note 6. The pilot program eliminating the 
minimum value size requirements was extended twice pursuant to the 
same rule filings that extended the permissible exercise settlement 
values (for the same extended periods) and was approved on a 
permanent basis in a separate rule change filing. See id; and 
Securities Exchange Act Release No. 67624 (August 8, 2012), 77 FR 
48580 (August 14, 2012) (SR-CBOE-2012-040).
---------------------------------------------------------------------------

    Under Rule 4.21(b), Series of FLEX Options (regarding terms of a 
FLEX Option),\7\ a FLEX Option may expire on any business day 
(specified to day, month and year) no more than 15 years from the date 
on which a FLEX Trader submits a FLEX Order to the System.\8\ FLEX 
Index Options are settled in U.S. dollars, and may be a.m.-settled 
(with exercise settlement value determined by reference to the reported 
level of the index derived from the reported opening prices of the 
component securities) or p.m.-settled (with exercise settlement value 
determined by reference to the reported level of the index derived from 
the reported closing prices of the component securities).\9\ 
Specifically, a FLEX Index Option that expires on, or within two 
business days of, a third Friday-of-the-month expiration day for a non-
FLEX Option (other than a QIX option), may only be a.m. settled.\10\ 
However, under the exercise settlement values pilot, this restriction 
on p.m.-settled FLEX Index Options was eliminated.\11\ As stated, the 
exercise settlement values pilot is currently set to expire on the 
earlier of November 2, 2020 or the date on which the pilot program is 
approved on a permanent basis.
---------------------------------------------------------------------------

    \7\ On October 7, 2019, the Exchange migrated its trading 
platform to the same system used by the Cboe Affiliated Exchanges 
(Cboe C2 Exchange, Inc. (``C2''), Cboe EDGX Exchange, Inc. 
(``EDGX''), Cboe BZX Exchange, Inc. (``BZX''), Cboe BYX Exchange, 
Inc. (``BYX''), Cboe EDGA Exchange, Inc. (``EDGA'')). In connection 
with this migration the Exchange restructured its Rulebook. Prior 
Rule 24A.4.01, covering the pilot program, was relocated to current 
Rule 4.21(b)(5). See Securities Exchange Act Release No. 87235 
(October 4, 2019), 84 FR 54671 (October 10, 2019) (SR-CBOE-2019-
084).
    \8\ Except an Asian-settled or Cliquet-settled FLEX Option 
series, which must have an expiration date that is a business day 
but may only expire 350 to 371 days (which is approximately 50 to 53 
calendar weeks) from the date on which a FLEX Trader submits a FLEX 
Order to the System.
    \9\ See Rule 4.21(b)(5)(B); see also Securities Exchange Act 
Release No. 87235 (October 4, 2019), 84 FR 54671 (October 10, 2019) 
(SR-CBOE-2019-084). The rule change removed the provision regarding 
the exercise settlement value of FLEX Index Options on the NYSE 
Composite Index, as the Exchange no longer lists options on that 
index for trading, and included the provisions regarding how the 
exercise settlement value is determined for each settlement type, as 
how the exercise settlement value is determined is dependent on the 
settlement type.
    \10\ For example, notwithstanding the pilot, the exercise 
settlement value of a FLEX Index Option that expires on the Tuesday 
before the third Friday-of-the-month could be a.m. or p.m. settled. 
However, the exercise settlement value of a FLEX Index Option that 
expires on the Wednesday before the third Friday-of-the-month could 
only be a.m. settled.
    \11\ No change was necessary or requested with respect to FLEX 
Equity Options. Regardless of the expiration date, FLEX Equity 
Options are settled by physical delivery of the underlying.
---------------------------------------------------------------------------

    Cboe Options is proposing to extend the pilot program through the 
earlier of May 3, 2021 or the date on which the pilot program is 
approved on a permanent basis. Cboe Options believes the pilot program 
has been successful and well received by its Trading Permit Holders and 
the investing public for the period that it has been in operation as a 
pilot. In support of the proposed extension of the pilot program, and 
as required by the pilot program's Approval Order, the Exchange has 
submitted to the Commission pilot program reports regarding the pilot, 
which detail the Exchange's experience with the program. Specifically, 
the Exchange provided the Commission with annual reports analyzing 
volume and open interest for each broad-based FLEX Index Options class 
overlying a third Friday-of-the-month expiration day, p.m.-settled FLEX 
Index Options series.\12\ The annual reports also contained information 
and analysis of FLEX Index Options trading patterns. The Exchange also 
provided the Commission, on a periodic basis, interim reports of volume 
and open interest. In providing the pilot reports to the Commission, 
the Exchange has previously requested confidential treatment of the 
pilot reports under the Freedom of Information Act (``FOIA'').\13\
---------------------------------------------------------------------------

    \12\ The annual reports also contained certain pilot period and 
pre-pilot period analyses of volume and open interest for third 
Friday-of-the-month expiration days, a.m.-settled FLEX Index series 
and third Friday-of-the-month expiration day Non-FLEX Index series 
overlying the same index as a third Friday-of-the-month expiration 
day, p.m.-settled FLEX Index option.
    \13\ 5 U.S.C. 552; see infra note 12.
---------------------------------------------------------------------------

    The Exchange believes there is sufficient investor interest and 
demand in the pilot program to warrant its extension. The Exchange 
believes that, for the period that the pilot has been in operation, the 
program has provided investors with additional means of managing their 
risk exposures and carrying out their investment objectives. 
Furthermore, the Exchange believes that it has not experienced any 
adverse market effects with respect to the pilot program, including any 
adverse market volatility effects that might occur as a result of large 
FLEX exercises in FLEX Option series that expire near Non-FLEX 
expirations and use a p.m. settlement (as discussed below).
    In that regard, based on the Exchange's experience in trading FLEX 
Options to date and over the pilot period, Cboe Options continues to 
believe that the restrictions on exercise settlement values are no 
longer necessary to insulate Non-FLEX expirations from the potential 
adverse market impacts of FLEX expirations.\14\

[[Page 69669]]

To the contrary, Cboe Options believes that the restriction actually 
places the Exchange at a competitive disadvantage to its OTC 
counterparts in the market for customized options, and unnecessarily 
limits market participants' ability to trade in an exchange environment 
that offers the added benefits of transparency, price discovery, 
liquidity, and financial stability.
---------------------------------------------------------------------------

    \14\ In further support, the Exchange also notes that the p.m. 
settlements are already permitted for FLEX Index Options on any 
other business day except on, or within two business days of, the 
third Friday-of-the-month. The Exchange is not aware of any market 
disruptions or problems caused by the use of these settlement 
methodologies on these expiration dates (or on the expiration dates 
addressed under the pilot program). The Exchange is also not aware 
of any market disruptions or problems caused by the use of 
customized options in the over-the-counter (``OTC'') markets that 
expire on or near the third Friday-of-the-month and are p.m. 
settled. In addition, the Exchange believes the reasons for limiting 
expirations to a.m. settlement, which is something the SEC has 
imposed since the early 1990s for Non-FLEX Options, revolved around 
a concern about expiration pressure on the New York Stock Exchange 
(``NYSE'') at the close that are no longer relevant in today's 
market. Today, the Exchange believes stock exchanges are able to 
better handle volume. There are multiple primary listing and 
unlisted trading privilege (``UTP'') markets, and trading is 
dispersed among several exchanges and alternative trading systems. 
In addition, the Exchange believes that surveillance techniques are 
much more robust and automated. In the early 1990s, it was also 
thought by some that opening procedures allow more time to attract 
contra-side interest to reduce imbalances. The Exchange believes, 
however, that today, order flow is predominantly electronic and the 
ability to smooth out openings and closes is greatly reduced (e.g., 
market-on-close procedures work just as well as openings). Also, 
other markets, such as the NASDAQ Stock Exchange, do not have the 
same type of pre-opening imbalance disseminations as NYSE, so many 
stocks are not subject to the same procedures on the third Friday-
of-the-month. In addition, the Exchange believes that NYSE has 
reduced the required time a specialist has to wait after 
disseminating a pre-opening indication. So, in this respect, the 
Exchange believes there is less time to react in the opening than in 
the close. Moreover, to the extent there may be a risk of adverse 
market effects attributable to p.m. settled options that would 
otherwise be traded in a non-transparent fashion in the OTC market, 
the Exchange continues to believe that such risk would be lessened 
by making these customized options eligible for trading in an 
exchange environment because of the added transparency, price 
discovery, liquidity, and financial stability available.
---------------------------------------------------------------------------

    The Exchange also notes that certain position limit, aggregation 
and exercise limit requirements continue to apply to FLEX Index Options 
in accordance with Rules 8.35, Position Limits for FLEX Options, 
8.42(g) Exercise Limits (in connection with FLEX Options) and 8.43(j), 
Reports Related to Position Limits (in connection with FLEX Options). 
Additionally, all FLEX Options remain subject to the general position 
reporting requirements in Rule 8.43(a).\15\ Moreover, the Exchange and 
its Trading Permit Holder organizations each have the authority, 
pursuant to Rule 10.9, Margin Required is Minimum, to impose additional 
margin as deemed advisable. Cboe Options continues to believe these 
existing safeguards serve sufficiently to help monitor open interest in 
FLEX Option series and significantly reduce any risk of adverse market 
effects that might occur as a result of large FLEX exercises in FLEX 
Option series that expire near Non-FLEX expirations and use a p.m. 
settlement.
---------------------------------------------------------------------------

    \15\ Rule 8.43(a) provides that ``[i]n a manner and form 
prescribed by the Exchange, each Trading Permit Holder shall report 
to the Exchange, the name, address, and social security or tax 
identification number of any customer who, acting alone, or in 
concert with others, on the previous business day maintained 
aggregate long or short positions on the same side of the market of 
200 or more contracts of any single class of option contracts dealt 
in on the Exchange. The report shall indicate for each such class of 
options, the number of option contracts comprising each such 
position and, in the case of short positions, whether covered or 
uncovered.'' For purposes of Rule 8.43, the term ``customer'' in 
respect of any Trading Permit Holder includes ``the Trading Permit 
Holder, any general or special partner of the Trading Permit Holder, 
any officer or director of the Trading Permit Holder, or any 
participant, as such, in any joint, group or syndicate account with 
the Trading Permit Holder or with any partner, officer or director 
thereof.'' Rule 8.43(d).
---------------------------------------------------------------------------

    Cboe Options is also cognizant of the OTC market, in which similar 
restrictions on exercise settlement values do not apply. Cboe Options 
continues to believe that the pilot program is appropriate and 
reasonable and provides market participants with additional flexibility 
in determining whether to execute their customized options in an 
exchange environment or in the OTC market. Cboe Options continues to 
believe that market participants benefit from being able to trade these 
customized options in an exchange environment in several ways, 
including, but not limited to, enhanced efficiency in initiating and 
closing out positions, increased market transparency, and heightened 
contra-party creditworthiness due to the role of the Options Clearing 
Corporation as issuer and guarantor of FLEX Options.
    If, in the future, the Exchange proposes an additional extension of 
the pilot program, or should the Exchange propose to make the pilot 
program permanent, the Exchange will submit, along with any filing 
proposing such amendments to the pilot program, an annual report 
(addressing the same areas referenced above and consistent with the 
pilot program's Approval Order) to the Commission at least two months 
prior to the expiration date of the program. The Exchange will also 
continue, on a periodic basis, to submit interim reports of volume and 
open interest consistent with the terms of the exercise settlement 
values pilot program as described in the pilot program's Approval 
Order. Additionally, the Exchange will provide the Commission with any 
additional data or analyses the Commission requests because it deems 
such data or analyses necessary to determine whether the pilot program 
is consistent with the Exchange Act. The Exchange is in the process of 
making public on its website all data and analyses previously submitted 
to the Commission under the pilot program, and will make public any 
data and analyses it submits to the Commission under the pilot program 
in the future.\16\
---------------------------------------------------------------------------

    \16\ Available at https://www.cboe.com/aboutcboe/legal-regulatory/national-market-system-plans/pm-settlement-flex-pm-data.
---------------------------------------------------------------------------

    As noted in the pilot program's Approval Order, any positions 
established under the pilot program would not be impacted by the 
expiration of the pilot program.\17\
---------------------------------------------------------------------------

    \17\ For example, a position in a p.m.-settled FLEX Index Option 
series that expires on the third Friday-of-the-month in January 2020 
could be established during the exercise settlement values pilot. If 
the pilot program were not extended (or made permanent), then the 
position could continue to exist. However, the Exchange notes that 
any further trading in the series would be restricted to 
transactions where at least one side of the trade is a closing 
transaction. See Approval Order at footnote 3, supra note 6.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\18\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \19\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \20\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposed extension of 
the pilot program, which permits an additional exercise settlement 
value, would provide greater opportunities for investors to manage risk 
through the use of FLEX Options. Further, the Exchange believes that it 
has not experienced any adverse effects from the operation of the pilot 
program, including any adverse market volatility effects that might 
occur as a result of large FLEX exercises in FLEX Option series that 
expire near Non-FLEX expirations and are p.m.-settled. The Exchange 
also believes that the extension of the exercise settlement values 
pilot does not raise any unique regulatory concerns. In particular, 
although p.m. settlements may raise questions with the Commission, the

[[Page 69670]]

Exchange believes that, based on the Exchange's experience in trading 
FLEX Options to date and over the pilot period, market impact and 
investor protection concerns will not be raised by this rule change. 
The Exchange also believes that the proposed rule change would continue 
to provide Trading Permit Holders and investors with additional 
opportunities to trade customized options in an exchange environment 
(which offers the added benefits of transparency, price discovery, 
liquidity, and financial stability as compared to the over-the-counter 
market) and subject to exchange-based rules, and investors would 
benefit as a result.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Cboe Options does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes there 
is sufficient investor interest and demand in the pilot program to 
warrant its extension. The Exchange believes that, for the period that 
the pilot has been in operation, the program has provided investors 
with additional means of managing their risk exposures and carrying out 
their investment objectives. Furthermore, the Exchange believes that it 
has not experienced any adverse market effects with respect to the 
pilot program, including any adverse market volatility effects that 
might occur as a result of large FLEX exercises in FLEX Option series 
that expire near Non-Flex expirations and use a p.m. settlement. Cboe 
Options believes that the restriction actually places the Exchange at a 
competitive disadvantage to its OTC counterparts in the market for 
customized options, and unnecessarily limits market participants' 
ability to trade in an exchange environment that offers the added 
benefits of transparency, price discovery, liquidity, and financial 
stability. Therefore, the Exchange does not believe that the proposed 
rule change will impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
such waiver will allow the Exchange to extend the pilot program and 
maintain the status quo, thereby reducing market disruption.
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\25\
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    \25\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2020-103 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-2020-103. 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-2020-103, and should be submitted 
on or before November 24, 2020.
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    \26\ 17 CFR 200.30-3(a)(12).


[[Page 69671]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24270 Filed 11-2-20; 8:45 am]
BILLING CODE 8011-01-P
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