Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating To Amend the Definition of “Current Market Value” for Purposes of Calculating Margin Requirements for Certain Options, 7760-7763 [2021-02005]
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7760
Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Notices
Dated: January 28, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–02155 Filed 1–28–21; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90990; File No. SR–CBOE–
2021–006]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Amend the
Definition of ‘‘Current Market Value’’ for
Purposes of Calculating Margin
Requirements for Certain Options
January 26, 2021.
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 January
14, 2021, 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
the definition of ‘‘current market value’’
for purposes of calculating margin
requirements for certain options. The
text of the proposed rule change is
provided below.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Rules of Cboe Exchange, Inc.
*
*
*
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.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
The Exchange proposes to amend the
definition of ‘‘current market value’’
with respect to certain ETF options for
purposes of calculating margin
requirements. Rule 10.3(a)(2) currently
defines the term ‘‘current market value’’
as follows:
The term ‘‘current market value’’ is as
defined in Section 220.3 of Regulation T of
the Board of Governors of the Federal
Reserve System. At any other time, in the
case of options, stock index warrants,
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).
16:57 Jan 29, 2021
*
1. Purpose
*
Rule 10.3. Margin Requirements
(a) Definitions. For purposes of this Rule,
the following terms shall have the meanings
specified below.
(1) No change.
(2) The term ‘‘current market value’’ is as
defined in Section 220.[3]2 of Regulation T
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of the Board of Governors of the Federal
Reserve System. At any other time, in the
case of options, stock index warrants,
currency index warrants and currency
warrants, it shall mean the closing price of
that series of options or warrants on the
Exchange on any day with respect to which
a determination of current market value is
made, except in the case of certain index and
ETF options determined by the Exchange, it
shall be based on quotes for that series of
options on the Exchange 15 minutes prior to
the close of trading on any day with respect
to which a determination of current market
value is made. In the case of other securities,
it shall mean the preceding business day’s
closing price as shown by any regularly
published reporting or quotation service. If
there is no closing price or quotes, as
applicable, on the option or on another
security, a TPH organization may use a
reasonable estimate of the current market
value of the security as of the close of
business or as of 15 minutes prior to the
closing of trading, respectively, on the
preceding business day.
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currency index warrants and currency
warrants, it shall mean the closing price of
that series of options or warrants on the
Exchange on any day with respect to which
a determination of current market value is
made, except in the case of certain index
options determined by the Exchange, it shall
be based on quotes for that series of options
on the Exchange 15 minutes prior to the close
of trading on any day with respect to which
a determination of current market value is
made. In the case of other securities, it shall
mean the preceding business day’s closing
price as shown by any regularly published
reporting or quotation service. If there is no
closing price or quotes, as applicable, on the
option or on another security, a TPH
organization may use a reasonable estimate of
the current market value of the security as of
the close of business or as of 15 minutes prior
to the closing of trading, respectively, on the
preceding business day.5
Rule 10.3 and other Rules in Chapter
10 of the Exchange’s Rulebook describe
how margin requirements are calculated
for market participants’ positions in
options (and certain other securities),
including strategy-based margin and
customer portfolio margin requirements,
which requirements are generally based
on the current market value of the
option series. These requirements are
determined on a daily basis for market
participants’ securities accounts that
hold options positions.6 Currently, 43
ETF options that are listed for trading
on the Exchange close for trading at 4:15
p.m. Eastern time.7 Therefore, daily
margin requirements for those options
are currently based on the closing trade
prices of those options series at that
time.8
5 Section 220.2 of Regulation T of the Board of
Governors of the Federal Reserve System defines
‘‘current market value’’ of a security as (1)
throughout the day of the purchase or sale of a
security, the security’s total cost of purchase or the
net proceeds of its sale including any commissions
charged; or (2) at any other time, the closing sale
price of the security on the preceding business day,
as shown by any regularly published reporting or
quotation service. If there is no closing sale price,
the creditor may use any reasonable estimate of the
market value of the security as of the close of
business on the preceding business day.’’ See 12
CFR 220.2. The term ‘‘marking’’ value is often used
to refer to the current market value for capital and
margin purposes. The proposed rule change
corrects the reference to Section 220.3 in the
definition of current market value in Rule 10.3(a)(2)
to be Section 220.2.
6 The Exchange notes the Options Clearing
Corporation (‘‘OCC’’) calculates the daily margin
requirements for Clearing Members’ options
positions at OCC. The Exchange understands OCC
intends to incorporate a corresponding change
regarding the time at which the value of a series is
determined into its procedures for calculating
margin requirements.
7 See Rule 5.1(b)(2); see also closing times for ETF
options, available at https://www.cboe.com/us/
options/market_statistics/symbol_reference/
?mkt=cone&underlying=1.
8 The Exchange notes the daily margin
requirements for all other ETF options that close at
4:00 p.m. Eastern time are based on the closing
trade at that time.
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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Notices
A number of options overlie
exchange-traded funds (‘‘ETFs’’) that
track the same indexes on which the
Exchange lists index options.9 These
options are complementary investment
tools available to market participants.
The Exchange understands that market
participants generally use the same
information when pricing an index
option and an ETF option with an
underlying ETF that tracks the same
index. Additionally, market
participants’ investment and hedging
strategies often involve index options
and related products, including ETF
options. For example, market
participants often engage in hedging
strategies that involve options on the
S&P 500 Index (‘‘SPX options’’), which
trade exclusively on the Exchange, and
SPY options, which may trade on any
options exchange.
The Exchange recently amended the
definition of ‘‘current market value’’ to
provide that, for certain index options
determined by the Exchange, it would
be based on quotes for a series of
options on the Exchange 15 minutes
prior to the close of trading rather than
the closing price.10 The purpose of that
change was to maintain alignment
between the times at which the current
market value of index options and the
daily settlement price of related futures
(i.e., futures that overlie the same
indexes as the index options) is
determined for purposes of calculating
daily margin requirements.11 Currently,
the Exchange has determined to
determine the current market value for
margin requirements 15 minutes prior to
the closing time for the following index
options: DJX options, MXEA options,
MXEF options, OEX options, RUT
options, SPESG options, SPX options,
VIX options, XEO options, and XSP
options.12
Currently, the Exchange determines
the daily settlement price for all ETF
options at the time at which they close
for trading, which as noted above, is at
4:15 p.m. for a number of ETF options.
Several of these ETF options overlie an
ETF that tracks an index on which the
Exchange lists index options, including
index options for which the Exchange
determines the current market value for
margin requirements 15 minutes prior to
the closing time. The Exchange has
received numerous requests from
market participants to determine the
current market value for such ETF
options at the same time at which it
determines the current market value for
corresponding index options. Therefore,
to permit the Exchange to align the
times at which the current market value
of index options and options overlying
ETFs that track the same indexes is
determined for purposes of calculating
daily margin requirements, the
Exchange proposes to amend the
definition of current market value with
respect to certain Exchange-designated
ETF options 13 to be based on quotes of
that series of options on the Exchange
15 minutes prior to the close of trading
on any day with respect to which a
determination of current market value is
made.14 The Exchange intends to apply
an indicator to the quotes disseminated
to the Options Price Reporting
Authority (‘‘OPRA’’) that will be the
daily mark for a series on the applicable
trading day. The Exchange anticipates
initially applying this proposed
definition to SPY options. The proposed
flexibility will permit the Exchange to
respond in a timely manner to any
requests from industry participants and
maintain alignment between those times
as appropriate.
9 For example, the SPDR S&P 500 ETF Trust
(‘‘SPY’’) tracks the S&P 500 Index. The Exchange (as
well as other options exchanges) list SPY options
for trading, and the Exchange lists options on the
S&P 500 Index as well (‘‘SPX’’). Additional
examples of ETF options (which may trade on any
options exchange) with an underlying ETF that
tracks an index on which the Exchange lists an
option include the iShares Russell 2000 ETF
(‘‘IWM’’) (which tracks the Russell 2000 Index, as
do RUT options) and the SPDR Dow Jones
Industrial Average ETF Trust (‘‘DIA’’) (which tracks
the Dow Jones Industrial Average, as do DJX
options).
10 See Securities Exchange Act Release No. 90195
(October 15, 2020), 85 FR 67041 (October 21, 2020)
(SR–CBOE–2020–090).
11 See id. As described in that proposed rule
change, the Chicago Mercantile Exchange (‘‘CME’’),
on which index futures products trade, intended to
change the daily settlement price for index futures
from 4:15 p.m. Eastern time to 4:00 p.m. Eastern
time.
12 See Exchange Notice C2020113000, Schedule
Update—Cboe Proprietary Index Products MXEA
and MXEF to be Added to 3:00 p.m. Marking Price
Files. These index options close for trading at 4:15
p.m. Eastern time.
13 Pursuant to Rule 1.5, the Exchange announces
to Trading Permit Holders all determinations it
makes pursuant to the Rules (which would include
the determination of ETF options subject to the
proposed rule change) via specifications, notices, or
regulatory circulars with appropriate advanced
notice, which are posted on the Exchange’s website,
or as otherwise provided in the Rules (among other
methods).
14 Fifteen minutes prior to the close of trading
will generally equate to 4:00 p.m. Eastern time. The
Exchange notes the proposed rule change does not
change the time at which trading in the applicable
ETF options will close. In other words, on a regular
trading day, while the current market value for
these ETF options will be determined at 4:00 p.m.
Eastern time, those ETF options will continue to
trade until 4:15 p.m. Eastern time (any options
trades that occur between 4:00 and 4:15 on that
trading day would use the 4:00 current market
value for margin calculation purposes).
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2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.15 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 16 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) 17 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange also believes the
proposed rule change furthers the
objectives of Section 6(c)(3) of the Act,18
which authorizes the Exchange to,
among other things, prescribe standards
of financial responsibility or operational
capability and standards of training,
experience and competence for its
Trading Permit Holders and person
associated with Trading Permit Holders.
In particular, the Exchange believes
alignment between the times at which
related options prices are used to
calculate daily margin requirements will
protect investors. In fact, the Exchange
has received numerous requests from
market participants to make this change.
Among other things, the Exchange
believes this alignment will prevent
increased risk to market participants
that hold positions across related
options products due to potential
disparities that could occur in relation
to factors such as margin requirements,
pay-collect obligations, the
synchronization of existing hedges, and
the level of end-of-day risk. Differing
daily valuation times for these products
may cause offset relationships between
options positions to be lost, which may
distort the true status of risk within a
market participant’s portfolio. Use of the
same determination time for margin
calculations reduces risk of a disconnect
15 15
16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
17 Id.
18 15
E:\FR\FM\01FEN1.SGM
U.S.C. 78f(c)(3).
01FEN1
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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Notices
between the values used in a market
participant’s securities account for
related securities. For example, if the
Exchange continues to use the closing
prices of ETF options as the current
market value of those options while the
marking time of related index options
uses prices 15 minutes prior to the
close, there could be a significant
misalignment between these values,
particularly if there were to be a large
price move in the equity markets during
that 15-minute time period.19
The Exchange believes the proposed
rule change will also promote just and
equitable principles of trade and remove
impediments to and perfect the
mechanism of a free and open market by
permitting alignment of daily marks for
related products that market
participants often use in a
complementary manner as part of their
investment and hedging strategies. The
Act authorizes the Exchange to
prescribe standards of financial
responsibility for Trading Permit
Holders, and the proposed rule change
regarding the daily value to be used for
calculation of daily margin
requirements for options positions is
consistent with that authority.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The primary
purpose of the proposed rule change is
to align margin calculations for related
products in the securities industries.
The Exchange does not believe the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
because the proposed change related to
margin requirements for the designated
options will apply in the same manner
to all market participants that hold
positions in those options. The
Exchange does not believe the proposed
rule change will impose any burden on
intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposed rule change relates to margin
requirements the Exchange imposes on
its Trading Permit Holders. As noted
above, the Exchange recently made a
similar rule change to permit it to align
19 The Exchange is unaware of market
participants who have been significantly negatively
impacted by this lack of alignment since the
marking time for index options changed in October.
However, the proposed rule change would
eliminate the potential risk associated with
misalignment going forward.
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the time at which it determines current
market value for index options with the
time at which a futures exchange
determined the daily settlement value
for related futures products for
substantially similar purposes. Other
options exchanges may choose to
similarly change the time at which
current market value will be determined
for purposes of their margin rules.
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:
A. Significantly affect the protection
of investors or the public interest;
B. impose any significant burden on
competition; and
C. 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 20 and Rule 19b–4(f)(6) 21
thereunder.
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 stated that it
believes waiver of the operative delay
will protect investors by permitting the
Exchange to align the times at which the
current market value of ETF options
with the times at which the current
market value of related index options in
securities accounts are determined as
soon as practicable. The Exchange also
stated that it believes this will benefit
market participants by preventing
potential price distortions between
related options and reduce pricing risks
to market participants that hold
positions in ETF options and related
index options that may occur if the time
at which the current market value of
options was determined differed from
the time at which the daily settlement
value of related futures was determined.
The Exchange also noted the proposed
20 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, as required
under Rule 19b–4(f)(6)(iii), the Exchange provided
the Commission with written notice of its intent to
file the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of the filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
21 17
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rule change is not novel, because the
Exchange recently made a similar rule
change to permit it to align the time at
which it determines current market
value for index options with the time at
which a futures exchange determined
the daily settlement value for related
futures products for substantially
similar purposes. The Exchange stated it
will announce to Trading Permit
Holders the date on which the change
will be implemented in accordance with
Rule 1.5 (i.e., the date will be
announced via specifications, notices,
or regulatory circulars with appropriate
advanced notice, which are posted on
the Exchange’s website, or as otherwise
provided in the Rules (among other
methods)). The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest,
because waiver of the operative delay
will permit the Exchange to eliminate
the potential pricing disparities that
may occur as a result of continued
misalignment as soon as possible. For
this reason, the Commission designates
the proposed rule change to be operative
upon filing.22
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2021–006 on the subject line.
22 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Notices
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–2021–006. 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–2021–006 and
should be submitted on or before
February 22, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02005 Filed 1–29–21; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 11342]
Notice of Shipping Coordination
Committee Meeting in Preparation for
International Maritime Organization
Meeting
The Department of State will conduct
a public meeting of the Shipping
23 17
CFR 200.30–3(a)(12).
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16:57 Jan 29, 2021
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Coordination Committee at 10:00 a.m.
on Thursday, April 29, 2021, by way of
teleconference. Members of the public
may participate up to the capacity of the
teleconference phone line, which will
handle 500 participants. To access the
teleconference line, participants should
call (202) 475–4000 and use Participant
Code: 138 541 34#.
The primary purpose of the meeting is
to prepare for the 103rd session of the
International Maritime Organization’s
(IMO) Maritime Safety Committee to be
held remotely, May 5 to 14, 2021.
The agenda items to be considered
include:
—Adoption of the agenda; report on
credentials
—Decisions of other IMO bodies
—Consideration and adoption of
amendments to mandatory
instruments
—Capacity-building for the
implementation of new measures
—Regulatory scoping exercise for the
use of Maritime Autonomous Surface
Ships (MASS)
—Development of further measures to
enhance the safety of ships relating to
the use of fuel oil
—Goal-based new ship construction
standards
—Measures to improve domestic ferry
safety
—Measures to enhance maritime
security
—Piracy and armed robbery against
ships
—Unsafe mixed migration by sea
—Formal safety assessment
—Human element, training and
watchkeeping (report of the seventh
session of the Sub-Committee)
—Navigation, communications and
search and rescue
—Ship design and construction
—Ship systems and equipment
—Application of the Committee’s
method of work
—Work programme
—Election of Chair and Vice-Chair for
2021
—Any other business
—Consideration of the report of the
Committee on its 103rd session
Please note: the Maritime Safety
Committee may, on short notice, adjust
the MSC 103 agenda to accommodate
the constraints associated with the
virtual meeting format. Any changes to
the agenda will be relayed to those who
contact the meeting coordinator to
confirm their attendance at the public
meeting.
Those who plan to participate may
contact the meeting coordinator, LT
Jessica Anderson, by email at
Jessica.P.Anderson@uscg.mil, by phone
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at (202) 372–1376, or in writing at 2703
Martin Luther King Jr. Ave. SE Stop
7509, Washington DC 20593–7509.
Additional information regarding this
and other IMO public meetings may be
found at: https://www.dco.uscg.mil/
IMO.
Jeremy M. Greenwood,
Executive Secretary, Shipping Coordinating
Committee, Coast Guard Liaison Officer,
Office of Ocean and Polar Affairs, Department
of State.
[FR Doc. 2021–02101 Filed 1–29–21; 8:45 am]
BILLING CODE 4710–09–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
[Docket No. FAA–2020–0621]
Agency Information Collection
Activities: Requests for Comments;
Clearance of a Renewed Approval of
Information Collection: National Air
Tours Safety Standards
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice and request for
comments.
AGENCY:
In accordance with the
Paperwork Reduction Act of 1995, FAA
invites public comments about our
intention to request the Office of
Management and Budget (OMB)
approval to renew an information
collection. The Federal Register Notice
with a 60-day comment period soliciting
comments on the following collection of
information was published on June 24,
2020. The collection involves
requirements in FAA regulations that
set safety and oversight rules for a broad
variety of sightseeing and commercial
air tour flights to improve the overall
safety of commercial air tours by
requiring all air tours to submit
information.
SUMMARY:
Written comments should be
submitted by March 3, 2021.
ADDRESSES: Interested persons are
invited to submit written comments on
the proposed information collection to
the Office of Information and Regulatory
Affairs, Office of Management and
Budget. Comments should be addressed
to the attention of the Desk Officer,
Department of Transportation/FAA, and
sent via electronic mail to oira_
submission@omb.eop.gov, or faxed to
(202) 395–6974, or mailed to the Office
of Information and Regulatory Affairs,
Office of Management and Budget,
Docket Library, Room 10102, 725 17th
Street NW, Washington, DC 20503.
DATES:
E:\FR\FM\01FEN1.SGM
01FEN1
]]>Agencies
[Federal Register Volume 86, Number 19 (Monday, February 1, 2021)]
[Notices]
[Pages 7760-7763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02005]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90990; File No. SR-CBOE-2021-006]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend the Definition of ``Current Market Value'' for Purposes of
Calculating Margin Requirements for Certain Options
January 26, 2021.
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 January 14, 2021, 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.
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\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 amend the definition of ``current market value'' for purposes of
calculating margin requirements for certain options. The text of the
proposed rule change is provided below.
(additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 10.3. Margin Requirements
(a) Definitions. For purposes of this Rule, the following terms
shall have the meanings specified below.
(1) No change.
(2) The term ``current market value'' is as defined in Section
220.[3]2 of Regulation T of the Board of Governors of the Federal
Reserve System. At any other time, in the case of options, stock
index warrants, currency index warrants and currency warrants, it
shall mean the closing price of that series of options or warrants
on the Exchange on any day with respect to which a determination of
current market value is made, except in the case of certain index
and ETF options determined by the Exchange, it shall be based on
quotes for that series of options on the Exchange 15 minutes prior
to the close of trading on any day with respect to which a
determination of current market value is made. In the case of other
securities, it shall mean the preceding business day's closing price
as shown by any regularly published reporting or quotation service.
If there is no closing price or quotes, as applicable, on the option
or on another security, a TPH organization may use a reasonable
estimate of the current market value of the security as of the close
of business or as of 15 minutes prior to the closing of trading,
respectively, on the preceding business day.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the definition of ``current market
value'' with respect to certain ETF options for purposes of calculating
margin requirements. Rule 10.3(a)(2) currently defines the term
``current market value'' as follows:
The term ``current market value'' is as defined in Section 220.3
of Regulation T of the Board of Governors of the Federal Reserve
System. At any other time, in the case of options, stock index
warrants, currency index warrants and currency warrants, it shall
mean the closing price of that series of options or warrants on the
Exchange on any day with respect to which a determination of current
market value is made, except in the case of certain index options
determined by the Exchange, it shall be based on quotes for that
series of options on the Exchange 15 minutes prior to the close of
trading on any day with respect to which a determination of current
market value is made. In the case of other securities, it shall mean
the preceding business day's closing price as shown by any regularly
published reporting or quotation service. If there is no closing
price or quotes, as applicable, on the option or on another
security, a TPH organization may use a reasonable estimate of the
current market value of the security as of the close of business or
as of 15 minutes prior to the closing of trading, respectively, on
the preceding business day.\5\
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\5\ Section 220.2 of Regulation T of the Board of Governors of
the Federal Reserve System defines ``current market value'' of a
security as (1) throughout the day of the purchase or sale of a
security, the security's total cost of purchase or the net proceeds
of its sale including any commissions charged; or (2) at any other
time, the closing sale price of the security on the preceding
business day, as shown by any regularly published reporting or
quotation service. If there is no closing sale price, the creditor
may use any reasonable estimate of the market value of the security
as of the close of business on the preceding business day.'' See 12
CFR 220.2. The term ``marking'' value is often used to refer to the
current market value for capital and margin purposes. The proposed
rule change corrects the reference to Section 220.3 in the
definition of current market value in Rule 10.3(a)(2) to be Section
220.2.
Rule 10.3 and other Rules in Chapter 10 of the Exchange's Rulebook
describe how margin requirements are calculated for market
participants' positions in options (and certain other securities),
including strategy-based margin and customer portfolio margin
requirements, which requirements are generally based on the current
market value of the option series. These requirements are determined on
a daily basis for market participants' securities accounts that hold
options positions.\6\ Currently, 43 ETF options that are listed for
trading on the Exchange close for trading at 4:15 p.m. Eastern time.\7\
Therefore, daily margin requirements for those options are currently
based on the closing trade prices of those options series at that
time.\8\
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\6\ The Exchange notes the Options Clearing Corporation
(``OCC'') calculates the daily margin requirements for Clearing
Members' options positions at OCC. The Exchange understands OCC
intends to incorporate a corresponding change regarding the time at
which the value of a series is determined into its procedures for
calculating margin requirements.
\7\ See Rule 5.1(b)(2); see also closing times for ETF options,
available at https://www.cboe.com/us/options/market_statistics/symbol_reference/?mkt=cone&underlying=1.
\8\ The Exchange notes the daily margin requirements for all
other ETF options that close at 4:00 p.m. Eastern time are based on
the closing trade at that time.
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[[Page 7761]]
A number of options overlie exchange-traded funds (``ETFs'') that
track the same indexes on which the Exchange lists index options.\9\
These options are complementary investment tools available to market
participants. The Exchange understands that market participants
generally use the same information when pricing an index option and an
ETF option with an underlying ETF that tracks the same index.
Additionally, market participants' investment and hedging strategies
often involve index options and related products, including ETF
options. For example, market participants often engage in hedging
strategies that involve options on the S&P 500 Index (``SPX options''),
which trade exclusively on the Exchange, and SPY options, which may
trade on any options exchange.
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\9\ For example, the SPDR S&P 500 ETF Trust (``SPY'') tracks the
S&P 500 Index. The Exchange (as well as other options exchanges)
list SPY options for trading, and the Exchange lists options on the
S&P 500 Index as well (``SPX''). Additional examples of ETF options
(which may trade on any options exchange) with an underlying ETF
that tracks an index on which the Exchange lists an option include
the iShares Russell 2000 ETF (``IWM'') (which tracks the Russell
2000 Index, as do RUT options) and the SPDR Dow Jones Industrial
Average ETF Trust (``DIA'') (which tracks the Dow Jones Industrial
Average, as do DJX options).
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The Exchange recently amended the definition of ``current market
value'' to provide that, for certain index options determined by the
Exchange, it would be based on quotes for a series of options on the
Exchange 15 minutes prior to the close of trading rather than the
closing price.\10\ The purpose of that change was to maintain alignment
between the times at which the current market value of index options
and the daily settlement price of related futures (i.e., futures that
overlie the same indexes as the index options) is determined for
purposes of calculating daily margin requirements.\11\ Currently, the
Exchange has determined to determine the current market value for
margin requirements 15 minutes prior to the closing time for the
following index options: DJX options, MXEA options, MXEF options, OEX
options, RUT options, SPESG options, SPX options, VIX options, XEO
options, and XSP options.\12\
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\10\ See Securities Exchange Act Release No. 90195 (October 15,
2020), 85 FR 67041 (October 21, 2020) (SR-CBOE-2020-090).
\11\ See id. As described in that proposed rule change, the
Chicago Mercantile Exchange (``CME''), on which index futures
products trade, intended to change the daily settlement price for
index futures from 4:15 p.m. Eastern time to 4:00 p.m. Eastern time.
\12\ See Exchange Notice C2020113000, Schedule Update--Cboe
Proprietary Index Products MXEA and MXEF to be Added to 3:00 p.m.
Marking Price Files. These index options close for trading at 4:15
p.m. Eastern time.
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Currently, the Exchange determines the daily settlement price for
all ETF options at the time at which they close for trading, which as
noted above, is at 4:15 p.m. for a number of ETF options. Several of
these ETF options overlie an ETF that tracks an index on which the
Exchange lists index options, including index options for which the
Exchange determines the current market value for margin requirements 15
minutes prior to the closing time. The Exchange has received numerous
requests from market participants to determine the current market value
for such ETF options at the same time at which it determines the
current market value for corresponding index options. Therefore, to
permit the Exchange to align the times at which the current market
value of index options and options overlying ETFs that track the same
indexes is determined for purposes of calculating daily margin
requirements, the Exchange proposes to amend the definition of current
market value with respect to certain Exchange-designated ETF options
\13\ to be based on quotes of that series of options on the Exchange 15
minutes prior to the close of trading on any day with respect to which
a determination of current market value is made.\14\ The Exchange
intends to apply an indicator to the quotes disseminated to the Options
Price Reporting Authority (``OPRA'') that will be the daily mark for a
series on the applicable trading day. The Exchange anticipates
initially applying this proposed definition to SPY options. The
proposed flexibility will permit the Exchange to respond in a timely
manner to any requests from industry participants and maintain
alignment between those times as appropriate.
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\13\ Pursuant to Rule 1.5, the Exchange announces to Trading
Permit Holders all determinations it makes pursuant to the Rules
(which would include the determination of ETF options subject to the
proposed rule change) via specifications, notices, or regulatory
circulars with appropriate advanced notice, which are posted on the
Exchange's website, or as otherwise provided in the Rules (among
other methods).
\14\ Fifteen minutes prior to the close of trading will
generally equate to 4:00 p.m. Eastern time. The Exchange notes the
proposed rule change does not change the time at which trading in
the applicable ETF options will close. In other words, on a regular
trading day, while the current market value for these ETF options
will be determined at 4:00 p.m. Eastern time, those ETF options will
continue to trade until 4:15 p.m. Eastern time (any options trades
that occur between 4:00 and 4:15 on that trading day would use the
4:00 current market value for margin calculation purposes).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes the proposed rule
change furthers the objectives of Section 6(c)(3) of the Act,\18\ which
authorizes the Exchange to, among other things, prescribe standards of
financial responsibility or operational capability and standards of
training, experience and competence for its Trading Permit Holders and
person associated with Trading Permit Holders.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ Id.
\18\ 15 U.S.C. 78f(c)(3).
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In particular, the Exchange believes alignment between the times at
which related options prices are used to calculate daily margin
requirements will protect investors. In fact, the Exchange has received
numerous requests from market participants to make this change. Among
other things, the Exchange believes this alignment will prevent
increased risk to market participants that hold positions across
related options products due to potential disparities that could occur
in relation to factors such as margin requirements, pay-collect
obligations, the synchronization of existing hedges, and the level of
end-of-day risk. Differing daily valuation times for these products may
cause offset relationships between options positions to be lost, which
may distort the true status of risk within a market participant's
portfolio. Use of the same determination time for margin calculations
reduces risk of a disconnect
[[Page 7762]]
between the values used in a market participant's securities account
for related securities. For example, if the Exchange continues to use
the closing prices of ETF options as the current market value of those
options while the marking time of related index options uses prices 15
minutes prior to the close, there could be a significant misalignment
between these values, particularly if there were to be a large price
move in the equity markets during that 15-minute time period.\19\
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\19\ The Exchange is unaware of market participants who have
been significantly negatively impacted by this lack of alignment
since the marking time for index options changed in October.
However, the proposed rule change would eliminate the potential risk
associated with misalignment going forward.
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The Exchange believes the proposed rule change will also promote
just and equitable principles of trade and remove impediments to and
perfect the mechanism of a free and open market by permitting alignment
of daily marks for related products that market participants often use
in a complementary manner as part of their investment and hedging
strategies. The Act authorizes the Exchange to prescribe standards of
financial responsibility for Trading Permit Holders, and the proposed
rule change regarding the daily value to be used for calculation of
daily margin requirements for options positions is consistent with that
authority.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The primary purpose of the
proposed rule change is to align margin calculations for related
products in the securities industries. The Exchange does not believe
the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the proposed change related to margin
requirements for the designated options will apply in the same manner
to all market participants that hold positions in those options. The
Exchange does not believe the proposed rule change will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act because the proposed rule
change relates to margin requirements the Exchange imposes on its
Trading Permit Holders. As noted above, the Exchange recently made a
similar rule change to permit it to align the time at which it
determines current market value for index options with the time at
which a futures exchange determined the daily settlement value for
related futures products for substantially similar purposes. Other
options exchanges may choose to similarly change the time at which
current market value will be determined for purposes of their margin
rules.
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:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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 \20\ and
Rule 19b-4(f)(6) \21\ thereunder.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). In addition, as required under Rule
19b-4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of the 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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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 stated that it believes waiver of the operative
delay will protect investors by permitting the Exchange to align the
times at which the current market value of ETF options with the times
at which the current market value of related index options in
securities accounts are determined as soon as practicable. The Exchange
also stated that it believes this will benefit market participants by
preventing potential price distortions between related options and
reduce pricing risks to market participants that hold positions in ETF
options and related index options that may occur if the time at which
the current market value of options was determined differed from the
time at which the daily settlement value of related futures was
determined. The Exchange also noted the proposed rule change is not
novel, because the Exchange recently made a similar rule change to
permit it to align the time at which it determines current market value
for index options with the time at which a futures exchange determined
the daily settlement value for related futures products for
substantially similar purposes. The Exchange stated it will announce to
Trading Permit Holders the date on which the change will be implemented
in accordance with Rule 1.5 (i.e., the date will be announced via
specifications, notices, or regulatory circulars with appropriate
advanced notice, which are posted on the Exchange's website, or as
otherwise provided in the Rules (among other methods)). The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest, because waiver of the
operative delay will permit the Exchange to eliminate the potential
pricing disparities that may occur as a result of continued
misalignment as soon as possible. For this reason, the Commission
designates the proposed rule change to be operative upon filing.\22\
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\22\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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 will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2021-006 on the subject line.
[[Page 7763]]
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-2021-006. 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-2021-006 and should be submitted on
or before February 22, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02005 Filed 1-29-21; 8:45 am]
BILLING CODE 8011-01-P
