Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rule 6.10 To Introduce a Voluntary Multilateral Compression Service for SPX Options, 37197-37200 [2021-14901]
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Federal Register / Vol. 86, No. 132 / Wednesday, July 14, 2021 / Notices
ACTION:
Notice.
POSTAL SERVICE
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
DATES:
Date of required notice: July 14,
2021.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 8, 2021, it
filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 711 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2021–108, CP2021–110.
SUPPLEMENTARY INFORMATION:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2021–15000 Filed 7–13–21; 8:45 am]
BILLING CODE 7710–12–P
Product Change—Priority Mail
Negotiated Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: July 14,
2021.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 8, 2021, it
filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 710 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2021–107, CP2021–109.
SUMMARY:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
POSTAL SERVICE
[FR Doc. 2021–14999 Filed 7–13–21; 8:45 am]
BILLING CODE 7710–12–P
Product Change—Priority Mail and
First-Class Package Service
Negotiated Service Agreement
AGENCY:
ACTION:
Postal
POSTAL SERVICE
ServiceTM.
Product Change—Priority Mail
Negotiated Service Agreement
Notice.
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
SUMMARY:
ACTION:
SUPPLEMENTARY INFORMATION:
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on July 9, 2021, it
filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail & First-Class Package
Service Contract 198 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2021–110,
CP2021–112.
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: July 14,
2021.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on June 30, 2021,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 709 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2021–106, CP2021–108.
Sean Robinson,
Attorney, Corporate and Postal Business Law.
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2021–15002 Filed 7–13–21; 8:45 am]
[FR Doc. 2021–14998 Filed 7–13–21; 8:45 am]
BILLING CODE 7710–12–P
BILLING CODE 7710–12–P
DATES:
Date of required notice: July 14,
2021.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
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Postal ServiceTM.
Notice.
AGENCY:
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SUMMARY:
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37197
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92354; File No. SR–CBOE–
2021–020]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of
Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To Adopt Rule 6.10
To Introduce a Voluntary Multilateral
Compression Service for SPX Options
July 8, 2021.
I. Introduction
On March 24, 2021, Cboe Exchange,
Inc. (‘‘Exchange’’ or ‘‘Cboe’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt new Cboe Rule 6.10 to
introduce a voluntary compression
service for market makers. The proposed
rule change was published for comment
in the Federal Register on April 12,
2021.3 On May 25, 2021, the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.4 On July 7, 2021,
the Exchange filed Amendment No. 1 to
the proposed rule change, which
replaced and superseded the proposed
rule change in its entirety.5 The
Commission is publishing this notice to
solicit comments on the Exchange’s
proposal, as modified by Amendment
No. 1, from interested persons and is
approving the Exchange’s proposal, as
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 91482
(April 6, 2021), 86 FR 19067. Comments on the
proposed rule change can be found on the
Commission’s website at: https://www.sec.gov/
comments/sr-cboe-2021-020/srcboe2021020.htm.
4 See Securities Exchange Act Release No. 92011,
86 FR 29334 (June 1, 2021). The Commission
designated July 11, 2021, as the date by which it
should approve, disapprove, or institute
proceedings to determine whether to disapprove the
proposed rule change.
5 In Amendment No. 1, the Exchange: (1)
Narrowed the list of index options that could be
compressed to include only SPX options and
limited the compression service to closing positions
only, (2) expanded eligibility from only market
makers to all TPHs, (3) added detail to the
participation requirements to ensure that the
proposed compression service is limited to
legitimate compression purposes, (4) added further
detail regarding the proposed compression service,
and (5) added additional justification for the
proposed rule change.
2 17
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Federal Register / Vol. 86, No. 132 / Wednesday, July 14, 2021 / Notices
modified by Amendment No. 1, on an
accelerated basis.
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II. Description of the Proposed Rule
Change, as Modified by Amendment
No. 1
The Exchange proposes to adopt new
Cboe Rule 6.10 to provide Trading
Permit Holders (‘‘TPHs’’) with an
additional voluntary compression tool
that they can use to reduce required
capital attributable to their S&P 500
Index (‘‘SPX’’) options holdings.6 The
Exchange’s proposal is designed to
address the impact on liquidity
providers of the limited amount of
capital available from clearing brokerdealers that is a consequence of, among
other things, the fact that a number of
clearing TPHs are now subsidiaries of
U.S. bank holding companies that must,
as a result of this affiliation, comply
with additional bank capital regulatory
requirements. In particular, bank capital
rules do not currently permit
deductions for hedged securities or
offsetting options positions to the same
extent that the federal securities laws
and self-regulatory organization rules do
for securities. The impact of this
dynamic most acutely impacts SPX
options due to the popularity of SPX
options and the significant number of
open index options positions combined
with their large notional value.
In its filing, the Exchange explains
that it has observed that these bank
capital rules have caused clearing
broker-dealers to impose stricter
position limits on their clearing
members, which can impact the
liquidity that TPHs, notably market
makers who are frequently the
counterparties to a significant portion of
SPX option trades, might be able to
supply.7 This impact would be most
pronounced when markets are volatile,
precisely at the time when the market
would benefit from increased liquidity
provision.
The bank regulatory agencies have
approved replacing the Current
Exposure Method (‘‘CEM’’) with the
Standardized Approach to Counterparty
Credit Risk (‘‘SA–CCR’’) in the near
future, and the Exchange believes SA–
CCR will be ‘‘less punitive’’ to clearing
broker-dealers because SA–CCR ‘‘will
help correct many of CEM’s flaws by
incorporating risk-sensitive principles,
6 Currently, the Exchange offers other methods by
which TPHs can compress certain types of options
holdings, including (1) Cboe Rule 5.6, which allows
for compression orders in SPX options and (2) Cboe
Rule 6.8, which allows TPHs to transfer positions
off-exchange if the transfer does not result in a
change of ownership and reduced the risk-weighted
assets associated with those positions.
7 See Amendment No. 1, at 8–10.
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such as delta weighting options
positions and more beneficial netting of
derivative contracts that have
economically meaningful
relationships.’’ 8 Nevertheless, the
Exchange believes that SA–CCR ‘‘will
not eliminate [TPHs’] need for
compression’’ as the ability to compress
SPX positions can ‘‘enable them to
provide more meaningful liquidity to
the market, particularly during times of
volatility when the market needs this
liquidity most.’’ 9 The Exchange further
asserts that ‘‘this additional liquidity
may result in tighter spreads and more
execution opportunities, which benefits
all investors.’’ 10
As described more fully in the Notice,
as modified by Amendment No. 1, in
order to be able to participate in the new
multilateral compression service, a TPH
must request access to the service and
complete a standard test to demonstrate
its capacity to participate. While the
Exchange initially proposed that only
registered market makers would be
eligible to participate and a larger
number of index options would be
eligible for inclusion, the Exchange has
modified its proposal to allow any TPH
to request access and to limit the service
to SPX options only, where the need for
compression is most present.11
The Exchange will offer multilateral
compression periodically, initially twice
per month, in order to allow TPHs to
respond to intra-month reviews of
regulatory capital for their positions by
their clearing broker-dealers.12 To
participate, a TPH must submit a
‘‘position list’’ after the close of trading
on the specified day that details all of
the open SPX positions it would like to
close out and compress. The list must
specify the amount of capital reduction
associated with each closing position,
the theoretical value of each position,
the maximum cost the TPH is willing to
accept to compress all of the positions
(in the aggregate), the maximum cost per
unit of capital reduction the TPH is
willing to accept, and at least one risk
constraint of the TPH’s choosing
including a minimum and maximum
value. TPHs have flexibility in choosing
these values as specified in the
proposed rule.13
After the deadline for submission of
the position lists, the Exchange runs an
automated process to match offsetting
id. at 10.
id. at 11.
10 See id.
11 See generally Amendment No. 1.
12 See Amendment No. 1, at 17.
13 See, e.g., proposed Cboe Rule 6.10(b)(2)
(concerning a theoretical value ‘‘calculated in a
manner of the compression participant’s
choosing’’).
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8 See
9 See
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positions in an anonymized manner.
The process identifies the outcome that
would result in the maximum aggregate
capital reduction among all
participating TPHs (picking at random
from among equal outcomes). The
Exchange determines the compression
price for each option, which will be ‘‘as
close as possible to the midpoint of the
[national best bid and offer] at the close
of the trading day or the daily marking
time, subject to adjustment using
generally accepted volatility and
options pricing models in the event of
wide markets, market volatility, or other
unusual circumstances.’’ 14
The Exchange then notifies the TPH
participants of each TPH’s individual
compression proposal.15 Each TPH with
at least one offsetting position must
notify the Exchange whether it accepts
its individual proposal.16 If all
compression participants accept their
individual proposals, then the Exchange
effects the transactions at the specified
prices off the exchange.17 If one
compression participant declines, then
no compression transactions are
effected.18
III. Discussion and Commission
Findings
After careful review of the proposal
and the comments received, all of which
supported the proposal and
recommended that the Commission
approve it, the Commission finds that
the proposed rule change, as modified
by Amendment No. 1, is consistent with
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.19 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with Section 6(b)(5)
of the Act,20 which requires, among
other things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
14 Proposed
Cboe Rule 6.10(c)(2).
id.
16 See proposed Cboe Rule 6.10(d).
17 See id. In Amendment No. 1, the Exchange
represented that it will disseminate compression
transaction information to OPRA. The Exchange
further states that it has completed system work to
apply an indicator to such information and is
working with OPRA so that OPRA is able to
incorporate that indicator. The Exchange expects
OPRA to complete its work in 2021, but notes that
the indicator may not be available upon
implementation of the compression service. See
Amendment No. 1, at 27.
18 See id.
19 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
20 15 U.S.C. 78f(b)(5).
15 See
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Federal Register / Vol. 86, No. 132 / Wednesday, July 14, 2021 / Notices
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
In support of its proposal, the
Exchange states that compression
transactions under Cboe Rule 6.10 will
have a narrow scope and are intended
and designed to achieve the limited
purpose of capital reduction.21 The
Exchange further explains that it
understands that TPHs have no need for
price discovery or price improvement
for compression transactions, because
the purpose of the transfer is to reduce
capital requirements attributable to the
TPHs’ positions and the price of the
compression transaction is a secondary
concern.22 The Exchange further states
that its proposal is needed because
liquidity providers accumulate SPX
positions to accommodate executions of
customer orders, and do so at increasing
levels during times of market
volatility.23 While TPHs hold these
positions prior to expiration, many may
have little to no value and closure of
these positions may have little impact
on the risk exposure of the TPH’s
portfolio.24 Yet, maintenance of these
positions requires ongoing risk
management and capital, which can
impact the capital the TPHs have
available to trade.25 The Exchange
asserts that its proposal will limit the
use of the compression service to
legitimate compression purposes and
provide an objective process to allow
TPHs to manage capital and margin
requirements so that they have
sufficient capital available to provide to
the markets, which will benefit all
market participants.26
The Commission believes that the
Exchange’s proposal will provide a
narrowly-tailored, objective, and not
unfairly discriminatory mechanism for
TPHs to efficiently compress open SPX
positions for the purpose of reducing
required capital. As the Commission has
previously observed, the affiliation of
clearing brokers with bank holding
21 See
Amendment No. 1, at 37.
id.
23 See id. at 38.
24 See id.
25 See id.
26 See id. at 41. Two commenters supported the
proposed rule change, asserting that the proposed
compression service procedure would provide an
additional risk management tool that can be used
by Cboe market makers to efficiently manage the
capital and margin requirements of their portfolios.
See Letters to Vanessa Countryman, Secretary,
Commission, from Joanna Mallers, Secretary, FIA
Principal Traders Group, dated May 3, 2021, at 2;
and Michael Golding, Head of Trading, Optiver US
LLC and Aldo van Audenaerde, Head of Trading,
AMS Derivatives B.V., dated April 22, 2021, at 1.
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22 See
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companies has introduced the need for
liquidity providers and their clearing
firms to more conservatively manage
holdings to comply with applicable
bank regulatory capital requirements.27
The ability to compress positions in an
efficient, cost-effective manner can help
liquidity providers and their clearing
firms manage associated bank capital
constraints. Tailored compression tools
that are carefully designed to directly
address the greatest need for
compression, where portfolio holdings
have a material impact on available
capital, can have beneficial effects on
the market and available liquidity
especially during periods of volatile
trading without impacting trading or
conferring any inappropriate benefits on
any market participant.
The proposal’s focus on closing
positions in SPX options appropriately
recognizes the role SPX options play as
major component of the capital impact
felt by clearing broker-dealers and the
TPHs for whom they clear, which
results from the large notional value and
popularity of SPX options as a
frequently traded product with large
open interest. Compression trades are
unlike arm’s length transactions as their
sole purpose is to close open positions
to compress SPX portfolio positions to
reduce required capital charges. The
Exchange’s proposal is a narrowlytailored means of doing so and, as a
result, should facilitate the ability of
compression participants to provide
liquidity and trade, especially during
volatile periods. As such, the
Exchange’s proposal removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, and, in
general, protects investors and the
public interest.
Further, the mechanics of the
compression service are reasonably
designed to provide an objective process
by which TPHs can avail themselves of
the ability to potentially compress their
open SPX positions for capital reduction
purposes. The proposed process does
not prioritize any TPH but rather aims
to find the greatest aggregate capital
reduction among the SPX options
submitted for consideration, and honors
each TPH’s customized risk constraints
in doing so. Ultimately, however, all
TPHs selected for participation must
approve of the compression transaction
proposed by the Exchange and if any
one TPH declines the proposed
transaction then the compression
27 See, e.g., Securities Exchange Act Release No.
91079 (October 14, 2020), 85 FR 66590 (October 20,
2020) (order granting approval of proposed rule
change to adopt position compression cross orders
in SPX options).
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37199
transaction for all TPHs will not occur.
If approved, transactions take place after
the close of regular trading hours and
the trades will be reported to OPRA
with an indicator attached to note they
are compression trades,28 thus
providing public transparency of these
compression trades.
Accordingly, for the reasons
discussed above, the Commission finds
that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the Act, including
Section 6(b)(5) of the Act 29 and the
rules and regulations thereunder
applicable to a national securities
exchange.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
1, 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–2021–020 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–2021–020. 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
28 See
29 15
E:\FR\FM\14JYN1.SGM
supra note 17.
U.S.C. 78f(b)(5).
14JYN1
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37200
Federal Register / Vol. 86, No. 132 / Wednesday, July 14, 2021 / Notices
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–2021–020, and
should be submitted on or before
August 4, 2021.
of the Act,30 to approve the proposed
rule change, as modified by Amendment
No. 1, on an accelerated basis.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of notice of the filing of
Amendment No. 1 in the Federal
Register. Amendment No. 1 narrowed
the scope of parts of the proposed rule
change and also provided additional
rationale and support for the proposed
rule change. Specifically, in
Amendment No. 1, the Exchange: (1)
Narrowed the list of index options that
could be compressed to include only
SPX options and limited the
compression service to closing positions
only, (2) expanded eligibility from only
market makers to all TPHs, (3) added
detail to the participation requirements
to ensure that the proposed compression
service is limited to legitimate
compression purposes, (4) added further
detail regarding the proposed
compression service, and (5) added
additional justification for the proposed
rule change.
The changes to the proposal and
additional information provided in
Amendment No. 1 focus the proposal on
SPX and closing-only positions, expand
eligibility to the compression service,
and add necessary detail to the rule text
to more fully and clearly reflect the
applicable requirements and describe
how the compression service will
operate. Collectively, these changes,
supported by the additional and
clarified rationale, better calibrate the
proposal to the greatest need for
compression and remove potential
ambiguity about how the service will
work without introducing material new
concepts over the original proposal. The
changes in Amendment No. 1 assist the
Commission in evaluating the
Exchange’s proposal and in determining
that it is consistent with the Act.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
[FR Doc. 2021–14901 Filed 7–13–21; 8:45 am]
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VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,31 that the
proposed rule change (SR–CBOE–2021–
020), as modified by Amendment No. 1,
be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92348; File No. SR–
PEARL–2021–28]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the MIAX Pearl
Options Fee Schedule To Remove
References and Fees Associated With
the 10Gb Fiber Connection
July 8, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 28,
2021, MIAX PEARL, LLC (‘‘MIAX Pearl’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. 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 proposes to amend the
MIAX Pearl Options Fee Schedule (the
‘‘Fee Schedule’’) to remove text
pertaining to 10 gigabit (‘‘Gb’’)
connectivity that will no longer be
offered by the Exchange and the
corresponding fees for those services.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxoptions.com/rulefilings/pearl at MIAX Pearl’s principal
PO 00000
30 15
U.S.C. 78s(b)(2).
31 Id.
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
Frm 00087
Fmt 4703
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office, 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
Fee Schedule to remove references and
fees for the 10Gb fiber connection for
Members 3 and non-Members. The
Exchange will cease offering 10Gb
connectivity as of July 1, 2021. The
Exchange will continue to offer 10Gb
ultra-low latency (‘‘ULL’’) connectivity.
The Exchange currently offers various
bandwidth alternatives for connectivity
to the Exchange, including its primary
and secondary facilities. These
connectivity offerings consist of a 1Gb
fiber connection, a 10Gb fiber
connection, and a 10Gb ULL fiber
connection. The Exchange’s MIAX
Express Network Interconnect (‘‘MENI’’)
can be configured to provide Members
and non-Members of the Exchange
network connectivity to the trading
platforms, market data systems, test
systems, and disaster recovery facilities
of both the Exchange and its affiliate,
Miami International Securities
Exchange, LLC (‘‘MIAX’’), via a single,
shared connection.
On February 4, 2021, the Exchange
issued a notice that MIAX Pearl and
MIAX would decommission the 10Gb
fiber connection in June 2021.4 This
3 ‘‘Member’’ means an individual or organization
that is registered with the Exchange pursuant to
Chapter II of Exchange Rules for purposes of trading
on the Exchange as an ‘‘Electronic Exchange
Member’’ or ‘‘Market Maker.’’ Members are deemed
‘‘members’’ under the Exchange Act. See Exchange
Rule 100.
4 See https://www.miaxoptions.com/alerts/2021/
02/04/miax-options-and-miax-pearl-optionsdeprecation-10g-ll-infrastructure-and. The
Exchanged issued two subsequent alerts on March
4, 2021 and March 29, 2021 reminding market
participants of its intent to decommission 10 Gb
connectivity in June 2021. See https://
www.miaxoptions.com/alerts/2021/03/04/miax-
E:\FR\FM\14JYN1.SGM
14JYN1
]]>Agencies
[Federal Register Volume 86, Number 132 (Wednesday, July 14, 2021)]
[Notices]
[Pages 37197-37200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14901]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92354; File No. SR-CBOE-2021-020]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Rule
6.10 To Introduce a Voluntary Multilateral Compression Service for SPX
Options
July 8, 2021.
I. Introduction
On March 24, 2021, Cboe Exchange, Inc. (``Exchange'' or ``Cboe'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
adopt new Cboe Rule 6.10 to introduce a voluntary compression service
for market makers. The proposed rule change was published for comment
in the Federal Register on April 12, 2021.\3\ On May 25, 2021, the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\4\ On July 7, 2021, the Exchange filed Amendment No. 1 to the
proposed rule change, which replaced and superseded the proposed rule
change in its entirety.\5\ The Commission is publishing this notice to
solicit comments on the Exchange's proposal, as modified by Amendment
No. 1, from interested persons and is approving the Exchange's
proposal, as
[[Page 37198]]
modified by Amendment No. 1, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 91482 (April 6,
2021), 86 FR 19067. Comments on the proposed rule change can be
found on the Commission's website at: https://www.sec.gov/comments/sr-cboe-2021-020/srcboe2021020.htm.
\4\ See Securities Exchange Act Release No. 92011, 86 FR 29334
(June 1, 2021). The Commission designated July 11, 2021, as the date
by which it should approve, disapprove, or institute proceedings to
determine whether to disapprove the proposed rule change.
\5\ In Amendment No. 1, the Exchange: (1) Narrowed the list of
index options that could be compressed to include only SPX options
and limited the compression service to closing positions only, (2)
expanded eligibility from only market makers to all TPHs, (3) added
detail to the participation requirements to ensure that the proposed
compression service is limited to legitimate compression purposes,
(4) added further detail regarding the proposed compression service,
and (5) added additional justification for the proposed rule change.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The Exchange proposes to adopt new Cboe Rule 6.10 to provide
Trading Permit Holders (``TPHs'') with an additional voluntary
compression tool that they can use to reduce required capital
attributable to their S&P 500 Index (``SPX'') options holdings.\6\ The
Exchange's proposal is designed to address the impact on liquidity
providers of the limited amount of capital available from clearing
broker-dealers that is a consequence of, among other things, the fact
that a number of clearing TPHs are now subsidiaries of U.S. bank
holding companies that must, as a result of this affiliation, comply
with additional bank capital regulatory requirements. In particular,
bank capital rules do not currently permit deductions for hedged
securities or offsetting options positions to the same extent that the
federal securities laws and self-regulatory organization rules do for
securities. The impact of this dynamic most acutely impacts SPX options
due to the popularity of SPX options and the significant number of open
index options positions combined with their large notional value.
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\6\ Currently, the Exchange offers other methods by which TPHs
can compress certain types of options holdings, including (1) Cboe
Rule 5.6, which allows for compression orders in SPX options and (2)
Cboe Rule 6.8, which allows TPHs to transfer positions off-exchange
if the transfer does not result in a change of ownership and reduced
the risk-weighted assets associated with those positions.
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In its filing, the Exchange explains that it has observed that
these bank capital rules have caused clearing broker-dealers to impose
stricter position limits on their clearing members, which can impact
the liquidity that TPHs, notably market makers who are frequently the
counterparties to a significant portion of SPX option trades, might be
able to supply.\7\ This impact would be most pronounced when markets
are volatile, precisely at the time when the market would benefit from
increased liquidity provision.
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\7\ See Amendment No. 1, at 8-10.
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The bank regulatory agencies have approved replacing the Current
Exposure Method (``CEM'') with the Standardized Approach to
Counterparty Credit Risk (``SA-CCR'') in the near future, and the
Exchange believes SA-CCR will be ``less punitive'' to clearing broker-
dealers because SA-CCR ``will help correct many of CEM's flaws by
incorporating risk-sensitive principles, such as delta weighting
options positions and more beneficial netting of derivative contracts
that have economically meaningful relationships.'' \8\ Nevertheless,
the Exchange believes that SA-CCR ``will not eliminate [TPHs'] need for
compression'' as the ability to compress SPX positions can ``enable
them to provide more meaningful liquidity to the market, particularly
during times of volatility when the market needs this liquidity most.''
\9\ The Exchange further asserts that ``this additional liquidity may
result in tighter spreads and more execution opportunities, which
benefits all investors.'' \10\
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\8\ See id. at 10.
\9\ See id. at 11.
\10\ See id.
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As described more fully in the Notice, as modified by Amendment No.
1, in order to be able to participate in the new multilateral
compression service, a TPH must request access to the service and
complete a standard test to demonstrate its capacity to participate.
While the Exchange initially proposed that only registered market
makers would be eligible to participate and a larger number of index
options would be eligible for inclusion, the Exchange has modified its
proposal to allow any TPH to request access and to limit the service to
SPX options only, where the need for compression is most present.\11\
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\11\ See generally Amendment No. 1.
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The Exchange will offer multilateral compression periodically,
initially twice per month, in order to allow TPHs to respond to intra-
month reviews of regulatory capital for their positions by their
clearing broker-dealers.\12\ To participate, a TPH must submit a
``position list'' after the close of trading on the specified day that
details all of the open SPX positions it would like to close out and
compress. The list must specify the amount of capital reduction
associated with each closing position, the theoretical value of each
position, the maximum cost the TPH is willing to accept to compress all
of the positions (in the aggregate), the maximum cost per unit of
capital reduction the TPH is willing to accept, and at least one risk
constraint of the TPH's choosing including a minimum and maximum value.
TPHs have flexibility in choosing these values as specified in the
proposed rule.\13\
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\12\ See Amendment No. 1, at 17.
\13\ See, e.g., proposed Cboe Rule 6.10(b)(2) (concerning a
theoretical value ``calculated in a manner of the compression
participant's choosing'').
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After the deadline for submission of the position lists, the
Exchange runs an automated process to match offsetting positions in an
anonymized manner. The process identifies the outcome that would result
in the maximum aggregate capital reduction among all participating TPHs
(picking at random from among equal outcomes). The Exchange determines
the compression price for each option, which will be ``as close as
possible to the midpoint of the [national best bid and offer] at the
close of the trading day or the daily marking time, subject to
adjustment using generally accepted volatility and options pricing
models in the event of wide markets, market volatility, or other
unusual circumstances.'' \14\
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\14\ Proposed Cboe Rule 6.10(c)(2).
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The Exchange then notifies the TPH participants of each TPH's
individual compression proposal.\15\ Each TPH with at least one
offsetting position must notify the Exchange whether it accepts its
individual proposal.\16\ If all compression participants accept their
individual proposals, then the Exchange effects the transactions at the
specified prices off the exchange.\17\ If one compression participant
declines, then no compression transactions are effected.\18\
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\15\ See id.
\16\ See proposed Cboe Rule 6.10(d).
\17\ See id. In Amendment No. 1, the Exchange represented that
it will disseminate compression transaction information to OPRA. The
Exchange further states that it has completed system work to apply
an indicator to such information and is working with OPRA so that
OPRA is able to incorporate that indicator. The Exchange expects
OPRA to complete its work in 2021, but notes that the indicator may
not be available upon implementation of the compression service. See
Amendment No. 1, at 27.
\18\ See id.
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III. Discussion and Commission Findings
After careful review of the proposal and the comments received, all
of which supported the proposal and recommended that the Commission
approve it, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, is consistent with the Act and the rules
and regulations thereunder applicable to a national securities
exchange.\19\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act,\20\ which requires, among other things, that the
rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove
[[Page 37199]]
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.
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\19\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
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In support of its proposal, the Exchange states that compression
transactions under Cboe Rule 6.10 will have a narrow scope and are
intended and designed to achieve the limited purpose of capital
reduction.\21\ The Exchange further explains that it understands that
TPHs have no need for price discovery or price improvement for
compression transactions, because the purpose of the transfer is to
reduce capital requirements attributable to the TPHs' positions and the
price of the compression transaction is a secondary concern.\22\ The
Exchange further states that its proposal is needed because liquidity
providers accumulate SPX positions to accommodate executions of
customer orders, and do so at increasing levels during times of market
volatility.\23\ While TPHs hold these positions prior to expiration,
many may have little to no value and closure of these positions may
have little impact on the risk exposure of the TPH's portfolio.\24\
Yet, maintenance of these positions requires ongoing risk management
and capital, which can impact the capital the TPHs have available to
trade.\25\ The Exchange asserts that its proposal will limit the use of
the compression service to legitimate compression purposes and provide
an objective process to allow TPHs to manage capital and margin
requirements so that they have sufficient capital available to provide
to the markets, which will benefit all market participants.\26\
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\21\ See Amendment No. 1, at 37.
\22\ See id.
\23\ See id. at 38.
\24\ See id.
\25\ See id.
\26\ See id. at 41. Two commenters supported the proposed rule
change, asserting that the proposed compression service procedure
would provide an additional risk management tool that can be used by
Cboe market makers to efficiently manage the capital and margin
requirements of their portfolios. See Letters to Vanessa Countryman,
Secretary, Commission, from Joanna Mallers, Secretary, FIA Principal
Traders Group, dated May 3, 2021, at 2; and Michael Golding, Head of
Trading, Optiver US LLC and Aldo van Audenaerde, Head of Trading,
AMS Derivatives B.V., dated April 22, 2021, at 1.
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The Commission believes that the Exchange's proposal will provide a
narrowly-tailored, objective, and not unfairly discriminatory mechanism
for TPHs to efficiently compress open SPX positions for the purpose of
reducing required capital. As the Commission has previously observed,
the affiliation of clearing brokers with bank holding companies has
introduced the need for liquidity providers and their clearing firms to
more conservatively manage holdings to comply with applicable bank
regulatory capital requirements.\27\ The ability to compress positions
in an efficient, cost-effective manner can help liquidity providers and
their clearing firms manage associated bank capital constraints.
Tailored compression tools that are carefully designed to directly
address the greatest need for compression, where portfolio holdings
have a material impact on available capital, can have beneficial
effects on the market and available liquidity especially during periods
of volatile trading without impacting trading or conferring any
inappropriate benefits on any market participant.
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\27\ See, e.g., Securities Exchange Act Release No. 91079
(October 14, 2020), 85 FR 66590 (October 20, 2020) (order granting
approval of proposed rule change to adopt position compression cross
orders in SPX options).
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The proposal's focus on closing positions in SPX options
appropriately recognizes the role SPX options play as major component
of the capital impact felt by clearing broker-dealers and the TPHs for
whom they clear, which results from the large notional value and
popularity of SPX options as a frequently traded product with large
open interest. Compression trades are unlike arm's length transactions
as their sole purpose is to close open positions to compress SPX
portfolio positions to reduce required capital charges. The Exchange's
proposal is a narrowly-tailored means of doing so and, as a result,
should facilitate the ability of compression participants to provide
liquidity and trade, especially during volatile periods. As such, the
Exchange's proposal removes impediments to and perfects the mechanism
of a free and open market and a national market system, and, in
general, protects investors and the public interest.
Further, the mechanics of the compression service are reasonably
designed to provide an objective process by which TPHs can avail
themselves of the ability to potentially compress their open SPX
positions for capital reduction purposes. The proposed process does not
prioritize any TPH but rather aims to find the greatest aggregate
capital reduction among the SPX options submitted for consideration,
and honors each TPH's customized risk constraints in doing so.
Ultimately, however, all TPHs selected for participation must approve
of the compression transaction proposed by the Exchange and if any one
TPH declines the proposed transaction then the compression transaction
for all TPHs will not occur. If approved, transactions take place after
the close of regular trading hours and the trades will be reported to
OPRA with an indicator attached to note they are compression
trades,\28\ thus providing public transparency of these compression
trades.
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\28\ See supra note 17.
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Accordingly, for the reasons discussed above, the Commission finds
that the proposed rule change, as modified by Amendment No. 1, is
consistent with the Act, including Section 6(b)(5) of the Act \29\ and
the rules and regulations thereunder applicable to a national
securities exchange.
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\29\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, 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-2021-020 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-2021-020. 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
[[Page 37200]]
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-2021-020, and should be submitted on or before August 4, 2021.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of the filing of Amendment No. 1 in the
Federal Register. Amendment No. 1 narrowed the scope of parts of the
proposed rule change and also provided additional rationale and support
for the proposed rule change. Specifically, in Amendment No. 1, the
Exchange: (1) Narrowed the list of index options that could be
compressed to include only SPX options and limited the compression
service to closing positions only, (2) expanded eligibility from only
market makers to all TPHs, (3) added detail to the participation
requirements to ensure that the proposed compression service is limited
to legitimate compression purposes, (4) added further detail regarding
the proposed compression service, and (5) added additional
justification for the proposed rule change.
The changes to the proposal and additional information provided in
Amendment No. 1 focus the proposal on SPX and closing-only positions,
expand eligibility to the compression service, and add necessary detail
to the rule text to more fully and clearly reflect the applicable
requirements and describe how the compression service will operate.
Collectively, these changes, supported by the additional and clarified
rationale, better calibrate the proposal to the greatest need for
compression and remove potential ambiguity about how the service will
work without introducing material new concepts over the original
proposal. The changes in Amendment No. 1 assist the Commission in
evaluating the Exchange's proposal and in determining that it is
consistent with the Act. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\30\ to approve the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
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\30\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-CBOE-2021-020), as modified
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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\31\ Id.
\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-14901 Filed 7-13-21; 8:45 am]
BILLING CODE 8011-01-P
