Joint Industry Plan; Notice of Filing of Proposed Amendment To Add Paragraph (c) to Section 6 of the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options Authorizing the OLPP Sponsors To Act Jointly To Discuss Quote Mitigation Issues and Potential Solutions, 92238-92241 [2024-27220]

Download as PDF 92238 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices make Cboe Options a more attractive marketplace for market participants at other exchanges, such market participants are welcome to become Cboe Options market participants. The clarifying rule changes are not intended to have any impact on competition, as they make no substantive change to the Fees Schedule and will have no impact on trading on the Exchange. 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 The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and paragraph (f) of Rule 19b–4 13 thereunder. 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: lotter on DSK11XQN23PROD with NOTICES1 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–2024–050 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–2024–050. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CBOE–2024–050 and should be submitted on or before December 12, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Stephanie J. Fouse, Assistant Secretary. [FR Doc. 2024–27215 Filed 11–20–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101640; File No. 4–443] Joint Industry Plan; Notice of Filing of Proposed Amendment To Add Paragraph (c) to Section 6 of the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options Authorizing the OLPP Sponsors To Act Jointly To Discuss Quote Mitigation Issues and Potential Solutions November 15, 2024. Pursuant to Section 11A of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 608 thereunder,2 14 17 CFR 200.30–3(a)(12). U.S.C. 78k–1. 2 17 CFR 242.608. 12 15 U.S.C. 78s(b)(3)(A). 13 17 CFR 240.19b–4(f). VerDate Sep<11>2014 18:02 Nov 20, 2024 1 15 Jkt 265001 PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 notice is hereby given that on October 31, 2024, Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe Exchange, Inc., on behalf of the Sponsors 3 of the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options Submitted Pursuant to Section 11A(a)(3)(B) of the Securities Exchange Act of 1934 (‘‘Options Listing Procedures Plan,’’ ‘‘Plan,’’ or ‘‘OLPP’’),4 filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed amendment to the OLPP. The amendment proposes to add a provision to the OLPP authorizing the OLPP Sponsors to act jointly to discuss both quote mitigation issues and potential solutions to address any issues identified, including, but not limited to, discussing potential new options strike listing methodologies and rules, in order to determine whether the Sponsors might propose one or more amendments to the Plan for Commission approval or whether the individual Sponsors might seek to amend their own rules. The Commission is publishing this notice to solicit comments from interested persons on the proposed amendment. Set forth below in Section I, which is being published substantially as filed by the Sponsors, is the statement of the purpose and summary of the amendment, along with information pursuant to Rule 608(a) under the Act. I. Requirements Pursuant to Rule 608(a) 1. Text of Amendment This [a]mendment proposes to add paragraph (c) to Section 6 of the OLPP. The text of the proposed amendment is in Exhibit I, which is set forth in Section II, below. 2. Purpose of Amendment For many years, as the options industry has expanded and become more complex, industry participants have raised so-called ‘‘quote mitigation’’ 3 The Sponsors of the OLPP are: BOX Exchange LLC; Cboe BZX Exchange, Inc.; Cboe C2 Exchange, Inc.; Cboe EDGX Exchange, Inc.; Cboe Exchange, Inc.; MEMX LLC; Miami International Securities Exchange LLC; MIAX Emerald, LLC; MIAX Pearl, LLC; MIAX Sapphire LLC; Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; NYSE American LLC; NYSE Arca, Inc.; and The Options Clearing Corporations. 4 OLPP is a national market system plan approved by the Commission pursuant to Section 11A of the Act and Rule 608 thereunder. See Securities Exchange Act Release No. 44521 (July 6, 2001), 66 FR 36809 (July 13, 2001). The full text of the OLPP is available at https://www.theocc.com/getmedia/ 198bfc93-5d51-443c-9e5b-fd575a0a7d0f/options_ listing_procedures_plan.pdf. E:\FR\FM\21NON1.SGM 21NON1 lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices concerns, including concerns about proliferation of listed options strike prices and the resulting potential negative effects on investors and on the market makers that are obligated to quote in all of the listed series. Such concerns have been raised at various times in discussions involving one or more of the OLPP Sponsors, market maker members of the national securities exchanges who are obligated to provide quotes in all of the listed option series, the staff of the Securities and Exchange Commission, and the members of various industry working groups (such as the Listed Options Market Structure Working Group). For example, industry participants have voiced concerns about how to balance the need to provide investors with a sufficient number of strikes to meet their investment purposes, while also ensuring that the number of listed strikes does not become so large that the market makers, who are required to quote continuously in a significant number of existing strikes, are not unduly burdened by having to expend significant amounts of their finite capital to continuously quote strikes in thinly traded and illiquid series. Indeed, although investors need to have a choice of appropriately granular strikes to satisfy their investment needs, some industry participants also have questioned whether the increase in the number of strikes might harm investors, particularly in less liquid series, because investors could become confused about the properties of the various strikes and might be unable to close out positions in illiquid series in an effective manner. Finally, industry participants also have questioned whether the proliferation of strikes might harm overall market quality and widen spreads because market makers are forced to deploy their limited capital in a less efficient manner as a result of their obligation to continuously quote strikes in thinly traded series. Over the years, there have been a number of amendments to both the OLPP and to the rules of the OLPP Sponsors that were designed to address some of the issues summarized above. For example, in 2009, the OLPP Sponsors proposed a ‘‘quote mitigation strategy’’ amendment to the OLPP, with a goal of reducing the amount of quote traffic that had resulted from the Penny Pilot Program. See Joint Industry Plan; Notice of Filing of Amendment No. 3 to the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options, Release No. 34– 60362, 74 FR 37266 (July 22, 2009). When proposing that amendment, the VerDate Sep<11>2014 18:02 Nov 20, 2024 Jkt 265001 Plan Sponsors represented that the Penny Pilot Program resulted ‘‘in an explosion of quote traffic’’ and that the proposed ‘‘uniform listing standards to the range of options series exercise (or strike) prices available for trading’’ was a quote mitigation strategy designed to ‘‘reduce the number of options series available for trading, which will in turn lessen the rate of increase in quote traffic.’’ Id., 74 FR at 37266 and n.4. When it approved the 2009 amendment to the OLPP, the Commission concluded that the amendment ‘‘should reduce the number of options series available for trading, and thus should reduce increases in the options quote message traffic because market participants will not be submitting quotes in those series.’’ See Joint Industry Plan, Order Approving Amendment No. 3 to the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options, Release No. 34– 60531, entered on August 19, 2009, 74 FR 43173, 43174 (Aug. 26, 2009). As another example, in 2020, Nasdaq BX, Inc. (‘‘BX’’) proposed a rule that sought to limit ‘‘Short Term Options Series’’ intervals between strikes which are available for quoting and trading on that exchange. See Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing of Proposed Rule Change To Amend Options 4, Section 5, To Limit Short Term Options Series Intervals Between Strikes Which are Available for Quoting and Trading on BX, Release No. 34–90384, 85 FR 73113 (Nov. 9, 2020). In its filing, BX noted that its proposal ‘‘to reduce the number of strikes in the furthest weeklies, where there exist wider markets and therefore lower market quality’’ was an ‘‘initial attempt at reducing strikes and [that BX] anticipates filing additional proposals to continue reducing strikes.’’ Id., 85 FR at 73117 and n.23. BX also noted that reducing the number of listed weekly options would encourage market makers to deploy their capital more efficiently and improve displayed market quality. Id. at 73119. Finally, BX represented that (1) its proposal was a reaction to comments that it received from industry members ‘‘with respect to the increasing number of strikes that are required to be quoted by market makers in the options industry’’ and (2) reducing the number of strikes would ‘‘allow Lead Market Makers and Market Makers to expend their capital in the options market in a more efficient manner’’ because, as the number of strikes listed across options exchanges increases, market makers ‘‘must expend [more] capital to ensure that they have the appropriate PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 92239 infrastructure to meet their quoting obligations on all options markets in which they are assigned in options series.’’ Id. When approving BX’s 2020 rule filing, the Commission noted that it had received several comments expressing support for the proposed rule change. See Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Options4, Section 5, To Limit Short Term Options Series Intervals Between Strikes That Are Available for Quoting and Trading on BX, Release No. 34–91125, entered February 12, 2021, 86 FR 10375, 10376 (Feb. 19, 2021). The Commission also found that: More efficient and better calibrated strike increment rules can have a positive impact on options markets, as it can provide certainty, minimize confusion, and promote more efficient use of resources among market makers that are obligated to continuously quote such series, all while still offering customers the choice to meet their investment needs. Id., 86 FR at 10377. Finally, the Commission also noted that the approved rule ‘‘may serve as a starting point to a broader initiative to revisit, harmonize, and update the panoply of strike listing rules more broadly.’’ Id. Following the Commission’s approval of BX’s 2020 rule filing, other exchanges, including Cboe Exchange, Inc. (‘‘Cboe’’), promulgated similar amendments to their rules. See, e.g., Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 4.5 (Series of Option Contracts Open for Trading) in Connection With Limiting the Number of Strikes Listed for Short Term Option Series Which Are Available for Quoting and Trading on the Exchange, Release No. 34–91456, 86 FR 18090 (April 1, 2021). In its filing, Cboe noted that limiting the number of weekly strikes in which market makers are required to quote would allow those market makers to expend their capital in the options market in a more efficient manner, which could improve overall market quality, while still providing market participants with access to sufficient strike intervals to meet their investment objectives. Id., 86 FR at 18093–94. Cboe also noted that the removal of strikes found in clusters whose characteristics closely resemble one another would protect the investors and the general public by removing unnecessary choices of an options E:\FR\FM\21NON1.SGM 21NON1 lotter on DSK11XQN23PROD with NOTICES1 92240 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices series, which could result in improved market quality. Id. at 18094. Recently, one of the OLPP Sponsors, Cboe, compiled statistics comparing the increase in the average number of multiple listed options series listed per day in the months of June 2020 and June 2024. Cboe also examined the reduction in the average percentage of series traded per day during those two months and the reduction in average percentage of series with open interest per day. That analysis suggests that there are still significant quote mitigation issues in the options markets. Specifically, Cboe’s analysis revealed that the average series listed per day increased by 27% in June 2024, when compared to June 2020, with an average of 1,406,632 series listed per day in 2024 and 1,107,980 series listed per day in June 2020. Cboe’s analysis also revealed, however, that the average percentage of series that traded per day decreased from 18% in June 2020 to 10% in June 2024 and that the average percentage of series with open interest per day decreased from 53% to 47% during those same comparison months. In other words, as the average number of series listed per day continues to increase, more series appear to be thinly traded and therefore less liquid—a dynamic that the OLPP Sponsors believe may worsen quote quality because market makers are required to expend their capital to quote in the expanding number of series that are listed. As a result of the concerns outlined above, the OLPP Sponsors believe that the options industry would benefit from the OLPP being amended to explicitly authorize the Sponsors to act jointly to discuss quote mitigation issues, including reaching out to other industry participants to solicit their views, with a goal of identifying specific issues and potential solutions to those issues. Such an amendment would be consistent with Rule 608(a)(3)(A) of Regulation National Market System, which authorizes self-regulatory organizations (like the OLPP Sponsors) to act jointly in preparing and filing any amendment to a national market system plan. 17 CFR 242.608(a)(3)(A). In addition, if the Sponsors determine that it is appropriate to address a quote mitigation issue by proposing a further amendment to the OLPP, such an amendment would be submitted to the Commission for approval pursuant to Rule 608(b) of Regulation NMS. 17 CFR 608(b). Similarly, if the Sponsors determine to address any identified issues with new options strike listing methodologies and rules, they may seek to do so through submission of rule VerDate Sep<11>2014 18:02 Nov 20, 2024 Jkt 265001 filings pursuant to Section 19(b) of the Exchange Act. 15 U.S.C. 78s(b). 3. Manner of Implementation of Amendment The proposed amendment will be added to the OLPP following Commission approval of the amendment pursuant to Rule 608(b)(1) and (b)(2) of Regulation NMS. 4. Phases of Development and Implementation Not applicable. 5. Impact on Competition The Sponsors believes that the proposed amendment will impose no burdens on competition that are not justified in light of the purposes of the Act. 6. Written Understandings or Agreements Among Plan Members Not applicable. 7. Approval of Proposed Amendment Each Sponsor approved the submission of the [a]mendment and has executed a signed copy of the [a]mendment. 8. Exhibits I. Proposed amendments to Section 6 of the OLPP. 9. Description of Operation of Facility Contemplated by the Proposed Amendment Not applicable. 10. Terms and Conditions of Access Not applicable. 11. Method of Determination and Imposition, and Amount of, Fees and Charges Not applicable. 12. Method and Frequency of Processor Evaluation Not applicable. 13. Dispute Resolution The Plan does not include provisions regarding the method by which disputes arising in connection with the operation of the plan will be resolved. II. Text of the Proposed Amendment to the OLPP (Exhibit I) Language proposed to be added to Section 6 of the OLPP as new Section 6(c): (c) The Plan Sponsors are authorized to act jointly to discuss both quote mitigation issues and potential solutions to address any issues identified, including, but not limited to, discussing potential new options strike listing PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 methodologies and rules, in order to determine whether the Sponsors might propose one or more amendments to the Plan for Commission approval or whether the individual Sponsors might seek to amend their own rules. III. Solicitation of Comments The Commission seeks comment on the amendment. Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of 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 4– 443 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 submission should refer to file number 4–443. 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal offices of the Sponsors. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available E:\FR\FM\21NON1.SGM 21NON1 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number 4–443 and should be submitted on or before December 12, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.5 Stephanie J. Fouse, Assistant Secretary. [FR Doc. 2024–27220 Filed 11–20–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 35388; File No. 812–15654] Figure Certificate Company (‘‘Applicant’’) November 15, 2024. Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’). ACTION: Notice. lotter on DSK11XQN23PROD with NOTICES1 AGENCY: Notice of application for an order under section 28(c) of the Investment Company Act of 1940 (the ‘‘Act’’). SUMMARY OF APPLICATION: Applicant seeks an order pursuant to section 28(c) of the Act approving certain proposed custodial arrangements. APPLICANTS: Figure Certificate Company. FILING DATES: The application was filed on November 7, 2024 and amended and restated on November 13, 2024. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing on any application by emailing the SEC’s Secretary at Secretarys-Office@sec.gov and serving the Applicant with a copy of the request by email, if an email address is listed for the Applicant below, or personally or by mail, if a physical address is listed for the Applicant below. Hearing requests should be received by the Commission by 5:30 p.m. on December 11, 2024 and should be accompanied by proof of service on the Applicant, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by 5 17 CFR 200.30–3(a)(85). VerDate Sep<11>2014 18:02 Nov 20, 2024 Jkt 265001 emailing the Commission’s Secretary at Secretarys-Office@sec.gov. ADDRESSES: The Commission: Secretarys-Office@sec.gov. Applicant: susan.gault-brown@aoshearman.com. FOR FURTHER INFORMATION CONTACT: Taylor Evenson, Senior Counsel, or Robert S. Shapiro, Assistant Director, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. For Applicant’s representations, legal analysis, and conditions, please refer to Applicant’s amended and restated application, dated November 13, 2024, which may be obtained via the Commission’s website by searching for the file number at the top of this document, or for the Applicant using the Company name search field, on the SEC’s EDGAR system. The SEC’s EDGAR system may be searched at, https://www.sec.gov/ edgar/searchedgar/legacy/ companysearch.html. You may also call the SEC’s Public Reference Room at (202) 551–8090. Applicant’s Representations 1. Applicant, a Delaware corporation, intends to register under the Act as a face-amount certificate company and operate as a registered face-amount certificate company. Applicant currently intends to offer two types of face-amount certificates registered under the Securities Act of 1933, faceamount certificates of the installment type (the ‘‘Installment Certificates’’) and fully-paid certificates (the ‘‘Transferrable Certificates’’ and, together with the Installment Certificates, the ‘‘Certificates’’). Applicant states that it does not contemplate, or seek approval for, custodial arrangements under which Applicant would deposit and maintain reserves associated with any faceamount certificates other than the Installment Certificates and Transferrable Certificates. Applicant represents that both types of Certificates will be issued and the fully-paid Certificates will be transferable using blockchain technology and, as a result, both types of Certificates will be ‘‘digital assets.’’ Applicant further represents that, although the Certificates will be digital assets, Applicant will not accept or hold any assets that are digital assets other than as necessary to destroy Certificates that have been surrendered. 2. The Certificates are interest-bearing debt securities. The Certificates entitle the Certificate holder to receive, at maturity, the face-amount of the Certificate and interest credited thereon, PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 92241 less applicable expenses or fees. To meet its payment obligations, Applicant is required to maintain a minimum amount of reserves in ‘‘qualified investments’’ as defined in Section 28(b) of the Act (‘‘Reserves’’). 3. Applicant proposes to enter into custodial arrangements, from time to time, with one or more banks as defined in Section 2(a)(5) of the Act, that possess the qualifications required by Section 26(a) of the Act for trustees of unit investment trusts (‘‘Custodians’’). Applicant seeks an order approving the Applicant’s proposed custodial arrangements under which the Applicant will (i) deposit and maintain, with one or more Custodians, the Reserves associated with the Certificates, pursuant to Section 28(c) of the Act, and (ii) enter into custody agreements (‘‘Custodial Agreements’’), the substantive portions of which will not vary in any material respects from those contained in the form of agreement attached to the application as Attachment 1 (the ‘‘Form of Agreement’’). Under the requested order, Applicant would be free to employ or terminate the Custodians from time to time in its sole discretion. 4. Under the proposed custodial arrangements, one or more of the Custodians would be responsible for maintaining the safekeeping of all of Applicant’s assets, including the aggregate amount that Applicant must maintain as Reserves pursuant to Section 28(a) of the Act. The Custodian would (i) maintain Applicant’s Assets in compliance with Section 17(f) of the Act and the rules thereunder as though Section 17(f) and the rules thereunder were applicable to a face-amount certificate company and (ii) maintain Applicant’s Reserves to ensure the Applicant meets its payment obligations under the terms and conditions of any outstanding Certificate. If the Applicant were to default on any obligation under a Certificate, the Custodian would be authorized to cure such default by liquidating so much of the assets held by it as necessary to discharge Applicant’s obligations. The Custodian also would perform the duties and functions typically performed by a custodian, such as securities registration and delivery, income collection, periodic reporting, payment of monies, and other safekeeping and processing functions. Applicant’s Legal Analysis 1. Section 28(c) provides that ‘‘[t]he Commission shall by rule, regulation, or order, in the public interest or for the protection of investors, require a registered face-amount certificate E:\FR\FM\21NON1.SGM 21NON1

Agencies

[Federal Register Volume 89, Number 225 (Thursday, November 21, 2024)]
[Notices]
[Pages 92238-92241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27220]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101640; File No. 4-443]


Joint Industry Plan; Notice of Filing of Proposed Amendment To 
Add Paragraph (c) to Section 6 of the Plan for the Purpose of 
Developing and Implementing Procedures Designed To Facilitate the 
Listing and Trading of Standardized Options Authorizing the OLPP 
Sponsors To Act Jointly To Discuss Quote Mitigation Issues and 
Potential Solutions

November 15, 2024.
    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 608 thereunder,\2\ notice is hereby given that 
on October 31, 2024, Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., 
Cboe EDGX Exchange, Inc., and Cboe Exchange, Inc., on behalf of the 
Sponsors \3\ of the Plan for the Purpose of Developing and Implementing 
Procedures Designed to Facilitate the Listing and Trading of 
Standardized Options Submitted Pursuant to Section 11A(a)(3)(B) of the 
Securities Exchange Act of 1934 (``Options Listing Procedures Plan,'' 
``Plan,'' or ``OLPP''),\4\ filed with the Securities and Exchange 
Commission (``Commission'') a proposed amendment to the OLPP. The 
amendment proposes to add a provision to the OLPP authorizing the OLPP 
Sponsors to act jointly to discuss both quote mitigation issues and 
potential solutions to address any issues identified, including, but 
not limited to, discussing potential new options strike listing 
methodologies and rules, in order to determine whether the Sponsors 
might propose one or more amendments to the Plan for Commission 
approval or whether the individual Sponsors might seek to amend their 
own rules.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ The Sponsors of the OLPP are: BOX Exchange LLC; Cboe BZX 
Exchange, Inc.; Cboe C2 Exchange, Inc.; Cboe EDGX Exchange, Inc.; 
Cboe Exchange, Inc.; MEMX LLC; Miami International Securities 
Exchange LLC; MIAX Emerald, LLC; MIAX Pearl, LLC; MIAX Sapphire LLC; 
Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; 
Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; NYSE American LLC; 
NYSE Arca, Inc.; and The Options Clearing Corporations.
    \4\ OLPP is a national market system plan approved by the 
Commission pursuant to Section 11A of the Act and Rule 608 
thereunder. See Securities Exchange Act Release No. 44521 (July 6, 
2001), 66 FR 36809 (July 13, 2001). The full text of the OLPP is 
available at https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/options_listing_procedures_plan.pdf.
---------------------------------------------------------------------------

    The Commission is publishing this notice to solicit comments from 
interested persons on the proposed amendment. Set forth below in 
Section I, which is being published substantially as filed by the 
Sponsors, is the statement of the purpose and summary of the amendment, 
along with information pursuant to Rule 608(a) under the Act.

I. Requirements Pursuant to Rule 608(a)

1. Text of Amendment

    This [a]mendment proposes to add paragraph (c) to Section 6 of the 
OLPP. The text of the proposed amendment is in Exhibit I, which is set 
forth in Section II, below.

2. Purpose of Amendment

    For many years, as the options industry has expanded and become 
more complex, industry participants have raised so-called ``quote 
mitigation''

[[Page 92239]]

concerns, including concerns about proliferation of listed options 
strike prices and the resulting potential negative effects on investors 
and on the market makers that are obligated to quote in all of the 
listed series. Such concerns have been raised at various times in 
discussions involving one or more of the OLPP Sponsors, market maker 
members of the national securities exchanges who are obligated to 
provide quotes in all of the listed option series, the staff of the 
Securities and Exchange Commission, and the members of various industry 
working groups (such as the Listed Options Market Structure Working 
Group).
    For example, industry participants have voiced concerns about how 
to balance the need to provide investors with a sufficient number of 
strikes to meet their investment purposes, while also ensuring that the 
number of listed strikes does not become so large that the market 
makers, who are required to quote continuously in a significant number 
of existing strikes, are not unduly burdened by having to expend 
significant amounts of their finite capital to continuously quote 
strikes in thinly traded and illiquid series. Indeed, although 
investors need to have a choice of appropriately granular strikes to 
satisfy their investment needs, some industry participants also have 
questioned whether the increase in the number of strikes might harm 
investors, particularly in less liquid series, because investors could 
become confused about the properties of the various strikes and might 
be unable to close out positions in illiquid series in an effective 
manner. Finally, industry participants also have questioned whether the 
proliferation of strikes might harm overall market quality and widen 
spreads because market makers are forced to deploy their limited 
capital in a less efficient manner as a result of their obligation to 
continuously quote strikes in thinly traded series.
    Over the years, there have been a number of amendments to both the 
OLPP and to the rules of the OLPP Sponsors that were designed to 
address some of the issues summarized above. For example, in 2009, the 
OLPP Sponsors proposed a ``quote mitigation strategy'' amendment to the 
OLPP, with a goal of reducing the amount of quote traffic that had 
resulted from the Penny Pilot Program. See Joint Industry Plan; Notice 
of Filing of Amendment No. 3 to the Plan for the Purpose of Developing 
and Implementing Procedures Designed To Facilitate the Listing and 
Trading of Standardized Options, Release No. 34-60362, 74 FR 37266 
(July 22, 2009). When proposing that amendment, the Plan Sponsors 
represented that the Penny Pilot Program resulted ``in an explosion of 
quote traffic'' and that the proposed ``uniform listing standards to 
the range of options series exercise (or strike) prices available for 
trading'' was a quote mitigation strategy designed to ``reduce the 
number of options series available for trading, which will in turn 
lessen the rate of increase in quote traffic.'' Id., 74 FR at 37266 and 
n.4.
    When it approved the 2009 amendment to the OLPP, the Commission 
concluded that the amendment ``should reduce the number of options 
series available for trading, and thus should reduce increases in the 
options quote message traffic because market participants will not be 
submitting quotes in those series.'' See Joint Industry Plan, Order 
Approving Amendment No. 3 to the Plan for the Purpose of Developing and 
Implementing Procedures Designed To Facilitate the Listing and Trading 
of Standardized Options, Release No. 34-60531, entered on August 19, 
2009, 74 FR 43173, 43174 (Aug. 26, 2009).
    As another example, in 2020, Nasdaq BX, Inc. (``BX'') proposed a 
rule that sought to limit ``Short Term Options Series'' intervals 
between strikes which are available for quoting and trading on that 
exchange. See Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of 
Filing of Proposed Rule Change To Amend Options 4, Section 5, To Limit 
Short Term Options Series Intervals Between Strikes Which are Available 
for Quoting and Trading on BX, Release No. 34-90384, 85 FR 73113 (Nov. 
9, 2020). In its filing, BX noted that its proposal ``to reduce the 
number of strikes in the furthest weeklies, where there exist wider 
markets and therefore lower market quality'' was an ``initial attempt 
at reducing strikes and [that BX] anticipates filing additional 
proposals to continue reducing strikes.'' Id., 85 FR at 73117 and n.23. 
BX also noted that reducing the number of listed weekly options would 
encourage market makers to deploy their capital more efficiently and 
improve displayed market quality. Id. at 73119. Finally, BX represented 
that (1) its proposal was a reaction to comments that it received from 
industry members ``with respect to the increasing number of strikes 
that are required to be quoted by market makers in the options 
industry'' and (2) reducing the number of strikes would ``allow Lead 
Market Makers and Market Makers to expend their capital in the options 
market in a more efficient manner'' because, as the number of strikes 
listed across options exchanges increases, market makers ``must expend 
[more] capital to ensure that they have the appropriate infrastructure 
to meet their quoting obligations on all options markets in which they 
are assigned in options series.'' Id.
    When approving BX's 2020 rule filing, the Commission noted that it 
had received several comments expressing support for the proposed rule 
change. See Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend 
Options4, Section 5, To Limit Short Term Options Series Intervals 
Between Strikes That Are Available for Quoting and Trading on BX, 
Release No. 34-91125, entered February 12, 2021, 86 FR 10375, 10376 
(Feb. 19, 2021). The Commission also found that:

    More efficient and better calibrated strike increment rules can 
have a positive impact on options markets, as it can provide 
certainty, minimize confusion, and promote more efficient use of 
resources among market makers that are obligated to continuously 
quote such series, all while still offering customers the choice to 
meet their investment needs.

Id., 86 FR at 10377. Finally, the Commission also noted that the 
approved rule ``may serve as a starting point to a broader initiative 
to revisit, harmonize, and update the panoply of strike listing rules 
more broadly.'' Id.
    Following the Commission's approval of BX's 2020 rule filing, other 
exchanges, including Cboe Exchange, Inc. (``Cboe''), promulgated 
similar amendments to their rules. See, e.g., Self-Regulatory 
Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change To Amend Rule 4.5 (Series of 
Option Contracts Open for Trading) in Connection With Limiting the 
Number of Strikes Listed for Short Term Option Series Which Are 
Available for Quoting and Trading on the Exchange, Release No. 34-
91456, 86 FR 18090 (April 1, 2021). In its filing, Cboe noted that 
limiting the number of weekly strikes in which market makers are 
required to quote would allow those market makers to expend their 
capital in the options market in a more efficient manner, which could 
improve overall market quality, while still providing market 
participants with access to sufficient strike intervals to meet their 
investment objectives. Id., 86 FR at 18093-94. Cboe also noted that the 
removal of strikes found in clusters whose characteristics closely 
resemble one another would protect the investors and the general public 
by removing unnecessary choices of an options

[[Page 92240]]

series, which could result in improved market quality. Id. at 18094.
    Recently, one of the OLPP Sponsors, Cboe, compiled statistics 
comparing the increase in the average number of multiple listed options 
series listed per day in the months of June 2020 and June 2024. Cboe 
also examined the reduction in the average percentage of series traded 
per day during those two months and the reduction in average percentage 
of series with open interest per day. That analysis suggests that there 
are still significant quote mitigation issues in the options markets.
    Specifically, Cboe's analysis revealed that the average series 
listed per day increased by 27% in June 2024, when compared to June 
2020, with an average of 1,406,632 series listed per day in 2024 and 
1,107,980 series listed per day in June 2020. Cboe's analysis also 
revealed, however, that the average percentage of series that traded 
per day decreased from 18% in June 2020 to 10% in June 2024 and that 
the average percentage of series with open interest per day decreased 
from 53% to 47% during those same comparison months. In other words, as 
the average number of series listed per day continues to increase, more 
series appear to be thinly traded and therefore less liquid--a dynamic 
that the OLPP Sponsors believe may worsen quote quality because market 
makers are required to expend their capital to quote in the expanding 
number of series that are listed.
    As a result of the concerns outlined above, the OLPP Sponsors 
believe that the options industry would benefit from the OLPP being 
amended to explicitly authorize the Sponsors to act jointly to discuss 
quote mitigation issues, including reaching out to other industry 
participants to solicit their views, with a goal of identifying 
specific issues and potential solutions to those issues. Such an 
amendment would be consistent with Rule 608(a)(3)(A) of Regulation 
National Market System, which authorizes self-regulatory organizations 
(like the OLPP Sponsors) to act jointly in preparing and filing any 
amendment to a national market system plan. 17 CFR 242.608(a)(3)(A). In 
addition, if the Sponsors determine that it is appropriate to address a 
quote mitigation issue by proposing a further amendment to the OLPP, 
such an amendment would be submitted to the Commission for approval 
pursuant to Rule 608(b) of Regulation NMS. 17 CFR 608(b). Similarly, if 
the Sponsors determine to address any identified issues with new 
options strike listing methodologies and rules, they may seek to do so 
through submission of rule filings pursuant to Section 19(b) of the 
Exchange Act. 15 U.S.C. 78s(b).

3. Manner of Implementation of Amendment

    The proposed amendment will be added to the OLPP following 
Commission approval of the amendment pursuant to Rule 608(b)(1) and 
(b)(2) of Regulation NMS.

4. Phases of Development and Implementation

    Not applicable.

5. Impact on Competition

    The Sponsors believes that the proposed amendment will impose no 
burdens on competition that are not justified in light of the purposes 
of the Act.

6. Written Understandings or Agreements Among Plan Members

    Not applicable.

7. Approval of Proposed Amendment

    Each Sponsor approved the submission of the [a]mendment and has 
executed a signed copy of the [a]mendment.

8. Exhibits

    I. Proposed amendments to Section 6 of the OLPP.

9. Description of Operation of Facility Contemplated by the Proposed 
Amendment

    Not applicable.

10. Terms and Conditions of Access

    Not applicable.

11. Method of Determination and Imposition, and Amount of, Fees and 
Charges

    Not applicable.

12. Method and Frequency of Processor Evaluation

    Not applicable.

13. Dispute Resolution

    The Plan does not include provisions regarding the method by which 
disputes arising in connection with the operation of the plan will be 
resolved.

II. Text of the Proposed Amendment to the OLPP (Exhibit I)

    Language proposed to be added to Section 6 of the OLPP as new 
Section 6(c):
    (c) The Plan Sponsors are authorized to act jointly to discuss both 
quote mitigation issues and potential solutions to address any issues 
identified, including, but not limited to, discussing potential new 
options strike listing methodologies and rules, in order to determine 
whether the Sponsors might propose one or more amendments to the Plan 
for Commission approval or whether the individual Sponsors might seek 
to amend their own rules.

III. Solicitation of Comments

    The Commission seeks comment on the amendment. Interested persons 
are invited to submit written data, views and arguments concerning the 
foregoing, including whether the proposed amendment is necessary or 
appropriate in the public interest, for the protection of investors and 
the maintenance of fair and orderly markets, to remove impediments to, 
and perfect the mechanisms of, a national market system, or otherwise 
in furtherance of the purposes of 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 4-443 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 submission should refer to file number 4-443. 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 a.m. and 3 
p.m. Copies of the filing also will be available for inspection and 
copying at the principal offices of the Sponsors. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available

[[Page 92241]]

publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number 4-443 and should be 
submitted on or before December 12, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(85).
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Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024-27220 Filed 11-20-24; 8:45 am]
BILLING CODE 8011-01-P
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