[Federal Register Volume 84, Number 239 (Thursday, December 12, 2019)]
[Notices]
[Pages 67985-67987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26810]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87682; File No. SR-CBOE-2019-110]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Rule 5.31, Opening Auction Process
December 9, 2019.
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 December 2, 2019, Cboe Exchange, Inc. (``Cboe Options'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend Rule 5.31.
(additions are in italics; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 5.31. Opening Auction Process
(a)-(c) No change.
(d) Opening Rotation Triggers. Upon the occurrence of one of the
following triggers for a class, the System initiates the opening
rotation for the series in that class, and the Exchange disseminates
a message to market participants indicating the initiation of the
opening rotation.
(1) Regular Trading Hours. The System initiates the opening
rotation (A) [A]after a time period (which the Exchange determines
for all classes) following the System's observation after 9:30 a.m.
of the first disseminated ([A]i) transaction on the primary market
in the security underlying an equity option or ([B]ii) index value
for the index underlying an index option (except for VIX Index
options)[, the System initiates the opening rotation] or (B) at 9:30
a.m. for VIX Index options.
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Prior to the Exchange's technology migration, which occurred on
October 7, 2019, the Exchange's System initiated the opening rotation
procedure for index options either at a specified time or at the time
the Exchange received a disseminated index value (determined on a
class-by-class basis).\3\ The Exchange determined that options on the
Cboe Volatility Index (the ``VIX Index'') would be one of the classes
to open at a specified time rather than after it received the first
disseminated VIX Index value. The Exchange proposes to revert to
opening VIX options at a specified time. Specifically, the Exchange
proposes to amend Rule 5.31(d)(1) to provide that the System will
initiate the opening rotation for VIX options at 9:30 a.m. Eastern
time, rather than after the System's observation after 9:30 a.m.
Eastern time of the first disseminated value of the VIX Index.\4\
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\3\ See Securities Exchange Act Release No. 86879 (September 5,
2019), 84 FR 47984 (September 11, 2019) (SR-CBOE-2019-034) (which
proposed rule filing amended and relocated the Exchange's rule
regarding the opening process, included former Rule 6.2(b)(i)(A)(2),
which stated that with respect to index options, at 8:30 a.m.
Central time, or at the later of 8:30 a.m. Central time and the time
the Exchange receives a disseminated index value for classes
determined by the Exchange, the System initiated the opening
rotation procedure for regular trading hours).
\4\ The proposed rule change also makes nonsubstantive changes
to the structure of Rule 5.31(d)(1).
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The System generally does not receive the first disseminated value
of the VIX Index until approximately 9:31 a.m., which means the System
cannot initiate the opening rotation procedure for VIX options until
after that time. This delay prevents investors from being able to
effect trades in VIX options while trading in other products, which may
prevent investors from being able to engage in their standard trading,
hedging, and volatility risk management activities during that time.
The value of the VIX Index is calculated using the bid and ask
quotes of SPX options listed on the Exchange. Pursuant to Rule
5.31(d)(1), the System will initiate the opening rotation procedure for
SPX options following the receipt of the first disseminated SPX value
after 9:30 a.m., which as noted above, generally occurs at 9:30:01.
Therefore, the opening rotation for SPX options will generally begin a
few seconds after 9:30 a.m. The VIX Index value cannot be calculated,
and thus disseminated, until the SPX option
[[Page 67986]]
series used to calculate the value are all open for trading. Once that
occurs, and the VIX Index value is disseminated, the Exchange can then
initiate the opening rotation for VIX Index options. As a result, VIX
Index options are not eligible to open for trading for a longer amount
of time than other index options. The Exchange understands that market
participants generally do not use the spot value of the VIX Index for
pricing VIX options but rather use the pricing of VIX Index futures
(``VX futures'') that trade on the Cboe Futures Exchange (``CFE''),
which are trading at 9:30 a.m. Thus, the Exchange does not believe it
is necessary to delay the opening of trading of VIX Index options until
the Exchange receives a disseminated value of the VIX Index.\5\
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\5\ The Exchange notes the opening rotation for VIX Index
options during the Global Trading Hours session begins at a
specified time, rather than after dissemination of the VIX Index
value. See Rule 5.31(d)(2).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\6\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \7\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \8\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ Id.
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In particular, the Exchange believes the proposed rule change will
remove impediments to and perfect the mechanism of a free and open
market and protect investors, because it will permit VIX Index options
to open, and thus permit market participants to begin trading these
options, at an earlier time. The Exchange believes opening VIX Index
options earlier will permit investors to begin effecting trades in
these options at a similar time as they may begin effecting trades in
other options. Investors will therefore be able to use VIX Index
options as part of their trading, hedging, and portfolio risk
management activities during that time, which ultimately benefits
investors. The Exchange notes the opening rotation for VIX Index
options during the Global Trading Hours session begins at a specified
time, rather than after dissemination of the VIX Index value.\9\
Additionally, the rules of another options exchange permit index
options to open at 9:30 a.m., rather than wait for the dissemination of
the underlying index value.\10\
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\9\ See Rule 5.31(d)(2).
\10\ See BOX Exchange LLC (``BOX'') Rule 6080(b).
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The proposed rule change does not modify the opening auction
process, but rather makes it possible for it to begin in a timelier
manner for one option class. Therefore, the Exchange believes its
opening process will continue to contribute to a fair and orderly
opening of VIX options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition, because the proposed rule change will apply in
the same manner to all Users. Trading in VIX Index options will open
and be available to all Users at the same time; the proposed rule
change merely makes it possible for trading in these options to open
earlier. The Exchange does not believe that the proposed rule change
will impose any burden on intermarket competition, because the rules of
another options exchange permit index options to open at 9:30 a.m.,
rather than wait to open until the exchange receives the first
disseminated value of the underlying index value.\11\ The Exchange
notes the opening rotation for VIX Index options during the Global
Trading Hours session begins at a specified time, rather than after
dissemination of the VIX Index value.\12\
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\11\ Id.
\12\ See Rule 5.31(d)(2).
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The proposed rule change relates solely to the time at which
trading in VIX Index options (which are a proprietary product that only
trades on the Exchange) may begin. To the extent that the proposed
changes make the Exchange a more attractive marketplace for market
participants at other exchanges, such market participants are welcome
to become Exchange market participants.
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 Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally
does not become operative for 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately. The Exchange states that
it believes the proposed rule change will protect investors by
permitting investors to begin trading VIX Index options at a similar
time at which they may begin to trade other options, thus allowing
investors to use VIX Index options as part of their trading, hedging,
and portfolio risk management activities. The Exchange also represents
that the proposed rule
[[Page 67987]]
change does not modify the opening auction process, but rather makes it
possible for this process to begin in a timelier manner for one option
class. Therefore, the Exchange believes its opening process will
continue to contribute to a fair and orderly opening of VIX options.
The Exchange further notes that initiating the opening process for an
index option at a specified time, rather than following dissemination
of the first value of the underlying index, is not novel or unique. The
Exchange represents that prior to October 7, 2019, VIX Index options
opened at a specified time, rather than after dissemination of the VIX
Index value. The opening rotation for VIX Index options during the
Global Trading Hours session also begins at a specified time, rather
than after dissemination of the VIX Index value.\19\ Additionally, the
Exchange notes that the rules of another options exchange permit index
options to open at 9:30 a.m., rather than waiting for the dissemination
of the underlying index value.\20\ For these reasons, the Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposal operative upon filing.\21\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ See Cboe Options Rule 5.31(d)(2).
\20\ See BOX Rule 6080(b).
\21\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2019-110 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-2019-110. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2019-110, and should be submitted
on or before January 2, 2020.
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\22\ 17 CFR 200.30-3(a)(12), (59).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26810 Filed 12-11-19; 8:45 am]
BILLING CODE 8011-01-P