[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18318-18323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06723]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88490; File No. SR-CBOE-2020-026]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Relating
To Amend Rule 5.24
March 26, 2020.
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 March 26, 2020, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') 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 5.24. The text of the proposed rule change is provided in
Exhibit 5.
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
The Exchange proposes to amend Rule 5.24 regarding the Exchange's
business continuity and disaster recovery plans. Rule 5.24 describes
which Trading Permit Holders (``TPHs'') are required to connect to the
Exchange's backup systems as well as certain actions the Exchange may
take as part of its business continuity plans so that it may maintain
fair and orderly markets if unusual circumstances occurred that could
impact the Exchange's ability to conduct business. This includes what
actions the Exchange would take if its trading floor became inoperable.
Specifically, Rule 5.24(e) states if the Exchange trading floor becomes
inoperable, the Exchange will continue to operate in a screen-based
only environment using a floorless configuration of the System that is
operational while the trading floor facility is inoperable. The
Exchange would operate using that configuration only until the
Exchange's trading floor facility became operational. Open outcry
trading would not be available in the event the trading floor becomes
inoperable.\3\ Rule 5.24(e)(1) also currently states in the event that
the trading floor becomes inoperable, trading will be conducted
pursuant to all applicable System Rules, except that open outcry Rules
would not be in force, including but not limited to the Rules (or
applicable portions) in Chapter 5, Section G,\4\ and that all non-
trading rules of the Exchange would continue to apply. The Exchange
recently proposed additional exceptions to Rules that would not apply
during a time in which the trading floor in inoperable.\5\
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\3\ Pursuant to Rule 5.26, the Exchange may enter into a back-up
trading arrangement with another exchange, which could allow the
Exchange to use the facilities of a back-up exchange to conduct
trading of certain of its products. The Exchange currently has no
back-up trading arrangement in place with another exchange.
\4\ Chapter 5, Section G of the Exchange's rulebook sets forth
the rules and procedures for manual order handling and open outcry
trading on the Exchange.
\5\ See Securities Exchange Act Release Nos. 88386 (March 13,
2020), 85 FR 15823 (March 19, 2020) (SR-CBOE-2020-019); and 88447
(March 20, 2020) (SR-CBOE-2020-023). The rule changes adopted in
that filing are effective until May 15, 2020, unless extended. See
Rule 5.24(e)(1).
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As of March 16, 2020, the Exchange suspended open outcry trading to
help prevent the spread of the novel coronavirus and is currently
operating in an all-electronic configuration. While the trading floor
was open, the
[[Page 18319]]
Exchange facilitated compression forums on the trading floor at the end
of each calendar week, month, and quarter in which Trading Permit
Holders reduce open positions in series of SPX options in order to
mitigate the effects of capital constraints on market participants and
help ensure continued depth of liquidity in the SPX options market.
Given the recent suspension of open outcry trading, the Exchange
proposes to facilitate an electronic process that would permit TPHs to
continue to efficiently reduce their open SPX positions and free up
capital while the Exchange operates in an all-electronic environment,
which is particularly important given current volatile market
conditions.
SEC Rule 15c3-1 (Net Capital Requirements for Brokers or Dealers)
(``Net Capital Rules'') requires that every registered broker-dealer
maintain certain specified minimum levels of capital.\6\ The Net
Capital Rules are designed to protect securities customers,
counterparties, and creditors by requiring that broker-dealers have
sufficient liquid resources on hand, at all times, to meet their
financial obligations. Notably, hedged positions, including offsetting
futures and options contract positions, result in certain net capital
requirement reductions under the Net Capital Rules.\7\
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\6\ 17 CFR 240.15c3-1.
\7\ In addition, the Net Capital Rules permit various offsets
under which a percentage of an option position's gain at any one
valuation point is allowed to offset another position's loss at the
same valuation point (e.g. vertical spreads).
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All Options Clearing Corporation (``OCC'') clearing members are
subject to the Net Capital Rules. However, a subset of clearing members
are subsidiaries of U.S. bank holding companies, which, due to their
affiliations with their parent U.S. bank holding companies, must comply
with additional bank regulatory capital requirements pursuant to
rulemaking required under the Dodd-Frank Wall Street Reform and
Consumer Protection Act.\8\ Pursuant to this mandate, the Board of
Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency, and the Federal Deposit Insurance Corporation approved
a comprehensive regulatory capital framework for subsidiaries of U.S.
bank holding company clearing firms.\9\ Generally, these rules imposed
higher minimum capital requirements, more restrictive capital
eligibility standards, and higher asset risk weights than were
previously mandated for clearing members that are subsidiaries of U.S.
bank holding companies under the Net Capital Rules. Furthermore, these
rules do not permit deductions for hedged securities or offsetting
options positions.\10\ Rather, capital charges under these standards
are based on the aggregate notional value of short positions regardless
of offsets. As a result, Clearing Trading Permit Holders (``CTPHs'')
generally must hold substantially more bank regulatory capital than
would otherwise be required under the Net Capital Rules.\11\ The impact
of these regulatory capital rules are compounded in the SPX options
market due to the large notional value of SPX contracts.
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\8\ H.R. 4173 (amending section 3(a) of the Securities Exchange
Act of 1934 (the ``Act'') (15 U.S.C. 78c(a))).
\9\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity
Risk Measurement Standards).
\10\ Many options strategies, including relatively simple
strategies often used by retail customers and more sophisticated
strategies used by market-makers and institutions, are risk-limited
strategies or options spread strategies that employ offsets or
hedges to achieve certain investment outcomes. Such strategies
typically involve the purchase and sale of multiple options (and may
be coupled with purchases or sales of the underlying assets),
executed simultaneously as part of the same strategy. In many cases,
the potential market exposure of these strategies is limited and
defined. Whereas regulatory capital requirements have historically
reflected the risk-limited nature of carrying offsetting positions,
these positions may now be subject to large regulatory capital
requirements. Various factors, including administration costs;
transaction fees; and limited market demand or counterparty
interest, however, discourage market participants from closing these
positions even though many market participants likely would prefer
to close the positions rather than carry them to expiration.
\11\ See Letter from Cboe, New York Stock Exchange, and Nasdaq,
Inc., to the Honorable Randal Quarles, Vice Chair for Supervision of
the Board of Governors of the Federal Reserve System, March 18,
2020.
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The Exchange believes these regulatory capital requirements could
impede efficient use of capital and undermine the critical liquidity
role that Market-Makers play in the SPX options market by limiting the
amount of capital CTPHs can allocate to clearing member transactions.
Specifically, these rules may cause CTPHs to impose stricter position
limits on their clearing members. These stricter position limits may
impact the liquidity Market-Makers might supply in the SPX market,\12\
which impact may be heightened when markets are volatile, and this
impact may be compounded when a CTPH has multiple Market-Maker client
accounts, each having largely risk-neutral portfolio holdings.\13\
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\12\ The Exchange notes Market-Makers participate on
approximately 98% of SPX option trades on the Exchange.
\13\ Several TPHs have indicated to the Exchange that these
rules could hamper their ability to provide consistent liquidity in
the current SPX market, and have inquired about the ability engage
in compression trading prior to the end of the current quarter.
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The Exchange believes that permitting TPHs to reduce open interest
in offsetting SPX options positions in open outcry compression forums
has had a beneficial effect on the bank regulatory capital requirements
of CTPHs' parent companies without adversely affecting the quality of
the SPX options market. Accordingly, while the Exchange operates in an
all-electronic environment, the Exchange proposes to adopt a similar
process to occur electronically to encourage the compression of open
interest in SPX. The Exchange believes lack of a method to reduce open
interest in SPX options in an all-electronic environment may reduce
liquidity in the market, which recently has experienced historic levels
of volatility and is when the market needs this liquidity the most.
Without an electronic compression forum, TPHs seeking to reduce
open interest in SPX options for regulatory capital purposes could
trade out of positions as they would trade any open positions. However,
the Exchange understands that wide-scale reduction of open interest in
SPX options in such a manner is burdensome. First, the range of
positions held by different TPHs in SPX varies greatly. In some cases,
a TPH may hold positions in thousands of series of SPX. The Exchange
believes providing a forum for TPHs to periodically reduce open
interest in SPX options would likely contribute additional liquidity
and continued competitiveness to the SPX market. In addition, the
Exchange believes that the proposed rule change will promote more
efficient capital deployment in light of the regulatory capital
requirements rules and help ensure continued depth of liquidity in the
SPX options market during continued market volatility.
The proposed rule change adopts Rule 5.24(e)(1)(E) to permit
electronic compression trades during times when the trading floor is
inoperable.\14\ The proposed electronic compression forum will function
in a substantially similar manner as the open outcry compression forum
functions pursuant to Rule 5.88. In general, the process would permit
TPHs to submit lists of open positions to the Exchange that they wish
to close against opposing (long/short) positions of other TPHs, which
the Exchange would then aggregate into a single list
[[Page 18320]]
that would allow TPHs to more easily identify those positions with
counterparty interest on the Exchange. Unlike open outcry compression
forums, for which Rule 5.88 specifies the times at which TPHs may
submit these lists, the Exchange will determine when electronic
compression forums may occur.\15\ The Exchange will provide TPHs with
reasonable, sufficient notice of the timing of electronic compression
forums, and the associated times at which lists must be submitted.
While the Exchange intends to offer electronic compression forums in
connection with the upcoming end-of-quarter, the Exchange believes
flexibility regarding when to offer electronic compression forums will
permit it to react to market conditions and facilitate TPHs' reduction
of SPX open interest in response to volatility as necessary.
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\14\ Like the other exceptions recently added to Rule
5.24(e)(1), the proposed rule change would apply until May 15, 2020.
The Exchange will monitor these transactions while the trading floor
is inoperable. If the trading floor is inoperable beyond May 15,
2020, based on that review, the Exchange may submit a separate rule
filing to extend the effectiveness of this rule.
\15\ See proposed Rule 5.24(e)(1)(E)(i). Pursuant to Rule 1.5,
the Exchange will announce the times when TPHs may submit these
position lists.
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As is the case with open outcry compression forums, all TPHs (or
their CTPHs on their behalf) may submit position lists for
participation in electronic compression forums, and receive lists of
positions submitted to the Exchange. Additionally, a TPH may request to
have its name withheld from the list the Exchange makes available to
the TPHs that submit a position list, and the list will not indicate
which TPHs hold which positions. TPHs that do not want to be listed as
having contributed compression-list positions may inform the Exchange
and will not be included in the listed TPHs. The Exchange believes this
process to identify TPHs that seek to close compression-list positions
in advance of a compression forum will increase opportunities for TPHs
to ultimately close compression-list positions during a compression
forum while, at the same time, providing the opportunity for anonymity.
Proposed Rule 5.24(e)(1)(E)(ii) provides that in addition to the
information set forth in Rule 5.88(a)(4) with respect to multi-leg
positions, the Exchange will, for informational purposes,
electronically distribute series positions within a strike range
determined by the Exchange to each Trading Permit Holder that submitted
compression-list positions to the Exchange.\16\ The Exchange believes
this additional information will provide the Exchange with sufficient
information to create larger packages of positions that may be
compressed while operating in an all-electronic environment.
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\16\ For purposes of proposed Rule 5.24(e)(1)(E), the term
``multi-leg position file'' as used in Rule 5.88 will be replaced
with ``position file.'' The position file will include the
information set forth in Rule 5.88(a)(4) for both multi-leg
positions and series positions within that Exchange-determined
strike range.
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Proposed Rule 5.24(e)(1)(E)(iii) describes how trades may be
executed in electronic compression forums. Specifically, the proposed
rule change provides that in lieu of Rule 5.88(a)(6) (which provides
that trades executed in an open outcry compression forum occur in
accordance with regular open outcry trading rules, subject to certain
exceptions), a Trading Permit Holder may submit an order in SPX option
contracts coupled with a contra-side order or orders totaling an equal
number of option contracts, which will execute automatically on entry
without exposure. For purposes of proposed subparagraph (iii):
A Trading Permit Holder must identify these orders as
being part of an electronic compression forum. This is currently
required in open outcry compression forums.\17\
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\17\ See Rule 5.88
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A Trading Permit Holder may execute a simple order as part
of an electronic compression forum only if the execution price: (1) Is
not at the same price as a Priority Customer order resting in the Book;
and (2) is at or between the national best bid or offer (``NBBO'').
Rule 5.9 (related to exposure of orders on the Exchange) does not apply
to executions of SPX orders submitted into electronic compression
forums. This provision provides that orders submitted into electronic
compression forums must execute in accordance with the same priority
principles that apply to all other simple orders on the Exchange, which
protects Priority Customer orders in the simple book and prohibits
trades through prices available in the book.
A Trading Permit Holder may execute a complex order as
part of an electronic compression forum only if: (1) Each option leg
executes at a price that complies with Rule 5.33(f)(2),\18\ provided
that no option leg executes at the same price as a Priority Customer
Order in the Simple Book; (2) each option leg executes at a price at or
between the NBBO for the applicable series; and (3) the execution price
is better than the price of any complex order resting in the COB,
unless the submitted complex order is a Priority Customer Order and the
resting complex order is a non-Priority Customer Order, in which case
the execution price may be the same as or better than the price of the
resting complex order. Rule 5.9 (related to exposure of orders on the
Exchange) does not apply to executions of SPX orders submitted into
electronic compression forums. This provision provides that orders
submitted into an electronic compression forum must execute in
accordance with the same priority principles that apply to all other
complex orders on the Exchange, which protects Priority Customer orders
in the simple book and COB and prohibits trades through prices
available in the book.
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\18\ Rule 5.33(f)(2) requires complex orders to execute only if
the execution price: at a net price: (1) That would cause any
component of the complex strategy to be executed at a price of zero;
(2) worse than the synthetic best bid or offer (``SBBO'') or equal
to the SBBO when there is a Priority Customer Order at the SBBO,
except all-or-none complex orders may only execute at prices better
than the SBBO; (3) that would cause any component of the complex
strategy to be executed at a price worse than the individual
component prices on the Simple Book; (4) worse than the price that
would be available if the complex order Legged into the Simple Book;
or (5) that would cause any component of the complex strategy to be
executed at a price ahead of a Priority Customer Order on the Simple
Book without improving the BBO of at least one component of the
complex strategy.
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The System cancels an order submitted for execution in an
electronic compression forum if it cannot execute. Therefore, if an
order cannot execute in accordance with the execution price and
priority requirements in the prior two bulleted paragraphs, it will be
cancelled.
Orders may only be submitted for execution in an
electronic compression forum only if entered in the standard increment
applicable to SPX options pursuant to Rule 5.4. Unlike in open outcry
compression forums, in which closing transactions may be executed in
pennies, the proposed rule change will require standard increments in
order to take advantage of the proposed unexposed execution.
Only closing orders may be executed in electronic
compression forums. While open outcry compression forums contemplate
that opening orders are permissible in certain circumstances, those
orders are generally permitted by responded in the trading crowd. As
orders submitted into an electronic compression forum will be done so
without exposure, there will be no responses. The primary purpose of
compression forum is to permit the closing of open SPX interest, the
Exchange believes restricting electronic compression forums is
appropriate.
The Exchange understands from customers, and SPX Market-Makers in
particular, that there is significant need to reduce open interest
based on current market conditions. These market participants regularly
avail themselves of open outcry compression forums, in which they use
the information provided in the Exchange-provided
[[Page 18321]]
position lists to identify potential counterparties that similarly need
to close SPX open interest. In accordance with standard open outcry
trading rules, a floor broker would represent a cross of orders
representing this interest to the trading crowd. While other in-crowd
market participants have the opportunity to respond and participate in
the transaction, generally the orders represented in the cross execute
cleanly against each other. The proposed rule will require that the
executing TPH identify these crosses as being submitted as part of an
electronic compression forum. As a result, the Exchange's Regulatory
Division intends to put in place a regulatory review plan that will
permit it to ensure any SPX orders that are executed pursuant to the
proposed rule change are done in accordance with the proposed rule.
Providing TPHs, and Market-Makers in particular, with an electronic
compression forum would replicate functionality that was previously
available while Cboe was operating with an open outcry environment and
would provide them with needed relief from the effect of the current
exposure method (``CEM'') on the options market. As noted above,
because some CTPHs carrying these are bank-owned broker/dealers, those
CTPHs are subject to further bank regulatory capital requirements
pursuant to CEM, which result in these additional punitive capital
requirements being passed on to their market-maker clients.\19\
Additionally, as noted above, the Exchange's necessary response to the
novel coronavirus global pandemic caused the Exchange to suspend open
outcry trading, which has temporarily eliminated the primary method
used by market participants to execute necessary position-reducing
trades in SPX options on the trading floor. Finally, the historic
levels of market volatility has made providing liquidity in SPX options
immensely more challenging. The execution of options trades through
electronic trading to close this open SPX interest, as noted above, may
be inefficient and ineffective.
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\19\ See Letter from Cboe, New York Stock Exchange, and Nasdaq,
Inc., to the Honorable Randal Quarles, Vice Chair for Supervision of
the Board of Governors of the Federal Reserve System, March 18,
2020.
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The Exchange believes the proposed rule change to make available
functionality that will allow liquidity providers to execute trades to
reduce SPX open interest in a substantially similar manner as they were
able to do on the trading floor. These closing transactions will help
reduce any potential negative impact on the market-making community
that may result from Net Capital Rules, which could reduce liquidity
available in an extremely volatile market when the market needs this
liquidity the most. The Exchange believes the proposed rule change will
temporarily reduce existing inefficiencies that have resulted from
closure of the trading floor, which the Exchange expects will free up
liquidity providers' much needed capital, which will benefit the entire
market and all investors.
Generally, in SPX options (and other classes), the Exchange lists
series with narrower strike intervals that are closer to the at-the-
money value, and with wider strike intervals that are further from the
at-the-money value. The Exchange's internal listing procedures are
intended to balance the need to list sufficient strikes to provide
market participants with flexibility to manage their risk with Market-
Makers' quoting obligations. The Exchange understands from Market-
Makers that the need to quote in a significant number of series may
contribute in part to their challenges in providing liquidity to the
market. The Exchange represents it will review its internal listing
procedures for SPX options and develop a plan to modify these
procedures in an effort to reduce the number of listed strikes in a
manner that may permit Market-Makers to further reduce SPX open
interest (and thus free up capital to continue to provide
liquidity).\20\
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\20\ While SPX options are listed for trading exclusively on
Cboe Options, it competes with other listed options, such as options
on the SPDR S&P 500 exchange-traded fund.
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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.\21\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \22\ 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) \23\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 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 a national market system, and, in general, protect investors
and the public interest. The proposed rule change will temporarily
provide liquidity providers and other market participants with the
ability to reduce open interest in SPX options electronically in a
substantially similar manner as they were able to do when the trading
floor was open. The proposed flexibility with respect to when the
Exchange will facilitate electronic compression forums will permit the
Exchange to react to market conditions and facilitate TPHs' reduction
of SPX open interest in response to volatility as necessary. Electronic
compression forums will allow market participants to reduce options
positions in order to reduce the necessary capital associated with
those positions and permit them to provide more liquidity in the
market. This additional liquidity may result in tighter spreads and
more execution opportunities, which benefits all investors,
particularly in the current volatile markets.
The Exchange believes that its proposal is also consistent with the
Act in that it seeks to mitigate the potentially negative effects of
the bank capital requirements on liquidity in the SPX markets. As
described above, current regulatory capital requirements could
potentially impede efficient use of capital and undermine the critical
liquidity role that Market-Makers and other liquidity providers play in
the SPX options market by limiting the amount of capital CTPHs allocate
to clearing member transactions. Specifically, the rules may cause
CTPHs to impose stricter position limits on their clearing members. In
turn, this could force Market-Makers to reduce the size of their quotes
and result in reduced liquidity in the market. The Exchange believes
that permitting TPHs to reduce options positions in SPX options will
permit to contribute to the availability of liquidity in the SPX
options market and help ensure that these markets retain their
competitive balance. The Exchange believes that the proposed rule would
serve to protect investors by helping to ensure consistent continued
depth of liquidity,
[[Page 18322]]
particularly given current market conditions when liquidity is needed
the most by investors.
The Exchange also believes the proposed rule change is consistent
with the Act, because the proposed procedure is consistent with
transactions that were otherwise permitted on the trading floor. The
proposed rule would provide an electronic mechanism to replicate a
process that was used on the trading floor. The proposed rule change
imposes similar priority requirements to those in open outcry, which
will protect Priority Customer orders and orders on top of the book
that comprise the BBO. Additionally, the proposed rule change requires
orders submitted into electronic compression forums to execute in the
same increments as all other orders in an electronic environment. While
these orders were exposed on the trading floor, the Exchange observed
that market participants generally deferred their allocations to permit
a clean cross, as that is necessary for these transactions to achieve
their intended effect. Because these orders were generally not broken
up on the trading floor, and because the purpose of these trades is
unrelated to profits and losses (making the price at which the
transaction is executed relatively unimportant like competitive
trades), but rather to reduce open interest, the Exchange believes it
is appropriate to not expose these orders in an electronic setting. The
Exchange believes the proposed rule change, which is limited to one
class the Exchange believes is being significantly impacted by the
inability to execute these crosses (and the one class in which open
outcry compression forums occurred), is narrowly tailored for the
specific purpose of facilitating the ability of liquidity providers to
reduce positions requiring significant capital as a result of current
bank regulatory capital requirements and the current historic levels of
market volatility. The Exchange believes the proposed rule change will
protect investors by helping to ensure continued depth of liquidity in
the SPX options market.
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 the proposed rule change will impose any burden on intramarket
competition, as electronic compression forums will be available to all
market participants with SPX open interest. As discussed above, while
the proposed rule change is directed at market-makers, all market
participants may participate in these forums in the same manner as long
as all criteria of the proposed rule are satisfied. The Exchange does
not believe the proposed rule change will impose any burden on
intermarket competition, as it will apply only to SPX options, which
are currently listed for trading only on the Exchange. Additionally,
open outcry compression forums were limited to SPX options. In
addition, the proposed rule change is intended to reduce open interest
are not seeking price improvement, but rather looking to reduce open
interest to free up capital that will permit those parties to continue
to provide liquidity to the market, and thus is not intended to have a
competitive impact.
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 \24\ and Rule 19b-4(f)(6) thereunder.\25\
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 \26\ and Rule 19b-
4(f)(6) thereunder.\27\
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\24\ 15 U.S.C. 78s(b)(3)(A)(iii).
\25\ 17 CFR 240.19b-4(f)(6).
\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b- 4(f)(6)(iii)
under the Act, the Exchange is required to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally
does not become operative for 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\29\ 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. Given current market
conditions that have created historic levels of volatility, the
Exchange believes the proposed rule change will help it maintain fair
and orderly markets by providing an electronic avenue for market
participants, particularly liquidity providers, to continue to provide
liquidity to the SPX markets. The Exchange states its belief that
market participants generally engage in the above-explained attempts to
reduce their options positions at the end of calendar quarters, when
the Exchange understands CTPHs recalculate their leverage ratios in
connection with bank capital regulatory requirements, which could
result in their need to add capital based on their clients' positions
and further reduce availability liquidity. Waiver of the operative
delay would permit TPHs to engage in these transactions in connection
with the expected first quarter CTPH capital recalculation, which could
permit continued liquidity and a fair and orderly market. As discussed
above, the proposed rule change would apply temporarily, and only to
one exclusively listed index option class, during the time the trading
floor is unavailable for open outcry trading. Waiver of the operative
delay would allow the proposed changes, which are designed to help
maintain fair and orderly markets, to be in effect immediately. 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.\30\
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\28\ 17 CFR 240.19b-4(f)(6).
\29\ 17 CFR 240.19b-4(f)(6)(iii).
\30\ 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
[[Page 18323]]
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-2020-026 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2020-026. 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 offices of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CBOE-2020-026, and should be submitted
on or before April 22, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06723 Filed 3-31-20; 8:45 am]
BILLING CODE 8011-01-P