[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Notices]
[Pages 65859-65861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25836]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87590; File No. SR-CBOE-2019-109]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Financial Incentive Programs for Global Trading Hours Lead Market-
Makers in VIX
November 22, 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 November 15, 2019, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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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 its financial incentive programs for Global Trading Hours Lead
Market-Makers in VIX. 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
[[Page 65860]]
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 its Global Trading Hours (``GTH'')
VIX Lead Market-Makers (``LMMs'') Incentive Program, effective November
18, 2019.
Background
By way of background, pursuant to the Fees Schedule, a LMM in VIX
will receive a rebate for that month in the amount of a pro-rata share
of a compensation pool equal to $20,000 times the number of LMMs in
that class (or pro-rated amount if an appointment begins after the
first trading day of the month or ends prior to the last trading day of
the month) if the LMM(s): (1) Provide continuous electronic quotes
during GTH that meet or exceed the following heightened quoting
standards in at least 99% of the VIX series 90% of the time in a given
month:
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Premium Expiring Near term Mid term Long term
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7 days or less 8 days to 60 days 61 days to 270 days 271 days or Greater
Level -------------------------------------------------------------------------------------------------------
Width Size Width Size Width Size Width Size
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$0-$3.00........................................ $0.50 25 $0.40 50 $0.50 25 $1.00 10
$3.01-$5.00..................................... 0.75 15 0.60 30 0.75 15 1.50 7
$5.01-$10.00.................................... 1.00 10 0.80 20 1.00 10 2.00 5
$10.01-$30.00................................... 3.00 5 1.00 10 3.00 5 5.00 3
$30.01-$100.00.................................. 5.00 3 3.00 5 5.00 3 7.00 2
Greater than $100.00............................ 10.00 1 5.00 1 10.00 1 12.00 1
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Additionally, a GTH LMM in VIX is not currently obligated to
satisfy the heightened quoting standards described in the table above.
Rather, an LMM is eligible to receive the rebate if they satisfy the
heightened quoting standards above, which the Exchange believes
encourage LMMs to provide liquidity during GTH. The Exchange may also
consider other exceptions to this quoting standard based on
demonstrated legal or regulatory requirements or other mitigating
circumstances.
Proposed Change
The Exchange now wishes to amend the heighted quoting standard
under the GTH VIX LMM incentive program. Particularly, the Exchange
proposes to eliminate the current size and width requirements and in
their place adopt a maximum allowable width standard. The Exchange
notes that the proposed change is designed to make the heightened
quoting standard easier to attain. The Exchange believes that by easing
the standard, it will encourage VIX GTH LMM(s) who cannot meet the
current standard to continue to provide liquidity in VIX during GTH. As
such, the Exchange proposes to slightly ease the criteria and amend the
program to provide that in order to receive the rebate under the
program, an LMM must: provide continuous electronic quotes during GTH
that meet or exceed the following heightened quoting standards in at
least 99% of the VIX series 90% of the time in a given month: \3\
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\3\ For the month of November 2019, the Exchange proposes to
apply the heightened quoting standard from November 18 to November
30, in light of the mid-month proposal to modify the heighted
quoting standard. The Exchange also notes the previous LMM term
expired October 1, 2019, and the Exchange intends to appoint a new
LMM effective November 18, 2019. Such LMM will be eligible for the
full financial payment for November 2019 if the LMM meets the
heightened quoting standard from November 18 to November 30.
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Maximum
Premium level allowable
width
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$0.00-$100.00............................................... $10.00
$100.01-$200.00............................................. 16.00
Greater than $200.00........................................ 24.00
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As is the case today, VIX GTH LMM(s) will still not be obligated to
satisfy the amended heightened quoting standard. The Exchange believes
the program, as amended, will encourage VIX GTH LMM(s) to provide
liquidity in VIX during GTH. The Exchange believes the rebate provided
under the VIX GTH LMM program continues to encourage VIX GTH LMM(s) to
provide liquidity in VIX options during GTH, including during the
opening.\4\ Additionally, the Exchange notes that a VIX GTH LMM may
need to undertake expenses to be able to quote at a significantly
heightened standard in VIX, such as purchase more logical connectivity
based on its increased capacity needs.
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\4\ The Exchange notes that quotes qualify only when the series
is open (i.e., pre-open quotes do not count).
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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.\5\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \6\ 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
Section 6(b)(4) of the Act,\7\ which requires that Exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its Trading Permit Holders and other persons using
its facilities.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ 15 U.S.C. 78f(b)(4).
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The Exchange believes amending the GTH VIX LMM Incentive Program is
[[Page 65861]]
reasonable as a VIX GTH LMM will still be eligible to receive the
proposed financial payment. The Exchange believes the monthly payment
continues to be commensurate with the heightened quoting standard, even
as amended. The Exchange believes the proposed changes to the
heightened quoting standard are reasonable and appropriate as the
changes result in a more attainable incentive program, while still
acting as an incentive for a VIX GTH LMM to provide liquid and active
markets in VIX during GTH. The Exchange believes it is equitable and
not unfairly discriminatory to continue to only offer this financial
incentive to VIX GTH LMM(s) because it benefits all market participants
trading VIX during GTH to encourage the LMM(s) to satisfy the
heightened quoting standard, which ensures, and may even provide
increased, liquidity, which thereby may provide more trading
opportunities and tighter spreads. Indeed, the Exchange notes that the
VIX GTH LMM(s) serve a crucial role in providing quotes and the
opportunity for market participants to trade VIX, which can lead to
increased volume, providing a robust market. The Exchange ultimately
wishes to ensure a GTH LMM is adequately incentivized to provide liquid
and active markets in VIX during GTH to encourage liquidity. The
Exchange believes that the program, even as amended, will continue to
encourage increased quoting to add liquidity in VIX, thereby protecting
investors and the public interest. The Exchange also notes that a VIX
GTH LMM may have added costs each month that it needs to undertake in
order to satisfy that heightened quoting standard (e.g., having to
purchase additional logical connectivity). The Exchange believes the
proposed amendments are equitable and not unfairly discriminatory
because they apply to any TPH that is appointed as a VIX GTH LMM
equally. Additionally, if a VIX GTH LMM does not satisfy the heightened
quoting standard for any given month, then it simply will not receive
the offered payment for that month.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that are 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 that is not necessary or appropriate in
furtherance of the purposes of the Act because it applies uniformly to
similarly situated VIX GTH LMMs, which market participants play a
crucial role in providing active and liquid markets in VIX during GTH.
The Exchange does not believe that the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because VIX
options are a proprietary product that will only be traded on Cboe
Options. To the extent that the proposed changes make Cboe Options a
more attractive marketplace for market participants at other exchanges,
such market participants are welcome to become Cboe Options 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 foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \8\ and paragraph (f) of Rule 19b-4 \9\
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.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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-2019-109 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-2019-109. 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-2019-109 and should be submitted on
or before December 20, 2019.
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\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-25836 Filed 11-27-19; 8:45 am]
BILLING CODE 8011-01-P