[Federal Register Volume 83, Number 126 (Friday, June 29, 2018)]
[Notices]
[Pages 30787-30791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83505; File No. SR-CBOE-2018-046]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
to Exchange Rule 6.2., Hybrid Opening (and Sometimes Closing) System 
(``HOSS'')

June 25, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 15, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ 
and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).

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[[Page 30788]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.2., Hybrid Opening (and 
Sometimes Closing) System (``HOSS'').
(additions are italicized; deletions are [bracketed])
* * * * *

Cboe Exchange, Inc. Rules

* * * * *

Rule 6.2. Hybrid Opening (and Sometimes Closing) System (``HOSS'')

    (a)-(b) (No change).
    (c) Opening Rotation Period. After the System initiates the 
opening rotation procedure and sends the Rotation Notice, the System 
begins the opening rotation period. During the opening rotation 
period for a series:
    (i)-(ii) (No change).
    (iii) After a period of time determined by the Exchange for all 
classes (which period of time may be no longer than five seconds), 
the System opens series of a class in [a random]the following 
order[, staggered over regular intervals of time (the Exchange 
determines the length and number of these intervals for all 
classes).]:
    (A) ATM and OTM Series with Expirations of 29 to 31 Days. During 
the initial interval (the Exchange determines the length of this 
interval for all classes, the length of which may be no longer than 
three seconds), the System opens:
    (I) at-the-money (``ATM'') puts and a group of out-of-the-money 
(``OTM'') puts with strike prices closest to the ATM strike price, 
in a random order;
    (II) ATM calls and a group of OTM calls with strike prices 
closest to the ATM strike price, in a random order; and
    (III) alternating groups of further OTM puts and further OTM 
calls, each in a random order.
    During this interval, the System attempts to open any ATM or OTM 
series that could not open on its first attempt.
    (B) All Other Series. After the initial interval, the System 
opens all other series, and any series that did not open pursuant to 
subparagraph (A), in a random order, staggered over regular 
intervals of time (the Exchange determines the length and number of 
these intervals for all classes, the length of which intervals may 
be no longer than two seconds).
    (C) Definition of ATM. For purposes of subparagraph (A), a put 
(call) is ATM if its strike price equals or is the first strike 
above (below) the last disseminated transaction price in the 
underlying security or index value on the same trading day. If the 
System begins an opening rotation for a class prior to receiving a 
disseminated transaction price in the underlying security or index 
value, the System will open all series in the class pursuant to 
subparagraph (B).
    Subject to paragraph (d) below, the opening rotation period 
(including these intervals) may not exceed [60]30 seconds.
    (d)-(h) (No change).
    . . . Interpretations and Policies:
    .01-.07 (No change).
* * * * *
    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 proposed rule change amends the order in which the System opens 
series for trading. Current Rule 6.2(c)(iii) states, after a period of 
time after the initiation of the opening rotation (which time is 
determined by the Exchange for all classes, and may be no longer than 
five seconds),\5\ the System opens series of a class in a random order, 
staggered over regular intervals of time (the Exchange determines the 
length and number of these intervals for all classes).\6\ The opening 
rotation period (including these intervals) may not exceed 60 seconds, 
except as otherwise set forth in the Rule.
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    \5\ Currently, this time is set to two seconds. The Exchange 
intends to reduce this time period to one second in June 2018.
    \6\ Currently, there are two one-second intervals.
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    Pursuant to the proposed rule change, during an initial interval 
(the Exchange determines the length of this interval for all classes, 
which may be no longer than three seconds),\7\ the System will first 
open at-the-money (``ATM'') and out-of-the-money (``OTM'') series with 
expirations of 29 to 31 days, and then open all remaining series. 
Specifically, during the first interval, the System will open:
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    \7\ The Exchange intends to initially set the length of this 
interval to 500 milliseconds.
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     ATM puts and a group of OTM puts with strike prices 
closest to the ATM strike price, in a random order;
     ATM calls and a group of OTM calls with strike prices 
closest to the ATM strike price, in a random order; and
     alternating groups of further OTM puts and further OTM 
calls, each in a random order.

During this interval, the System attempts to open any ATM or OTM series 
that could not open on its first attempt.
    After the first interval, the System opens all other series, and 
any OTM and ATM series with expirations of 29 to 31 days that did not 
open during the first interval, in a random order, staggered over 
regular intervals of time (the Exchange determines the length and 
number of these intervals for all classes, the length of which may be 
no longer than two seconds).\8\
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    \8\ The Exchange intends to initially have 10 intervals of 100 
milliseconds each.
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    For purposes of this proposed rule change, a put (call) is ATM if 
its strike price equals or is the first strike above (below) the last 
disseminated transaction price in the underlying security or index 
value on the same trading day. If the System begins an opening rotation 
for a class prior to receiving a disseminated transaction price in the 
underlying security or index value, the System will open all series in 
the class pursuant to proposed subparagraph (B) (i.e., all in a random 
order, staggered over regular intervals of time). Pursuant to Rule 6.2, 
the opening rotation for most equity and exchange-traded product 
options will begin after the System receives a disseminated opening 
trade or quote in the market for the underlying security. Additionally, 
the opening rotation for certain index options will begin at the later 
of 8:30 a.m. and the time the System receives a disseminated index 
value for classes determined by the Exchange. However, for certain 
classes, the opening rotation will begin at 8:30 a.m. As a result, it 
is possible the System may not have a value to determine which series 
are ATM. To avoid delaying the opening of series in these classes, the 
Exchange believes it is appropriate to open all series in a random 
order rather than wait for such a value.
    Below are examples demonstrating the new opening sequence. For 
purposes of these examples, assume the ATM strike price is 50. 
Additionally, assume June expiration series are 30 days away and all 
other series are more than 31 days away. There will be a one second 
opening timer delay, an initial

[[Page 30789]]

interval of 500 milliseconds, and then 10 intervals of 100 
milliseconds. Puts will be opened in groups of 4, and calls will be 
opened in groups of 3 (the first put and call group will also include 
the ATM strike). Class ABC consists of the following series:

Jun ABC 62 put
Jun ABC 61 put
Jun ABC 60 put
Jun ABC 59 put
Jun ABC 58 put
Jun ABC 57 put
Jun ABC 56 put
Jun ABC 55 put
Jun ABC 54 put
Jun ABC 53 put
Jun ABC 52 put
Jun ABC 51 put
Jun ABC 50 put
Jun ABC 49 put
Jun ABC 48 put
Jun ABC 47 put
Jun ABC 46 put
Jun ABC 45 put
Jun ABC 44 put
Jun ABC 43 put
Jun ABC 42 put
Jun ABC 41 put
Jun ABC 40 put
Jun ABC 39 put
Jun ABC 38 put
Jun ABC 59 call
Jun ABC 58 call
Jun ABC 57 call
Jun ABC 56 call
Jun ABC 55 call
Jun ABC 54 call
Jun ABC 53 call
Jun ABC 52 call
Jun ABC 51 call
Jun ABC 50 call
Jun ABC 49 call
Jun ABC 48 call
Jun ABC 47 call
Jun ABC 46 call
Jun ABC 45 call
Jun ABC 44 call
Jun ABC 43 call
Jun ABC 42 call
Jun ABC 41 call
July ABC 60 put
July ABC 60 call
July ABC 59 put
July ABC 59 call
July ABC 58 put
July ABC 58 call
July ABC 57 put
July ABC 57 call
July ABC 56 put
July ABC 56 call
July ABC 55 put
July ABC 55 call
Aug ABC 60 put
Aug ABC 60 call
Aug ABC 59 put
Aug ABC 59 call
Aug ABC 58 put
Aug ABC 58 call
Aug ABC 57 put
Aug ABC 57 call
Aug ABC 56 put
Aug ABC 56 call
Aug ABC 55 put
Aug ABC 55 call
Example #1--All Series Satisfy Opening Conditions on First Attempt
    After the one-second delay, the 500-millisecond interval starts. 
During that interval, the System opens in a random order the Jun ABC 
50, 49, 48, 47, and 46 puts. The System then opens in a random order 
the Jun ABC 50, 51, 52, and 53 calls. Then, the System opens in a 
random order the Jun ABC 45, 44, 43, and 42 puts. Then, the System 
opens in a random order the Jun ABC 54, 55, and 56 calls. Next, the 
System opens in a random order the Jun ABC 41, 40, 39, and 38 puts. The 
System then opens in a random order the Jun ABC 57, 58, and 59 calls. 
After 500 milliseconds, the System opens in a random order over 10 100-
millisecond intervals the remaining Jun puts and calls and all Jul and 
Aug puts and calls.
Example #2--Assume One Series Does Not Open on First Attempt but Does 
Open on Second Attempt During the Initial Interval
    After the one-second delay, the 500-millisecond interval starts. 
During that interval, the System opens in a random order the Jun ABC 
50, 49, 48, 47, and 46 puts. The System then opens in a random order 
the Jun ABC 50, 51, 52, and 53 calls. Then, the System opens in a 
random order the Jun ABC 45, 44, and 43, and attempts to but cannot 
open the Jun ABC 42 put. Then, the System opens in a random order the 
Jun ABC 54, 55, and 56 calls. Next, the System opens in a random order 
the Jun ABC 41, 40, 39, and 38 puts. The System then opens in a random 
order the Jun ABC 57, 58, and 59 calls. The System then opens the Jun 
ABC 42 put, which did not open on its first attempt. After 500 
milliseconds, the System opens in a random order over 10 100-
millisecond intervals the remaining Jun puts and calls and all Jul and 
Aug puts and calls.
Example #3--Assume One Series Does Not Satisfy Opening Conditions 
During the First Interval
    After the one-second delay, the 500-millisecond interval starts. 
During that interval, the System opens in a random order the Jun ABC 
50, 49, 48, 47, and 46 puts. The System then opens in a random order 
the Jun ABC 50, 51, 52, and 53 calls. Then, the System opens in a 
random order the Jun ABC 45, 44, and 43, and attempts to but cannot 
open the Jun ABC 42 put. Then, the System opens in a random order the 
Jun ABC 54, 55, and 56 calls. Next, the System opens in a random order 
the Jun ABC 41, 40, 39, and 38 puts. The System then opens in a random 
order the Jun ABC 57 and 58 calls, and attempts to but cannot open the 
Jun ABC 59 call. During the initial 500 milliseconds, the System 
continues to attempt to but cannot open the Jun ABC 59 call. After 500 
milliseconds, the System opens in a random order over 10 100-
millisecond intervals the Jun ABC 59 call, the remaining Jun puts and 
calls, and all Jul and Aug puts and calls.
    While the System will continue to open series in a random order, 
during an initial longer interval, the System will open specific groups 
of series within a random order. The order in which the System opens 
series for trading is generally immaterial; however, on expiration days 
for volatility index derivatives, ATM and OTM series with expirations 
of approximately one month are used to calculate the exercise 
settlement value of expiring volatility index derivatives as part of 
the modified opening procedure. The Exchange believes opening these 
series first will enhance liquidity in those series on expiration days 
for volatility index derivatives.
    Specifically, Market-Makers are the primary liquidity providers in 
the Exchange's market. The Exchange provides Market-Makers with a tool, 
the Quote Risk Monitor (``QRM'') they use to control risk of multiple, 
automatic executions. A QRM event in a class will cause a Market-
Maker's quotes in all series in the class to be cancelled (certain 
events may cause a Market-Maker's quotes in all classes to be 
cancelled).\9\ As a result, a Market-Maker's opening transactions in 
series not used to calculate an exercise settlement value may cause a 
QRM event, cancelling the Market-Maker's quotes in all other series in 
the class, including series used to calculate an exercise settlement 
value. This reduces liquidity in these series. Similarly, the Exchange 
has observed larger Market-Maker quote sizes in further OTM puts and 
calls compared to sizes in less OTM puts and calls and ATM puts and 
calls, which have higher weightings in the formula used to determine 
the exercise settlement value of expiring volatility index derivatives 
in accordance with the applicable volatility index

[[Page 30790]]

methodology.\10\ If the further OTM puts and calls open prior to the 
less OTM puts and calls and ATM puts and calls, similar reduced 
liquidity in those ATM and less OTM puts and calls from QRM events may 
occur. The Exchange believes the proposed rule change will increase 
liquidity in all series used to calculate exercise settlement values, 
which is desirable to ensure these series open at competitive prices on 
expiration days for volatility index derivatives. While liquidity is 
important to open all series on the Exchange, given the potential 
impact on the exercise settlement value determined for expiring 
volatility index derivatives, the Exchange believes it is appropriate 
to ensure a fair and orderly opening of the series used to calculate 
the exercise settlement value.
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    \9\ See Rule 8.18.
    \10\ See, e.g., the VIX methodology at http://www.cboe.com/micro/vix/vix-index-rules-and-methodology.pdf.
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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.\11\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ Id.
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    In particular, the proposed rule change merely modifies the order 
in which the System opens series for trading on the Exchange. The 
System will continue to open series in a random order; however, 
initially, it will open series within specific groups in a random 
order. The Exchange believes the System can open series pursuant to the 
proposed maximum interval times, as current interval times are under 
these maximums, and because they are consistent with the proposed 
maximum of 30 seconds for the entire opening process. These interval 
times ensure a fast opening of all series, which will benefit 
investors.
    While the order in which the System opens series is generally 
immaterial (and thus why the Exchange has opened them in a random 
order), the Exchange believes opening ATM and OTM series with 
expirations of approximately one month will permit series used to 
calculate exercise settlement values for expiring volatility index 
derivatives to open as soon as possible. As discussed above, the 
Exchange believes this may enhance liquidity in these series on 
expiration days for volatility index derivatives, which benefits market 
participants. Additionally, reducing the potential time during which 
all series in all classes will open benefits all market participants, 
because market participants will be able to begin trading in all series 
sooner.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Cboe Options 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 proposed rule change 
only modifies the order in which the System will open series for 
trading. The System will open groups of ATM and OTM series with 
expirations of approximately one month first, but will continue to open 
series within those groups in a random order, and then open all in-the-
money series in a random order (as is case today with respect to those 
series). Additionally, pursuant to the proposed rule change, the 
opening process must be within a shorter time period. The proposed 
maximum interval times are consistent with current and proposed 
interval times, and are consistent with the proposed maximum of 30 
seconds for the entire opening process (which is shorter than the 
current maximum). The proposed rule change applies to all classes in 
the same manner, and only applies to the order in which the System will 
open series for trading on the Exchange. As discussed above, the 
Exchange believes this may enhance liquidity in these series on 
expiration days for volatility index derivatives, which benefits market 
participants. Additionally, reducing the potential time during which 
all series in all classes will open benefits all market participants, 
because market participants will be able to begin trading in all series 
sooner.

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

    Because the foregoing 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, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization 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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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 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-2018-046 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.


[[Page 30791]]


All submissions should refer to File Number SR-CBOE-2018-046. 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-2018-046 and should be submitted on 
or before July 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13978 Filed 6-28-18; 8:45 am]
 BILLING CODE 8011-01-P


