
[Federal Register Volume 84, Number 33 (Tuesday, February 19, 2019)]
[Notices]
[Pages 4878-4880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85114; File No. SR-CBOE-2019-006]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Amend Its Financial Incentive Program for Lead Market-Makers 
Appointed in MSCI EAFE Index (MXEA) Options and MSCI Emerging Markets 
Index (MXEF) Options

February 12, 2019.
    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 February 1, 2019, 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, 
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 program for Lead Market-Makers 
appointed in MSCI EAFE Index (MXEA) options and MSCI Emerging Markets 
Index (MXEF) options. 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.

[[Page 4879]]

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 its Fees Schedule to amend its 
financial incentive program for Lead Market-Makers (``LMMs'') appointed 
in MSCI EAFE Index (MXEA) options and MSCI Emerging Markets Index 
(MXEF) options (collectively, MSCI options), effective February 1, 
2019. By way of background, the Exchange recently adopted a program 
which provided through December 31, 2018, a financial incentive to any 
Market-Maker that was appointed as a LMM in MXEA and/or MXEF (``MSCI 
LMM'') and met a heightened quoting standard, which is set forth in the 
Fees Schedule.\3\ MSCI LMM(s) that meet the heightened quoting 
standard, receive $20,000 per month/per product. The LMM receives 
$20,000 per month/per class if it provides continuous electronic quotes 
that meet or exceed a the heightened quoting standard set forth in the 
Fees Schedule in at least 90% of the MXEA and/or MXEF series it must 
quote pursuant to Rule 8.15(b) 90% of the time in a given month.
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    \3\ MSCI LMMs serve as MSCI LMMs during the RTH session only.
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    The Exchange first proposes to renew the MSCI program. 
Particularly, as noted above, the Fees Schedule currently provides that 
LMM(s) appointed in MXEA and MXEF will receive a payment of $20,000 per 
class when they meet prescribed heightened quoting standards in a given 
month and provides that the program will be in place through December 
31, 2018. In order to continue to encourage LMM(s) in MXEA and MXEF to 
provide significant liquidity in these options, the Exchange proposes 
to renew this program through June 30, 2019.
    Next, the Exchange proposes to increase the payment per class for 
the month of February 2019. Specifically, the Exchange proposes to 
provide that LMM(s) appointed in MXEA and MXEF will receive a payment 
of $40,000 per class when it meets prescribed heightened quoting 
standards in the month of February 2019. For the months of March 2019 
through June 2019, the payment would be $20,000 per class per month.
    Lastly, the Exchange proposes to amend the program to reduce the 
amount of time a MSCI LMM needs to quote. Particularly, the Exchange 
proposes to provide that in order to receive the financial benefit, a 
MSCI LMM must meet the heightened quoting standard set forth in the 
Fees Schedule in at least 90% of the MXEA and/or MXEF series it must 
quote pursuant to Rule 8.15(b) 80% of the time in a given month 
(instead of 90% of the time in a given month). Particularly, the 
Exchange notes that if there is extreme volatility in the market during 
a given month, it may become more difficult for a MSCI LMM to satisfy 
the heightened quoting standard for 90% of the time in that given 
month. As such, the Exchange proposes to provide the LMM more 
flexibility by slightly reducing the amount of time it must meet the 
heightened quoting standard. The Exchange believes the proposed change 
is still commensurate with the financial benefit offered and that the 
MSCI LMM financial program still encourages a MSCI LMM to provide 
significant liquidity in MSCI options.
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.\4\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \5\ 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,\6\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(4).
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    First, the Exchange believes that it is reasonable, equitable and 
not unfairly discriminatory to renew the compensation plan for LMM(s) 
appointed in MXEA and MXEF because the Exchange wants to ensure it 
continues incentivizing the LMM(s) in these products to provide liquid 
and active markets in these products to encourage its growth. The 
Exchange notes that it had anticipated extending the MSCI Program for 
the month of January 2019 as well, but due to the government shutdown, 
was unexpectedly unable to do so.\7\ The Exchange also notes that the 
current MSCI LMM met the heightened quoting standard for January 2019, 
but because the Exchange was unable to extend the program as 
anticipated, the LMM will not be receiving a payment under the program 
for the month of January. In light of not being able to compensate the 
LMM for the month of January, notwithstanding the LMM's continued 
commitment to providing liquid and active markets in the MSCI products, 
the Exchange believes it's reasonable to offer a payment of $40,000 per 
class to the MSCI LMM for the month of February 2019, provided it meets 
the heightened quoting standard for February 2019. The Exchange 
believes it is equitable and not unfairly discriminatory to only offer 
this financial incentive to the MSCI LMM because it benefits all market 
participants trading in MSCI options to encourage the MSCI LMM to 
satisfy the heightened quoting standard, which may increase liquidity 
and provide more trading opportunities and tighter spreads. Indeed, the 
Exchange notes that the LMM provides a crucial role in providing quotes 
and the opportunity for market participants to trade MSCI products, 
which can lead to increased volume, thereby providing a robust market. 
The Exchange also notes that the MSCI 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 bandwidth).
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    \7\ See Cboe Options Notice, ``Cboe Options Exchange Fee 
Schedule Changes Effective January 2, 2019'' Reference ID: 
C2018122000.
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    The Exchange believes the proposed change to reduce the quoting 
time

[[Page 4880]]

requirement is reasonable as it only slightly reduces the amount of 
time a MSCI LMM must meet the heightened quoting standard in a month. 
Moreover, the Exchange believes reducing the amount of time a MSCI LMM 
must meet the heightened quoting standard is reasonable as extreme 
volatility in the market during a given month may make it more 
difficult for a MSCI LMM to meet the heightened quoting standard for 
the amount of time currently required. The proposed change, therefore, 
provides a MSCI LMM more flexibility in meeting the heightened quoting 
standard, even in extremely volatile months. Indeed, the Exchange 
wishes to ensure a MSCI LMM is adequately incentivized to provide 
liquid and active markets in the MSCI products to encourage its growth. 
Additionally, if a MSCI LMM does not satisfy the heightened quoting 
standard for the duration of the required time, even as amended, then 
it simply will not receive the offered per class payment for that 
month. The Exchange believes reducing the amount of time the LMM(s) 
needs to quote is still commensurate with the financial benefit 
offered. The Exchange believes that the program, even as amended, will 
continue to encourage increased quoting to add liquidity in MSCI 
products, thereby protecting investors and the public interest.

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 
any MSCI LMM, which market participant plays a crucial role in 
providing active and liquid markets in the MSCI products. 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 MSCI options are 
proprietary products 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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2019-006 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-2019-006. 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-2019-006 and should be submitted on 
or before March 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02611 Filed 2-15-19; 8:45 am]
BILLING CODE 8011-01-P


