[Federal Register Volume 84, Number 169 (Friday, August 30, 2019)]
[Notices]
[Pages 45807-45810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18753]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86766; File No. SR-CBOE-2019-046]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Concerning 
End-of-Month and End-of-Day Indicative Values

August 26, 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 August 12, 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, 
and II, below, which Items have been prepared by the Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change 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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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 and move certain current Rules in connection with end-of-month 
and end-of-day indicative values from the Exchange's currently 
effective Rulebook (``current Rulebook'') to the shell structure for 
the Exchange's Rulebook that will become effective upon the migration 
of the Exchange's trading platform to the same system used by the Cboe 
Affiliated Exchanges (as defined below) (``shell Rulebook''). 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/CBOELegalRegulatory 
Home.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
    In 2016, the Exchange's parent company, Cboe Global Markets, Inc. 
(formerly named CBOE Holdings, Inc.) (``Cboe Global''), which is also 
the parent company of Cboe C2 Exchange, Inc. (``C2''), acquired Cboe 
EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX'' or 
``EDGX Options''), Cboe BZX Exchange, Inc. (``BZX'' or ``BZX 
Options''), and Cboe BYX Exchange, Inc. (``BYX'' and,

[[Page 45808]]

together with Cboe Options, C2, EDGX, EDGA, and BZX, the ``Cboe 
Affiliated Exchanges''). The Exchange intends to migrate its trading 
platform to the same system used by the Cboe Affiliated Exchanges, 
which the Exchange expects to complete on October 7, 2019. In 
connection with this technology migration, the Exchange has a shell 
Rulebook that resides alongside its current Rulebook, which shell 
Rulebook will contain the Rules that will be in place upon completion 
of the Cboe Options technology migration.
    The Exchange proposes to adopt Rule 4.17 (in the shell Rulebook), 
which amends its current rules regarding end-of-month (``EOM'') and 
end-of-day (``EOD'') indicative values.\5\ Currently, Rule 6.2.06(a) 
describes the Exchange's process for calculating EOM values. 
Specifically, it provides that following the close of trading on the 
last business day of each calendar month, the Exchange will conduct 
special non-trading closing rotations for each series of S&P 500 Index 
(``SPX'') options in order to determine the theoretical ``fair value'' 
of such series as of time of the close of trading in the underlying 
cash market. During such special non-trading closing rotations, Lead 
Market Makers (``LMMs'') or Select Market Makers (``SMMs'') in the SPX 
options in each series of SPX options, may provide bid and offer 
quotations, the midpoint of which will reflect the theoretical fair 
value of the series of SPX options, as determined by the LMM(s) or 
SMM(s) pursuant to the LMMs' or SMMs' algorithmic analysis of relevant 
and available data. Notwithstanding that trading in SPX options on the 
Exchange continues until fifteen minutes after the close of trading in 
the underlying cash market, on the last business day of each month, 
after the close of trading, the Exchange shall disseminate the fair 
value quotations as of the close of trading in the underlying cash 
market provided by the LMM(s) or SMM(s) as the quotations used to 
calculate the theoretical fair value for each series of SPX options. In 
particular, LMMs and SMMs provide the exchange with quotes to fairly 
represent the market of the subject series, using the final EOM fair 
value of the corresponding E-Mini S&P 500 (``ES'') futures price 
provided by the CME Group, Inc. (``CME''), usually within 10 minutes of 
CME's EOM fair value market close, which occurs at 3:00 p.m. on the 
last trading day of the month.
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    \5\ The Exchange notes that current Rule 6.2.06, which currently 
provides for EOM and EOD values, was already ``removed'' from the 
current Rulebook in anticipation of migration, therefore, is 
effective only until October 7, 2019. See Securities Exchange Act 
Release No. 86387 (July 16, 2019), 84 FR 35147 (July 22, 2019) (SR-
CBOE-2019-034).
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    Current Rule 6.2.06(b) describes the Exchange's process for 
calculating EOD values. Specifically, it provides that following the 
close of trading of Regular Trading Hours on any trading day that is 
not the last business day of a calendar month, in addition to the 
Exchange's regular end-of-day quotations, the Exchange may determine, 
on a series-by-series basis, to disseminate two-sided indicative values 
in non-expiring series of SPX options in the interests of fair and 
orderly markets. The Exchange derives end-of-day indicative values for 
series of SPX options using an algorithm based on quotations and orders 
displayed in series of SPX options prior to the close of trading or, in 
the absence of sufficient quote and order data in a series, using 
generally accepted volatility and options pricing models as determined 
by the Exchange. EOD indicative values shall be clearly identified and 
disseminated via the Options Price Reporting Authority (``OPRA''). This 
permits the Exchange to disseminate informational indicative values 
more reflective of actual options values in addition to final end-of-
day displayed quotations when Users' systems issues or market 
conditions result in an absence of final quotes or extraordinarily wide 
final quotes without interfering in the markets or impeding any market 
functionalities that rely on accurate pricing or EOD quotes.
    Upon migration, the Exchange will discontinue the dissemination of 
indicative values to OPRA, \6\ as well as the EOM closing rotation. 
Instead, the Exchange will make publicly available, e.g., on its 
website, the indicative prices calculated for each series in classes as 
the Exchange determines on a class-by-class basis, on any trading day, 
including the last trading day of the month, using the same logic 
currently implemented for calculating indicative values under current 
Rule 6.2.06(b). As such, the Exchange now proposes Rule 4.17 (in the 
shell Rulebook), which amends the language under current Rule 6.2.06(b) 
and does not adopt language from current Rule 6.2.06(a), to account for 
the above-described changes to be implemented upon migration.
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    \6\ The Exchange has communicated and worked with OPRA reporting 
authorities regarding the implementation of this change.
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    The proposed rule does not present any new or novel functionality 
as the indicative value logic will function for all trading days in the 
same manner as it does today for EOD. The proposed change merely 
applies the same process to every trading day, including the last 
business day of the calendar month. This will provide a streamlined 
indicative price process for each trading day in which indicative 
prices may be published. In addition to streamlining the process for 
each trading day, the Exchange proposes to remove the theoretical fair 
value process for EOM for a number of other reasons. First, the 
migrated technology platform will no longer support the ability for 
LMMs or SMMs to quote after the close as the current rule provides. 
Second, the Exchange believes using an algorithm based on quotations 
and orders displayed will provide a more objective, static formulation 
for indicative prices as opposed to the current analysis conducted by 
LMMs or SMMs, which potentially varies across different LMMs or SMMs. 
Third, though CME currently provides for a EOM fair value procedure for 
many of its equities products (which differs from the 3:15 p.m. daily 
settlement process for such products), it may determine to have a 3:00 
p.m. daily settlement process for all days, including the last trading 
day of the month, in its equities products as it currently has in place 
for other products, which could interfere with the current EOM process. 
Therefore, the Exchange proposes to mitigate any possibility that 
indicative values could not be calculated on the last day of the month 
by applying the current Exchange-generated EOD logic to all trading 
days.
    The Exchange also proposes that, instead of a series-by-series 
basis, the Exchange may determine which indicative values will be 
provided on a class-by-class basis, which is consistent with the 
majority of Exchange determinations, where applicable, throughout the 
Exchange rules, as well as provides the Exchange with flexibility to 
potentially provide indicative prices for any and all of its options 
classes exclusively listed on the Exchange.\7\ This will benefit all 
market participants by providing more indicative values than if the 
Exchange determined indicative prices on the narrower series-by-series 
basis. In addition to this, rather than disseminating the indicative 
pricing to OPRA, for which market participants must pay a fee to OPRA 
to access, the Exchange will make indicative prices publicly available, 
e.g., by posting on its website, which will provide free access

[[Page 45809]]

to such prices for all market participants.
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    \7\ Upon migration, the Exchange plans to provide indicative 
prices for SPX, SPXW, VIX, and VIXX options.
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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.\8\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \9\ 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) \10\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
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    The Exchange notes that the proposed rule does not present any new 
or novel functionality, as it will continue to use the EOD logic in the 
same manner for calculating indicative values as it does today for all 
trading days. The proposed change merely applies the current EOD logic 
to every trading day, including the last business day of the calendar 
month. As such, the proposed rule change will protect investors by 
fostering cooperation and coordination with market participants 
processing information with respect to securities and by removing 
impediments to and perfecting the mechanism of a free and open market 
and national market system by providing market participants with a 
streamlined indicative price process. The Exchange believes this will 
make the process itself easier to understand within the Exchange Rules, 
as well as provide easier access to such pricing. In addition to 
streamlining the process for each trading day, removing the theoretical 
fair value process for EOM will also remove impediments to and perfect 
the mechanism of a free and open market and national market system by 
providing market participants with rules that will accurately reflect 
the manner in the Exchange's System will function upon migration, allow 
for a more objective, static formulation for indicative prices than the 
current LMM or SMM analysis, which potentially varies across different 
LMMs or SMMs, as well as mitigate any potential issues in deriving 
indicative values from CME's EOM fair value process, which is subject 
to change and, as a result, could interfere with the current EOM 
process. Additionally, by providing the Exchange with the flexibility 
to determine indicative values on a broader class-by-class basis, the 
proposed rule change will potentially provide more indicative pricing 
information, benefitting all market participants. Exchange 
determinations on a class-by-class basis are also consistent with the 
majority of Exchange determinations currently under the Rules. 
Moreover, the proposed rule change will remove impediments to and 
perfect the mechanism of a free and open market and national market 
system by making the indicative values publicly available and free for 
all participants to access, as opposed to the current dissemination of 
such prices to OPRA, for which market participants must pay a fee to 
access.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition because the dissemination of EOD indicative 
values does not impact trading on the Exchange, but is intended merely 
to make indicative pricing information available to all market 
participants. Likewise, the Exchange does not believe that the proposed 
rule change will impose any burden on intermarket competition because 
the indicative values will be publicly available, e.g., on the 
Exchange's website, to all market participants for free.

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:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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) of the Act \11\ and 
Rule 19b-4(f)(6) \12\ 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 shall institute proceedings under Section 19(b)(2)(B) \13\ 
of the Act to determine whether the proposed rule change should be 
approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 15 U.S.C. 78s(b)(2)(B).
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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-2019-046 on the subject line.

Paper Comments

     Send paper comments in triplicate to the Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number SR-CBOE-2019-046. 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

[[Page 45810]]

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-2019-046 and should be submitted on or before September 20, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18753 Filed 8-29-19; 8:45 am]
BILLING CODE 8011-01-P


