[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:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                     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
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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.

------------------------------------------------------------------------
                                                                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 rule-comments@sec.gov. 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


