[Federal Register Volume 85, Number 107 (Wednesday, June 3, 2020)]
[Notices]
[Pages 34270-34273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11920]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88968; File No. SR-CboeBZX-2020-042]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Accommodate Exchange Listing and 
Trading of Options-Linked Securities

May 28, 2020.
    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 May 15, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend Exchange Rule 14.11(d) (``Securities Linked to the Performance of 
Indexes and Commodities (Including Currencies)'') to accommodate 
Exchange listing and trading of Options-Linked Securities. 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://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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
    Exchange Rule 14.11(d) provides for Exchange listing and trading of 
Securities Linked to the Performance of Indexes and Commodities 
(Including Currencies) (``Linked Securities'').\3\ The Exchange 
proposes to amend Rule 14.11(d) to add Options-Linked Securities to the 
type of Linked Securities permitted to list and trade on the Exchange.
---------------------------------------------------------------------------

    \3\ Rule 14.11(d) currently accommodates Exchange listing and 
trading of Equity Index-Linked Securities, Commodity-Linked 
Securities, Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities (collectively 
referred to as ``Linked Securities'').
---------------------------------------------------------------------------

    The proposed amendment would include Options-Linked Securities in 
the list of Linked-Securities set forth in paragraph (d) of Rule 14.11. 
Additionally, the proposal would provide that the payment at maturity 
with respect to Options-Linked Securities is based on the performance 
of U.S. exchange-traded options on any one or combination of the 
following: (a) Index Fund Shares; (b) Managed Fund Shares, (c) 
Exchange-Traded Fund Shares; (d) Linked Securities; (e) securities 
defined in Rule 14.11; (f) the S&P 100 Index, the S&P 500 Index, the 
Nasdaq 100 Index, the Dow Jones Industrial Average, the MSCI EAFE 
Index, the MSCI Emerging Markets

[[Page 34271]]

Index, the NYSE FANG Index, the Russell 2000 Index, the Russell 1000 
Index, the Russell 1000 Growth Index, the Russell 1000 Value Index, the 
Cboe Volatility Index, Communication Services Select Sector Index, the 
Consumer Discretionary Select Sector Index, the Consumer Staples Select 
Sector Index, the Energy Select Sector Index, the Financial Select 
Sector Index, the Health Care Select Sector Index, the Industrial 
Select Sector Index, the Materials Select Sector Index, the Real Estate 
Select Sector Index, the Technology Select Sector Index, or the 
Utilities Select Sector Index; or (g) a basket or index of any of the 
foregoing (an ``Options Reference Asset''). The proposal would also 
include Options Reference Assets as a Multifactor Reference Asset, 
which would result in Options-Linked Securities as being included as 
Multifactor Index-Linked Securities.
    The proposal would move existing Rule 14.11(d)(2)(K)(v) 
(Multifactor Index-Linked Securities Listings Standards) to Rule 
14.11(d)(2)(K)(vi), and would set forth the Option-Linked Securities 
Listing Standards in Rule 14.11(d)(2)(K)(v). Proposed Rule 
14.11(d)(2)(K)(v)(a) provides that Option-Linked Securities must meet 
both of the following initial listing criteria: (1) The value of the 
Options Reference Asset must be calculated and widely disseminated by 
one or more major market data vendors on at least a 15-second basis 
during the Exchange's regular market session; and (2) in the case of 
Options-Linked Securities that are periodically redeemable, the 
indicative value of the subject Options Linked Securities must be 
calculated and widely disseminated by the Exchange or one or more major 
market data vendors on at least a 15-second basis during the Exchange's 
regular market session. Proposed Rule 14.11(d)(2)(K)(v)(b) provides 
that Option-Linked Securities must meet the following continued listing 
criteria: (1) The Exchange will consider the suspension of trading in, 
and will initiate delisting proceedings pursuant to Rule 14.12 if any 
of the initial listing criteria described above are not continuously 
maintained; and (2) the Exchange will consider the suspension of 
trading in, and will initiate delisting proceedings pursuant to Rule 
14.12 under any of the following circumstances: (A) If the aggregate 
market value or the principal amount of the Options-Linked Securities 
publicly held is less than $400,000; (B) if an interruption to the 
dissemination of the value of the Options Reference Asset persists past 
the trading day in which it occurred or is no longer calculated or 
available and a new Options Reference Asset is substituted, unless the 
new Options Reference Asset meets the requirements of this Rule 
14.11(d)(2)(K); or (C) if such other event shall occur or condition 
exists which in the opinion of the Exchange makes further dealings on 
the Exchange inadvisable.\4\
---------------------------------------------------------------------------

    \4\ Proposed Rule 14.11(d)(2)(K)(v)(b) is substantially the same 
as existing Rules 14.11(d)(2)(K)(ii)(b), 14.11(d)(2)(K)(iii)(c), and 
14.11(d)(2)(K)(iv)(c).
---------------------------------------------------------------------------

    With respect to equity securities underlying Options Reference 
Assets, the Exchange notes that Index Fund Shares,\5\ Managed Fund 
Shares,\6\ Exchange-Traded Fund Shares,\7\ and Linked Securities and 
securities as defined in Rule 14.11 are subject to initial and 
continued listing criteria under applicable Exchange Rules as approved 
by the Commission. In addition, the Commission has approved or issued a 
notice of effectiveness to permit listing on a national securities 
exchange of securities based on certain Indexes.\8\ Further, Index Fund 
Shares, Managed Fund Shares, Exchange-Traded Fund Shares, Linked 
Securities or securities defined in Rule 14.11 based on the Indexes 
have been listed on national securities exchanges under generic listing 
criteria applicable to such securities. With respect to options on the 
Indexes, options on all of the Indexes are currently traded on U.S. 
options exchanges.
---------------------------------------------------------------------------

    \5\ See Exchange Rule 14.11(c).
    \6\ See Exchange Rule 14.11(i).
    \7\ See Exchange Rule 14.11(l).
    \8\ See, e.g., Securities Exchange Act Release Nos. 31591 
(December 11, 1992), 57 FR 60253 (December 18, 1992) (SR-Amex-92-18) 
(approving the listing and trading of Portfolio Depositary Receipts 
based on the S&P 500 Index); 39525 (January 8, 1998), 63 FR 2438 
(January 15, 1998) (SR-Amex-97-29) (approving the listing and 
trading of DIAMONDS Trust Units, Portfolio Depositary Receipts based 
on the Dow Jones Industrial Average); 39011 (September 3, 1997), 62 
FR 47840 (September 11, 1997) (SR-CBOE-97-26) (approving the listing 
and trading of options on the Dow Jones Industrial Average); 19907 
(June 24, 1983), 48 FR 30814 (July 5, 1983) (SR-CBOE-83-08) 
(approving the listing and trading of options on the S&P 500 Index 
on the CBOE); 41119 (February 26, 1999), 64 FR 11510 (March 9, 1999) 
(SR-Amex-98-34) (Order Approving and Notice of Filing and Order 
Granting Accelerated Approval of Amendment Nos. 3 and 4 to the 
Proposed Rule Change Relating to the Listing and Trading of Shares 
of the Nasdaq-100 Trust); 87437 (October 31, 2019), 84 FR 59900 
(November 6, 2019) (SR-NYSEArca-2019-62) (Notice of Filing of 
Amendment No. 1, and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, Relating to 
the Listing and Trading of Shares of the Innovator MSCI EAFE Power 
Buffer ETFs and Innovator MSCI Emerging Markets Power Buffer ETFs 
under NYSE Arca Rule 8.600-E).
---------------------------------------------------------------------------

    Finally, all Options-Linked Securities listed pursuant to Exchange 
Rule 14.11(d) would be included within the definition of securities as 
such terms are used in the Exchange's rules and, as such, are subject 
to Exchange rules and procedures that currently govern the trading of 
securities on the Exchange.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Linked 
Securities. The Exchange also believes that the standards for listing 
and trading Options-Linked Securities are reasonably designed to 
promote a fair and orderly market for such securities. The proposed 
addition of Options Reference Assets, as described above, would also 
work in conjunction with the initial and continued listing criteria 
related to surveillance procedures and trading guidelines for Linked 
Securities.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Options-Linked Securities in all 
trading sessions and to deter and detect violations of Exchange Rules. 
The issuer of a series of Options-Linked Securities will be required to 
comply with Rule 10A-3 under the Act \9\ for the initial and continued 
listing of Linked Securities, as provided in Exchange Rule 
14.11(d)(2)(F). The Exchange notes that the proposed change is not 
intended to amend any other component or requirement of Exchange Rule 
14.11(d).
---------------------------------------------------------------------------

    \9\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    Quotation and last sale information for Options-Linked Securities, 
Index Fund Shares, Managed Fund Shares, Exchange-Traded Fund Shares, 
Linked Securities, and securities defined in Rule 14.11 are available 
via the Consolidated Tape Association (``CTA'') high speed line. 
Quotation and last sale information for such securities also will be 
available from the exchange on which they are listed. Quotation and 
last sale information for options on Index Fund Shares, Managed Fund 
Shares, Exchange-Traded Fund Shares, Linked Securities, securities 
defined in Rule 14.11 and the Indexes will be available via the Options 
Price Reporting Authority and major market data vendors. Information 
regarding values of the Indexes is available from major market data 
vendors.
    The Exchange believes that the proposed rule change will provide 
investors with the ability to better diversify and hedge their 
portfolios using an exchange-listed security without having to trade 
directly in the underlying options contracts, and will facilitate the 
listing and trading of additional Linked Securities that will enhance 
competition among market

[[Page 34272]]

participants, to the benefit of investors and the marketplace.
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.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ 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) \12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
---------------------------------------------------------------------------

    With respect to equity securities underlying Options Reference 
Assets, the Exchange notes that Index Fund Shares, Managed Fund Shares, 
Exchange-Traded Fund Shares, Linked Securities and securities defined 
in Rule 14.11 are subject to Exchange initial and continued listing 
criteria under applicable Exchange rules as approved by the Commission. 
In addition, the Commission has approved or issued a notice of 
effectiveness to permit listing on a national securities exchange of 
securities based on certain Indexes.\13\ With respect to options on the 
Indexes, options on all of the Indexes are currently traded on U.S. 
options exchanges. All options included in an Options Reference Asset 
will be U.S. exchange-traded.
---------------------------------------------------------------------------

    \13\ Supra note 8.
---------------------------------------------------------------------------

    Any Options-Linked Securities would be required to meet the 
following initial listing criteria in proposed Rule 
14.11(d)(2)(K)(v)(a): (1) The value of the Options Reference Asset must 
be calculated and widely disseminated by one or more major market data 
vendors on at least a 15-second basis during the Exchange's regular 
market session; and (2) in the case of Options-Linked Securities that 
are periodically redeemable, the indicative value of the subject 
Options Linked Securities must be calculated and widely disseminated by 
the Exchange or one or more major market data vendors on at least a 15-
second basis during the Exchange's regular market session. Options-
Linked Securities also will be subject to the continued listing 
criteria in proposed Rule 14.11(d)(2)(K)(v)(b) as described above. 
Finally, all Options-Linked Securities listed pursuant to Exchange Rule 
14.11(d) would be included within the definition of ``security'' or 
``securities'' as such terms are used in the Exchange's rules and, as 
such, are subject to Exchange rules and procedures that currently 
govern the trading of securities on the Exchange.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Linked 
Securities. The Exchange also believes that the standards for listing 
and trading Options-Linked Securities are reasonably designed to 
promote a fair and orderly market for such securities. The proposed 
addition of Options Reference Assets, as described above, would also 
work in conjunction with the initial and continued listing criteria 
related to surveillance procedures and trading guidelines for Linked 
Securities. The Exchange believes that its surveillance procedures are 
adequate to properly monitor the trading of Options Linked Securities 
in all trading sessions and to deter and detect violations of Exchange 
rules. Trading in the securities may be halted under the conditions 
specified in Exchange Rule 14.11(d)(2)(H).
    The Exchange believes that the proposed rule change will provide 
investors with the ability to better diversify and hedge their 
portfolios using an exchange listed security without having to trade 
directly in the underlying options contracts, and will facilitate the 
listing and trading of additional Linked Securities that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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 proposed rule change 
will facilitate the listing and trading of additional Linked Securities 
that will enhance competition among market participants, to the benefit 
of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The [sic] 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-042 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-CboeBZX-2020-042. 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

[[Page 34273]]

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-CboeBZX-2020-042, and should 
be submitted on or before June 24, 2020.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11920 Filed 6-2-20; 8:45 am]
 BILLING CODE 8011-01-P


