83 FR 18605 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change in Connection With the Migration of SPX Options From the Hybrid 3.0 System to the Hybrid Trading System
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 82 (April 27, 2018)
Federal Register Volume 83, Issue 82 (April 27, 2018)
| Page Range | 18605-18612 | |
| FR Document | 2018-08848 |
[Federal Register Volume 83, Number 82 (Friday, April 27, 2018)] [Notices] [Pages 18605-18612] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-08848] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83089; File No. SR-CBOE-2018-029] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change in Connection With the Migration of SPX Options From the Hybrid 3.0 System to the Hybrid Trading System April 23, 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 April 12, 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 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules related to listing the SPX class on a group basis and amend other rules in connection with the Exchange's planned migration of standard third-Friday options on the S&P 500 Index (``SPX options'') to the Hybrid Trading System from the Hybrid 3.0 System. (additions are italicized; deletions are [bracketed]) * * * * * Cboe Exchange, Inc. Rules * * * * * Rule 6.2. Hybrid Opening (and Sometimes Closing) System (``HOSS'') (a)-(h) (No change). [[Page 18606]] . . . Interpretations and Policies: .01 (No change). .02 Market-Maker Quotes. (a) Minimum Size. The Exchange determines on a class-by-class basis [(a)] the minimum number of contracts for the initial size of a Market-Maker's opening quote, which minimum must be at least one contract. For SPX, the Exchange may also determine minimum initial quote size on a premium basis and an expiration basis for series with expirations of (1) 7 or fewer days, (2) 8 to 91 days, (3) 92 to 188 days, (4) 189 to 461 days, and (5) 462 or more days. (b) Bid/Ask Differentials. The Exchange determines on a class- by-class and premium basis the bid/ask differential requirements with which Market-Makers' opening quotes must comply, which minimum and differential requirements may be different for the opening than those applicable intraday. For SPX, the Exchange may determine bid/ ask differential requirements for series with expirations of (1) fewer than 462 days and (2) 462 or more days, and for all other classes, the Exchange may determine bid/ask differential requirements for series with expiration of (1) less than nine months and (2) nine months or more. .03-.07 (No change). * * * * * Rule 6.53C. Complex Orders on the Hybrid System (a)-(d) (No change). . . . Interpretations and Policies: .01 (No change). .02 [Reserved.] If the Exchange determines to list SPX on a group basis pursuant to Rule 8.14, a marketable complex order consisting of legs in different groups of series in the class does not automatically execute against individual orders residing in the EBook pursuant to Rule 6.53C(c)(ii)(1) or (d)(v)(1) and automatically executes against complex orders (or COA responses) in accordance with Rules 6.53C(c)(ii)(2) or (d)(v)(2) through (4). A marketable complex order consisting of legs in the same group of series in SPX executes against individual orders in the EBook in accordance with Rule 6.53C(c)(ii) and (d)(v). Complex orders consisting of legs in different groups of series that are marketable against each other may only execute at a net price that has priority over the individual orders and quotes resting in the EBook. .03-.12 (No change). * * * * * Rule 8.3. Appointment of Market-Makers (a)-(b) (No change). (c) Market-Maker Appointments. Absent an exemption by the Exchange, an appointment of a Market-Maker confers the right to quote electronically and in open outcry in the Market-Maker's appointed classes during Regular Trading Hours as described below. Subject to paragraph (e) below, a Market-Maker may change its appointed classes upon advance notification to the Exchange in a form and manner prescribed by the Exchange. (i) Hybrid Classes. Subject to paragraphs (c)(iv) and (e) below, a Market-Maker can create a Virtual Trading Crowd (``VTC'') appointment, which confers the right to quote electronically during Regular Trading Hours in an appropriate number of Hybrid classes (as defined in Rule 1.1(aaa)) selected from ``tiers'' that have been structured according to trading volume statistics, except for the AA tier. All classes within a specific tier will be assigned an ``appointment cost'' depending upon its tier location. The following table sets forth the tiers and related appointment costs. II. ------------------------------------------------------------------------ Appointment Tier Hybrid options classes cost ------------------------------------------------------------------------ AA............................. Options on the Cboe .499 Volatility Index (VIX). Options on the Standard ** 1.0 & Poor's 500 Index (SPX). * * * * * * * ------------------------------------------------------------------------ * Excludes Tier AA. ** If the Exchange determines to list SPX on a group basis pursuant to Rule 8.14, the SPX appointment cost confers the right to trade in all SPX groups. (ii) (No change). (iii) Hybrid 3.0 Class. In addition to paragraphs (i) and (ii) above, and subject to paragraphs (c)(iv) and (e) below, a Market- Maker can select as the Market-Maker's appointment a Hybrid 3.0 class traded on the Exchange, which confers the right to trade in open outcry in the Hybrid 3.0 class during Regular Trading Hours as described below. Each Hybrid 3.0 class is assigned an ``appointment cost'', which is set forth below. ------------------------------------------------------------------------ Appointment Hybrid 3.0 class cost ------------------------------------------------------------------------ [Options on the Standard & Poor's 500 Index (SPX)]...... [*1.0] None.................................................... .............. ------------------------------------------------------------------------ [* This appointment cost also confers the right to trade any group of series of SPX that the Exchange has authorized for trading on the Hybrid Trading System pursuant to Rule 8.14.] (iv)-(v) (No change). (d)-(e) (No change). * * * * * Rule 8.7. Obligations of Market-Makers (a)-(c) (No change). (d) Market-Making Obligations in Applicable Hybrid Classes The following obligations in this paragraph (d) are only applicable to Market-Makers trading classes on the Cboe Options Hybrid System and only in those Hybrid classes. Unless otherwise provided in this Rule, Market-Makers trading classes on the Hybrid System remain subject to all obligations imposed by Cboe Options Rule 8.7. To the extent another obligation contained elsewhere in Rule 8.7 is inconsistent with an obligation contained in paragraph (d) of Rule 8.7 with respect to a class trading on Hybrid, this paragraph (d) shall govern trading in the Hybrid class. For Regular Trading Hours, these requirements are applicable on a per class basis, except as set forth in paragraph (ii)(B) below, depending upon the percentage of volume a Market-Maker transacts in an appointed class during Regular Trading Hours electronically versus in open outcry. With respect to making this determination, the Exchange will monitor a Market-Maker's trading activity in each appointed class during Regular Trading Hours every calendar quarter to determine whether it exceeds the threshold established in paragraph (d)(i). If a Market-Maker exceeds the threshold established below, the obligations contained in (d)(ii) will be effective the next calendar quarter. For a period of ninety (90) days commencing immediately after a class begins trading on the Hybrid system, the provisions of paragraph (d)(i) shall govern trading in that class. (i) Market-Maker Trades 20% or Less Contract Volume in an Appointed Class Electronically: If a Market-Maker on the Cboe Options Hybrid System never transacts more than 20% (i.e., trades 20% or less) of the Market- Maker's contract volume electronically in an appointed Hybrid class during Regular Trading Hours during any calendar quarter, the following provisions shall apply to that Market-Maker with respect to that class: (A) Quote Widths: With respect to electronic quoting, Market- Makers must comply with the bid/ask differential requirements determined by the Exchange on a class-by-class and premium basis [the Market-Maker will not be required to comply with the bid/ask differential requirements determined by the Exchange in that class. The effectiveness of this subparagraph (i)(A) shall be in effect in each Hybrid for a period of one year commencing with the date the class begins trading on the Hybrid System]. For SPX, the Exchange may determine bid/ask differential requirements for series with expirations of (1) fewer than 462 days and (2) 462 or more days, and for all other classes, the Exchange may determine bid/ask differential requirements for series with [[Page 18607]] expiration of (1) less than nine months and (2) nine months or more. (B) Continuous Electronic Quoting Obligation: The Market-Maker will not be obligated to quote electronically in any designated percentage of series within that class. If a Market-Maker quotes electronically, its undecremented quote must be for the minimum number of contracts determined by the Exchange on a class[ ]-by[ ]- class basis, which minimum shall be at least one contract. For SPX, the Exchange may also determine minimum initial quote size on a premium basis and an expiration basis for series with expirations of (1) 7 or fewer days, (2) 8 to 91 days, (3) 92 to 188 days, (4) 189 to 461 days, and (5) 462 or more days. (C) (No change). (ii) Market-Maker Trades More Than 20% Contract Volume in an Appointed Class Electronically: If a Market-Maker on the Cboe Options Hybrid System transacts more than 20% of the Market-Maker's contract volume electronically in an appointed Hybrid class during Regular Trading Hours during any calendar quarter, commencing the next calendar quarter the Market- Maker will be subject to the following quoting obligations in that class for as long as the Market-Maker maintains an appointment in that class: (A) Quote Widths: Market-Makers must comply with the bid/ask differential requirements determined by the Exchange on a class[ ]- by[ ]-class and premium basis. For SPX, the Exchange may determine bid/ask differential requirements for series with expirations of (1) fewer than 462 days and (2) 462 or more days, and for all other classes, the Exchange may determine bid/ask differential requirements for series with expiration of (1) less than nine months and (2) nine months or more. (B) Continuous Electronic Quoting Obligation: A Market-Maker will be required to maintain continuous electronic quotes (as defined in Rule 1.1 (ccc)) in 60% of the non-adjusted option series of the Market-Maker's appointed classes that have a time to expiration of less than nine months. Compliance with this quoting obligation applies to all of a Market-Maker's appointed classes collectively (for which it must maintain continuous electronic quotes pursuant to this paragraph (ii)(B)). The Exchange will determine compliance by a Market-Maker with this quoting obligation on a monthly basis. However, determining compliance with this quoting obligation on a monthly basis does not relieve a Market- Maker from meeting this obligation on a daily basis, nor does it prohibit the Exchange from taking disciplinary action against a Market-Maker for failing to meet this obligation each trading day. The initial size of a Market-Maker's quote must be for the minimum number of contracts determined by the Exchange on a class[ ]-by[ ]- class basis, which minimum shall be at least one contract. For SPX, the Exchange may also determine minimum initial quote size on a premium basis and an expiration basis for series with expirations of (1) 7 or fewer days, (2) 8 to 91 days, (3) 92 to 188 days, (4) 189 to 461 days, and (5) 462 or more days. This obligation does not apply to intra-day add-on series on the day during which such series are added for trading. Market-Maker continuous electronic quoting obligations may be satisfied by Market-Makers either individually or collectively with Market-Makers of the same TPH organization. (C) (No change). (iii) The obligations and duties of Market-Makers set forth in paragraphs (d)(i) and (d)(ii) apply to a Market-Maker per trading session (e.g., if a Market-Maker has an appointment in a class during Regular Trading Hours and Extended Trading Hours, the Exchange will determine a Market-Maker's compliance with the continuous electronic quoting requirement during Regular Trading Hours separately from compliance with the electronic quoting requirement during Extended Trading Hours). Except as set forth in paragraph (d)(ii)(B), the obligations and duties of Market-Makers set forth in paragraphs (d)(i) and (d)(ii) apply to a Market-Maker on a per class basis, except for SPX if the Exchange lists SPX on a group basis pursuant to Rule 8.14 and determines to apply obligations and duties of SPX Market-Makers on a group basis, and only when the Market-Maker is quoting in a particular class during the applicable trading session on a given trading day. For example, if during a trading session on a given trading day a Market-Maker is quoting in 1 of its 10 appointed classes, the Market-Maker has quote width, continuous electronic quoting and, to the extent the Market- Maker is present in the trading crowd, continuous open outcry quoting obligations in that class, and the continuous electronic quoting obligation in subparagraph (d)(ii)(B) applies to 60% of the non-adjusted option series of that class that have a time to expiration of less than nine months while the Market-Maker is quoting. If during a trading session on a given trading day a Market-Maker is quoting in 3 of its 10 appointed classes, the Market-Maker has quote width and, to the extent the Market-Maker is present in the trading crowd, continuous open outcry quoting obligations in each of the 3 classes, and the continuous electronic quoting obligation in subparagraph (d)(ii)(B) applies to 60% of the non-adjusted option series of those three classes, collectively, that have a time to expiration of less than nine months while the Market-Maker is quoting. The obligations and duties are not applicable to an appointed class if a Market-Maker is not quoting in that appointed class. (iv) (No change). . . . Interpretations and Policies: .01-.13 (No change). * * * * * Rule 8.13. Preferred Market-Maker Program (a)-(d) (No change). . . . Interpretations and Policies: .01-.03 (No change). .04 If the Exchange determines to list SPX on a group basis pursuant to Rule 8.14, obligations of an SPX Market-Maker designated as a Preferred Market-Maker, as set forth in Rule 8.13, apply on a class basis, unless the Exchange determines to apply obligations on a group basis. Rule 8.14. Hybrid Trading System Platforms & Market-Maker Participants (a)-(b) (No change). . . . Interpretations and Policies: .01 For each Hybrid 3.0 class, the Exchange may determine to authorize a group of series of the class for trading on the Hybrid Trading System and, if that authorization is granted, shall determine the eligible categories of Market-Maker participants for that group of series. The Exchange will also have the authority to determine whether to change the trading platform on which the group of series trades [and to change the eligible categories of Market- Maker participants for the group]. If the Exchange lists SPX on the Hybrid Trading System, the Exchange may determine to list the class on a group basis, with both groups trading on the Hybrid Trading System. The Exchange will also have the authority to change the eligible categories of Market-Makers participants for each group. In addition, the following shall apply: (a)-(b) (No change). (c) The Hybrid Trading System or Hybrid 3.0 Platform, as applicable, trading parameters will be established by the Exchange on a group basis to the extent the Exchange Rules otherwise provide for such parameters to be established on a class basis. Rule 8.15. Lead Market-Makers (a)-(d) (No change). . . . Interpretations and Policies: .01-.04 (No change). .05 If the Exchange determines to list SPX on a group basis pursuant to Rule 8.14, obligations of an SPX Market-Maker designated as a Lead Market-Maker, as set forth in Rule 8.15, apply on a class basis, unless the Exchange determines to apply obligations on a group basis. * * * * * Rule 8.85. DPM Obligations (a)-(e) (No change). . . . Interpretations and Policies: .01-.02 (No change). .03 If the Exchange determines to list SPX on a group basis pursuant to Rule 8.14, obligations of a Designated Primary Market- Maker with an SPX appointment, as set forth in Rule 8.85, apply on a class basis, except if the Exchange determines to apply obligations on a group basis. * * * * * 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 18608]] 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 rules related to listing the SPX class on a group basis and amend other rules in connection with the Exchange's planned migration of SPX options to the Hybrid Trading System from the Hybrid 3.0 System. Rule 8.14, Interpretation and Policy .01 currently permits the Exchange to authorize a group of series of a Hybrid 3.0 \5\ class for trading on the Hybrid Trading System. If the Exchange authorizes this, it determines the eligible categories of Market-Maker participants for the group (Designated Primary Market- Makers (``DPMs''), Lead Market-Makers (``LMMs''), or Market-Makers). The Exchange assigns a DPM or LMM to the group (or no DPM or LMM if the conditions in Rule 8.14(b) are satisfied with respect to the group). Market-Maker appointments apply on a class basis, except DPM and LMM appointments apply only to the group of series to which the respective DPM or LMM is assigned. The Exchange establishes Hybrid Trading System trading parameters (e.g. minimum trading increment, allocation algorithm) on a group basis to the extent the Rules otherwise provide for such parameters to be established on a class basis. --------------------------------------------------------------------------- \5\ ``Hybrid Trading System'' refers to (a) the Exchange's trading platform that allows Market-Makers to submit electronic quotes in their appointed classes and (b) any connectivity to the foregoing trading platform that is administered by or on behalf of the Exchange, such as a communications hub. ``Hybrid 3.0 Platform'' is an electronic trading platform on the Hybrid Trading System that allows one or more quoters to submit electronic quotes which represent the aggregate Market-Maker quoting interest in a series for the trading crowd. Classes authorized by the Exchange for trading on the Hybrid Trading System are referred to as Hybrid classes. Classes authorized by the Exchange for trading on the Hybrid 3.0 Platform are referred to as Hybrid 3.0 classes. See Rule 1.1(aaa). Currently, SPX is the only Hybrid 3.0 class and the only class the Exchange lists on a group basis. --------------------------------------------------------------------------- The proposed rule change amends Rule 8.14, Interpretation and Policy .01 to permit the Exchange to list the SPX class on a group basis, even if SPX trades on the Hybrid Trading System.\6\ The remaining provisions of Interpretation and Policy .01 would apply. Thus, if the Exchange lists SPX as a Hybrid class in two groups, both groups may trade on the Hybrid Trading System (as the Exchange plans to do). In addition, the Exchange may determine the eligible categories of Market-Maker participants for each group. Similarly, the Exchange could assign a DPM or LMM to each group, which appointments would apply to the group of series to which the respective DPM or LMM is assigned (Market-Maker appointments would continue to apply to the entire SPX class, as further discussed below).\7\ --------------------------------------------------------------------------- \6\ The proposed rule change makes a conforming change in Interpretation and Policy .01(c). \7\ The Exchange does not currently (and does not intend to following conversion of SPX options to Hybrid) appoint Preferred Market-Makers (``PMMs'') or DPMs to SPX or SPXW options pursuant to Rules 8.13 or 8.95, respectively. The Exchange currently appoints LMMs to SPX options; however, it does not intend to do so following conversion of SPX options to Hybrid. --------------------------------------------------------------------------- As it does today, when determining whether to list the SPX class on a group basis, the Exchange intends to generally select series with common expirations or classifications (e.g., end-of-week series or end- of-month series, short-term option series, long-term option series, or series that expire on a particular expiration date) and trade them under individual listing symbols. For example, the Exchange currently lists the SPX class in two groups: (1) One group consists of series with standard third-Friday expirations that are a.m.-settled, which group trades on the Hybrid 3.0 Platform (``SPX options''); and (2) the second group consists of series with all other expirations, including weekly, monthly, and p.m.-settled (``SPXW options''), which group trades on the Hybrid Trading System. In the second quarter of 2018, the Exchange plans to begin listing SPX options on the Hybrid Trading System (and no longer on the Hybrid 3.0 platform). SPXW options would continue to trade on the Hybrid Trading System. Pursuant to the proposed rule change, the Exchange may determine to continue to list SPX options and SPXW options as groups on the Hybrid Trading System. The Exchange would establish trading parameters (e.g., applicable matching algorithm under Rule 6.45, opening rotation parameters under Rule 6.2, automatic execution parameters under Rule 6.13, simple auction liaison parameters under Rule 6.13A, hybrid agency liaison parameters under Rule 6.14A, complex order parameters under Rule 6.53C, and automated improvement mechanism parameters under Rule 6.74A) on a group basis, as it does today for SPX options and SPXW options.\8\ For example, currently, the Exchange applies customer priority allocation to SPX options while the Exchange applies price-time allocation to SPXW options. Pursuant to the proposed rule change, the Exchange could continue to apply a different allocation algorithm to each group even if both groups are trading on the same platform. --------------------------------------------------------------------------- \8\ See Rule 8.14(c). --------------------------------------------------------------------------- The Exchange believes for SPX, groups of series may exhibit different trading characteristics, including appeal to different categories of market participants. For example, SPXW options are commonly traded by retail customers while SPX options are commonly traded by institutional investors. The Exchange generally establishes market models for classes based on these characteristics that most fit the product, which the Exchange believes benefits investors. This is true for SPX and SPXW options, which is why the Exchange believes it is appropriate to continue to list the SPX class in groups once all SPX series are trading on Hybrid. The Exchange proposes to amend Rule 6.53C, Interpretation and Policy .02 to state if the Exchange determines to list the SPX class on a group basis pursuant to Rule 8.14, if a marketable complex order consists of legs in different groups of series in the class, it will not automatically execute against individual orders residing in the EBook pursuant to Rule 6.53C(c)(ii)(1) or (d)(v)(1). A marketable complex order consisting of legs in the same group of series in the class executes against individual orders in the EBook in accordance with Rule 6.53C(c)(ii) and (d)(v). This is consistent with current functionality today applicable to SPX and SPXW pursuant to Rule 6.53C, Interpretation and Policy .10, which only applies to Hybrid 3.0 classes. The proposed rule change extends this functionality to SPX as a Hybrid class. As discussed above, if the Exchange lists SPX as a Hybrid class on a group basis, it may apply different trading parameters (including different allocation algorithms) to each group. Due to system limitations that based on the Exchange's experience are prohibitively expensive to modify, complex orders consisting of different groups of series will not automatically execute against individual orders residing in the Ebook, even if they trade on the same platform. Pursuant to Rule 6.53C, complex orders may only consist of legs from the same class. While SPX and SPXW series are part of the same class, and thus permissible for electronic handling under the Rules, the System treats SPX and SPXW series as different classes and is unable to [[Page 18609]] process complex orders with components in different classes. Many classes trade on their own trade server. Despite being the same class, SPX options and SPXW options trade on separate trade servers due to the number of series in each group and due to the fact that they trade as different classes (as discussed above). Currently trading is not possible ``across'' trade servers. If the System receives a complex order with one SPX leg and one SPXW leg, it would need to trade the SPX leg against the appropriate leg in the first trade server. After that leg execution, it would then need to trade the SPXW leg against the appropriate leg in the second trade server. Given the time these executions would take, it would not result in the near simultaneous execution of legs that is sought by the entry of complex orders. Additionally, after the first leg execution, because the complex order has not fully executed, the System would not be able to execute any other orders within the series of the first leg, which may prevent execution opportunities of those other orders. Currently, this only applies to SPX/SPXW orders, and the proposed rule change would treat these orders as they are today. SPX/SPXW orders may execute against other SPX/SPXW orders in the COB upon entry or against orders and COA responses following a COA in accordance with the allocation and priority rules set forth in Rule 6.53C(c)(ii)(2) and (d)(v)(2) through (4), respectively.\9\ The proposed rule change states marketable SPX/SPXW orders will be eligible to automatically execute against other SPX/SPXW orders resting in the COB provided the execution is at a net price that has priority over the individual orders and quotes residing in the EBook (which is consistent with the manner in which the Exchange currently handles [sic] these complex orders are handled, as provided in Rule 6.53C, Interpretation and Policy .10(b)). An SPX/SPXW order that is marketable against individual orders resting in the Ebook but not marketable against any complex orders resting in the COB or COA responses will enter the COB or instead be routed to a PAR workstation during Regular Trading Hours and rejected back to the Trading Permit Holder during Extended Trading Hours if not eligible for COB entry due to the terms of the order (for example, if the order is for an origin code the Exchange does not permit to rest in the COB), which is how those orders are treated today.\10\ --------------------------------------------------------------------------- \9\ Rule 6.53C(c)(ii)(2) states the allocation of a complex order within the COB will be pursuant to the rules of trading priority otherwise applicable to incoming electronic orders in the individual component legs or another electronic matching algorithm from Rule 6.45, as determined by the Exchange on a class-by-class basis. Therefore, pursuant to that provision and the proposed rule change, the Exchange will determine for SPX/SPXW complex orders which electronic matching algorithm will apply to those orders when executing against other orders in the COB. Rules 6.53(d)(v)(2) through (4) specify the matching algorithm applicable to complex orders that execute following a COA, and those provisions will apply to SPX/SPXW complex orders pursuant to the proposed rule change. \10\ See Rules 6.12(a)(1) (which states orders initially routed for electronic processing that are not eligible for automatic execution or book entry will route to PAR, an order management terminal, or back to the Trading Permit Holder); 6.53C(d)(vi) (which states a COA-eligible order that cannot be filled in whole or in a permissible ratio will route to the COB or back to PAR, as applicable); and 6.1A(b) (which states if in accordance with the Rules, an order would route to PAR, the order entry firm's booth, or otherwise for manual handling, the System will return the order to the Trading Permit Holder during Extended Trading Hours). --------------------------------------------------------------------------- In connection with the planned migration of SPX options to Hybrid, the Exchange proposes to amend Rule 8.3 regarding appointment costs. The proposed rule change moves the SPX class from the Hybrid 3.0 appointment cost table to the Hybrid appointment cost table. The Exchange would maintain the 1.0 appointment cost for SPX (which includes SPXW). The proposed rule change notes if the Exchange determines to list SPX as a Hybrid class on a group basis pursuant to Rule 8.14, the appointment cost for the class confers the right to trade in all SPX groups. This is consistent with how appointment costs currently work, as currently, the SPX appointment cost of 1.0 applies to any group of series of SPX authorized to trade on the Hybrid Trading System.\11\ The proposed rule change merely applies this same concept to SPX if listed on the Hybrid Trading System on a group basis pursuant to the proposed rule change. --------------------------------------------------------------------------- \11\ See Rule 8.3(c)(iii). --------------------------------------------------------------------------- The proposed rule change amends Rule 8.7(d)(iii) to provide if the Exchange lists SPX on a group basis pursuant to Rule 8.14, it may determine to apply obligations and duties of Market-Makers with an appointment to SPX on a group basis rather than a class basis. Currently, Market-Maker obligations for Hybrid classes apply on a class basis (e.g., the Exchange determines a Market-Maker's compliance with the continuous electronic quoting obligations set forth in Rule 8.7(d) for a class based all series in that class).\12\ If the Exchange determined to list SPX as a Hybrid class on a group basis, the Exchange may determine it lists a significantly larger number of SPX series in which it may be burdensome for Market-Makers to quote. For example, currently, the Exchange lists over 3,000 SPX series and almost 8,000 SPXW series (compared to, for example, over 400 VIX series and almost 200 VIX weekly series). With SPX options listed on Hybrid 3.0, Market- Makers may not submit quotes in those series. Therefore, Market-Makers with SPX appointments that are subject to electronic quoting obligations under Rule 8.7(d) must satisfy those obligations based on the number of SPXW series. However, when the SPX class moves to Hybrid, Market-Makers will be able to submit electronic quotes in SPX options as well as SPXW options. Applying obligations on a class basis would significantly increase the number of series in which Market-Makers would have to submit electronic quotes due to the large number of series. Permitting the Exchange to determine compliance with these obligations on a group basis would permit Market-Maker obligations to apply to SPX in a similar manner as they do today based on a more reasonable number of series. --------------------------------------------------------------------------- \12\ The proposed rule change makes corresponding changes to proposed Rules 8.13, Interpretation and Policy .04; 8.15, Interpretation and Policy .05; and 8.85, Interpretation and Policy .03 regarding obligations of Preferred Market-Makers, Lead Market- Makers, and Designated Primary Market-Makers, respectively. --------------------------------------------------------------------------- The Exchange proposes to amend Rules 6.2, Interpretation and Policy .02(b) \13\ and 8.7(d)(i)(A) and (ii)(A) to permit the Exchange to establish bid-ask differentials for Market-Makers (for opening and intraday quotes, respectively) on a premium basis and for SPX, for series with expirations of (1) fewer than 462 days and (2) 462 or more days, and for all other classes, for series with expiration of (1) less than nine months and (2) nine months or more, in addition to a class- by-class basis (as currently permitted by the Rules). Similarly, the Exchange proposes to amend Rules 6.2, Interpretation and Policy .02(a) and 8.7(d)(i)(B) and (ii)(B) to permit the Exchange to establish minimum quote size requirements (for opening and intraday quotes, respectively) for SPX on a premium basis and expiration basis for series with expirations of (1) 7 or fewer days, (2) 8 to 91 days, (3) 92 to 188 days, (4) 189 to 461 days, and (5) 462 or more days, in addition to a class-by-class basis (as currently permitted by the Rules).\14\ While different classes may [[Page 18610]] exhibit different trading characteristics, which make different minimum quote sizes and differentials on a class-by-class basis appropriate as permitted by the current Rule, the same may be true of series with different premiums and expirations within a class to ensure the quote size is not burdensome on Market-Makers. For example, series with higher premiums or farther expirations generally have wider spreads and lower trading volumes, and positions in those series carry additional risk. These characteristics make wider bid-ask differential and smaller minimum quote size (with respect to SPX) requirements more appropriate and less burdensome on Market-Makers.\15\ The proposed expiration groupings for minimum quote size and bid-ask differential requirements in SPX are based on the Exchange's review of various information, including SPX transaction data, sizes of LMM quotes in SPX, and feedback received from Market-Makers and Exchange advisory groups. --------------------------------------------------------------------------- \13\ As set forth in Rule 6.2, Interpretation and Policy .02(b), the Exchange may set different minimum size and differential requirements for the opening than those applicable intraday. \14\ For classes other than SPX, the Exchange will continue to be permitted to establish minimum size requirements on a class-by- class basis only (and not by premium or expiration). The current minimum quote size is one contract in all classes. See Regulatory Circular RG16-073 (April 7, 2016). \15\ The Exchange currently may set certain parameters on a class and premium basis. See, e.g., Rules 6.2(d)(ii)(E) (opening quote condition), 6.12(a)(3) (acceptable tick distance for limit order price parameter). Currently, the Exchange sets bid-ask differentials on a premium basis and for expirations of less than nine months and nine months or more; the proposed rule change codifies this practice for classes other than SPX in the Rules. See Regulatory Circular RG16-073 (April 7, 2016) (wider requirements in series with expirations of nine months or more and lower premiums). --------------------------------------------------------------------------- Additionally, the proposed rule change amends Rule 8.7(d)(i)(A). That provision currently states Market-Makers that do not transact more than 20% of their contract volume electronically in an appointed Hybrid class during any calendar quarter will not be required to comply with bid/ask differential requirements with respect to electronic quoting for the first year a class begins trading on the Hybrid System. After the first year of Hybrid trading, a Market-Maker would need to then comply with bid/ask differential requirements when quoting electronically. The Exchange proposes to delete that requirement and instead require Market-Makers to comply with bid/ask differential requirements when quoting electronically as soon as a class begins trading on the Hybrid System. The Exchange no longer believes the one- year delay in imposing these requirements is necessary. Requiring all electronic quotes to comply with bid/ask differential requirements will increase liquidity and tighter markets in these classes as soon as they begin trading. Market-Makers ultimately have to comply with these requirements; the proposed rule change merely change [sic] when they must start to comply with them. For example, under the current rule, Market-Makers not subject to continuous electronic quote obligations would not be required to comply with bid/ask differential requirements with respect to any electronic quotes they submit until one year after SPX begins trading on the Hybrid System. Under the proposed rule change, these Market-Makers will need to comply with bid/ask differential requirements when submitted electronic quotes as soon as SPX begins trading on the Hybrid System. 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.\16\ Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) \17\ 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) \18\ requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b). \17\ 15 U.S.C. 78f(b)(5). \18\ Id. --------------------------------------------------------------------------- In particular, the Exchange believes the proposed rule change to permit the Exchange to list the SPX class on Hybrid on a group basis will benefit investors and promote just and equitable principles of trade, as it provides the Exchange with flexibility to establish a more appropriate market model for a group of SPX series that may exhibit different trading characteristics than other series in the class, even when both groups trade on the same platform. Currently, the Exchange may list a class on a group basis if the groups of a class trade on different trading platforms, and as noted above, the Exchange currently only does so for SPX, the only Hybrid 3.0 class. The proposed rule change merely permits the Exchange to similarly list the SPX class on a group basis on the same trading platform when SPX options migrate to the Hybrid Trading System. This will permit the Exchange to migrate SPX options to the Hybrid Trading System without interruption to how SPX and SPXW options currently trade. Similarly, the proposed rule change to provide that SPX/SPXW complex orders will not execute against individual orders in the Ebook will permit these orders to be handled in the same manner on the Hybrid Trading System as they are today on the Hybrid 3.0 System. These orders will continue to be eligible for electronic processing, including electronic execution, in the same manner as complex orders consisting of SPX series only or SPXW series only, except they will not automatically against [sic] individual orders in the Ebook for the legs, which will result in those SPX/SPXW orders being treated in the same manner as they are today. This will provide these orders with the same electronic execution opportunities they have today, which will continue to not be eligible for automatic execution against the individual leg markets due to system limitations described above and would instead rest in the COB (if eligible) or route to PAR, an order management terminal, or the Trading Permit Holder during Regular Trading Hours, or be rejected back to the Trading Permit Holder during Extended Trading Hours. The Exchange believes the proposed rule change to permit the Exchange to establish minimum quote size for SPX, and bid-ask differential requirements for all classes, on a premium basis and for specific expirations, in addition to class basis, will ensure Market- Maker obligations maintain an appropriate balance of obligations and benefits. As discussed above, the Exchange currently establishes bid- ask differential requirements on a class and premium basis and for series with expirations of less than nine months and nine months or more. The proposed rule change merely codifies this practice in the Rules for classes other than SPX, so this will result in no change to Market-Makers. The Exchange believes it is appropriate to establish minimum quote sizes in SPX on an expiration and premium basis to reflect the different trading characteristics of those series within the SPX class. For example, series with higher premiums or farther expirations generally have wider spreads and lower trading volumes, and positions in those series carry additional risk. These characteristics make wider bid-ask differential and smaller [[Page 18611]] minimum quote size (with respect to SPX) requirements more appropriate and less burdensome on Market-Makers. The proposed expiration groupings for minimum quote size and bid-ask differential requirements in SPX are based on the Exchange's review of various information, including SPX transaction data, sizes of LMM quotes in SPX, and feedback received from Market-Makers and Exchange advisory groups. The Exchange believes this proposed rule change will promote just and equitable principles of trade by ensuring bid/ask differential requirements and minimum size requirements for SPX are effective and not overly burdensome on Market- Makers, which will ensure continued liquidity on the Exchange, including in SPX options once they convert to Hybrid, which ultimately benefits investors. The proposed rule change to move the appointment cost for the SPX class from the Hybrid 3.0 table to the Hybrid table in Rule 8.3(c)(i) reflects the Exchange's planned migration of SPX options from the Hybrid 3.0 platform to the Hybrid Trading System. The Exchange proposes no change to the appointment cost, and thus Market-Makers with SPX appointments will not need to purchase any additional trading permits to quote SPX options once the migrate trading platforms. The Exchange believes the proposed rule change to permit the Exchange to apply Market-Maker (including PMMs and DPMs, as applicable) \19\ obligations on a group basis rather than class basis for SPX will promote just and equitable principles of trade, as it will ensure a continued balance of an SPX Market-Maker's obligations with benefits given the significantly large number of SPX series. Requiring a Market- Maker to satisfy quoting obligations in multiple groups of SPX that, in the aggregate, represent a significantly large number of series, may be burdensome for Market-Makers to quote, which may disincentive Market- Makers from selecting appointments in such a class and thus reduce liquidity. The proposed rule change incentivizes Market-Makers to retain SPX appointments. Additionally, permitting the Exchange to determine compliance with these obligations on a group basis would permit Market-Maker obligations to apply to SPX options when it migrates to the Hybrid Trading System in a similar manner as they do today. For example, SPX Market-Makers that currently quote in SPXW options may elect to continue to only quote in those options without having to quote in SPX options. --------------------------------------------------------------------------- \19\ The Exchange notes there are not currently any PMMs or DPMs for SPX or SPXW, and there will be none at the time of conversion of SPX to Hybrid. --------------------------------------------------------------------------- The proposed rule change to require Market-Makers to comply with bid/ask differential requirements with respect to electronic quotes upon a class beginning to trade on the Hybrid System will increase liquidity and tighter markets in these classes as soon as they begin trading. The proposed rule change maintains a balance of obligations and benefits, as Market-Makers ultimately have to comply with these requirements; the proposed rule change merely change when they must start to comply with them. 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 has no impact on intramarket competition, as it will apply to all market participants that trade in SPX when listed on a group basis on the Hybrid Trading System. When SPX options move to trade on the Hybrid Trading System, the SPX class will continue to trade in two groups as it does today (SPX options and SPXW options), and SPX/SPXW complex orders will continue to be handled in the same manner as they are today. The proposed rule change has no impact on intermarket competition, as the proposed rule change relates to a product exclusively listed on the Exchange, and permits that product to continue trading in a similar manner as it does today. The proposed rule change to permit the Exchange to determine a Market-Maker's compliance with obligations on a group basis rather than a class basis, as well as to establish minimum quote sizes on an expiration and premium basis, in addition to class basis, for the SPX class ensures a continued balance of a Market-Maker's obligations with benefits. The proposed change will apply in the same manner to Market- Makers that select SPX appointments. As set forth in Rule 8.3(c), Market-Makers select which classes in which they have appointments, and thus become subject to these obligations when they choose such appointments in their discretion. Permitting the Exchange to determine compliance with these obligations on a group basis would permit Market- Maker obligations to apply to SPX options when they migrates [sic] to the Hybrid Trading System, and apply to SPXW options in a similar manner as they do today. Additionally, the proposed rule change ensures the Exchange may apply these obligations to reasonable number of series and not be overly burdensome on Market-Makers. The proposed rule change to permit the Exchange to establish minimum quote size (for SPX) and bid-ask differential requirements on an expiration and premium basis will ensure the Exchange can effectively set these requirements without being overly burdensome on Market-Makers given the differing trade characteristics applicable to series with different expirations and premiums. These proposed changes overall will continue to incentive Market-Makers to have appointments in SPX, which increases liquidity and ultimately benefits investors. As noted above, the rules permit the Exchange to establish other trading parameters on a premium and class basis, and the proposed rule change codifies a current Exchange practice to set bid-ask differential requirements on a class and premium basis and for expirations of less than nine months and nine months or more for all classes other than SPX. The proposed expiration groupings for minimum quote size and bid- ask differential requirements in SPX are based on the Exchange's review of various information, including SPX transaction data, sizes of LMM quotes in SPX, and feedback received from Market-Makers and Exchange advisory groups. The proposed rule change has no impact on intermarket competition, as the proposed rule change relates to obligations applicable to Cboe Options Market-Makers. The proposed rule change regarding SPX appointment cost will have no impact on competition, as the appointment cost will stay the same, and thus Market-Makers will not need to obtain any additional trading permits to quote in SPX options following their migration to the Hybrid Trading System. The proposed rule change related to bid/ask differentials will not impose any burden on intramarket competition, because it will apply in the same manner to all Market-Makers subject to that requirement. It will not impose any burden on intermarket competition, because it relates to quoting requirements imposed by Cboe Options. Additionally, requiring Market-Makers to comply with bid/ask differential requirements with respect to electronic quotes as soon as a class begins trading will increase liquidity and tighter markets in these classes when the class starts trading. Market-Makers ultimately have to comply with these [[Page 18612]] requirements; the proposed rule change merely change [sic] when they must start to comply with them. 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 \20\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\21\ --------------------------------------------------------------------------- \20\ 15 U.S.C. 78s(b)(3)(A)(iii). \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file 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. --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative for 30 days after the date of the filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. In its filing, Cboe Options requested that the Commission waive the 30-day operative delay. The Exchange represented that it would like to migrate SPX options from the Hybrid 3.0 System to the Hybrid Trading System on April 30, 2018. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because the proposal is designed to modify the Hybrid Trading System rules to accommodate SPX options in a manner substantively similar to how they currently are listed and traded on Hybrid 3.0. In so doing, the proposal permits the Exchange to migrate the one product currently trading on Hybrid 3.0 onto the system it uses for all other options, and to do so in a way that minimizes disruption for traders that currently trade SPX on Hybrid 3.0 without raising novel issues. Accordingly, the Commission waives the 30-day operative delay and designates the proposed rule change operative upon filing.\23\ --------------------------------------------------------------------------- \22\ 17 CFR 240.19b-4(f)(6)(iii). \23\ For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- 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 CommentsUse 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-2018-029 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-2018-029. 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-2018-029, and should be submitted on or before May 18, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12) and (59). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-08848 Filed 4-26-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices 18605
whether and how the margin volume, volatility, or liquidity of the For the Commission, by the Division of
requirements for bitcoin futures underlying Bitcoin Financial Trading and Markets, pursuant to delegated
contracts may affect a Fund’s use of Instruments or of the spot bitcoin authority.23
available cash to achieve its investment market any differently than a non- Eduardo A. Aleman,
strategy? leveraged bitcoin futures exchange- Assistant Secretary.
8. What are commenters’ views on the traded product would? If so, why, how, [FR Doc. 2018–08852 Filed 4–26–18; 8:45 am]
possibility that the Funds—along with and to what extent? Would any such BILLING CODE 8011–01–P
other exchange-traded products with effect be different during periods of
similar investment objectives—could downward market movement or high
acquire a substantial portion of the volatility? If so, why, how, and to what SECURITIES AND EXCHANGE
market for some or all of the Bitcoin extent? COMMISSION
Financial Instruments? What are Comments may be submitted by any [Release No. 34–83089; File No. SR–CBOE–
commenters’ views on whether such a of the following methods: 2018–029]
concentration of holdings could affect
Electronic Comments
the Funds’ portfolio management, the Self-Regulatory Organizations; Cboe
liquidity of the Funds’ respective • Use the Commission’s internet Exchange, Inc.; Notice of Filing and
portfolios, or the pricing of some or all comment form (http://www.sec.gov/ Immediate Effectiveness of a Proposed
of the Bitcoin Financial Instruments? rules/sro.shtml); or Rule Change in Connection With the
9. What are commenters’ views on • Send an email to rule-comments@ Migration of SPX Options From the
possible factors that might impair the sec.gov. Please include File Number SR– Hybrid 3.0 System to the Hybrid
ability of the arbitrage mechanism to NYSEArca–2018–02 on the subject line. Trading System
keep the trading price of the Shares tied Paper Comments
to the NAV of each Fund? What are April 23, 2018.
commenters’ views on whether • Send paper comments in triplicate Pursuant to Section 19(b)(1) of the
determining the value of the Funds’ to Secretary, Securities and Exchange Securities Exchange Act of 1934 (the
benchmark, or striking the Funds’ NAV, Commission, 100 F Street NE, ‘‘Act’’),1 and Rule 19b–4 thereunder,2
as of 11:00 a.m. E.T. might affect the Washington, DC 20549–1090. notice is hereby given that on April 12,
arbitrage mechanism during the All submissions should refer to File 2018, Cboe Exchange, Inc. (the
remainder of the trading day? With Number SR–NYSEArca–2018–02. This ‘‘Exchange’’ or ‘‘Cboe Options’’) filed
respect to the markets for Bitcoin file number should be included on the with the Securities and Exchange
Financial Instruments, what are subject line if email is used. To help the Commission (the ‘‘Commission’’) the
commenters’ views on the potential Commission process and review your proposed rule change as described in
impact on the arbitrage mechanism of comments more efficiently, please use Items I and II, below, which Items have
the price volatility and the potential for only one method. The Commission will been prepared by the Exchange. The
trading halts? What are commenters’ post all comments on the Commission’s Exchange filed the proposal as a ‘‘non-
views on whether or how these internet website (http://www.sec.gov/ controversial’’ proposed rule change
potential impairments of the arbitrage rules/sro.shtml). Copies of the pursuant to Section 19(b)(3)(A)(iii) of
mechanism may affect the Funds’ ability submission, all subsequent the Act 3 and Rule 19b–4(f)(6)
to ensure adequate participation by amendments, all written statements thereunder.4 The Commission is
Authorized Participants? What are with respect to the proposed rule publishing this notice to solicit
commenters’ views on the potential change that are filed with the comments on the proposed rule change
effects on investors if the arbitrage Commission, and all written from interested persons.
mechanism is impaired? communications relating to the
I. Self-Regulatory Organization’s
10. What are commenters’ views on proposed rule change between the
Statement of the Terms of Substance of
the risks of price manipulation and Commission and any person, other than
the Proposed Rule Change
fraud in the underlying bitcoin trading those that may be withheld from the
platforms and how these risks might public in accordance with the The Exchange proposes to amend its
affect the Bitcoin Financial Instruments? provisions of 5 U.S.C. 552, will be rules related to listing the SPX class on
What are commenters’ views on how available for website viewing and a group basis and amend other rules in
these risks might affect trading in the printing in the Commission’s Public connection with the Exchange’s planned
Shares of the Funds? Reference Room, 100 F Street NE, migration of standard third-Friday
11. What are commenters’ views on Washington, DC 20549 on official options on the S&P 500 Index (‘‘SPX
how an investor may evaluate the price business days between the hours of options’’) to the Hybrid Trading System
of the Shares in light of the risk of 10:00 a.m. and 3:00 p.m. Copies of the from the Hybrid 3.0 System.
potential price manipulation and fraud filing also will be available for (additions are italicized; deletions are
in the underlying bitcoin trading inspection and copying at the principal [bracketed])
platforms and in light of the potentially office of the Exchange. All comments
received will be posted without change. * * * * *
significant spread between the price of
Bitcoin Financial Instruments and the Persons submitting comments are Cboe Exchange, Inc. Rules
spot price of bitcoin? cautioned that we do not redact or edit * * * * *
12. What are commenters’ views on personal identifying information from Rule 6.2. Hybrid Opening (and Sometimes
whether the two named bitcoin futures comment submissions. You should Closing) System (‘‘HOSS’’)
daltland on DSKBBV9HB2PROD with NOTICES
exchanges represent a significant submit only information that you wish
(a)–(h) (No change).
market, i.e., a market of significant size? to make available publicly. All
13. With respect to the Funds that submissions should refer to File 23 17 CFR 200.30–3(a)(57).
seek leveraged or leveraged-inverse Number SR–NYSEArca–2018–02 and 1 15 U.S.C. 78s(b)(1).
returns, would trading of the Shares, should be submitted by May 18, 2018. 2 17 CFR 240.19b–4.
hedging activity, or creation and Rebuttal comments should be submitted 3 15 U.S.C. 78s(b)(3)(A)(iii).
redemption activity affect the daily by June 1, 2018. 4 17 CFR 240.19b–4(f)(6).
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/1.svg)
![18606 Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices
. . . Interpretations and Policies: .03–.07 (No change). Rule 8.3. Appointment of Market-Makers
.01 (No change). * * * * * (a)–(b) (No change).
.02 Market-Maker Quotes. (c) Market-Maker Appointments. Absent an
Rule 6.53C. Complex Orders on the Hybrid
(a) Minimum Size. The Exchange exemption by the Exchange, an appointment
System
determines on a class-by-class basis [(a)] the of a Market-Maker confers the right to quote
minimum number of contracts for the initial (a)–(d) (No change).
. . . Interpretations and Policies: electronically and in open outcry in the
size of a Market-Maker’s opening quote, Market-Maker’s appointed classes during
which minimum must be at least one .01 (No change).
.02 [Reserved.] If the Exchange determines Regular Trading Hours as described below.
contract. For SPX, the Exchange may also Subject to paragraph (e) below, a Market-
to list SPX on a group basis pursuant to Rule
determine minimum initial quote size on a Maker may change its appointed classes
8.14, a marketable complex order consisting
premium basis and an expiration basis for upon advance notification to the Exchange in
of legs in different groups of series in the
series with expirations of (1) 7 or fewer days, class does not automatically execute against a form and manner prescribed by the
(2) 8 to 91 days, (3) 92 to 188 days, (4) 189 individual orders residing in the EBook Exchange.
to 461 days, and (5) 462 or more days. pursuant to Rule 6.53C(c)(ii)(1) or (d)(v)(1) (i) Hybrid Classes. Subject to paragraphs
(b) Bid/Ask Differentials. The Exchange and automatically executes against complex (c)(iv) and (e) below, a Market-Maker can
determines on a class-by-class and premium orders (or COA responses) in accordance create a Virtual Trading Crowd (‘‘VTC’’)
basis the bid/ask differential requirements with Rules 6.53C(c)(ii)(2) or (d)(v)(2) through appointment, which confers the right to
with which Market-Makers’ opening quotes (4). A marketable complex order consisting of
quote electronically during Regular Trading
must comply, which minimum and legs in the same group of series in SPX
Hours in an appropriate number of Hybrid
differential requirements may be different for executes against individual orders in the
EBook in accordance with Rule 6.53C(c)(ii) classes (as defined in Rule 1.1(aaa)) selected
the opening than those applicable intraday.
For SPX, the Exchange may determine bid/ and (d)(v). Complex orders consisting of legs from ‘‘tiers’’ that have been structured
ask differential requirements for series with in different groups of series that are according to trading volume statistics, except
expirations of (1) fewer than 462 days and (2) marketable against each other may only for the AA tier. All classes within a specific
462 or more days, and for all other classes, execute at a net price that has priority over tier will be assigned an ‘‘appointment cost’’
the Exchange may determine bid/ask the individual orders and quotes resting in depending upon its tier location. The
differential requirements for series with the EBook. following table sets forth the tiers and related
expiration of (1) less than nine months and .03–.12 (No change). appointment costs.
(2) nine months or more. * * * * * II.
Appointment
Tier Hybrid options classes cost
AA ................................... Options on the Cboe Volatility Index (VIX) ............................................................................................. .499
Options on the Standard & Poor’s 500 Index (SPX) .............................................................................. ** 1.0
* * * * * * *
* Excludes Tier AA.
** If the Exchange determines to list SPX on a group basis pursuant to Rule 8.14, the SPX appointment cost confers the right to trade in all
SPX groups.
(ii) (No change). The following obligations in this paragraph trading on the Hybrid system, the provisions
(iii) Hybrid 3.0 Class. In addition to (d) are only applicable to Market-Makers of paragraph (d)(i) shall govern trading in
paragraphs (i) and (ii) above, and subject to trading classes on the Cboe Options Hybrid that class.
paragraphs (c)(iv) and (e) below, a Market- System and only in those Hybrid classes. (i) Market-Maker Trades 20% or Less
Maker can select as the Market-Maker’s Unless otherwise provided in this Rule, Contract Volume in an Appointed Class
appointment a Hybrid 3.0 class traded on the Market-Makers trading classes on the Hybrid Electronically:
Exchange, which confers the right to trade in System remain subject to all obligations If a Market-Maker on the Cboe Options
imposed by Cboe Options Rule 8.7. To the Hybrid System never transacts more than
open outcry in the Hybrid 3.0 class during
extent another obligation contained 20% (i.e., trades 20% or less) of the Market-
Regular Trading Hours as described below.
elsewhere in Rule 8.7 is inconsistent with an Maker’s contract volume electronically in an
Each Hybrid 3.0 class is assigned an obligation contained in paragraph (d) of Rule
‘‘appointment cost’’, which is set forth below. appointed Hybrid class during Regular
8.7 with respect to a class trading on Hybrid, Trading Hours during any calendar quarter,
this paragraph (d) shall govern trading in the the following provisions shall apply to that
Appointment Hybrid class.
Hybrid 3.0 class Market-Maker with respect to that class:
cost For Regular Trading Hours, these
(A) Quote Widths: With respect to
requirements are applicable on a per class
[Options on the Standard & electronic quoting, Market-Makers must
basis, except as set forth in paragraph (ii)(B)
Poor’s 500 Index (SPX)] ... [*1.0] comply with the bid/ask differential
below, depending upon the percentage of
None ..................................... volume a Market-Maker transacts in an requirements determined by the Exchange on
appointed class during Regular Trading a class-by-class and premium basis [the
[* This appointment cost also confers the Hours electronically versus in open outcry. Market-Maker will not be required to comply
right to trade any group of series of SPX that with the bid/ask differential requirements
the Exchange has authorized for trading on With respect to making this determination,
the Exchange will monitor a Market-Maker’s determined by the Exchange in that class.
the Hybrid Trading System pursuant to Rule
8.14.] trading activity in each appointed class The effectiveness of this subparagraph (i)(A)
during Regular Trading Hours every calendar shall be in effect in each Hybrid for a period
daltland on DSKBBV9HB2PROD with NOTICES
(iv)–(v) (No change). quarter to determine whether it exceeds the of one year commencing with the date the
(d)–(e) (No change). threshold established in paragraph (d)(i). If a class begins trading on the Hybrid System].
* * * * * Market-Maker exceeds the threshold For SPX, the Exchange may determine bid/
established below, the obligations contained ask differential requirements for series with
Rule 8.7. Obligations of Market-Makers expirations of (1) fewer than 462 days and (2)
in (d)(ii) will be effective the next calendar
(a)–(c) (No change). quarter. 462 or more days, and for all other classes,
(d) Market-Making Obligations in For a period of ninety (90) days the Exchange may determine bid/ask
Applicable Hybrid Classes commencing immediately after a class begins differential requirements for series with
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/2.svg)
![Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices 18607
expiration of (1) less than nine months and does not apply to intra-day add-on series on Rule 8.14. Hybrid Trading System Platforms
(2) nine months or more. the day during which such series are added & Market-Maker Participants
(B) Continuous Electronic Quoting for trading. Market-Maker continuous (a)–(b) (No change).
Obligation: The Market-Maker will not be electronic quoting obligations may be . . . Interpretations and Policies:
obligated to quote electronically in any satisfied by Market-Makers either .01 For each Hybrid 3.0 class, the Exchange
designated percentage of series within that individually or collectively with Market- may determine to authorize a group of series
class. If a Market-Maker quotes Makers of the same TPH organization. of the class for trading on the Hybrid Trading
electronically, its undecremented quote must (C) (No change). System and, if that authorization is granted,
be for the minimum number of contracts (iii) The obligations and duties of Market- shall determine the eligible categories of
determined by the Exchange on a class[ ]- Makers set forth in paragraphs (d)(i) and Market-Maker participants for that group of
by[ ]-class basis, which minimum shall be at (d)(ii) apply to a Market-Maker per trading series. The Exchange will also have the
least one contract. For SPX, the Exchange session (e.g., if a Market-Maker has an authority to determine whether to change the
may also determine minimum initial quote appointment in a class during Regular trading platform on which the group of series
size on a premium basis and an expiration Trading Hours and Extended Trading Hours, trades [and to change the eligible categories
basis for series with expirations of (1) 7 or the Exchange will determine a Market- of Market-Maker participants for the group].
fewer days, (2) 8 to 91 days, (3) 92 to 188 Maker’s compliance with the continuous If the Exchange lists SPX on the Hybrid
days, (4) 189 to 461 days, and (5) 462 or more electronic quoting requirement during Trading System, the Exchange may
days. Regular Trading Hours separately from determine to list the class on a group basis,
(C) (No change). compliance with the electronic quoting with both groups trading on the Hybrid
(ii) Market-Maker Trades More Than 20% requirement during Extended Trading Trading System. The Exchange will also have
Contract Volume in an Appointed Class Hours). Except as set forth in paragraph the authority to change the eligible categories
Electronically: of Market-Makers participants for each
(d)(ii)(B), the obligations and duties of
If a Market-Maker on the Cboe Options group. In addition, the following shall apply:
Market-Makers set forth in paragraphs (d)(i)
Hybrid System transacts more than 20% of (a)–(b) (No change).
and (d)(ii) apply to a Market-Maker on a per
the Market-Maker’s contract volume (c) The Hybrid Trading System or Hybrid
class basis, except for SPX if the Exchange
electronically in an appointed Hybrid class 3.0 Platform, as applicable, trading
lists SPX on a group basis pursuant to Rule
during Regular Trading Hours during any parameters will be established by the
8.14 and determines to apply obligations and
calendar quarter, commencing the next Exchange on a group basis to the extent the
duties of SPX Market-Makers on a group
calendar quarter the Market-Maker will be Exchange Rules otherwise provide for such
basis, and only when the Market-Maker is
subject to the following quoting obligations parameters to be established on a class basis.
quoting in a particular class during the
in that class for as long as the Market-Maker
applicable trading session on a given trading Rule 8.15. Lead Market-Makers
maintains an appointment in that class:
day. For example, if during a trading session (a)–(d) (No change).
(A) Quote Widths: Market-Makers must
comply with the bid/ask differential on a given trading day a Market-Maker is . . . Interpretations and Policies:
requirements determined by the Exchange on quoting in 1 of its 10 appointed classes, the .01–.04 (No change).
a class[ ]-by[ ]-class and premium basis. For Market-Maker has quote width, continuous .05 If the Exchange determines to list SPX
SPX, the Exchange may determine bid/ask electronic quoting and, to the extent the on a group basis pursuant to Rule 8.14,
differential requirements for series with Market-Maker is present in the trading obligations of an SPX Market-Maker
expirations of (1) fewer than 462 days and (2) crowd, continuous open outcry quoting designated as a Lead Market-Maker, as set
462 or more days, and for all other classes, obligations in that class, and the continuous forth in Rule 8.15, apply on a class basis,
the Exchange may determine bid/ask electronic quoting obligation in subparagraph unless the Exchange determines to apply
differential requirements for series with (d)(ii)(B) applies to 60% of the non-adjusted obligations on a group basis.
expiration of (1) less than nine months and option series of that class that have a time to
expiration of less than nine months while the * * * * *
(2) nine months or more.
(B) Continuous Electronic Quoting Market-Maker is quoting. If during a trading Rule 8.85. DPM Obligations
Obligation: A Market-Maker will be required session on a given trading day a Market- (a)–(e) (No change).
to maintain continuous electronic quotes (as Maker is quoting in 3 of its 10 appointed . . . Interpretations and Policies:
defined in Rule 1.1 (ccc)) in 60% of the non- classes, the Market-Maker has quote width .01–.02 (No change).
adjusted option series of the Market-Maker’s and, to the extent the Market-Maker is .03 If the Exchange determines to list SPX
appointed classes that have a time to present in the trading crowd, continuous on a group basis pursuant to Rule 8.14,
expiration of less than nine months. open outcry quoting obligations in each of obligations of a Designated Primary Market-
Compliance with this quoting obligation the 3 classes, and the continuous electronic Maker with an SPX appointment, as set forth
applies to all of a Market-Maker’s appointed quoting obligation in subparagraph (d)(ii)(B) in Rule 8.85, apply on a class basis, except
classes collectively (for which it must applies to 60% of the non-adjusted option if the Exchange determines to apply
maintain continuous electronic quotes series of those three classes, collectively, that obligations on a group basis.
pursuant to this paragraph (ii)(B)). The have a time to expiration of less than nine
* * * * *
Exchange will determine compliance by a months while the Market-Maker is quoting.
The obligations and duties are not applicable
The text of the proposed rule change
Market-Maker with this quoting obligation on is also available on the Exchange’s
a monthly basis. However, determining to an appointed class if a Market-Maker is not
compliance with this quoting obligation on a quoting in that appointed class. website (http://www.cboe.com/
monthly basis does not relieve a Market- (iv) (No change). AboutCBOE/CBOELegalRegulatory
Maker from meeting this obligation on a daily . . . Interpretations and Policies: Home.aspx), at the Exchange’s Office of
basis, nor does it prohibit the Exchange from .01–.13 (No change). the Secretary, and at the Commission’s
taking disciplinary action against a Market- * * * * * Public Reference Room.
Maker for failing to meet this obligation each
trading day. The initial size of a Market- Rule 8.13. Preferred Market-Maker Program II. Self-Regulatory Organization’s
Maker’s quote must be for the minimum (a)–(d) (No change). Statement of the Purpose of, and
number of contracts determined by the . . . Interpretations and Policies: Statutory Basis for, the Proposed Rule
daltland on DSKBBV9HB2PROD with NOTICES
Exchange on a class[ ]-by[ ]-class basis, which .01–.03 (No change). Change
minimum shall be at least one contract. For .04 If the Exchange determines to list SPX
In its filing with the Commission, the
SPX, the Exchange may also determine on a group basis pursuant to Rule 8.14,
minimum initial quote size on a premium obligations of an SPX Market-Maker Exchange included statements
basis and an expiration basis for series with designated as a Preferred Market-Maker, as concerning the purpose of and basis for
expirations of (1) 7 or fewer days, (2) 8 to 91 set forth in Rule 8.13, apply on a class basis, the proposed rule change and discussed
days, (3) 92 to 188 days, (4) 189 to 461 days, unless the Exchange determines to apply any comments it received on the
and (5) 462 or more days. This obligation obligations on a group basis. proposed rule change. The text of these
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/3.svg)
![Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices 18609
process complex orders with COA responses will enter the COB or determined to list SPX as a Hybrid class
components in different classes. Many instead be routed to a PAR workstation on a group basis, the Exchange may
classes trade on their own trade server. during Regular Trading Hours and determine it lists a significantly larger
Despite being the same class, SPX rejected back to the Trading Permit number of SPX series in which it may
options and SPXW options trade on Holder during Extended Trading Hours be burdensome for Market-Makers to
separate trade servers due to the number if not eligible for COB entry due to the quote. For example, currently, the
of series in each group and due to the terms of the order (for example, if the Exchange lists over 3,000 SPX series
fact that they trade as different classes order is for an origin code the Exchange and almost 8,000 SPXW series
(as discussed above). Currently trading does not permit to rest in the COB), (compared to, for example, over 400 VIX
is not possible ‘‘across’’ trade servers. If which is how those orders are treated series and almost 200 VIX weekly
the System receives a complex order today.10 series). With SPX options listed on
with one SPX leg and one SPXW leg, it In connection with the planned Hybrid 3.0, Market-Makers may not
would need to trade the SPX leg against migration of SPX options to Hybrid, the submit quotes in those series. Therefore,
the appropriate leg in the first trade Exchange proposes to amend Rule 8.3 Market-Makers with SPX appointments
server. After that leg execution, it would regarding appointment costs. The that are subject to electronic quoting
then need to trade the SPXW leg against proposed rule change moves the SPX obligations under Rule 8.7(d) must
the appropriate leg in the second trade class from the Hybrid 3.0 appointment satisfy those obligations based on the
server. Given the time these executions cost table to the Hybrid appointment number of SPXW series. However, when
would take, it would not result in the cost table. The Exchange would the SPX class moves to Hybrid, Market-
near simultaneous execution of legs that maintain the 1.0 appointment cost for Makers will be able to submit electronic
is sought by the entry of complex SPX (which includes SPXW). The quotes in SPX options as well as SPXW
orders. Additionally, after the first leg proposed rule change notes if the options. Applying obligations on a class
execution, because the complex order Exchange determines to list SPX as a basis would significantly increase the
has not fully executed, the System Hybrid class on a group basis pursuant number of series in which Market-
would not be able to execute any other to Rule 8.14, the appointment cost for Makers would have to submit electronic
orders within the series of the first leg, the class confers the right to trade in all quotes due to the large number of series.
which may prevent execution SPX groups. This is consistent with how Permitting the Exchange to determine
opportunities of those other orders. appointment costs currently work, as compliance with these obligations on a
Currently, this only applies to SPX/ currently, the SPX appointment cost of group basis would permit Market-Maker
SPXW orders, and the proposed rule 1.0 applies to any group of series of SPX obligations to apply to SPX in a similar
change would treat these orders as they authorized to trade on the Hybrid manner as they do today based on a
are today. SPX/SPXW orders may Trading System.11 The proposed rule more reasonable number of series.
execute against other SPX/SPXW orders change merely applies this same The Exchange proposes to amend
in the COB upon entry or against orders concept to SPX if listed on the Hybrid Rules 6.2, Interpretation and Policy
and COA responses following a COA in Trading System on a group basis .02(b) 13 and 8.7(d)(i)(A) and (ii)(A) to
accordance with the allocation and pursuant to the proposed rule change. permit the Exchange to establish bid-ask
priority rules set forth in Rule The proposed rule change amends differentials for Market-Makers (for
6.53C(c)(ii)(2) and (d)(v)(2) through (4), Rule 8.7(d)(iii) to provide if the opening and intraday quotes,
respectively.9 The proposed rule change Exchange lists SPX on a group basis respectively) on a premium basis and
states marketable SPX/SPXW orders pursuant to Rule 8.14, it may determine for SPX, for series with expirations of
will be eligible to automatically execute to apply obligations and duties of (1) fewer than 462 days and (2) 462 or
against other SPX/SPXW orders resting Market-Makers with an appointment to more days, and for all other classes, for
in the COB provided the execution is at SPX on a group basis rather than a class series with expiration of (1) less than
a net price that has priority over the basis. Currently, Market-Maker nine months and (2) nine months or
individual orders and quotes residing in obligations for Hybrid classes apply on more, in addition to a class-by-class
the EBook (which is consistent with the a class basis (e.g., the Exchange basis (as currently permitted by the
manner in which the Exchange determines a Market-Maker’s Rules). Similarly, the Exchange
currently handles [sic] these complex compliance with the continuous proposes to amend Rules 6.2,
orders are handled, as provided in Rule electronic quoting obligations set forth Interpretation and Policy .02(a) and
6.53C, Interpretation and Policy .10(b)). in Rule 8.7(d) for a class based all series 8.7(d)(i)(B) and (ii)(B) to permit the
An SPX/SPXW order that is marketable in that class).12 If the Exchange Exchange to establish minimum quote
against individual orders resting in the size requirements (for opening and
Ebook but not marketable against any 10 See Rules 6.12(a)(1) (which states orders
intraday quotes, respectively) for SPX
initially routed for electronic processing that are not
complex orders resting in the COB or eligible for automatic execution or book entry will on a premium basis and expiration basis
route to PAR, an order management terminal, or for series with expirations of (1) 7 or
9 Rule 6.53C(c)(ii)(2) states the allocation of a back to the Trading Permit Holder); 6.53C(d)(vi)
complex order within the COB will be pursuant to (which states a COA-eligible order that cannot be
fewer days, (2) 8 to 91 days, (3) 92 to
the rules of trading priority otherwise applicable to filled in whole or in a permissible ratio will route 188 days, (4) 189 to 461 days, and (5)
incoming electronic orders in the individual to the COB or back to PAR, as applicable); and 462 or more days, in addition to a class-
component legs or another electronic matching 6.1A(b) (which states if in accordance with the by-class basis (as currently permitted by
algorithm from Rule 6.45, as determined by the Rules, an order would route to PAR, the order entry
Exchange on a class-by-class basis. Therefore, firm’s booth, or otherwise for manual handling, the the Rules).14 While different classes may
pursuant to that provision and the proposed rule System will return the order to the Trading Permit
daltland on DSKBBV9HB2PROD with NOTICES
change, the Exchange will determine for SPX/ Holder during Extended Trading Hours). 13 As set forth in Rule 6.2, Interpretation and
SPXW complex orders which electronic matching 11 See Rule 8.3(c)(iii). Policy .02(b), the Exchange may set different
algorithm will apply to those orders when 12 The proposed rule change makes minimum size and differential requirements for the
executing against other orders in the COB. Rules corresponding changes to proposed Rules 8.13, opening than those applicable intraday.
6.53(d)(v)(2) through (4) specify the matching Interpretation and Policy .04; 8.15, Interpretation 14 For classes other than SPX, the Exchange will
algorithm applicable to complex orders that execute and Policy .05; and 8.85, Interpretation and Policy continue to be permitted to establish minimum size
following a COA, and those provisions will apply .03 regarding obligations of Preferred Market- requirements on a class-by-class basis only (and not
to SPX/SPXW complex orders pursuant to the Makers, Lead Market-Makers, and Designated by premium or expiration). The current minimum
proposed rule change. Primary Market-Makers, respectively. Continued
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/5.svg)
![18610 Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices
exhibit different trading characteristics, proposed rule change merely change merely permits the Exchange to
which make different minimum quote [sic] when they must start to comply similarly list the SPX class on a group
sizes and differentials on a class-by- with them. For example, under the basis on the same trading platform when
class basis appropriate as permitted by current rule, Market-Makers not subject SPX options migrate to the Hybrid
the current Rule, the same may be true to continuous electronic quote Trading System. This will permit the
of series with different premiums and obligations would not be required to Exchange to migrate SPX options to the
expirations within a class to ensure the comply with bid/ask differential Hybrid Trading System without
quote size is not burdensome on Market- requirements with respect to any interruption to how SPX and SPXW
Makers. For example, series with higher electronic quotes they submit until one options currently trade.
premiums or farther expirations year after SPX begins trading on the Similarly, the proposed rule change to
generally have wider spreads and lower Hybrid System. Under the proposed rule provide that SPX/SPXW complex orders
trading volumes, and positions in those change, these Market-Makers will need will not execute against individual
series carry additional risk. These to comply with bid/ask differential orders in the Ebook will permit these
characteristics make wider bid-ask requirements when submitted electronic orders to be handled in the same
differential and smaller minimum quote quotes as soon as SPX begins trading on manner on the Hybrid Trading System
size (with respect to SPX) requirements the Hybrid System. as they are today on the Hybrid 3.0
more appropriate and less burdensome System. These orders will continue to
2. Statutory Basis be eligible for electronic processing,
on Market-Makers.15 The proposed
expiration groupings for minimum The Exchange believes the proposed including electronic execution, in the
quote size and bid-ask differential rule change is consistent with the same manner as complex orders
requirements in SPX are based on the Securities Exchange Act of 1934 (the consisting of SPX series only or SPXW
Exchange’s review of various ‘‘Act’’) and the rules and regulations series only, except they will not
information, including SPX transaction thereunder applicable to the Exchange automatically against [sic] individual
data, sizes of LMM quotes in SPX, and and, in particular, the requirements of orders in the Ebook for the legs, which
feedback received from Market-Makers Section 6(b) of the Act.16 Specifically, will result in those SPX/SPXW orders
and Exchange advisory groups. the Exchange believes the proposed rule being treated in the same manner as
Additionally, the proposed rule change is consistent with the Section they are today. This will provide these
change amends Rule 8.7(d)(i)(A). That 6(b)(5) 17 requirements that the rules of orders with the same electronic
provision currently states Market- an exchange be designed to prevent execution opportunities they have
Makers that do not transact more than fraudulent and manipulative acts and today, which will continue to not be
20% of their contract volume practices, to promote just and equitable eligible for automatic execution against
electronically in an appointed Hybrid principles of trade, to foster cooperation the individual leg markets due to system
class during any calendar quarter will and coordination with persons engaged limitations described above and would
not be required to comply with bid/ask in regulating, clearing, settling, instead rest in the COB (if eligible) or
differential requirements with respect to processing information with respect to, route to PAR, an order management
electronic quoting for the first year a and facilitating transactions in terminal, or the Trading Permit Holder
class begins trading on the Hybrid securities, to remove impediments to during Regular Trading Hours, or be
System. After the first year of Hybrid and perfect the mechanism of a free and rejected back to the Trading Permit
trading, a Market-Maker would need to open market and a national market Holder during Extended Trading Hours.
then comply with bid/ask differential system, and, in general, to protect The Exchange believes the proposed
requirements when quoting investors and the public interest. rule change to permit the Exchange to
electronically. The Exchange proposes Additionally, the Exchange believes the establish minimum quote size for SPX,
to delete that requirement and instead proposed rule change is consistent with and bid-ask differential requirements for
require Market-Makers to comply with the Section 6(b)(5) 18 requirement that all classes, on a premium basis and for
bid/ask differential requirements when the rules of an exchange not be designed specific expirations, in addition to class
quoting electronically as soon as a class to permit unfair discrimination between basis, will ensure Market-Maker
begins trading on the Hybrid System. customers, issuers, brokers, or dealers. obligations maintain an appropriate
The Exchange no longer believes the In particular, the Exchange believes balance of obligations and benefits. As
one-year delay in imposing these the proposed rule change to permit the discussed above, the Exchange currently
requirements is necessary. Requiring all Exchange to list the SPX class on Hybrid establishes bid-ask differential
electronic quotes to comply with bid/ on a group basis will benefit investors requirements on a class and premium
ask differential requirements will and promote just and equitable basis and for series with expirations of
increase liquidity and tighter markets in principles of trade, as it provides the less than nine months and nine months
these classes as soon as they begin Exchange with flexibility to establish a or more. The proposed rule change
trading. Market-Makers ultimately have more appropriate market model for a merely codifies this practice in the
to comply with these requirements; the group of SPX series that may exhibit Rules for classes other than SPX, so this
different trading characteristics than will result in no change to Market-
quote size is one contract in all classes. See other series in the class, even when both Makers. The Exchange believes it is
Regulatory Circular RG16–073 (April 7, 2016). groups trade on the same platform. appropriate to establish minimum quote
15 The Exchange currently may set certain
Currently, the Exchange may list a class sizes in SPX on an expiration and
parameters on a class and premium basis. See, e.g., on a group basis if the groups of a class premium basis to reflect the different
Rules 6.2(d)(ii)(E) (opening quote condition), trading characteristics of those series
trade on different trading platforms, and
daltland on DSKBBV9HB2PROD with NOTICES
6.12(a)(3) (acceptable tick distance for limit order
price parameter). Currently, the Exchange sets bid- as noted above, the Exchange currently within the SPX class. For example,
ask differentials on a premium basis and for only does so for SPX, the only Hybrid series with higher premiums or farther
expirations of less than nine months and nine 3.0 class. The proposed rule change expirations generally have wider
months or more; the proposed rule change codifies spreads and lower trading volumes, and
this practice for classes other than SPX in the Rules.
See Regulatory Circular RG16–073 (April 7, 2016)
16 15 U.S.C. 78f(b). positions in those series carry additional
(wider requirements in series with expirations of 17 15 U.S.C. 78f(b)(5). risk. These characteristics make wider
nine months or more and lower premiums). 18 Id. bid-ask differential and smaller
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/6.svg)
![Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices 18611
minimum quote size (with respect to currently quote in SPXW options may a similar manner as they do today.
SPX) requirements more appropriate elect to continue to only quote in those Additionally, the proposed rule change
and less burdensome on Market-Makers. options without having to quote in SPX ensures the Exchange may apply these
The proposed expiration groupings for options. obligations to reasonable number of
minimum quote size and bid-ask The proposed rule change to require series and not be overly burdensome on
differential requirements in SPX are Market-Makers to comply with bid/ask Market-Makers.
based on the Exchange’s review of differential requirements with respect to The proposed rule change to permit
various information, including SPX electronic quotes upon a class beginning the Exchange to establish minimum
transaction data, sizes of LMM quotes in to trade on the Hybrid System will quote size (for SPX) and bid-ask
SPX, and feedback received from increase liquidity and tighter markets in differential requirements on an
Market-Makers and Exchange advisory these classes as soon as they begin expiration and premium basis will
groups. The Exchange believes this trading. The proposed rule change ensure the Exchange can effectively set
proposed rule change will promote just maintains a balance of obligations and these requirements without being overly
and equitable principles of trade by benefits, as Market-Makers ultimately burdensome on Market-Makers given
ensuring bid/ask differential have to comply with these the differing trade characteristics
requirements and minimum size requirements; the proposed rule change applicable to series with different
requirements for SPX are effective and merely change when they must start to expirations and premiums. These
not overly burdensome on Market- comply with them. proposed changes overall will continue
Makers, which will ensure continued to incentive Market-Makers to have
B. Self-Regulatory Organization’s
liquidity on the Exchange, including in appointments in SPX, which increases
Statement on Burden on Competition
SPX options once they convert to liquidity and ultimately benefits
Hybrid, which ultimately benefits Cboe Options does not believe that investors. As noted above, the rules
investors. the proposed rule change will impose permit the Exchange to establish other
The proposed rule change to move the any burden on competition that is not trading parameters on a premium and
appointment cost for the SPX class from necessary or appropriate in furtherance class basis, and the proposed rule
the Hybrid 3.0 table to the Hybrid table of the purposes of the Act. The change codifies a current Exchange
in Rule 8.3(c)(i) reflects the Exchange’s proposed rule change has no impact on practice to set bid-ask differential
planned migration of SPX options from intramarket competition, as it will apply requirements on a class and premium
the Hybrid 3.0 platform to the Hybrid to all market participants that trade in basis and for expirations of less than
Trading System. The Exchange proposes SPX when listed on a group basis on the nine months and nine months or more
no change to the appointment cost, and Hybrid Trading System. When SPX for all classes other than SPX. The
thus Market-Makers with SPX options move to trade on the Hybrid proposed expiration groupings for
appointments will not need to purchase Trading System, the SPX class will minimum quote size and bid-ask
any additional trading permits to quote continue to trade in two groups as it differential requirements in SPX are
SPX options once the migrate trading does today (SPX options and SPXW based on the Exchange’s review of
platforms. options), and SPX/SPXW complex various information, including SPX
The Exchange believes the proposed orders will continue to be handled in transaction data, sizes of LMM quotes in
rule change to permit the Exchange to the same manner as they are today. The SPX, and feedback received from
apply Market-Maker (including PMMs proposed rule change has no impact on Market-Makers and Exchange advisory
and DPMs, as applicable) 19 obligations intermarket competition, as the groups. The proposed rule change has
on a group basis rather than class basis proposed rule change relates to a no impact on intermarket competition,
for SPX will promote just and equitable product exclusively listed on the as the proposed rule change relates to
principles of trade, as it will ensure a Exchange, and permits that product to obligations applicable to Cboe Options
continued balance of an SPX Market- continue trading in a similar manner as Market-Makers.
Maker’s obligations with benefits given it does today. The proposed rule change regarding
the significantly large number of SPX The proposed rule change to permit SPX appointment cost will have no
series. Requiring a Market-Maker to the Exchange to determine a Market- impact on competition, as the
satisfy quoting obligations in multiple Maker’s compliance with obligations on appointment cost will stay the same,
groups of SPX that, in the aggregate, a group basis rather than a class basis, and thus Market-Makers will not need
as well as to establish minimum quote to obtain any additional trading permits
represent a significantly large number of
sizes on an expiration and premium to quote in SPX options following their
series, may be burdensome for Market-
basis, in addition to class basis, for the migration to the Hybrid Trading System.
Makers to quote, which may
SPX class ensures a continued balance The proposed rule change related to
disincentive Market-Makers from
of a Market-Maker’s obligations with bid/ask differentials will not impose any
selecting appointments in such a class
benefits. The proposed change will burden on intramarket competition,
and thus reduce liquidity. The proposed
apply in the same manner to Market- because it will apply in the same
rule change incentivizes Market-Makers
Makers that select SPX appointments. manner to all Market-Makers subject to
to retain SPX appointments.
As set forth in Rule 8.3(c), Market- that requirement. It will not impose any
Additionally, permitting the Exchange
Makers select which classes in which burden on intermarket competition,
to determine compliance with these
they have appointments, and thus because it relates to quoting
obligations on a group basis would
become subject to these obligations requirements imposed by Cboe Options.
permit Market-Maker obligations to
when they choose such appointments in Additionally, requiring Market-Makers
apply to SPX options when it migrates
daltland on DSKBBV9HB2PROD with NOTICES
their discretion. Permitting the to comply with bid/ask differential
to the Hybrid Trading System in a
Exchange to determine compliance with requirements with respect to electronic
similar manner as they do today. For
these obligations on a group basis would quotes as soon as a class begins trading
example, SPX Market-Makers that
permit Market-Maker obligations to will increase liquidity and tighter
19 The Exchange notes there are not currently any apply to SPX options when they markets in these classes when the class
PMMs or DPMs for SPX or SPXW, and there will migrates [sic] to the Hybrid Trading starts trading. Market-Makers ultimately
be none at the time of conversion of SPX to Hybrid. System, and apply to SPXW options in have to comply with these
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/7.svg)
![18612 Federal Register / Vol. 83, No. 82 / Friday, April 27, 2018 / Notices
requirements; the proposed rule change designates the proposed rule change 10:00 a.m. and 3:00 p.m. Copies of the
merely change [sic] when they must operative upon filing.23 filing also will be available for
start to comply with them. At any time within 60 days of the inspection and copying at the principal
filing of the proposed rule change, the office of the Exchange. All comments
C. Self-Regulatory Organization’s Commission summarily may received will be posted without change.
Statement on Comments on the temporarily suspend such rule change if Persons submitting comments are
Proposed Rule Change Received From it appears to the Commission that such cautioned that we do not redact or edit
Members, Participants, or Others action is: (i) Necessary or appropriate in personal identifying information from
The Exchange neither solicited nor the public interest; (ii) for the protection comment submissions. You should
received comments on the proposed of investors; or (iii) otherwise in submit only information that you wish
rule change. furtherance of the purposes of the Act. to make available publicly. All
If the Commission takes such action, the submissions should refer to File
III. Date of Effectiveness of the Commission shall institute proceedings
Proposed Rule Change and Timing for Number SR–CBOE–2018–029, and
to determine whether the proposed rule should be submitted on or before May
Commission Action should be approved or disapproved. 18, 2018.
Because the foregoing proposed rule
IV. Solicitation of Comments For the Commission, by the Division of
change does not: (i) Significantly affect Trading and Markets, pursuant to delegated
the protection of investors or the public Interested persons are invited to
authority.24
interest; (ii) impose any significant submit written data, views, and
arguments concerning the foregoing, Eduardo A. Aleman,
burden on competition; and (iii) become
including whether the proposed rule Assistant Secretary.
operative for 30 days from the date on
which it was filed, or such shorter time change is consistent with the Act. [FR Doc. 2018–08848 Filed 4–26–18; 8:45 am]
as the Commission may designate, it has Comments may be submitted by any of BILLING CODE 8011–01–P
become effective pursuant to Section the following methods:
19(b)(3)(A)(iii) of the Act 20 and Electronic Comments SECURITIES AND EXCHANGE
subparagraph (f)(6) of Rule 19b–4
• Use the Commission’s internet COMMISSION
thereunder.21
comment form (http://www.sec.gov/
A proposed rule change filed under [Release No. 34–83093; File No. SR–CBOE–
rules/sro.shtml); or
Rule 19b–4(f)(6) normally does not • Send an email to rule-comments@ 2018–031]
become operative for 30 days after the sec.gov. Please include File Number SR–
date of the filing. However, Rule 19b– Self-Regulatory Organizations; Cboe
CBOE–2018–029 on the subject line.
4(f)(6)(iii) 22 permits the Commission to Exchange, Inc.; Notice of Filing and
designate a shorter time if such action Paper Comments Immediate Effectiveness of a Proposed
is consistent with the protection of • Send paper comments in triplicate Rule Change Concerning the VIX Large
investors and the public interest. In its to Secretary, Securities and Exchange Trade Discount Program
filing, Cboe Options requested that the Commission, 100 F Street NE, April 23, 2018.
Commission waive the 30-day operative Washington, DC 20549–1090.
delay. The Exchange represented that it Pursuant to Section 19(b)(1) of the
All submissions should refer to File Securities Exchange Act of 1934 (the
would like to migrate SPX options from Number SR–CBOE–2018–029. This file
the Hybrid 3.0 System to the Hybrid ‘‘Act’’),1 and Rule 19b–4 thereunder,2
number should be included on the notice is hereby given that on April 16,
Trading System on April 30, 2018. The subject line if email is used. To help the
Commission believes that waiver of the 2018, Cboe Exchange, Inc. (the
Commission process and review your ‘‘Exchange’’ or ‘‘Cboe Options’’) filed
30-day operative delay is consistent comments more efficiently, please use
with the protection of investors and the with the Securities and Exchange
only one method. The Commission will Commission (the ‘‘Commission’’) the
public interest because the proposal is post all comments on the Commission’s
designed to modify the Hybrid Trading proposed rule change as described in
internet website (http://www.sec.gov/ Items I, II, and III below, which Items
System rules to accommodate SPX rules/sro.shtml). Copies of the
options in a manner substantively have been prepared by the Exchange.
submission, all subsequent The Commission is publishing this
similar to how they currently are listed amendments, all written statements
and traded on Hybrid 3.0. In so doing, notice to solicit comments on the
with respect to the proposed rule proposed rule change from interested
the proposal permits the Exchange to change that are filed with the
migrate the one product currently persons.
Commission, and all written
trading on Hybrid 3.0 onto the system communications relating to the I. Self-Regulatory Organization’s
it uses for all other options, and to do proposed rule change between the Statement of the Terms of Substance of
so in a way that minimizes disruption Commission and any person, other than the Proposed Rule Change
for traders that currently trade SPX on those that may be withheld from the The Exchange proposes to amend the
Hybrid 3.0 without raising novel issues. public in accordance with the VIX Large Trade Discount program. The
Accordingly, the Commission waives provisions of 5 U.S.C. 552, will be text of the proposed rule change is also
the 30-day operative delay and available for website viewing and available on the Exchange’s website
printing in the Commission’s Public (http://www.cboe.com/AboutCBOE/
20 15 U.S.C. 78s(b)(3)(A)(iii). Reference Room, 100 F Street NE, CBOELegalRegulatoryHome.aspx), at
daltland on DSKBBV9HB2PROD with NOTICES
21 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
Washington, DC 20549, on official the Exchange’s Office of the Secretary,
the Commission written notice of its intent to file business days between the hours of and at the Commission’s Public
the proposed rule change at least five business days Reference Room.
prior to the date of filing of the proposed rule 23 For purposes only of waiving the 30-day
change, or such shorter time as designated by the operative delay, the Commission has also
24 17 CFR 200.30–3(a)(12) and (59).
Commission. The Exchange has satisfied this considered the proposed rule’s impact on
requirement. efficiency, competition, and capital formation. See 1 15 U.S.C. 78s(b)(1).
22 17 CFR 240.19b–4(f)(6)(iii). 15 U.S.C. 78c(f). 2 17 CFR 240.19b–4.
VerDate Sep<11>2014 18:18 Apr 26, 2018 Jkt 244001 PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1](https://thefederalregister.org/doc/83_FR_18687/page/8.svg)
Document Created: 2018-04-27 01:44:50
Document Modified: 2018-04-27 01:44:50
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 18605 |
2024 Federal Register | Disclaimer | Privacy Policy
USC | CFR | eCFR