83 FR 54395 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Permit the Exchange To List Options on the Cboe Volatility Index (“VIX options”) on a Group Basis and Make Conforming Changes Throughout the Rules, Change the Minimum Increment for VIX Options Listed Under the Nonstandard Expirations Pilot Program (if the Exchange Lists VIX on a Group Basis), and Make Nonsubstantive Changes

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 209 (October 29, 2018)

Page Range		54395-54400
FR Document		2018-23508
Federal Register, Volume 83 Issue 209 (Monday, October 29, 2018)
[Federal Register Volume 83, Number 209 (Monday, October 29, 2018)]
[Notices]
[Pages 54395-54400]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-23508]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84470; File No. SR-CBOE-2018-066]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Permit 
the Exchange To List Options on the Cboe Volatility Index (``VIX 
options'') on a Group Basis and Make Conforming Changes Throughout the 
Rules, Change the Minimum Increment for VIX Options Listed Under the 
Nonstandard Expirations Pilot Program (if the Exchange Lists VIX on a 
Group Basis), and Make Nonsubstantive Changes

October 23, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 12, 2018, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend its rules to permit the Exchange to list options on the Cboe 
Volatility Index (``VIX options'') on a group basis and make conforming 
changes throughout the Rules, change the minimum increment for VIX 
options listed under the Nonstandard Expirations Pilot Program (if the 
Exchange lists VIX on a group basis), and make nonsubstantive changes.

(additions are italicized; deletions are [bracketed])
* * * * *

Rules of Cboe Exchange, Inc.

* * * * *

Rule 6.42. Minimum Increments for Bids and Offers

    [The Board of Directors may establish minimum increments for 
options traded on the Exchange. When the Board of Directors determines 
to change the minimum increments, the Exchange will designate such 
change as a stated policy, practice, or interpretation with respect to 
the administration of Rule 6.42 within the meaning of subparagraph 
(3)(A) of subsection 19(b) of the Exchange Act and will file a rule 
change for effectiveness upon filing with the Commission. Until such 
time as the Board of Directors makes a change to the minimum 
increments, t](a) Simple Orders. The [following] minimum increments 
[shall apply to]for bids and offers on simple orders for options traded 
on the Exchange are as follows:

------------------------------------------------------------------------
               Class                   Increment    Series Trading Price
------------------------------------------------------------------------
Class Not Participating in Penny             $0.05  Lower than $3.00.
 Pilot Program (including all                 0.10  $3.00 and higher.
 series of VIX options if the
 Exchange does not list VIX on a
 group basis pursuant to Rule
 8.14) and series of VIX Options
 not listed under the Nonstandard
 Expirations Pilot Program (if the
 Exchange lists VIX on a group
 basis pursuant to Rule 8.14)
Class Participating in Penny Pilot            0.01  Lower than $3.00.
 Program.                                     0.05  $3.00 and higher.
QQQs, IWM, and SPY, and Mini-SPX              0.01  All prices
 Index Options (XSP) (as long as
 SPDR options (SPY) participate in
 the Penny Pilot Program)
Series of VIX Options listed under            0.01  All prices.
 the Nonstandard Expirations Pilot
 Program (if the Exchange lists
 VIX on a group basis pursuant to
 Rule 8.14).
Options on the Dow Jones                      0.01  Lower than $3.00.
 Industrial Average (DJX), as long            0.05  $3.00 and higher.
 as Diamonds options (DIA)
 participate in the Penny Pilot
 Program
Mini-Options......................  ..............  Same as permitted
                                                     for standard
                                                     options on the same
                                                     security.
------------------------------------------------------------------------

    [(1) Subject to paragraphs (2) and (3) below, bids and offers shall 
be expressed in decimal increments no smaller than $0.10, unless a 
different increment is approved by the Exchange for an option contract 
of a particular series.
    (2) Subject to paragraph (3) below, bids and offers for all option 
series quoted below $3 a contract shall be expressed in decimal 
increments no smaller than $0.05
    (3) The decimal increments for bids and offers for all series of 
the option classes participating in the Penny Pilot Program are: $0.01 
for all option series quoted below $3 (including LEAPS), and $0.05 for 
all option series $3 and above (including LEAPS). For QQQQs, IWM, and 
SPY, the minimum increment is $0.01 for all option series. The Exchange 
may replace any option class participating in the Penny Pilot Program 
that has been delisted with the next most actively-traded, multiply-
listed option class, based on national average daily volume in the 
preceding six calendar months, that is not yet included in the Pilot 
Program. Any replacement class would be added on the second trading day 
following July 1, 2018. The Penny Pilot shall expire on December 31, 
2018.]
    ([4]b) Complex Orders. Except as provided in Rule 6.53C, the 
minimum increment for bids and offers on complex orders, as defined in 
Interpretation and Policy .01 below, [may be expressed in any net price 
increment (that may not be less than] is $0.01[)] or greater, 
[that]which may be determined by the Exchange on a class-by-class basis 
and announced to [the] Trading Permit Holders via Regulatory Circular[, 
regardless of the minimum increments otherwise appropriate to the 
individual legs of the order].

[[Page 54396]]

Notwithstanding the foregoing sentence, the minimum increment for bids 
and offers on complex orders in options on the S&P 500 Index (SPX) or 
on the S&P 100 Index (OEX and XEO), except for box/roll spreads, [shall 
be expressed in decimal increments no smaller than]is $0.05 or greater, 
or in any increment, [as]which may be determined by the Exchange on a 
class-by-class basis and announced to [the] Trading Permit Holders via 
Regulatory Circular. In addition:

([a]i) [T]the legs of a complex order may be executed in $0.01 
increments; and
([b]ii) complex orders are subject to special priority requirements as 
described in Rules 6.45, 6.53C, 24.19 and 24.20.

    . . . Interpretations and Policies:
    .01 For purposes of this rule, ``complex order'' means a spread, 
straddle, combination or ratio order as defined in Rule 6.53, a stock-
option order as defined in Rule 1.1(ii), a security future-option order 
as defined in Rule 1.1(zz), or any other complex order as defined in 
Rule 6.53C.
    .02 For purposes of this rule, ``box/roll spread'' or ``box 
spread'' means an aggregation of positions in a long call option and 
short put option with the same exercise price (``buy side'') coupled 
with a long put option and short call option with the same exercise 
price (``sell side'') all of which have the same aggregate current 
underlying value, and are structured as either: ([A]a) a ``long box 
spread'' in which the sell side exercise price exceeds the buy side 
exercise price or ([B]b) a ``short box spread'' in which the buy side 
exercise price exceeds the sell side exercise price.
    .03 When the Exchange determines to change the minimum increment 
for a class, the Exchange will designate such change as a stated 
policy, practice, or interpretation with respect to the administration 
of Rule 6.42 within the meaning of subparagraph (3)(A) of subsection 
19(b) of the Act and will file a rule change for effectiveness upon 
filing with the Commission.
    .04 The Exchange may replace any option class participating in the 
Penny Pilot Program that has been delisted with the next most actively 
traded, multiply listed option class, based on national average daily 
volume in the preceding six calendar months, that is not yet included 
in the Pilot Program. Any replacement class would be added on the 
second trading day following July 1, 2018. The Penny Pilot will expire 
on December 31, 2018.
    [.03 For so long as SPDR options (SPY) and options on Diamonds 
(DIA) participate in the Penny Pilot Program, the minimum increments 
for Mini-SPX Index Options (XSP) shall be the same as SPY for all 
options series (including LEAPS) and for options on the Dow Jones 
Industrial Average (DJX) are $0.01 for all option series quoted below 
$3 (including LEAPS), and $0.05 for all option series $3 and above 
(including LEAPS).
    .04 The minimum price variation for bids and offers for mini-
options shall be determined in accordance with Interpretation and 
Policy .22(d) to Rule 5.5.]
* * * * *

Rule 6.53C. Complex Orders on the Hybrid System

    (a)-(d) No change.
    . . . Interpretations and Policies:
    .01 No change.
    .02 If the Exchange determines to list SPX or VIX 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 or VIX 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.

------------------------------------------------------------------------
                                                            Appointment
              Tier                Hybrid option classes        cost
------------------------------------------------------------------------
AA.............................  Options on the Cboe             .499 **
                                  Volatility Index (VIX).
                                 Options on the Standard          1.0 **
                                  & Poor's 500 Index
                                  (SPX).
 
                              * * * * * * *
------------------------------------------------------------------------
** If the Exchange determines to list SPX or VIX on a group basis
  pursuant to Rule 8.14, the SPX or VIX appointment cost, as applicable,
  confers the right to trade in all SPX or VIX groups, respectively.

    (ii)-(v) No change.
    (d)-(e) 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 or VIX on a group basis 
pursuant to Rule 8.14, obligations of an SPX or VIX Market-Maker, as 
applicable, 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:

[[Page 54397]]

    .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. If 
the Exchange lists SPX or VIX 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)-(c) No change.

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 or VIX on a group basis 
pursuant to Rule 8.14, obligations of an SPX or VIX Market-Maker, as 
applicable, 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 or VIX on a group basis 
pursuant to Rule 8.14, obligations of a Designated Primary Market-Maker 
with an SPX or VIX appointment, as applicable, as set forth in Rule 
8.85, apply on a class basis, except if the Exchange determines to 
apply obligations on a group basis.
* * * * *
    (b) Not applicable. [sic]
    (c) Not applicable. [sic]
    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 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 to permit the Exchange to 
list options on the Cboe Volatility Index (``VIX options'') on [sic] 
group basis and make conforming changes throughout the Rules, change 
the minimum increment for VIX options listed under the Nonstandard 
Expirations Pilot Program (if the Exchange lists VIX on a group basis), 
and make nonsubstantive changes. 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. Rule 
8.14, Interpretation and Policy .01 also permits the Exchange to list 
options on the S&P 500 (``SPX options'') on a group basis, with both 
groups trading on the Hybrid Trading System, if the Exchange lists SPX 
on the Hybrid Trading System.\6\ 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 may also appoint no DPM or 
LMM to a class if the conditions in Rule 8.14(b) are satisfied with 
respect to the class. A DPM's or LMM's obligations will apply to a 
class, unless the Exchange determines to apply a DPM's or LMM's 
obligations on a group basis. Market-Maker appointments apply on a 
class basis. The Exchange establishes Hybrid Trading System trading 
parameters (e.g., applicable matching algorithm under Rule 6.45, 
opening rotation parameters under Rule 6.2B, 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 to the extent the Rules 
otherwise provide for such parameters to be established on a class 
basis.
---------------------------------------------------------------------------

    \5\ ``Hybrid Trading System'' refers to (i) the Exchange's 
trading platform that allows Market-Makers to submit electronic 
quotes in their appointed classes and (ii) 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, no classes trade on the Hybrid 3.0 Platform.
    \6\ Currently, the Exchange lists SPX options on the Hybrid 
Trading System, and lists the class in two groups--one group 
consists of SPX options with A.M.-settled standard third-Friday 
expirations and the other group consists of SPX options with P.M.-
settled standard third-Friday expirations and nonstandard end-of-
week or end-of-month expirations. The Exchange lists both groups of 
SPX options on the Hybrid Trading System.
---------------------------------------------------------------------------

    The proposed rule change amends Rule 8.14, Interpretation and 
Policy .01 to permit the Exchange to list a class [sic] VIX options on 
a group basis if the Exchange lists VIX options on the Hybrid Trading 
System (which it currently does).\7\ The remaining provisions of 
Interpretation and Policy .01 would apply. Thus, if the Exchange lists 
VIX options in two groups, it may determine on which trading platform 
each group trades (both could trade on the Hybrid Trading System, both 
could trade on the Hybrid 3.0 Platform, and one could trade on each 
platform) and the eligible categories of Market-Maker participants for 
each group. If the Exchange determines to appoint a DPM or LMM, the 
obligations of the DPM or LMM would apply to the entire VIX class, 
unless the Exchange determines to apply the DPM or LMM obligations, as 
applicable, on a group basis.\8\ Market-Maker appointments would 
continue to apply to the entire VIX class, as further discussed 
below.\9\
---------------------------------------------------------------------------

    \7\ If VIX was a Hybrid 3.0 class, the Exchange would be able to 
list it on a group basis today pursuant to Rule 8.14, Interpretation 
and Policy .01.
    \8\ The proposed rule change makes conforming changes to Rules 
8.15 and 8.85. The proposed rule change also makes a similar change 
to Rule 8.13 with respect to Preferred Market-Makers.
    \9\ The Exchange does not currently (and does not intend to) 
appoint Preferred Market-Makers (``PMMs'') or DPMs to VIX options 
pursuant to Rules 8.13 or 8.95, respectively. The Exchange currently 
appoints an on-floor LMM to VIX options (which includes VIXW 
options), and may determine to apply a DPM or LMM to each group of 
VIX options if the Exchange determines to list VIX on a group basis.
---------------------------------------------------------------------------

    As it does today, when determining whether to list a 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 SPX

[[Page 54398]]

options with A.M.-settled standard third-Friday expirations under 
symbol ``SPX'' and lists options on the S&P 500 Index with P.M-settled 
standard third-Friday expirations and nonstandard expirations with all 
other expirations under symbol ``SPXW.'' The Exchange would provide 
sufficient notice to Trading Permit Holders if it determines to list 
VIX on a group basis.
    If the Exchange determines to list VIX on a group basis, 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 and SPXW. Pursuant to the proposed rule change, 
the Exchange could apply a different allocation algorithm to each group 
of VIX options.
    The Exchange believes for VIX, groups of series may exhibit 
different trading characteristics, including appeal to different 
categories of market participants. For example, the Exchange believes 
VIXW options may be more appealing to retail customers given their 
short expiration, and would be in more demand with a smaller trading 
increment (see discussion below). 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 VIX options with standard third-Friday expirations and VIX 
options with nonstandard expirations, which is why the Exchange 
believes it is appropriate to permit the Exchange to list VIX options 
in groups.
    The Exchange proposes to amend Rule 6.53C, Interpretation and 
Policy .02 to state if the Exchange determines to list VIX options 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). This is consistent 
with current functionality today applicable to SPX and SPXW pursuant to 
Rule 6.53C, Interpretation and Policy .10. The proposed rule change 
extends this functionality to VIX, if the Exchange lists it on a group 
basis.
    As discussed above, if the Exchange lists VIX on a group basis, the 
Exchange may apply different trading parameters (including different 
allocation algorithms) to each group. Due to system limitations that in 
the Exchange's experience were 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 VIX 
and VIXW series would be part of the same class even if the Exchange 
lists VIX on a group basis, and thus permissible for electronic 
handling under the Rules, the System would treat VIX and VIXW series as 
different classes (since they would potentially have different 
settings) and would be unable to process complex orders with components 
in different classes. The System has settings for each class. 
Currently, trading is not possible ``across'' classes given these 
different settings. Each class also has separate market data inputs, as 
the System must read different market data for each class in connection 
with potential executions in the class. If the System receives a 
complex order with one VIX leg and one VIXW leg, it would need to trade 
the VIX leg against the appropriate leg in the VIX ``class.'' After 
that leg execution, it would then need to trade the VIXW leg against 
the appropriate leg in the VIXW ``class.'' Given the time these 
executions would take across classes, 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.
    For example, suppose the Exchange lists VIX on a group basis, as 
VIX and VIXW (similar to SPX and SPXW). The Exchange may determine 
pursuant to Rule 6.45(a) the allocation algorithm applicable to VIX/
VIXW orders.\10\ VIX/VIXW orders may execute against other VIX/VIXW 
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 6.53C(c)(ii)(2) and (d)(v)(2) through (4), 
respectively.\11\ The proposed rule change states marketable VIX/VIXW 
orders will be eligible to automatically execute against other VIX/VIXW 
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 these complex orders are handled [sic], as provided 
in Rule 6.53C, Interpretation and Policy .10(b)). A VIX/VIXW 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). This is how SPX/
SPXW orders are handled today.\12\
---------------------------------------------------------------------------

    \10\ Rule 6.45(a)(i) permits the Exchange to determine which 
base electronic allocation algorithm will apply to a class, and Rule 
6.53C(ii)(2) permits the Exchange to determine which electronic 
allocation algorithm will apply to executions of complex orders on 
the COB. Pursuant to the proposed rule change, as discussed above, 
the Exchange may establish trading parameters on a group basis when 
the Rules otherwise provide for parameters to be established on a 
class basis.
    \11\ 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 VIX/VIXW 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 VIX/VIXW complex orders pursuant to the proposed rule change.
    \12\ See Rule 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 or back to the Trading 
Permit Holder, Rule 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 Rule 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.
---------------------------------------------------------------------------

    The proposed rule change amends Rule 8.3(c)(i) to state if the 
Exchange determines to list VIX on a group basis pursuant to Rule 8.14, 
the appointment cost for VIX confers the right to trade in all groups 
of the class. This is consistent with how appointment costs currently 
work for VIX, and is consistent with how the appointment cost for SPX 
works (which the Exchange has determined to list on a group basis). A 
VIX Market-Maker's obligations pursuant to Rule 8.7 will continue to 
apply to VIX on a class basis (i.e., series within all VIX groups), 
even if the

[[Page 54399]]

Exchange lists VIX on a group basis. This is consistent with how VIX 
Market-Makers' obligations apply to VIX today, as VIX Market-Makers' 
obligations apply to all VIX series. The Exchange proposes no change to 
the appointment cost, and thus Market-Makers with VIX appointments will 
not need to purchase any additional trading permits to quote VIX if the 
Exchange determines to list VIX on a group basis.
    The Exchange also proposes to amend Rule 6.42 to permit series of 
VIX options listed under the Nonstandard Expiration pilot program 
(``VIXW'') to have a minimum increment of $0.01 for all strike prices 
if the Exchange determines to list VIX on a group basis. Currently, all 
VIX options have a minimum increment of $0.05 for series trading below 
$3 and $0.10 for series trading above $3.\13\ The Exchange believes 
market demand (particularly by retail investors, who generally prefer 
lower trading increments) supports a lower trading increment for these 
series. Permitting a different minimum increment for VIXW and VIX is 
consistent with the Exchange's current authority (as discussed above) 
to determine all trading parameters and market model elements other 
than minimum increment on a group basis to address different trading 
characteristics and market demand between groups of series. Permitting 
VIXW series to trade at a different minimum increment than VIX series 
will permit the Exchange to similarly address the different trading 
characteristics and market demand for these two groups of series.
---------------------------------------------------------------------------

    \13\ As set forth in proposed Rule 6.42, if the Exchange does 
not list VIX on a group basis, these same increments would apply to 
the entire class.
---------------------------------------------------------------------------

    Additionally, penny pricing is available in weekly options on 
competitor products such as the iPath S&P 500 VIX Short-Term Futures 
exchange-traded note (``VXX''). As a result, the Exchange believes 
penny pricing for VIXW options is necessary for competitive reasons to 
allow the Exchange to price these weekly options at the same level of 
granularity as permitted for competitor weekly products.\14\ The 
Exchange expects this more granular pricing to lead to narrowing of the 
bid-ask spread for these options and increase the possible number of 
price points available to investors for these series. The Exchange also 
notes that penny increments are appropriate for Nonstandard Expiration 
series, because they have shorter durations than standard options, and 
finer increments permit more precise pricing in line with the 
theoretical value of these shorter-term options. The proposed rule 
change also makes nonsubstantive changes to Rule 6.42, including moving 
certain provisions from the main body of the Rule to interpretations 
and policies .03 and .04, making language more plain English, 
conforming paragraph numbering and lettering to other rules, and 
displaying the increments in a more user-friendly table.
---------------------------------------------------------------------------

    \14\ The Exchange notes that other options that trade on the 
Exchange are currently permitted to trade in penny increments 
because competitive products are able to trade in penny increments. 
See Rule 6.42, Interpretation and Policy .03 (the minimum for XSP 
options is $0.01 because that is the minimum increment for SPY 
options, and the minimum increment for DJX options is $0.01 for 
series below $3 and $0.05 for series $3 and above because that is 
the minimum increment for DIA options).
---------------------------------------------------------------------------

    With regard to the impact of this proposed rule change on system 
capacity, the Exchange has analyzed its capacity and represents that it 
and the Options Price Reporting Authority have the necessary systems 
capacity to handle any potential additional traffic associated with 
this proposal. The Exchange does not believe any potential increased 
traffic will become unmanageable since this proposed rule change with 
respect to minimum trading increments is limited to a single class of 
options. The proposed rule change does not impact the number of 
expirations for VIX options the Exchange may list pursuant to Rule 
24.9.
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.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change to 
permit the Exchange to list VIX options 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 VIX options series that may exhibit 
different trading characteristics than other series in the class, even 
if both groups trade on the same platform. Currently, the Exchange may 
list VIX on a group basis if the groups of a class trade on different 
trading platforms (e.g., if VIX was a Hybrid 3.0 class); the proposed 
rule change merely permits the Exchange to similarly list VIX on a 
group basis on the same trading platform.
    Similarly, the proposed rule change to provide [sic] that VIX/VIXW 
complex orders will not execute against individual orders in the EBook, 
which is consistent with the treatment of SPX/SPXW orders. These orders 
will continue to be eligible for electronic processing, including 
electronic execution, in the same manner as complex orders consisting 
of VIX series only or VIXW series only, except they will not 
automatically execute against individual orders in the EBook for the 
legs due to system limitations described above and would instead rest 
in the COB (if eligible) or route to PAR or the Trading Permit Holder 
during Regular Trading Hours, or be rejected back to the Trading Permit 
Holder during Extended Trading Hours.
    Additionally, the proposed rule change will similarly benefit 
investors. Retail customers generally prefer options with shorter 
expirations, and the proposed rule change will permit series of VIX 
with short expirations to be listed in a smaller increment consistent 
with that demand from retail investors. Permitting a different minimum 
increment for VIXW and VIX is consistent with the Exchange's current 
authority (as discussed above) to determine all trading parameters and 
market model elements other than minimum increment on a group basis to 
address different trading characteristics and market demand between 
groups of series. Permitting VIXW series to trade at a different 
minimum increment than VIX series will permit the Exchange to similarly 
address the different trading characteristics and market demand for 
these two groups of series.
    Penny increments for VIXW series may lead to more granular pricing 
and narrowing of the bid-ask spread for these options and increase the 
possible

[[Page 54400]]

number of price points available for investors for these series. 
Additionally, as discussed above, penny pricing is available in weekly 
options on competitive products. The Exchange believes penny pricing 
for VIXW options is necessary for competitive reasons, which will and 
promote just and equitable principles of trade, to allow the Exchange 
to price these weekly options at the same level of granularity as 
permitted for competitor weekly products.\18\ The Exchange also notes 
that penny increments are appropriate for Nonstandard Expiration 
series, because they have shorter durations than standard options, and 
finer increments permit more precise pricing in line with the 
theoretical value of these shorter-term options.
---------------------------------------------------------------------------

    \18\ The Exchange notes that other options that trade on the 
Exchange are currently permitted to trade in penny increments 
because competitive products are able to trade in penny increments. 
See Rule 6.42, Interpretation and Policy .03 (the minimum for XSP 
options is $0.01 because that is the minimum increment for SPY 
options, and the minimum increment for DJX options is $0.01 for 
series below $3 and $0.05 for series $3 and above because that is 
the minimum increment for DIA options).
---------------------------------------------------------------------------

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 VIX if the Exchange determines to list VIX on a 
group basis. If VIX was a Hybrid 3.0 class, the Exchange could 
determine to list VIX on a group basis under current rules; the 
proposed rule change merely permits the Exchange to similarly list VIX 
on a group basis on the same trading platform. The proposed rule change 
has no impact on intermarket competition, as the proposed rule change 
relates to products exclusively listed on the Exchange. Additionally, 
the proposed rule change to permit VIXW options to be listed in penny 
increments may relieve any burden on, or otherwise promote, 
competition, as it will allow the Exchange to price these options at 
the same level of granularity as permitted for competitor weekly 
products. The Exchange notes that other options that trade on the 
Exchange are currently permitted to trade in penny increments because 
competitive products are able to trade in penny increments.\19\
---------------------------------------------------------------------------

    \19\ See Rule 6.42, Interpretation and Policy .03 (the minimum 
for XSP options is $0.01 because that is the minimum increment for 
SPY options, and the minimum increment for DJX options is $0.01 for 
series below $3 and $0.05 for series $3 and above because that is 
the minimum increment for DIA options).
---------------------------------------------------------------------------

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and 
Rule 19b-4(f)(6) \21\ thereunder. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission will institute proceedings to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2018-066 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-2018-066. 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-2018-066, and should be submitted 
on or before November 19, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23508 Filed 10-26-18; 8:45 am]
BILLING CODE P
Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Notices 54397

.01 For each Hybrid 3.0 class, the statements may be examined at the or LMM’s obligations on a group basis.
Exchange may determine to authorize a places specified in Item IV below. The Market-Maker appointments apply on a
group of series of the class for trading Exchange has prepared summaries, set class basis. The Exchange establishes
on the Hybrid Trading System and, if forth in sections A, B, and C below, of Hybrid Trading System trading
that authorization is granted, shall the most significant aspects of such parameters (e.g., applicable matching
determine the eligible categories of statements. algorithm under Rule 6.45, opening
Market-Maker participants for that rotation parameters under Rule 6.2B,
A. Self-Regulatory Organization’s automatic execution parameters under
group of series. The Exchange will also
Statement of the Purpose of, and Rule 6.13, simple auction liaison
have the authority to determine whether
Statutory Basis for, the Proposed Rule parameters under Rule 6.13A, hybrid
to change the trading platform on which
Change agency liaison parameters under Rule
the group of series trades. If the
Exchange lists SPX or VIX on the 1. Purpose 6.14A, complex order parameters under
Hybrid Trading System, the Exchange Rule 6.53C, and automated
The Exchange proposes to amend its
may determine to list the class on a improvement mechanism parameters
Rules to permit the Exchange to list
group basis, with both groups trading on under Rule 6.74A) on a group basis to
options on the Cboe Volatility Index
the Hybrid Trading System. The the extent the Rules otherwise provide
(‘‘VIX options’’) on [sic] group basis and for such parameters to be established on
Exchange will also have the authority to make conforming changes throughout
change the eligible categories of Market- a class basis.
the Rules, change the minimum The proposed rule change amends
Makers participants for each group. In increment for VIX options listed under
addition, the following shall apply: Rule 8.14, Interpretation and Policy .01
the Nonstandard Expirations Pilot to permit the Exchange to list a class
(a)–(c) No change.
Program (if the Exchange lists VIX on a [sic] VIX options on a group basis if the
Rule 8.15. Lead Market-Makers group basis), and make nonsubstantive Exchange lists VIX options on the
(a)–(d) No change. changes. Rule 8.14, Interpretation and Hybrid Trading System (which it
. . . Interpretations and Policies: Policy .01 currently permits the currently does).7 The remaining
.01–.04 No change. Exchange to authorize a group of series provisions of Interpretation and Policy
.05 If the Exchange determines to list of a Hybrid 3.0 5 class for trading on the .01 would apply. Thus, if the Exchange
SPX or VIX on a group basis pursuant Hybrid Trading System. Rule 8.14, lists VIX options in two groups, it may
to Rule 8.14, obligations of an SPX or Interpretation and Policy .01 also determine on which trading platform
VIX Market-Maker, as applicable, permits the Exchange to list options on each group trades (both could trade on
designated as a Lead Market-Maker, as the S&P 500 (‘‘SPX options’’) on a group the Hybrid Trading System, both could
set forth in Rule 8.15, apply on a class basis, with both groups trading on the trade on the Hybrid 3.0 Platform, and
basis, unless the Exchange determines Hybrid Trading System, if the Exchange one could trade on each platform) and
to apply obligations on a group basis. lists SPX on the Hybrid Trading the eligible categories of Market-Maker
* * * * * System.6 If the Exchange authorizes participants for each group. If the
this, it determines the eligible categories Exchange determines to appoint a DPM
Rule 8.85. DPM Obligations of Market-Maker participants for the or LMM, the obligations of the DPM or
(a)–(e) No change. group (Designated Primary Market- LMM would apply to the entire VIX
. . . Interpretations and Policies: Makers (‘‘DPMs’’), Lead Market-Makers class, unless the Exchange determines to
.01–.02 No change. (‘‘LMMs’’), or Market-Makers). The apply the DPM or LMM obligations, as
.03 If the Exchange determines to list Exchange may also appoint no DPM or applicable, on a group basis.8 Market-
SPX or VIX on a group basis pursuant LMM to a class if the conditions in Rule Maker appointments would continue to
to Rule 8.14, obligations of a Designated 8.14(b) are satisfied with respect to the apply to the entire VIX class, as further
Primary Market-Maker with an SPX or class. A DPM’s or LMM’s obligations discussed below.9
VIX appointment, as applicable, as set will apply to a class, unless the As it does today, when determining
forth in Rule 8.85, apply on a class Exchange determines to apply a DPM’s whether to list a class on a group basis,
basis, except if the Exchange determines the Exchange intends to generally select
to apply obligations on a group basis. 5 ‘‘Hybrid Trading System’’ refers to (i) the
series with common expirations or
Exchange’s trading platform that allows Market- classifications (e.g., end-of-week series
* * * * * Makers to submit electronic quotes in their
(b) Not applicable. [sic] appointed classes and (ii) any connectivity to the or end-of-month series, short-term
(c) Not applicable. [sic] foregoing trading platform that is administered by option series, long-term option series, or
The text of the proposed rule change or on behalf of the Exchange, such as a series that expire on a particular
is also available on the Exchange’s communications hub. ‘‘Hybrid 3.0 Platform’’ is an expiration date) and trade them under
electronic trading platform on the Hybrid Trading
website (http://www.cboe.com/ System that allows one or more quoters to submit
individual listing symbols. For example,
AboutCBOE/CBOELegalRegulatory electronic quotes which represent the aggregate the Exchange currently lists SPX
Home.aspx), at the Exchange’s Office of Market-Maker quoting interest in a series for the
the Secretary, and at the Commission’s trading crowd. Classes authorized by the Exchange 7 If VIX was a Hybrid 3.0 class, the Exchange
for trading on the Hybrid Trading System are would be able to list it on a group basis today
Public Reference Room. referred to as Hybrid classes. Classes authorized by pursuant to Rule 8.14, Interpretation and Policy .01.
the Exchange for trading on the Hybrid 3.0 Platform 8 The proposed rule change makes conforming
II. Self-Regulatory Organization’s are referred to as Hybrid 3.0 classes. See Rule changes to Rules 8.15 and 8.85. The proposed rule
Statement of the Purpose of, and 1.1(aaa). Currently, no classes trade on the Hybrid change also makes a similar change to Rule 8.13
Statutory Basis for, the Proposed Rule 3.0 Platform. with respect to Preferred Market-Makers.
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Change 6 Currently, the Exchange lists SPX options on the 9 The Exchange does not currently (and does not
Hybrid Trading System, and lists the class in two intend to) appoint Preferred Market-Makers
In its filing with the Commission, the groups—one group consists of SPX options with (‘‘PMMs’’) or DPMs to VIX options pursuant to
Exchange included statements A.M.-settled standard third-Friday expirations and Rules 8.13 or 8.95, respectively. The Exchange
concerning the purpose of and basis for the other group consists of SPX options with P.M.- currently appoints an on-floor LMM to VIX options
settled standard third-Friday expirations and (which includes VIXW options), and may determine
the proposed rule change and discussed nonstandard end-of-week or end-of-month to apply a DPM or LMM to each group of VIX
any comments it received on the expirations. The Exchange lists both groups of SPX options if the Exchange determines to list VIX on
proposed rule change. The text of these options on the Hybrid Trading System. a group basis.

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54398 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Notices

options with A.M.-settled standard algorithms) to each group. Due to and (d)(v)(2) through (4), respectively.11
third-Friday expirations under symbol system limitations that in the The proposed rule change states
‘‘SPX’’ and lists options on the S&P 500 Exchange’s experience were marketable VIX/VIXW orders will be
Index with P.M-settled standard third- prohibitively expensive to modify, eligible to automatically execute against
Friday expirations and nonstandard complex orders consisting of different other VIX/VIXW orders resting in the
expirations with all other expirations groups of series will not automatically COB provided the execution is at a net
under symbol ‘‘SPXW.’’ The Exchange execute against individual orders price that has priority over the
would provide sufficient notice to residing in the EBook, even if they trade individual orders and quotes residing in
Trading Permit Holders if it determines on the same platform. Pursuant to Rule the EBook (which is consistent with the
to list VIX on a group basis. 6.53C, complex orders may only consist manner in which the Exchange
If the Exchange determines to list VIX of legs from the same class. While VIX currently handles these complex orders
on a group basis, the Exchange would and VIXW series would be part of the are handled [sic], as provided in Rule
establish trading parameters (e.g. same class even if the Exchange lists 6.53C, Interpretation and Policy .10(b)).
applicable matching algorithm under VIX on a group basis, and thus A VIX/VIXW order that is marketable
Rule 6.45, opening rotation parameters permissible for electronic handling against individual orders resting in the
under Rule 6.2, automatic execution under the Rules, the System would treat EBook but not marketable against any
parameters under Rule 6.13, simple VIX and VIXW series as different classes complex orders resting in the COB or
auction liaison parameters under Rule (since they would potentially have COA responses will enter the COB or
6.13A, hybrid agency liaison parameters different settings) and would be unable instead be routed to a PAR workstation
under Rule 6.14A, complex order to process complex orders with during Regular Trading Hours and
parameters under Rule 6.53C, and components in different classes. The rejected back to the Trading Permit
automated improvement mechanism System has settings for each class. Holder during Extended Trading Hours
parameters under Rule 6.74A) on a Currently, trading is not possible if not eligible for COB entry due to the
group basis, as it does today for SPX and ‘‘across’’ classes given these different terms of the order (for example, if the
SPXW. Pursuant to the proposed rule settings. Each class also has separate order is for an origin code the Exchange
change, the Exchange could apply a market data inputs, as the System must does not permit to rest in the COB). This
different allocation algorithm to each read different market data for each class is how SPX/SPXW orders are handled
group of VIX options. in connection with potential executions today.12
The Exchange believes for VIX, in the class. If the System receives a The proposed rule change amends
groups of series may exhibit different complex order with one VIX leg and one Rule 8.3(c)(i) to state if the Exchange
trading characteristics, including appeal VIXW leg, it would need to trade the determines to list VIX on a group basis
to different categories of market VIX leg against the appropriate leg in pursuant to Rule 8.14, the appointment
participants. For example, the Exchange
the VIX ‘‘class.’’ After that leg cost for VIX confers the right to trade in
believes VIXW options may be more
execution, it would then need to trade all groups of the class. This is consistent
appealing to retail customers given their
the VIXW leg against the appropriate leg with how appointment costs currently
short expiration, and would be in more
in the VIXW ‘‘class.’’ Given the time work for VIX, and is consistent with
demand with a smaller trading
these executions would take across how the appointment cost for SPX
increment (see discussion below). The
classes, it would not result in the near works (which the Exchange has
Exchange generally establishes market
simultaneous execution of legs that is determined to list on a group basis). A
models for classes based on these
sought by the entry of complex orders. VIX Market-Maker’s obligations
characteristics that most fit the product,
Additionally, after the first leg pursuant to Rule 8.7 will continue to
which the Exchange believes benefits
investors. This is true for VIX options execution, because the complex order apply to VIX on a class basis (i.e., series
with standard third-Friday expirations has not fully executed, the System within all VIX groups), even if the
and VIX options with nonstandard would not be able to execute any other
expirations, which is why the Exchange orders within the series of the first leg, 11 Rule 6.53C(c)(ii)(2) states the allocation of a

which may prevent execution complex order within the COB will be pursuant to
believes it is appropriate to permit the the rules of trading priority otherwise applicable to
Exchange to list VIX options in groups. opportunities of those other orders. incoming electronic orders in the individual
The Exchange proposes to amend For example, suppose the Exchange component legs or another electronic matching
Rule 6.53C, Interpretation and Policy lists VIX on a group basis, as VIX and algorithm from Rule 6.45, as determined by the
VIXW (similar to SPX and SPXW). The Exchange on a class-by-class basis. Therefore,
.02 to state if the Exchange determines pursuant to that provision and the proposed rule
to list VIX options on a group basis Exchange may determine pursuant to change, the Exchange will determine for VIX/VIXW
pursuant to Rule 8.14, if a marketable Rule 6.45(a) the allocation algorithm complex orders which electronic matching
complex order consists of legs in applicable to VIX/VIXW orders.10 VIX/ algorithm will apply to those orders when
VIXW orders may execute against other executing against other orders in the COB. Rules
different groups of series in the class, it 6.53(d)(v)(2) through (4) specify the matching
will not automatically execute against VIX/VIXW orders in the COB upon algorithm applicable to complex orders that execute
individual orders residing in the EBook entry or against orders and COA following a COA, and those provisions will apply
pursuant to Rule 6.53C(c)(ii)(1) or responses following a COA in to VIX/VIXW complex orders pursuant to the
accordance with the allocation and proposed rule change.
(d)(v)(1). This is consistent with current 12 See Rule 6.12(a)(1), which states orders initially
functionality today applicable to SPX priority rules set forth in 6.53C(c)(ii)(2) routed for electronic processing that are not eligible
and SPXW pursuant to Rule 6.53C, for automatic execution or book entry will route to
10 Rule 6.45(a)(i) permits the Exchange to PAR or back to the Trading Permit Holder, Rule
Interpretation and Policy .10. The
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determine which base electronic allocation 6.53C(d)(vi), which states a COA-eligible order that
proposed rule change extends this algorithm will apply to a class, and Rule 6.53C(ii)(2) cannot be filled in whole or in a permissible ratio
functionality to VIX, if the Exchange permits the Exchange to determine which electronic will route to the COB or back to PAR, as applicable,
lists it on a group basis. allocation algorithm will apply to executions of and Rule 6.1A(b), which states if in accordance
As discussed above, if the Exchange complex orders on the COB. Pursuant to the with the Rules, an order would route to PAR, the
proposed rule change, as discussed above, the order entry firm’s booth, or otherwise for manual
lists VIX on a group basis, the Exchange Exchange may establish trading parameters on a handling, the System will return the order to the
may apply different trading parameters group basis when the Rules otherwise provide for Trading Permit Holder during Extended Trading
(including different allocation parameters to be established on a class basis. Hours.

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Exchange lists VIX on a group basis. number of price points available to the rules of an exchange not be designed
This is consistent with how VIX Market- investors for these series. The Exchange to permit unfair discrimination between
Makers’ obligations apply to VIX today, also notes that penny increments are customers, issuers, brokers, or dealers.
as VIX Market-Makers’ obligations apply appropriate for Nonstandard Expiration In particular, the Exchange believes
to all VIX series. The Exchange proposes series, because they have shorter the proposed rule change to permit the
no change to the appointment cost, and durations than standard options, and Exchange to list VIX options on a group
thus Market-Makers with VIX finer increments permit more precise basis will benefit investors and promote
appointments will not need to purchase pricing in line with the theoretical value just and equitable principles of trade, as
any additional trading permits to quote of these shorter-term options. The it provides the Exchange with flexibility
VIX if the Exchange determines to list proposed rule change also makes to establish a more appropriate market
VIX on a group basis. nonsubstantive changes to Rule 6.42, model for a group of VIX options series
The Exchange also proposes to amend including moving certain provisions that may exhibit different trading
Rule 6.42 to permit series of VIX options from the main body of the Rule to characteristics than other series in the
listed under the Nonstandard Expiration interpretations and policies .03 and .04, class, even if both groups trade on the
pilot program (‘‘VIXW’’) to have a making language more plain English, same platform. Currently, the Exchange
minimum increment of $0.01 for all conforming paragraph numbering and may list VIX on a group basis if the
strike prices if the Exchange determines lettering to other rules, and displaying groups of a class trade on different
to list VIX on a group basis. Currently, the increments in a more user-friendly trading platforms (e.g., if VIX was a
all VIX options have a minimum table. Hybrid 3.0 class); the proposed rule
increment of $0.05 for series trading With regard to the impact of this change merely permits the Exchange to
below $3 and $0.10 for series trading proposed rule change on system similarly list VIX on a group basis on
above $3.13 The Exchange believes capacity, the Exchange has analyzed its the same trading platform.
market demand (particularly by retail capacity and represents that it and the Similarly, the proposed rule change to
investors, who generally prefer lower Options Price Reporting Authority have provide [sic] that VIX/VIXW complex
trading increments) supports a lower the necessary systems capacity to orders will not execute against
trading increment for these series. handle any potential additional traffic individual orders in the EBook, which
Permitting a different minimum associated with this proposal. The is consistent with the treatment of SPX/
increment for VIXW and VIX is Exchange does not believe any potential SPXW orders. These orders will
consistent with the Exchange’s current increased traffic will become continue to be eligible for electronic
authority (as discussed above) to unmanageable since this proposed rule processing, including electronic
determine all trading parameters and change with respect to minimum execution, in the same manner as
market model elements other than trading increments is limited to a single complex orders consisting of VIX series
minimum increment on a group basis to class of options. The proposed rule only or VIXW series only, except they
address different trading characteristics change does not impact the number of will not automatically execute against
and market demand between groups of expirations for VIX options the individual orders in the EBook for the
series. Permitting VIXW series to trade Exchange may list pursuant to Rule legs due to system limitations described
at a different minimum increment than 24.9. above and would instead rest in the
VIX series will permit the Exchange to COB (if eligible) or route to PAR or the
2. Statutory Basis Trading Permit Holder during Regular
similarly address the different trading
characteristics and market demand for The Exchange believes the proposed Trading Hours, or be rejected back to the
these two groups of series. rule change is consistent with the Trading Permit Holder during Extended
Additionally, penny pricing is Securities Exchange Act of 1934 (the Trading Hours.
available in weekly options on ‘‘Act’’) and the rules and regulations Additionally, the proposed rule
competitor products such as the iPath thereunder applicable to the Exchange change will similarly benefit investors.
S&P 500 VIX Short-Term Futures and, in particular, the requirements of Retail customers generally prefer
exchange-traded note (‘‘VXX’’). As a Section 6(b) of the Act.15 Specifically, options with shorter expirations, and
result, the Exchange believes penny the Exchange believes the proposed rule the proposed rule change will permit
pricing for VIXW options is necessary change is consistent with the Section series of VIX with short expirations to
for competitive reasons to allow the 6(b)(5) 16 requirements that the rules of be listed in a smaller increment
Exchange to price these weekly options an exchange be designed to prevent consistent with that demand from retail
fraudulent and manipulative acts and investors. Permitting a different
at the same level of granularity as
practices, to promote just and equitable minimum increment for VIXW and VIX
permitted for competitor weekly
principles of trade, to foster cooperation is consistent with the Exchange’s
products.14 The Exchange expects this
and coordination with persons engaged current authority (as discussed above) to
more granular pricing to lead to
in regulating, clearing, settling, determine all trading parameters and
narrowing of the bid-ask spread for
processing information with respect to, market model elements other than
these options and increase the possible
and facilitating transactions in minimum increment on a group basis to
13 As set forth in proposed Rule 6.42, if the securities, to remove impediments to address different trading characteristics
Exchange does not list VIX on a group basis, these and perfect the mechanism of a free and and market demand between groups of
same increments would apply to the entire class. open market and a national market series. Permitting VIXW series to trade
14 The Exchange notes that other options that
system, and, in general, to protect at a different minimum increment than
trade on the Exchange are currently permitted to VIX series will permit the Exchange to
investors and the public interest.
amozie on DSK3GDR082PROD with NOTICES1

trade in penny increments because competitive
products are able to trade in penny increments. See Additionally, the Exchange believes the similarly address the different trading
Rule 6.42, Interpretation and Policy .03 (the proposed rule change is consistent with characteristics and market demand for
minimum for XSP options is $0.01 because that is the Section 6(b)(5) 17 requirement that these two groups of series.
the minimum increment for SPY options, and the Penny increments for VIXW series
minimum increment for DJX options is $0.01 for
series below $3 and $0.05 for series $3 and above
15 15 U.S.C. 78f(b). may lead to more granular pricing and
because that is the minimum increment for DIA 16 15 U.S.C. 78f(b)(5). narrowing of the bid-ask spread for
options). 17 Id. these options and increase the possible

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54400 Federal Register / Vol. 83, No. 209 / Monday, October 29, 2018 / Notices

number of price points available for C. Self-Regulatory Organization’s number should be included on the
investors for these series. Additionally, Statement on Comments on the subject line if email is used. To help the
as discussed above, penny pricing is Proposed Rule Change Received From Commission process and review your
available in weekly options on Members, Participants, or Others comments more efficiently, please use
competitive products. The Exchange The Exchange neither solicited nor only one method. The Commission will
believes penny pricing for VIXW received comments on the proposed post all comments on the Commission’s
options is necessary for competitive rule change. internet website (http://www.sec.gov/
reasons, which will and promote just rules/sro.shtml). Copies of the
and equitable principles of trade, to III. Date of Effectiveness of the submission, all subsequent
allow the Exchange to price these Proposed Rule Change and Timing for
amendments, all written statements
weekly options at the same level of Commission Action
with respect to the proposed rule
granularity as permitted for competitor Because the foregoing proposed rule change that are filed with the
weekly products.18 The Exchange also change does not: Commission, and all written
notes that penny increments are A. Significantly affect the protection communications relating to the
appropriate for Nonstandard Expiration of investors or the public interest;
series, because they have shorter proposed rule change between the
B. impose any significant burden on Commission and any person, other than
durations than standard options, and competition; and
finer increments permit more precise those that may be withheld from the
C. become operative for 30 days from
pricing in line with the theoretical value public in accordance with the
the date on which it was filed, or such
of these shorter-term options. provisions of 5 U.S.C. 552, will be
shorter time as the Commission may
designate, it has become effective available for website viewing and
B. Self-Regulatory Organization’s printing in the Commission’s Public
Statement on Burden on Competition pursuant to Section 19(b)(3)(A) of the
Act 20 and Rule 19b–4(f)(6) 21 Reference Room, 100 F Street NE,
Cboe Options does not believe that thereunder. At any time within 60 days Washington, DC 20549, on official
the proposed rule change will impose of the filing of the proposed rule change, business days between the hours of
any burden on competition that is not the Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
necessary or appropriate in furtherance temporarily suspend such rule change if filing also will be available for
of the purposes of the Act. The it appears to the Commission that such inspection and copying at the principal
proposed rule change has no impact on action is necessary or appropriate in the office of the Exchange. All comments
intramarket competition, as it will apply public interest, for the protection of received will be posted without change.
to all market participants that trade VIX investors, or otherwise in furtherance of Persons submitting comments are
if the Exchange determines to list VIX the purposes of the Act. If the cautioned that we do not redact or edit
on a group basis. If VIX was a Hybrid Commission takes such action, the personal identifying information from
3.0 class, the Exchange could determine Commission will institute proceedings comment submissions. You should
to list VIX on a group basis under to determine whether the proposed rule submit only information that you wish
current rules; the proposed rule change change should be approved or
merely permits the Exchange to to make available publicly. All
disapproved. submissions should refer to File
similarly list VIX on a group basis on
the same trading platform. The IV. Solicitation of Comments Number SR–CBOE–2018–066, and
proposed rule change has no impact on should be submitted on or before
Interested persons are invited to November 19, 2018.
intermarket competition, as the submit written data, views, and
proposed rule change relates to products arguments concerning the foregoing, For the Commission, by the Division of
exclusively listed on the Exchange. including whether the proposed rule Trading and Markets, pursuant to delegated
Additionally, the proposed rule change change is consistent with the Act. authority.22
to permit VIXW options to be listed in Comments may be submitted by any of Eduardo A. Aleman,
penny increments may relieve any the following methods: Assistant Secretary.
burden on, or otherwise promote,
Electronic Comments [FR Doc. 2018–23508 Filed 10–26–18; 8:45 am]
competition, as it will allow the
• Use the Commission’s internet
Exchange to price these options at the BILLING CODE P

same level of granularity as permitted comment form (http://www.sec.gov/
for competitor weekly products. The rules/sro.shtml); or
Exchange notes that other options that • Send an email to rule-comments@
trade on the Exchange are currently sec.gov. Please include File Number SR–
permitted to trade in penny increments CBOE–2018–066 on the subject line.
because competitive products are able to
trade in penny increments.19 Paper Comments
• Send paper comments in triplicate
18 The Exchange notes that other options that to Secretary, Securities and Exchange
trade on the Exchange are currently permitted to
trade in penny increments because competitive
Commission, 100 F Street NE,
products are able to trade in penny increments. See Washington, DC 20549–1090.
Rule 6.42, Interpretation and Policy .03 (the All submissions should refer to File
amozie on DSK3GDR082PROD with NOTICES1

minimum for XSP options is $0.01 because that is
the minimum increment for SPY options, and the
Number SR–CBOE–2018–066. This file
minimum increment for DJX options is $0.01 for
series below $3 and $0.05 for series $3 and above minimum increment for DJX options is $0.01 for
because that is the minimum increment for DIA series below $3 and $0.05 for series $3 and above
options). because that is the minimum increment for DIA
19 See Rule 6.42, Interpretation and Policy .03 (the options).
20 15 U.S.C. 78s(b)(3)(A).
minimum for XSP options is $0.01 because that is
the minimum increment for SPY options, and the 21 17 CFR 240.19b-4(f)(6). 22 17 CFR 200.30–3(a)(12).

VerDate Sep<11>2014 17:48 Oct 26, 2018 Jkt 247001 PO 00000 Frm 00093 Fmt 4703 Sfmt 9990 E:\FR\FM\29OCN1.SGM 29OCN1
Document Created: 2018-10-27 01:09:35
Document Modified: 2018-10-27 01:09:35
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 54395